Good day, and welcome to the OPKO Health Fourth Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Yvonne Briggs. 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 fourth quarter of 2023. 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. Those 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 2023 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, February 27, 2024. 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. Dr. Phillip Frost, Chairman and Chief Executive Officer, will open the call. Dr. Elias Zerhouni, Vice Chairman and President, will then provide an overview of OPKO's pharmaceutical business as well as BioReference Health. After that, Adam Logal, OPKO's CFO, will review the company's fourth quarter financial results, and then we'll open up the call to questions. Now I'd like to turn the call over to Dr. Frost.

Good afternoon, and thank you for joining us today. 2023 was a year of significant achievement for OPKO, and we expect continued progress in 2024. In 2023, NGENLA, our long-acting growth hormone therapy, was approved by the FDA for sale in the U.S., the largest growth hormone market in the world. Pfizer, our global commercial partner, has now launched NGENLA in over 40 markets worldwide, and we're optimistic about Pfizer's ability to convert users to the weekly injection from the daily to further penetrate this growing $5.5 billion market. ModeX made great strides last year, in particular, in executing its strategy to secure important collaborations to advance its multi-specific biologics platform into the clinic. These collaborations provide non-dilutive funding to advance our unique pipeline to commercial realization. Specifically, last March, we announced an exclusive worldwide license and collaboration agreement with Merck to develop ModeX's nanoparticle vaccine candidate against Epstein-Barr virus. We received a sizable upfront payment and are eligible for milestone and royalty payments. In September, ModeX was awarded a contract from the Biomedical Advanced Research and Development Authority, known as BARDA, to develop novel multi-specific antibodies against viruses that cause infectious diseases deemed to be public health threats. The BARDA contract included an initial payment to develop multi-specific antibodies to treat and prevent COVID-19, and additional funding may be available to develop multi-specific antibodies targeting other viral pathogens such as influenza. Elias will provide more detail on those programs. Sales of RAYALDEE, our drug to treat chronic kidney disease patients with elevated parathyroid hormone and low vitamin D levels, grew 13% last year, and we're expecting further progress this year. We're gathering data which indicates that RAYALDEE may slow chronic kidney disease progression. Some of you have been asking about my long-time enthusiasm for our once-weekly oxyntomodulin product to treat type 2 diabetes and obesity. You'll remember that we had completed a successful Phase 2 trial achieving significant weight loss, lowering of serum cholesterol and triglycerides, and lowered A1c levels. We delayed a Phase 3 trial when other products appeared that provided greater weight loss. Noting the great commercial success of these products, we decided to have a closer look at ours. The polyethylene glycol, PEG, added to our base peptide to increase its half-life, is large and bulky and increases the viscosity of the injection, which limited the maximum dose administered, related to the amount of weight loss. We have now found a substitute for PEG, which makes our molecule size similar to those on the market. With guarded optimism, we're in the early stages of preclinical evaluation of this product. Switching to our international business, OPKO Iberoamerica, FinTech, and EirGen are all doing well. Turning to BioReference Health. Our team has worked hard to improve our cost structure and enhance revenue. In addition to our expense reduction efforts, BioReference has been aiming to drive growth in higher value segments with new tests, larger customers, and better insurance reimbursement. We are laser-focused on returning this segment to profitability in the near term. And again, Elias will provide more detail. With that overview, I'll turn it over to Elias.

