OPKO Health(OPK) - 2021 Q4 - Annual Report

PART I This section details OPKO Health's business, strategy, products, R&D, intellectual property, competition, regulatory environment, risks, and legal matters ITEM 1. BUSINESS OPKO Health is a diversified healthcare company with diagnostics and pharmaceuticals segments, leveraging R&D and commercial infrastructure for growth OVERVIEW OPKO Health is a diversified healthcare company with diagnostics and pharmaceuticals, including internationally approved Somatrogon and global platforms - OPKO Health is a diversified healthcare company with diagnostics (BioReference) and pharmaceutical (Rayaldee, Somatrogon pipeline) segments[17] - Somatrogon (hGH-CTP) received marketing authorization in the European Union (NGENLA®), Japan (NGENLA®), Health Canada, and Australia, but the FDA issued a Complete Response Letter for its Biologics License Application (BLA) in the U.S[17] - The company operates established pharmaceutical platforms in Spain, Ireland, Chile, and Mexico, and owns a specialty API manufacturer in Israel[19] GROWTH STRATEGY OPKO's growth strategy leverages commercial infrastructure, proprietary technology, and R&D to expand diagnostics, develop new drug indications, and secure approvals - Growth is expected from leveraging commercial infrastructure, proprietary technology, and R&D strengths[22] - Enhance U.S. and international commercialization capability[26] - Develop and commercialize Rayaldee for new indications (e.g., SHPT in stage 5 CKD requiring hemodialysis)[26] - Obtain regulatory approval and compile clinical data for advanced product candidates[26] - Expand into significant and synergistic medical markets[26] - BioReference strategy includes three pillars: core business, digital health (e.g., Scarlet™ Health for mobile phlebotomy), and strategic ventures, with a fourth pillar added for large-scale COVID-19 screening programs[24][26] CORPORATE INFORMATION OPKO Health, incorporated in Delaware, trades on NASDAQ and TASE, managing operations across diagnostics and pharmaceutical segments - OPKO Health, Inc. was incorporated in Delaware in October 1991 and changed its name to OPKO Health, Inc. on June 8, 2007[25] - The company's shares are publicly traded on the NASDAQ Stock Market (OPK) and the Tel Aviv Stock Exchange (OPK)[25] - Operations are managed in two reportable segments: diagnostics (clinical laboratory operations of BioReference, point-of-care) and pharmaceuticals (international operations in Chile, Mexico, Ireland, Israel, Spain, and R&D)[26] CURRENT PRODUCTS AND SERVICES AND RELATED MARKETS OPKO offers diagnostics (BioReference, 4Kscore, COVID-19 tests) and pharmaceuticals (Rayaldee, Somatrogon, pipeline candidates) leveraging CTP technology Diagnostics OPKO's diagnostics, led by BioReference, provides comprehensive lab testing, COVID-19 screening, and the 4Kscore prostate cancer test - BioReference Laboratories provides comprehensive laboratory testing services, including routine and esoteric tests (endocrinology, genetics, immunology, microbiology, molecular diagnostics, oncology, serology, toxicology), and large-scale COVID-19 screening programs[27][29][30][32] - The 4Kscore test, an FDA-approved laboratory developed blood test, helps assess the risk of high-grade prostate cancer in men aged 45 and older, and is included in NCCN and EAU guidelines[35][38] - OPKO Diagnostics has developed the Claros Analyzer, a point-of-care diagnostic instrument system, with the Sangia Total PSA Test approved by the FDA in January 2019; commercialization strategies for the system and other biomarkers are under evaluation[40][41][42] Pharmaceutical Business OPKO's pharmaceuticals include Rayaldee for SHPT and a pipeline of Somatrogon, Factor VIIa-CTP, and OPK88003, leveraging CTP technology - Rayaldee, an extended-release calcifediol, is FDA-approved for SHPT in adults with stage 3 or 4 CKD and vitamin D insufficiency; it is also being evaluated in a Phase 2 trial for mild-to-moderate COVID-19 and a Phase 4 trial comparing it with other SHPT treatments[43][49][50][51] - Somatrogon (hGH-CTP), a once-weekly human growth hormone, has met primary endpoints in Phase 3 pediatric GHD trials and received marketing authorizations in Europe, Japan, Canada, and Australia; the FDA issued a Complete Response Letter for its U.S. BLA[67][69] - Other pipeline candidates