Good afternoon, and welcome to OPKO Health's First Quarter 2022 Financial Results Conference Call. All participants are in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Yvonne Briggs with LHA. Please go ahead.

Thank you, Operator. Good afternoon. This is Yvonne Briggs with LHA. Thank you all for joining today's call to discuss OPKO Health's financial results for the first quarter of 2022 as well as the recently announced ModeX Therapeutics acquisition. I'd like to remind you that any statements made during this call by management other than statements of historical fact will be considered forward-looking and as such, will be subject to risks and uncertainties that could materially affect the company's expected results. These forward-looking statements include, without limitation, the various risks described in the company's SEC filings, including the annual report on Form 10-K for the year ended December 31, 2021, and in subsequently filed SEC reports. This conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 9, 2022. Except as required by law, OPKO undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Before we begin, let me review the format for today's call, which will be a bit different given the exciting announcement about ModeX. Dr. Phillip Frost, Chairman, and Chief Executive Officer, will open up the call. Dr. Elias Zerhouni, the incoming President and Vice Chairman of OPKO will then provide an overview of ModeX Therapeutics. Then Dr. Jon Cohen will discuss BioReference Laboratories. After that, Adam Logal, OPKO's CFO, will review the company's first-quarter financial results. Following, we'll open the call to questions. Now I'd like to turn the call over to Dr. Philip Frost.

Good afternoon, and thank you for joining today's call to discuss our first-quarter financial results and business progress. Earlier today, we made an important announcement that OPKO has acquired ModeX Therapeutics. ModeX is a privately held biotechnology company focused on developing innovative, multi-specific immunotherapies for cancer and infectious diseases. Dr. Elias Zerhouni, Co-Founder and Chairman of ModeX, has been appointed President of OPKO Health and has joined our Board of Directors as Vice Chairman. Dr. Zerhouni is not only a leading authority on emerging trends and issues in medical care and biomedical research and development, but he also has a long entrepreneurial and distinguished academic, government, and industry career. He served under President George W. Bush for six years as Director of the National Institutes of Health, after which he became President of Global Research and Development for Sanofi for nine years. Elias will provide some details about the rest of the team, but I'd like to also welcome Dr. Gary Nabel and Alexis Borisy to our Board of Directors, both of whom have impressive scientific and business backgrounds. Dr. Nabel will become our Chief Innovation Officer, and his wife Betsy will become our Chief Medical Officer. You'll have the opportunity to hear directly from Dr. Zerhouni shortly, and Adam will provide further detail on the transaction. I want to highlight the significant progress we and our partner, Pfizer, have made with Neglina. Pfizer recently launched Neglina in the major markets of Germany and Japan as well as in Canada and Australia. In the U.S., Pfizer is continuing to work with the FDA to resolve any remaining issues to bring Neglina to patients in the U.S. as soon as possible. On May 2nd, Sema4 Holdings Corporation announced the completion of their acquisition of GeneDx. We believe this is another step towards unlocking the inherent value of OPKO assets while providing our shareholders the opportunity to continue to participate in the growing genomics market without a significant investment of capital. John will go into more detail on BioReference, another OPKO asset, which we consider to be of great value. And with that, I will turn the call over to Elias.