Thank you, Phil, and good afternoon, everyone. As Phil mentioned, last year was quite eventful for both of our operating segments of OPKO Health. The NGENLA launches in all major global markets, as mentioned by Phil, are progressing well, and we believe this drug is well positioned for significant growth. This next-generation long-acting therapy is administered once a week and not daily and assists in easing the burden, especially for the pediatric market, increasing medication adherence. NGENLA annual growth is anticipated to be in excess of 12%. As part of our partnership with Pfizer, OPKO anticipates an additional $100 million in milestone payments associated with approvals for an adult indication for growth hormone deficiency and additional pediatric indications. These are global registration strategies underway for the adult application and other pediatric indications, which are currently in Phase 3 clinical trials. Phil also mentioned our success last year in securing collaborations for ModeX Therapeutics with BARDA and Merck. Most recently with BARDA, we secured an initial $59 million grant to fund R&D and clinical evaluation through a Phase 1 study of our multi-specific antibodies against known variants of SARS-CoV-2 for the treatment and as well as prevention of COVID-19, which remains a particular threat, especially for immune-compromised patients. Additional funding of up to $109 million based upon the achievement of certain milestones in the first phase may be available from BARDA to develop more multispecific antibodies targeting other viral pathogens, such as influenza. As part of the research program, gene-based delivery methods for the multispecific antibodies will be developed using mRNA or DNA vectors to supplement the body's natural protein production processes and hopefully provide BARDA with a platform that can be used very quickly for any emerging threat. In addition, we announced the collaboration with Merck to develop MDX-2201, which is our Epstein-Barr virus multivalent nanoparticle vaccine. We received a $50 million upfront payment for the license of this vaccine, with a potential $872.5 million in development and commercial milestones and scale royalties on global sales, ranging from single-digit to double-digit percentages. This program truly leverages ModeX's nanoparticle-based vaccine platform, which enables simultaneous immunization against several major EBV proteins, in this case, four major EBV proteins, but the platform itself has the potential to address multiple antigens against multiple viral diseases. The market opportunity here is quite large, as the Epstein-Barr virus affects up to 95% of the global adult population during their lifetime. Moreover, there are over 260,000 cancer cases annually caused by EBV along with an association between multiple sclerosis and this virus. We're working with Merck on enabling studies, and we expect Phase 1 clinical trials to start later this year. To round out our ModeX pipeline, we have partnered with the NIH to develop an antiviral multispecific antibody focused on the treatment and prevention of HIV. We've had success with our first-generation candidate in the Phase 1 trial and we are moving forward with a more potent next-generation tetra-specific antibody versus the previous tri-specific one. We believe there is an unmet need for a therapy that can provide long-acting protection and treatment for patients who require options beyond small molecule-based therapies. Lastly, our immuno-oncology programs focus on hard-to-treat solid tumors as well as liquid tumors such as leukemias and lymphomas. Our multispecific antibody candidates can simultaneously target several tumor antigens and enable better control of immune system activation. Our tetra-specific laser program to treat solid tumors is expected to enter the clinic in the first half of this year. Now I'd like to turn to a review of our Diagnostics segment via BioReference Health. 2023 was a transition year for our Diagnostics division as we get closer to turning the corner to profitability. We implemented our REACH initiatives to reduce costs, improve efficiency, and enhance productivity. For example, we've reduced our headcount by 8%, or 252 positions in 2023. In parallel, we're driving growth in various testing segments, including our higher-value specialty segments like oncology, wound health, and urology primarily through our proprietary 4Kscore test. The 4Kscore test volume has continued to perform, and we expect these volumes to continue as the test was included in the 2023 American Urology Association and the NCCN guidelines for early detection of prostate cancer and for follow-up after PSC screening for initial and repeat biopsy risk stratification. Additionally, we expect that the recent expansion of insurance coverage will continue to boost those levels this year. GenPath continued to launch innovative testing, including an expanded hematologic malignancy panel and introducing several new tests in the market that will sustain growth of the GenPath oncology products. Other advances have been made over the 2023 year. For example, we have signed over 300 new accounts in the fourth quarter of 2023 with over 40,000 additional accessions. We've also signed major oncology groups like the Virginia Oncology Group, a component of U.S. Oncology that started in November. In summary, BioReference Health made great progress last year, and we expect to continue to build on these achievements in 2024. We narrowed our operating loss sequentially and through both expense reduction and revenue growth, we continue to feel confident that these efforts will further improve financial metrics and return this segment to profitability in the next few years. I will now turn the call over to Adam Logal to discuss our fourth quarter financial results.