include OPK88004 (SARM) for prostate hyperplasia and anabolic benefits, OPK88003 (oxyntomodulin) for type 2 diabetes and obesity (joint venture with LeaderMed), Factor VIIa-CTP for hemophilia (also with LeaderMed), and AntagoNAT oligonucleotide therapeutics for Dravet Syndrome (licensed to CAMP4)[53][55][58][59][71][72][76][78] Commercial Operations OPKO leverages global commercial expertise, including EirGen and platforms in Spain, Mexico, and Chile, for manufacturing and distribution - OPKO aims to leverage global commercialization expertise for growth, including through acquisitions of commercial businesses[79] - EirGen (Ireland) is a specialty pharmaceutical company focused on developing and supplying high-potency, high-barrier-to-entry pharmaceutical products, exporting to over 50 countries[79][80] - OPKO operates established pharmaceutical platforms in Spain (Farmadiet Group Holding, S.L.), Mexico (Pharmacos Exakta S.A. de C.V.), and Chile (Pharma Genexx, S.A. and ALS Distribuidora Limitada) for manufacturing, marketing, and distribution of various products[81][82][83] Strategic Investments OPKO makes strategic investments in early-stage companies with valuable proprietary technology and significant potential to create shareholder value - OPKO makes strategic investments in early-stage companies with valuable proprietary technology and significant potential to create shareholder value[84] RESEARCH AND DEVELOPMENT EXPENSES OPKO's research and development expenses were $76.9 million in 2021, $75.3 million in 2020, and $117.9 million in 2019, primarily focused on hGH-CTP (Somatrogon) and Rayaldee development programs Research and Development Expenses (in millions USD) | Year | Amount | | :--- | :----- | | 2021 | $76.9 | | 2020 | $75.3 | | 2019 | $117.9 | - Primary focus of R&D expenses was on hGH-CTP (Somatrogon) and Rayaldee development programs[86] INTELLECTUAL PROPERTY OPKO protects its products and technologies through a comprehensive IP strategy, including thousands of patents for pharmaceuticals and diagnostics - OPKO's intellectual property strategy includes U.S. and foreign patents, trademarks, trade secrets, copyrights, and contractual arrangements[87][88] - The company owns or licenses thousands of patents and applications for its products, product candidates, and out-licensed candidates, covering pharmaceuticals, diagnostics, compositions, and manufacturing processes[89] - Rayaldee: Multiple U.S. patent families covering sustained release oral dosage formulation and methods of treatment, expiring between 2027 and 2034, also includes a patent publication for use in treating SARS-CoV-2 infection[90] - Somatrogon (hGH-CTP): Patents licensed to Pfizer covering modified hGH polypeptides, uses in adult and pediatric patients, and manufacturing methods, with expirations ranging from 2027 to 2034[91] - OPK88003 (oxyntomodulin) and OPK88004 (SARM): Licensed from Eli Lilly with granted patents worldwide covering compounds and uses, expiring in 2030 and 2027 respectively, with additional patent applications filed for expanded uses[92] LICENSES AND COLLABORATIVE RELATIONSHIPS OPKO develops products via R&D, acquisitions, and partnerships, including key collaborations for Rayaldee, Somatrogon, and pipeline candidates - OPKO's strategy includes developing product candidates through internal development, acquisition, and external partnerships[94] - Rayaldee: Licensed to VFMCRP for Europe, Canada, Australia, and other international markets (including Japan after JT termination), and to Nicoya Macau Limited for Greater China[94] - AntagoNAT technology: Exclusively licensed to CAMP4 Therapeutics Corporation[94] - OPK-88003 and Factor VIIa: Specific arrangements with LeaderMed Health Group Limited for certain countries in Asia[94] - Somatrogon (hGH-CTP): Exclusive worldwide agreement with Pfizer for development and commercialization[94] COMPETITION OPKO faces intense competition in pharmaceuticals (Rayaldee, hGH-CTP) and diagnostics (BioReference) from larger, well-resourced companies - The pharmaceutical and diagnostic testing industries are highly competitive, characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products[95] - Competitors include major pharmaceutical companies, specialty pharmaceutical companies, biotechnology companies, major diagnostic companies, reference laboratories, molecular