Well, thank you, Phil, and good afternoon, everyone. Today, I think we've taken the transformative steps for both companies. I have to say I'm really excited to have the opportunity to work with Phil, who I have known for a long time, and benefit from his long and successful experience, as well as with the entire OPKO leadership team to realize our common vision to build the future for OPKO based on leading-edge therapeutic technology and synergy between OPKO and ModeX programs. While ModeX was formally founded and created a little over 18 months ago, I think it's important to note that it's based on over 10 years of foundational work when we created the breakthrough lab at Sanofi, which was led by Dr. Gary Nabel, that has advanced unique tri-specific antibodies for HIV and cancer into early clinical development. In fact, the team composed of scientists from that lab all decided to join us at ModeX because of the prospects of further advancing the next generation of multifunctional therapeutics that can, if you will, simultaneously attack multiple disease pathways in a single, multispecific antibody molecule containing up to six specificities and functionalities. In the way that we design it, it's a versatile, very plug-and-play approach that allows us to explore hundreds of configurations very efficiently. We have demonstrated that in our platforms to achieve broad targeting and functional capabilities, simpler manufacturing, and potentially better specificity and safety, which provides significant differentiation from competing platforms. In addition to what Phil mentioned, we have assembled a top management team with the joining of John Mascola, CFO. John was the most recent head of the Vaccine Research Center and worked closely with Moderna to develop the COVID vaccine, Vijay Shalani to lead our growing CMC activities, and we also have Elizabeth Nabel as Chief Medical Officer. All of whom have extensive experience in academia, government, and industry. Our early efforts are focused on infectious diseases and immunology, but the technology is so versatile that it can also be extended to other disease areas. We currently have a clinical multispecific antibody Phase I program against HIV in progress, supported by NIH, that shows how advantageous it could be relative to the current approach of having cocktails of several antibodies as practiced today. We have several programs in late preclinical stages against COVID and its variants, supported in part by DARPA, and several quadrispecific antibodies against solid tumors and lymphomas that we hope will enter clinical development in 2023. Many of these programs have also garnered strong interest from other pharmaceutical companies for potential collaborations, which we are exploring at the present time. We will provide you with more details about all our platforms and products in the near future, and I look forward to your questions. In the meantime, let me turn it over to Jon Cohen.

Thanks, Elias, and good afternoon, everybody. As COVID testing has waned, BioReference continues to focus on its strategy to grow our core diagnostic business, grow our specialty testing segments in Women's Health, urology, and oncology with our strategic ventures and Scarlet Health. Our commercial payer interactions continue to be successful with our preferred status with Aetna, which became effective on the 1st of this year. Volume in our clinical base business increased 4% versus the fourth quarter, driven by our preferred status with UnitedHealthcare and Aetna. Within our women's health business, our noninvasive prenatal testing business grew substantially, up almost 16,000 samples year-over-year or a 219% increase. Our focus on sexually transmitted diseases and cervical cancer business both grew year-over-year. For the first quarter of 2022, oncology was up 5% over the prior year and surpassed pre-pandemic volumes for almost all lines of the oncology business, particularly with strong performance in our hematology portfolio and cancer genetics. Cancer Genetics, largely made up of our OncoCyte suite of testing, has more than doubled in volume in the last 12 months. We continue to bring on additional testing with our OncoCyte investment, including the recent addition of multiple myeloma, which has expanded our hematology offering to truly best-in-class. Regarding our 4Kscore test, with FDA approval announced in December, we have developed a growth plan to capture additional reimbursement coverage from commercial health plans. This test is approved for men aged 45 and older who have not had a prior prostate biopsy or who are biopsy-negative and had an age-specific abnormal total PSA or an abnormal digital rectal exam. Our reference business from hospitals continues to expand as we add more hospitals each month, and our partnerships continue to grow as we add more care centers, hospitals, and employed physicians within those networks. As expected, our COVID volume trended down in February and March after the Omicron surge in December and January. During the first quarter, we performed 2 million COVID-19 PCR tests compared to 2.7 million tests performed in Q4 of last year. COVID volume currently remains stable and steady on a day-to-day basis due to our surveillance testing and ongoing testing for schools, cruise lines, and the sports industry. We have added several new schools and several additional ships during the quarter. Point-of-care COVID testing remains strong, and BioReference has performed over 1.6 million point-of-care tests to date. We performed point-of-care testing at the Super Bowl and at the NBA All-Star game, and we'll continue to provide testing for the NBA through the finals. In continuation of our point-of-care strategy, we announced an agreement with QHealth to bring point-of-care testing into the clinical setting. It's been a little over a year since we formally introduced Scarlet Health, and I'm delighted with the progress we have made to date. We launched Scarlet as a way to offer patients a more convenient and efficient way to meet their diagnostic testing needs. Scarlet services are now available in most of the continental United States. We are receiving added reimbursement from payers as a specifically covered service for over 85 million patients through our national and regional plans. We are seeing significant demand for Scarlet across our different commercial verticals, including oncology, women's health, urology, and strategic ventures. We are also finding success with digital health clients, including telehealth, home health care, and virtual primary care networks as well as direct-to-consumer and patient-initiated testing. I am proud to announce today a formal relationship with Teladoc, one of the largest providers of telehealth services in the country, with over 14.7 million visits last year. Scarlet is now offered by Teladoc Health as part of their new whole-person health care experience. We also announced a collaboration with MVP Healthcare to offer their members medically necessary COVID testing, routine blood work, and other diagnostic tests in the comfort of their homes. MVP is a not-for-profit health insurer caring for members who live in New York and Vermont. Lastly, we are making significant progress on our Reach initiative to take out significant costs and improve efficiency in our operations, with over 100 separate initiatives in progress looking at every aspect of our business. And now let me turn the call over to our CFO, Adam.