Thank you, Elias. Starting with our Pharmaceuticals segment, revenue increased to $57.7 million for the fourth quarter of 2023 from $46 million for the comparable period of 2022. Revenue from products, including our international pharmaceutical businesses and RAYALDEE, increased by $5.1 million, reflecting improvements in the number of prescriptions and overall net price. Further, revenue increased as a result of gross profit share payments from Pfizer due to the global launch of NGENLA, resulting in $12.2 million of revenue during the quarter. The fourth quarter revenue includes a catch-up payment for the U.S. market related to the third quarter of $3.1 million. As I mentioned last quarter, the U.S. launch occurred mid-August, and Pfizer was delayed in reporting our gross profit share amounts, and as a result, none were included in our third-quarter results. Costs and expenses were $73.8 million for the fourth quarter of 2023 compared to $68 million for the 2022 period. Research and development expenses for the fourth quarter of '23 were $18.7 million compared to $16.6 million for the comparable period of 2022. This increase reflects activities for our ModeX development programs, partially offset by decreased spending on NGENLA as well as an R&D tax credit for our Irish activities. The resulting operating loss for the quarter ended December 31, 2023, was $16 million, a $6 million improvement from the operating loss of $22 million for the fourth quarter of 2022. Amortization expenses related to intangible assets were $16.4 million and $16.5 million for the 2023 and 2022 fourth quarters, respectively. Moving to our Diagnostics segment, we reported revenue for Q4 2023 of $124.2 million compared with $139.4 million for the 2022 period. This decline primarily reflects lower COVID testing of $7.1 million as well as a change to our estimated collections of $8.1 million, partially offset by increased testing volumes. Costs and expenses increased to $166.4 million for the fourth quarter of 2023 from $162.5 million for the 2022 period. The operating loss for our Diagnostics segment included a change in estimated collections as well as approximately $4.7 million of nonrecurring costs related to employee severance and retention programs associated with our efforts to return to profitability. Depreciation and amortization expense were $8.1 million and $8.7 million for the 2023 and 2022 periods, respectively. Turning to our consolidated financial results, for the fourth quarter of 2023, we reported an operating loss of $69.1 million compared to an operating loss of $55.3 million for the 2022 quarter. Net loss for the fourth quarter of 2023 was $66.5 million or $0.09 per share, which compares with a net loss of $85.2 million or $0.11 per share for the 2022 quarter, reflecting lower noncash mark-to-market losses related to our investment in GeneDx. I'd like to briefly comment on our balance sheet and the recently completed refinancing of our convertible debt. On December 31, we had two convertible debt issuances that were set to mature in early 2025. Our 4.5% notes were held by several institutions, and our 5% notes were primarily held by Dr. Frost, Dr. Hsiao, and a long-term investor of OPKO. In consultation with our advisors at JPMorgan, we chose to issue new five-year notes, reducing our coupon interest rate to 3.75% and took advantage of the strong demand from institutional investors to raise a total of $230 million. We used the proceeds to buy back the outstanding 4.5% notes and the 55 million shares of our common stock, and we added approximately $25 million in cash to our balance sheet. Our 5% note holders exchanged their principal and accrued interest of approximately $71.1 million into notes with identical financial terms as the 3.75% note holders. This refinancing strengthened our balance sheet, reduced the number of shares outstanding, and provided the company with additional cash to fund our ongoing development activities. The offering was oversubscribed and brought in an impressive group of new prominent investors to OPKO. During 2024, we anticipate receipt of additional non-dilutive cash payments under our existing collaborations with Merck, BARDA, and other potential transactions as the year progresses. As we look ahead, we're providing the following financial guidance with the following assumptions. For our Pharmaceuticals segment, there are a number of factors that impact our gross profit share payments from Pfizer, including revenue from product sales of GENOTROPIN and NGENLA. Global sales of GENOTROPIN for 2023, as reported by Pfizer, were $539 million. Pfizer has not separately reported sales of NGENLA. However, we have observed consistent prescription growth globally for NGENLA, as reported by IQVIA and Symphony. As such, for the full year, we estimate our gross profit share will be between $40 million and $50 million, although we anticipate that a number of scenarios may impact sales of GENOTROPIN and NGENLA globally. We assume a stable foreign exchange rate for our ex-U.S. Pharmaceutical businesses, which will allow for continued and profitable growth. R&D expenses for the first quarter of 2024 will reflect higher activities related to our ModeX programs, including CMC and efforts related to the initiation of our first immuno-oncology clinical trial. Those increased activities will be partially funded through our BARDA agreement and partially offset by lower R&D costs related to the wind down of our clinical operations for the ongoing open-label pediatric extension study for NGENLA, which we expect to substantially complete by the end of the first quarter. For our Diagnostics segment, as Elias outlined, we are diligently working to align the business to achieve cash flow breakeven by the middle of 2024 and profitability by the end of the year. This work includes consolidating our geographic footprint and rationalizing our test offerings. As a result, we expect our client mix to improve and cost structure to appropriately support our go-forward strategy. During this transition phase, we expect consistent core testing volumes with a slight increase in the average per patient collection amount due to our revenue cycle management initiatives, partially offset by volume impact due to several weather events that occurred during the first quarter already. Before considering any nonrecurring costs that may result from our restructuring activities, we expect our costs and expenses to decline sequentially by $7 million to approximately $159 million. As a result, we expect the following for the first quarter of 2024: total revenues between $180 million and $185 million; revenue from services between $126 million and $130 million; revenue from product sales between $36 million and $40 million; and other revenue between $14 million and $18 million, inclusive of the estimated Pfizer gross profit share payments between $9 million and $11 million. We expect first quarter costs and expenses to be between $235 million and $245 million, including R&D expense between $20 million and $29 million, dependent on the timing for certain CMC activities for our ModeX programs and depreciation and amortization expense of $26 million. That concludes our prepared remarks. Thank you for your attention.