diagnostic firms, universities, and research institutions, many with substantially greater financial and other resources[96] - Rayaldee competes with activated vitamin D analogs (calcitriol, doxercalciferol, paricalcitol) and vitamin D supplements (ergocalciferol, cholecalciferol)[98] - hGH-CTP faces competition from companies developing sustained-release or long-acting GHD products, and generic daily human growth hormone products[99] - BioReference competes with hospital laboratories, physician-office laboratories, and other independent clinical laboratories, including Quest Diagnostics and Laboratory Corporation of America, by focusing on innovative testing services and personalized customer service[100] GOVERNMENT REGULATION OPKO's operations are extensively regulated by federal, state, and international authorities, requiring strict compliance to avoid significant penalties - OPKO's healthcare operations are subject to extensive regulation by federal (FDA, CMS, OIG, DOJ), state, and international governmental authorities[103][104] - Clinical laboratories must comply with CLIA requirements, state clinical laboratory laws, and regulations related to billing, sales, marketing, and health information security[105] - Drug development involves lengthy and costly regulatory processes (preclinical, IND, Phase 1-3 clinical trials, BLA/NDA approval), with no guarantee of timely approval or broad indications[107] - Medical device development requires premarket clearance (510(k)) or approval (PMA) based on risk classification, with potential for clinical trials and post-market surveillance[114] - Diagnostic products, including Laboratory Developed Tests (LDTs), face evolving regulatory oversight, with potential for new legislation (VALID Act, VITAL Act) to formalize FDA regulation[124][125] - Compliance with regulations, including HIPAA, GDPR, Anti-Kickback Statute, Stark Law, False Claims Act, and FCPA, is critical; non-compliance can result in sanctions, fines, exclusion from healthcare programs, and reputational damage[127][130][133][136][137][141] MANUFACTURING AND QUALITY OPKO's global manufacturing (pharmaceuticals, diagnostics) adheres to strict FDA, cGMP, and QSR standards, with some outsourcing - Pharmaceutical manufacturing facilities are located in Waterford (Ireland), Guadalajara (Mexico), Nesher (Israel), and Banyoles (Spain); clinical supplies are outsourced to third parties[142] - Point-of-care diagnostic system components (test reagents, cassettes) are prepared in Woburn, Massachusetts, while analyzers are manufactured by third parties[144] - All manufacturing facilities and suppliers must comply with FDA regulations, current good laboratory practices (GLP), current good manufacturing practices (cGMPs), and Quality System Regulation (QSR) requirements, subject to periodic inspections[142][143] SALES & MARKETING OPKO's sales and marketing efforts are driven by BioReference's nearly 250-person team in the U.S. for diagnostics and a specialized 57-person team for Rayaldee commercialization. Limited sales and marketing personnel also operate in international pharmaceutical markets - The diagnostics business leverages BioReference's approximately 250-person sales and marketing team in the U.S[146] - A highly specialized, field-based 57-person sales and marketing team in the U.S. is dedicated to Rayaldee's commercialization[146] - Limited sales and marketing personnel are also present in Ireland, Chile, Spain, Mexico, and Israel for pharmaceutical products[146] HUMAN CAPITAL RESOURCES OPKO had 5,767 global employees in 2021, prioritizing health, competitive benefits, diversity, and talent development - As of December 31, 2021, OPKO had 5,767 full-time employees worldwide, with good employee relations, except for one subsidiary in Spain where employees are represented by a collective bargaining agreement[148] - Health and Safety: Compliance with College of American Pathologists, CLIA, and OSHA regulations, with an EHS Manager overseeing standards, training, and auditing; implemented COVID-19 safety measures for essential workers[149] - Competitive Pay and Benefits: Committed to fair pay and offers competitive medical benefits, which are above the competitive range for similar companies in its industries[150] - Inclusion and Diversity: Recognizes and values diversity, promoting discussions and