Thank you, Jon. Before I go into the details of our quarter and full-year outlook, I wanted to highlight a few details about our ModeX, Sema4, and Pfizer relationships. As Phil outlined, we entered into our transaction to acquire ModeX today and paid a total of $287 million in shares of OPKO, issuing approximately 90 million shares as well as restricted stock and stock options totaling approximately 6 million shares that we will invest over the next four years. The principal sellers of ModeX have agreed to have their shares locked up for the next four years, subject to certain conditions. On April 29, we closed our transaction with Sema4 with their acquiring GeneDx for $150 million in gross proceeds at closing and 80 million shares of Sema4 stock, which we have agreed to lock up for one year from the closing date. After considering transaction expenses and a $13.4 million cash escrow, net proceeds at closing were approximately $116 million. We're eligible to receive up to an additional $150 million payable in cash or Sema4 shares upon the achievement of certain revenue targets for GeneDx during 2022 and 2023. In addition, as Phil mentioned, Pfizer, our partner for our long-acting growth hormone, recently launched in Japan and Germany, which triggered $85 million in milestone payments, which we will receive in the second quarter of this year. Moving to the financial results for the quarter. Our Diagnostics segment reported revenue of $286 million compared to $507 million for the 2021 period. This decline reflects decreasing testing levels. However, as Jon highlighted, we performed more than 2 million COVID diagnostic tests during the quarter. As we discussed during our fourth quarter call, margins during the first quarter were impacted by an increase in labor costs while we managed through the surge in testing from the Omicron variant as well as a significant portion of our test volume coming from our point-of-care testing channels, which have a higher cost to serve. Once the Omicron surge subsided, we took aggressive actions to right-size our workforce and began to realize those actions. Our gross margin exit rates were in line with our full-year expectations. The first quarter margins were also negatively impacted by approximately $13 million related to that labor charge. As Jon mentioned, our Reach initiative targeting $40 million in cost reductions is well underway, and we will expect to provide additional updates as the year continues. We continue to invest significantly in our commercial organization, including Scarlet Health, our digital health platform, and we accelerated investment during the quarter in our GeneDx commercial team, which resulted in an increase within SG&A of approximately $10 million. These increases were offset by reduced revenue cycle management costs and commissions due to the decrease in COVID testing. Moving to our Pharmaceuticals segment, we reported revenues of $42.6 million for the first quarter compared to $38.2 million for the 2021 period. Revenue from product sales in the first quarter of 2022 increased 8% to $36.7 million, which included $5.1 million of revenue from RAYALDEE compared to $33.9 million in the 2021 period, inclusive of $5.8 million related to RAYALDEE. With respect to the transfer of intellectual property, we reported $6 million of revenue for the 2022 period compared to $4.2 million from a year ago, reflecting a milestone payment received for the launch of RAYALDEE in Europe, partially offset by decreased Somatrogon R&D-related revenue. The operating loss from our Pharmaceuticals segment was $18.1 million for the first quarter of 2022. The comparable period of 2021 reported an operating loss of $19.2 million. Overall, research and development expense for the first quarter of 2022 was $12.3 million compared to $15.8 million in 2021, reflecting a decrease in spending on our Somatrogon development program. With the approval of Somatrogon, amortization of intangible assets increased to $14.4 million from $5 million, reflecting the start of the amortization of our IP R&D asset. Turning to the consolidated results for the first quarter, we reported an operating loss of $72.4 million compared to operating income of $38.4 million during 2021. Net loss for the first quarter of 2022 was $55.4 million or $0.08 per diluted share compared to net income of $31.1 million or $0.05 per share for the 2021 period. We ended the quarter in a strong financial position as a result of our overall cash position, the net proceeds from our Sema4 transaction and the milestone in future royalty and profit share payments from Pfizer as well as the availability under our credit facility with JPMorgan. As we look into 2022, we have updated our guidance with the following assumptions. We have removed the revenue and expenses related to GeneDx after April 29th as a result of the Sema4 closing. We have added the milestone payments from Pfizer of $85 million. However, we have not forecasted royalty or gross profit share amounts until we develop some actual history throughout 2022. We have added R&D expenses to reflect the development programs at ModeX, and we anticipate performing between 3 and 3.5 million COVID diagnostic tests during 2022, including the 2 million tests we've already performed in the first three months of the year. We have not assumed any new surge in COVID testing for the remainder of 2022, and as such, expect our core clinical laboratory business will continue to improve. We have not made any adjustments to reflect the accounting treatment for the ModeX acquisition or the disposition of GeneDx aside from removing the associated costs and revenue. With that, we expect revenue for 2022 to be between $1.1 billion and $1.2 billion, including revenue from services of $810 million to $870 million, revenue from products of $455 million to $155 million and other revenue of $100 million to $110 million. We expect costs and expenses to be between $1 billion and $1.75 billion, which reflects assumptions of testing volume as well as our levels of commercial investments within BioReference, which may choose to accelerate or delay depending on their uptake levels. Operating results include approximately $100 million of noncash depreciation and amortization expense, as well as research and development expense of $85 million to $97 million. Thank you all, and I'll open the call for questions.