We will now begin the question-and-answer session. And our first question comes from Jeffrey Cohen of Ladenburg. Please go ahead.

Good afternoon, everyone. Thanks for taking our questions. I guess, first, Adam, could you just recap your financials with regard to the 4.5% and 5% instruments out there? So currently, the share count is down toward approximately 700, and then what would be appropriate cash and debt levels of what we're estimating pro forma?

Yes. So we ended the year with $95 million in cash. So if you pro forma in the additional $25 million, that would put us right at about $120 million in cash on a pro forma basis. The total convertible notes were just over $300 million, so just right at $300 million in principal. And you've got the share count right.

Okay. Perfect. Got it. Could one of you discuss a little bit about the press release with regard to the Alibaba global platform in China and talk about perhaps some of the products that you're planning on offering and what we should expect as far as the status during '24?

The products involved are made by our Spanish company and primarily consist of nutritional items for animals. There seems to be a significant market for these products in China, which is just starting to develop. There's not much more to add on the topic.

Okay. Got it. And then lastly for us, could you provide any commentary on NGENLA and RAYALDEE going to weekly and what you've learned or what Pfizer's learned, perhaps versus what's anticipated as far as costs and transferring to patients from one to the other and new patients and how that may look over the coming year?

I'll start off, Jeff. I think what we've seen in the markets that are the most mature from Pfizer, where they launched initially, is good, steady growth in the conversion that is happening. Broadly, I think with one of the competitors launching a bit earlier in the U.S. market, we've seen that conversion happen similarly to what we've seen globally. We expect that to continue and accelerate as Pfizer enters the market, as well as if Novo eventually enters the market with their long-acting products. So the conversions are happening, and we expect those to accelerate over the next 18 to 24 months.

Okay. Perfect. And then lastly, on RAYALDEE. It sounds like you're expecting growth, and it looks like Q4 had some strong growth. Could you identify for us where they may be coming from, either demographically or geographically or pricing-wise and what we should expect for that?

So, Charlie, do you want to go?

Yes, happy to do that. So we're seeing growth for a number of reasons with the RAYALDEE brand. First is the obvious passing of the adverse effects of the pandemic, which slowed the ability of our sales force to get into clinics and promote the brand, and it also slowed the ability of patients to get into the clinics to get prescriptions. That seems to have abated as of the beginning of Q2 of last year. In addition, our sales force is much more adept now at moving the product into areas of business that have low co-pays. This would include the Medicaid sector, low-income subsidy Medicare Part D patients, and commercial patients who have zero co-pay. So these are the main drivers of the growth in the business.

Okay. Got it. It seems like it's an unmasked trajectory, post-COVID currently. Okay. I think that does it for us. Thanks for taking all the questions.

Thanks, Jeff.

The next question comes from Maury Raycroft of Jefferies. Please go ahead.

Hi, thanks for taking our questions. I was wondering if you can talk more about timing and next steps for NGENLA label expansions for the adult setting and additional pediatric indications.

Yes, quickly. The adult indication, basically, we're in the process with Pfizer, obviously, to put our application to the FDA. As I mentioned in my comments, we're in towards the end of Phase 3 for the pediatric indication. So timing-wise, probably the end of the year, beginning of next year for the adult and probably early next year for the pediatrics if everything goes well.

Got it. Okay. And then for profit share with Pfizer, I just wanted to make sure I heard this correctly, that the guidance for 2024 is $40 million to $50 million. Is that right? And wondering if there are more details you can provide on the profit share currently and how that will change as NGENLA takes more market share from Genotropin. And what would a peak profit share percent look like?