learning from differences, with a diverse workforce and pride/respect among teams[151] - Talent Development: Focuses on enhancing employee training and development through a Head of Learning and Training, and transforming recruitment strategies for diverse channels and improved retention[153] ITEM 1A. RISK FACTORS OPKO faces risks from COVID-19, operating losses, R&D uncertainties, regulatory compliance, international operations, acquisitions, and stock ownership RISKS RELATED TO OUR BUSINESS OPKO's business risks include COVID-19 impacts, operating losses, R&D uncertainties, partner dependence, intense competition, and litigation - The COVID-19 pandemic has significantly impacted the business, increasing overall testing volume but decreasing core testing demand; future demand for COVID-19 testing is uncertain, and declines could adversely affect operations[158][159] - OPKO has a history of operating losses and may not sustain profitability, especially if COVID-19 testing revenue declines without offset from other income streams; additional funding may be required and might not be available on favorable terms[164][166][169] - Research and development activities may not result in commercially viable products, and positive early clinical trial results are not predictive of future success; regulatory approval for product candidates, including Somatrogon (hGH-CTP), is not guaranteed, and unexpected side effects could arise[170][172][174][180][183] - Dependence on licensing agreements with Vifor, Nicoya, and Pfizer for international development and marketing of Rayaldee and Somatrogon means failure to maintain these agreements or partners' underperformance could adversely affect the business[175][178][179] - The business relies heavily on generating profits and cash flow from laboratory operations (BioReference), which faces intense competition, efforts by payors to reduce reimbursement, and risks from discontinuations of testing products or new technologies[188][190][191][194] - Product development delays, manufacturing quality control issues, lack of market acceptance for new products, and inadequate reimbursement from third-party payors are significant risks[196][198][205][207] - Adverse results in material litigation, governmental inquiries, or product liability claims could lead to substantial damages, reputational harm, and financial impact[255][256][258] RISKS RELATED TO REGULATORY COMPLIANCE OPKO faces extensive regulatory compliance risks, including CLIA, FDA approvals, billing, data privacy, anti-fraud laws, and reimbursement changes - Successful operation of laboratories and commercialization of diagnostic tests (including LDTs) depend on maintaining CLIA certification and complying with state clinical laboratory laws; failure to comply can result in suspension, revocation of certificates, fines, and criminal penalties[260][261] - The regulatory approval process for drug products, diagnostic products, and medical devices is expensive, time-consuming, and uncertain; delays or rejections of applications (BLA, NDA, 510(k), PMA) can occur, and post-approval products are subject to continuous review and potential restrictions[262][264][266][268][270] - Compliance with federal and state laws regarding billing and claims payment, anti-kickback, physician self-referral (Stark Law), and false claims (FCA) is critical; violations can lead to civil/criminal penalties, exclusion from federal healthcare programs, and substantial monetary liability[271][282][283] - Data privacy and security regulations under HIPAA (including HITECH Act amendments) and international laws like GDPR require robust compliance; breaches or non-compliance can result in fines, litigation, and reputational damage[273][274][275][276] - Changes in government and third-party payor policies, including increasing downward pressure on healthcare reimbursement (e.g., PAMA for clinical diagnostic laboratory tests), can adversely affect the profitability of diagnostic services and product sales[284][287][289] RISKS RELATED TO INTERNATIONAL OPERATIONS OPKO's international operations face risks from regulatory approvals, price controls, political instability, currency fluctuations, and FCPA compliance - Failure to obtain separate regulatory approvals in non-U.S. markets (e.g., European Union) will prevent marketing of products and product candidates