Our first question comes from Maury Raycroft with Jefferies.

This is Kevin on for Maury. Congrats on the acquisition. I just wanted to ask about how we should view R&D spend going forward. Maybe if you could talk about what you're most excited about in the ModeX pipeline and how you're going to prioritize these programs moving forward.

So I'll touch on the R&D expense first and then let Elias and Phil talk on the R&D program. Overall, the ModeX programs are not significantly expensive compared to the clinical products. As we move into the clinic over the next 18 months or so, we'll start to see R&D expense start to increase. But you'll notice in our guidance today a fairly modest increase in overall R&D spending planned for 2022.

Yes. Thank you for your question. Fundamentally, we have prioritized our portfolio for near-term opportunities that are related to the products that are most advanced. The ones that are most advanced are the ones that we out-licensed from Sanofi on an exclusive basis, meaning the price-specific HIV program, which has been developed in Phase I right now in collaboration with NIH, which funds actually the clinical trials at this point. We have backup molecules for that program. We also have a SARS trispecific and the quadrispecific that we're working on, that the government DARPA agency is interested in, and we will continue to do that. We have a vaccine that Gary Nabel has led the development of and has just published on against EBV virus, and we are really accelerating this one because we have a lot of incoming interest from large companies that would like to partner with us. So those are the main priorities. We need to execute on those. In parallel, we've developed novel platforms, as I described, very versatile with a lot of specificities and functionalities. We have three advanced quadrispecifics for cancer. Those we do not want to partner at this time because we believe they have great potential, and the results that we have observed lead us to believe that we should really drive these molecules to Phase II or entry into Phase II, once we've conducted all of the pre-IND studies, which are ongoing at this point and the early basket trials to identify the best tumors to target. That's really the prioritization we have in mind. And again, as I said in my discussion, we will organize an R&D day for later on in the next few weeks, hopefully to give you a little more detail on that.