Sure. The guidance of $40 to $50 million for the full year is based on the information we have today. Pfizer does not provide separate forecasts for NGENLA or Genotropin sales, so we are using our internal models to estimate global franchise revenues. We have incorporated some caution into our estimates, accounting for uncertainties in the daily portion of Genotropin and expecting modest growth rates for NGENLA. The $40 to $50 million figure is accurate. In the fourth quarter, excluding the catch-up from the third quarter, we had around $9 million in gross profit share payments. Considering the modest growth we forecast for gross profit share, the math reflects this overall. Looking at the growth hormone franchise, which combines NGENLA and Genotropin, we believe there is significant market potential as indicated by Pfizer. We estimate an effective royalty rate in the mid-20s for this franchise, and at its peak, we expect substantial cash flow and growth leading up to that point.

Got it. That's helpful. And maybe the last question, just on oxyntomodulin. If you could talk about timelines for the new formulation and what would a clinical development path look like there? Is this something you're going to keep in-house or partner out? Does LeaderMed have any rights to this program?

I think with respect to both of those questions, it's early. We'll get back to you as soon as we have something more definitive to talk about.

Understand. Okay, thanks for taking my questions.

Thanks, Maurice.

The next question comes from Edward Tenthoff of Piper Sandler. Please go ahead.

Great. Good evening everyone. Two quick questions, if I may. Firstly, just at a high level with respect to NGENLA versus Genotropin. What are the differences that Pfizer is pushing in terms of marketing? Or is it really just a land grab at this point where they're going to the Genotropin clients and converting them over and basically trying to get into as many other accounts as possible? Then the second question really for Phil, at a high level, as BioReference in the diagnostic business returns to breakeven, is the plan here still to keep that as part of OPKO or potentially to monetize it, how you have for some of the other diagnostic segment/products? Do you ultimately see this business being Pharma and Diagnostics going forward? Thanks.

For those of you who know me, you realize that, first and foremost, we will always do what's in the best interest of the shareholders in terms of creating value. So at a particular point in time, if one approach seems advisable, we'll certainly consider it seriously. I don't want to be more specific than that right now. But it's clear that we have an asset on our books that is, at the moment, losing money, although we're very optimistic about turning that around that highest inherent value as an asset. We’re very mindful of that.

Thank you. And then on the competition and sort of a little bit more on the marketing and the long-acting or weekly formulations.

Yes. Obviously, Pfizer is leading the charge on the commercial efforts. Where we think that they are going to be very successful is in the near term where they're alone in the market, right? In the Japanese market, which is substantial for the growth hormone space, they are currently by themselves, and they've had meaningful market share penetration and continued growth. There are a number of other countries where they are by themselves. They've done a great job marketing throughout Europe as well, forcing the conversion or suggesting the conversion there as well. In the U.S. market, they have access commercially to a strong number of plans. We think they're well-positioned with their team to go ahead and take substantial share in the U.S. as well. As far as how they're going to go about that, I think that's a question for Pfizer to answer.

Okay. Great. Thank you, guys.

The next question comes from Yi Chen of H.C. Wainwright & Co. Please go ahead.

Hello?

Hey, Yi. We can hear you now.

Sorry about that. So regarding the storefront and Alibaba. Can you talk about the potential market size that OPKO can target? What is the potential revenue contribution in 2024? How could the current economic environment affect your market prospects? Thank you.

This is a product line that is very successful and is sold by our Spanish unit. They manufacture the products, develop the products, and have done so well that they're beginning to expand into France; as a matter of fact, they have every intention to continue to expand geographically. We were approached by a company that has a partnership with Alibaba. They believe that because of the tremendous interest in pet animals now in China and due to the success of such products, we might be willing to let them distribute through Alibaba in China. We said, why not? And that's where we are now. It's just getting launched. So it's too early to say much more about the market size for our products sold by Alibaba; it’s a wait-and-see situation.

So strictly animal health products, right? There are no human products offered on this stuff?

So there's a combination of human health and veterinary products that will eventually go on the platform.

This concludes our question and answer session. I would like to turn the conference back over to Dr. Phillip Frost for any closing remarks.

Well, we'd like to certainly thank you for participating in today's session. We hope you'll be with us again when we report the first quarter results. Thank you.

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