abroad, as FDA approval does not guarantee international approval[294] - Non-U.S. governments often impose strict price controls, which can lead to lengthy pricing negotiations and potentially unsatisfactory reimbursement levels, adversely affecting future profitability[295] - Political, economic, and military instability in Israel, where OPKO has office, laboratory, and manufacturing operations, could adversely affect business conduct and results[296] - Significant portions of consolidated net revenues are derived from international sales, making the company subject to risks from currency exchange rate fluctuations, which can adversely affect margins and reported results[297] - The company is subject to the U.S. Foreign Corrupt Practices Act (FCPA) and other anti-corruption laws globally; any failure to comply, including unauthorized payments by employees or agents, could result in substantial penalties or restrictions on international business[298][301] RISKS RELATED TO ACQUISITIONS AND INVESTMENTS OPKO's acquisitions and investments carry risks of integration difficulties, litigation, and potential impairment of goodwill and intangible assets - Acquisitions and dispositions are part of OPKO's business strategy, but they present risks such as integration difficulties, management distraction, and potential third-party claims or litigation[214] - The company has a large amount of goodwill and other intangible assets ($1.4 billion at Dec 31, 2021) subject to periodic impairment evaluations; underperforming assets or changes in projections could lead to material non-cash impairment charges[303][305] - The sale of GeneDx to Sema4 Holdings Corp. for an upfront payment of $150 million cash and 80 million shares, plus potential milestones, is expected to close in Q2 2022; an impairment charge may be incurred depending on Sema4's stock price at closing[216][217] - Failure to successfully commercialize Somatrogon in the U.S. or negative impacts on net cash flow forecasts could expose the company to a material impairment charge related to its In-Process Research and Development (IPR&D) for Somatrogon[306] RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK OPKO common stock faces price volatility, short position pressure, and concentrated ownership by insiders influencing corporate control - The trading prices of OPKO's Common Stock may fluctuate significantly due to factors like product announcements, clinical trial results, intellectual property developments, regulatory approvals, and general market conditions[307] - A significant 'short' position in the Common Stock (approximately 43.1 million shares or 6.3% outstanding as of Jan 31, 2022) could cause downward pressure and volatility in the stock price[310] - Directors, executive officers, and affiliated entities beneficially own approximately 40% of outstanding voting securities, with Chairman and CEO Phillip Frost, M.D., owning about 33.9%; this concentration allows them to significantly impact major corporate decisions and potentially delay changes in control[308][309] ITEM 1B. UNRESOLVED STAFF COMMENTS There are no unresolved staff comments to report - No unresolved staff comments[315] ITEM 2. PROPERTIES OPKO's properties include a leased Miami HQ, main labs in NJ/MD, and owned pharmaceutical manufacturing in Mexico/Spain - The principal corporate office is located in leased space in Miami, FL, from Frost Real Estate Holdings, LLC, an entity controlled by Dr. Phillip Frost, Chairman and CEO[316] Significant Physical Properties (as of December 31, 2021) | Location | Segment and Purpose | Type of Occupancy | | :------------------- | :------------------------------------------------ | :---------------- | | Miami, FL | Diagnostics & Pharmaceutical: Corporate Headquarters | Leased | | Elmwood Park, NJ | Diagnostics: Main Laboratory | Leased | | Gaithersburg, MD | Diagnostics: Genetics Laboratory | Leased | | Kiryat Gat, Israel | Pharmaceutical: Research and Development, CTP | Leased | | Woburn, MA | Diagnostics | Leased | | Nesher, Israel | Pharmaceuticals: API Manufacturing | Leased | | Guadalajara, Mexico | Pharmaceuticals: Pharmaceutical Manufacturing | Owned | | Banyoles, Spain | Pharmaceuticals: Pharmaceutical Manufacturing | Owned | | Palol de Revardit, Spain | Warehouse | Leased | | Barcelona, Spain | Pharmaceuticals: Research and Development | Leased | | Waterford, Ireland | Pharmaceuticals: Pharmaceutical Manufacturing | Leased | | Santiago, Chile | Pharmaceuticals: Office; Warehouse | Leased | ITEM 3. LEGAL PROCEEDINGS OPKO faces ongoing legal proceedings, including a DOJ investigation, False Claims Act allegations, and past settled class action lawsuits - OPKO settled a class action lawsuit for $16.5 million and derivative suits for $3.1 million, stemming from SEC allegations of securities law violations against the company and its CEO in 2018[319][320][321][324] - BioReference received a Civil Investigative Demand (CID) from the U.S. Department of Justice (DOJ) regarding alleged unlawful remuneration to healthcare practitioners and false claims; a verbal agreement for a settlement of approximately $10 million has been reached[338] - OPKO was served with a Relator's Summons and Complaint in February 2022, alleging violations of the False Claims Act and state fraud prevention acts, following the federal government's decision not to intervene[339] - A lawsuit by former Claros Diagnostics, Inc. shareholders regarding a milestone payment was settled in January 2021 for $1.1875 million[341] - OPKO entered into a confidential mutual release and settlement agreement with MabVax Therapeutics Holdings, Inc. in January 2022, subject to bankruptcy court approval[340] ITEM 4. MINE SAFETY DISCLOSURES Not applicable - Not applicable[342] PART II This part covers OPKO Health's market for common equity, selected financial data, management's discussion and analysis, market risk disclosures, and audited financial statements ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities OPKO's common stock trades on NASDAQ and TASE, with no cash dividends anticipated, and a five-year stock performance decline - OPKO Health, Inc. Common Stock is traded on the NASDAQ Stock Market and the Tel Aviv Stock Exchange under the symbol "OPK"[344] - As of February 25, 2022, there were approximately 363 holders of record of the Common Stock[345] - The company has not declared or paid any cash dividends on its Common Stock and none are anticipated in fiscal 2022[345] Five-Year Cumulative Total Return (Indexed to $100) | Index | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | | :------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | OPKO Health, Inc. | $100.00 | $52.69 | $32.37 | $15.81 | $42.47 | $51.7 | | S&P 500 | 100.00 | 121.83 | 116.49 | 153.17 | 181.35 | 233.4 | | NASDAQ Biotechnology | 100.00 | 121.63 | 110.85 | 138.69 | 175.33 | 175.3 | ITEM 6. Selected Financial Data This item is not applicable for the report - Not applicable[349] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses OPKO's financial condition, operating results, liquidity, and critical accounting policies, emphasizing COVID-19 impacts OVERVIEW OPKO Health is a diversified healthcare company with diagnostics and pharmaceuticals, including internationally approved Somatrogon and global platforms - OPKO Health is a diversified healthcare company with diagnostics (BioReference) and pharmaceutical (Rayaldee, Somatrogon pipeline) segments[351] - Somatrogon (hGH-CTP) has received marketing authorization in the European Union (NGENLA®), Japan (NGENLA®), Health Canada, and Australia; the FDA issued a Complete Response Letter for its Biologics License Application (BLA) in the U.S[351] - The company operates established pharmaceutical platforms in Spain, Ireland, Chile, and Mexico, and owns a specialty API manufacturer in Israel[353] RECENT DEVELOPMENTS Recent developments include international NGENLA approvals, FDA's Somatrogon BLA letter, GeneDx sale agreement, and positive Rayaldee trial results - NGENLA (Somatrogon) received marketing authorization in Europe and Japan in early 2022, and in Canada and Australia in late 2021, for pediatric growth hormone deficiency[354][355] - The FDA issued a Complete Response Letter for the Biologics License Application (BLA) for Somatrogon in January 2022[356] - OPKO signed a definitive agreement to sell its wholly-owned subsidiary, GeneDx, Inc., to Sema4 Holdings Corp. for an upfront payment of $150 million cash plus 80 million shares of Sema4 Common Stock, with potential additional milestones up to $150 million; the total aggregate consideration is approximately $623 million[357][358] - Preliminary topline results from a Phase 2 trial indicated Rayaldee can