Yes. I would just add, what I liked about the whole program is not only that it's innovative, but it's practical. One of the advantages of multi-targeted antibodies and vaccines is that it's cheaper to manufacture one protein than three, four, or five proteins. Additionally, it's less risky. With each one that you manufacture, there's a risk of failure at some point along the way. Finally, there's the possibility of greater efficacy and even better safety. That is something that will be discussed by Dr. Nabel and Cirone in the future. But overall, it represents a program that is differentiated from many similar but yet very different programs that are underway elsewhere.

Great. Yes. And then just a really quick one on Somatrogon. Are you still on track this quarter to start the gross profit share in Japan? And do you have any updates on the line of sight for when that might occur in Europe?

So regarding the gross profit share, the Japanese region does start in the second quarter once they've established pricing; that region moves into the gross profit share. For Europe, we'll need to achieve pricing in two additional major markets. We've projected that this would take about a year from the initial approvals. However, it could come sooner depending on how each individual country moves.

Great. I'll hop back in the queue.

Our next question comes from Jeffrey Cohen with Ladenburg Thalmann.

Congratulations on the ModeX deal. So I've got a few here. Firstly, is ModeX closed? What's the expected timeline on the closing of the transaction?

Yes, the closing happened today; we signed and closed simultaneously.

Okay. Wonderful. So the $85 million milestones from Pfizer, as well as the Sema4 $18 million that you referenced, should we expect both to hit the income statement in the second quarter? Is that correct?

Yes, the $85 million cash from Sema4 and the shares will hit the balance sheet. We're still working through the gain and loss calculations.

I got it. Okay. And Dr. Cohen, some of your comments on COVID testing. Could you provide additional detail on the anticipated number of tests for the full year, particularly regarding point of care versus PCR?

Well, I think what's happened is the point-of-care testing has significantly increased at many of our surveillance sites, but not all. So we still do both for the cruise lines, although it's become much more point of care. We do both for the sports industries, but most of it is point of care. Many of the schools have stayed with PCR, quite frankly. So it is variable client to client. We have seen an uptick, which is no surprise. If you look at the recent CDC numbers, we have seen an uptick in public testing through our partners in the last two weeks. The answer is, as with everything related to COVID, it remains uncertain. We do have, as I said, a steady flow on the surveillance side, and public testing will continue to go up and down depending on the emergence of new variants.

Okay. Got it. What's the timing on filing your Q for the quarter?

It should be out today, Jeff.

Okay. I'll get more clarity on the cost of service versus the cost of product revenue?

Yes. We'll have it broken down. You will see the cost to serve on BioReference that was impacted by labor, as we had discussed.

Yes. Okay. And one more on your guidance. The second category— I think I missed that. Was that $200 million something to $250 million?

It was just confirmed from what we originally provided $145 million to $155 million.

There are no further questions at this time. This concludes our question-and-answer session. I would now like to turn the conference back over to Dr. Phillip Frost for any closing remarks.

I'd like to thank you all for attending this conference. I will say that the acquisition announced today is an important next chapter in the history of OPKO. We're really thrilled and happy to have the addition of Dr. Zerhouni, Dr. Nabel, and their colleagues to the OPKO family. We look forward to working together with all kinds of successes. With that, I'll invite you to attend the conference call for this quarter's earnings, which we will anticipate being in three to four months. Thank you again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.