accelerate recovery from mild-to-moderate COVID-19, and the FDA approved the 4Kscore test for men aged 45 and older[360] RESULTS OF OPERATIONS OPKO's operating results show a 2021 income decline from 2020, but a significant improvement from 2019, driven by diagnostics and COVID-19 testing Impact of COVID-19 COVID-19 significantly boosted 2021 service revenue from testing, but impacted core testing and Rayaldee sales, with future demand uncertain - Revenue from services increased by $344.9 million in 2021 compared to 2020, primarily due to COVID-19 testing volumes[362][565] - BioReference performed 11.9 million diagnostic molecular tests and 0.7 million serology antibody tests for COVID-19 in 2021, representing 58.5% of total test volume[370] - Sales of Rayaldee were negatively impacted by challenges in onboarding new patients due to the COVID-19 pandemic[362][565] - Received approximately $14 million under CMS Accelerated and Advance Payment Program in 2020 (repaid in 2021)[365][567] - Eligible to defer employer's share of Social Security taxes for payments due from March 27, 2020, through December 31, 2020[568] - Received approximately $16.2 million in 2020 from healthcare provider grants for COVID-19 related expenses/lost revenues[568] - HHS provides claims reimbursement at Medicare rates for testing uninsured patients[568] - Clinical laboratories received a one-year reprieve from PAMA reporting requirements and a one-year delay of reimbursement rate reductions for Medicare clinical laboratory services in 2021[568] For The Years Ended December 31, 2021 and December 31, 2020 2021 revenues grew 24% to $1.77 billion, driven by services and products, but operating income decreased 68% due to higher costs Consolidated Revenues (in thousands USD) | Revenue Type | 2021 | 2020 | Change | % Change | | :----------------------------------------- | :---------- | :---------- | :---------- | :------- | | Revenue from services | $1,607,106 | $1,262,242 | $344,864 | 27% | | Revenue from products | $141,770 | $119,952 | $21,818 | 18% | | Revenue from transfer of intellectual property and other | $25,842 | $53,219 | $(27,377) | (51)% | | Total revenues | $1,774,718 | $1,435,413 | $339,305 | 24% | Consolidated Costs and Expenses (in thousands USD) | Expense Type | 2021 | 2020 | Change | % Change | | :--------------------------------- | :---------- | :---------- | :---------- | :------- | | Cost of revenue | $1,193,194 | $894,408 | $298,786 | 33% | | Selling, general and administrative | $468,857 | $355,573 | $113,284 | 32% | | Research and development | $76,850 | $75,316 | $1,534 | 2% | | Contingent consideration | $(1,703) | $(3,989) | $2,286 | (57)% | | Amortization of intangible assets | $50,278 | $56,391 | $(6,113) | (11)% | | Gain on sale of assets | $(31,508) | — | $(31,508) | (100)% | | Total costs and expenses | $1,755,968 | $1,377,699 | $378,269 | 27% | | Income (loss) from operations | $18,750 | $57,714 | $(38,964) | (68)% | - A $31.5 million gain on sale of assets was recognized in 2021 from the sale of an EirGen facility in Ireland[368][387] For The Years Ended December 31, 2020 and December 31, 2019 2020 revenues surged 59% to $1.44 billion, driven by COVID-19 testing, turning a 2019 operating loss into a $57.7 million income Consolidated Income (Loss) from Operations (in thousands USD) | Metric | 2020 | 2019 | Change | % Change | | :------------------------- | :---------- | :----------- | :---------- | :------- | | Total revenues | $1,435,413 | $901,935 | $533,478 | 59% | | Total costs and expenses | $1,377,699 | $1,175,987 | $201,712 | 17% | | Income (loss) from operations | $57,714 | $(274,052) | $331,766 | (121)% | - Revenue from services increased by $545.8 million (76%) in 2020 due to COVID-19 testing volumes, with BioReference performing 10.1 million molecular tests and 0.8 million serology antibody tests[398] - Research and development expenses decreased by $42.6 million (36%) in 2020, primarily due to the completion of the Phase 3 study for Somatrogon[397][415] - Asset impairment charges of $92.4 million were recognized in 2019, including goodwill impairment for OPKO Diagnostics, CURNA, and Transition Therapeutics, and IPR&D impairment for OPK88003 and CURNA's platform technology, and Claros Analyzer[397][408][418] Other (Interest income, expense, fair value changes, income tax, investment losses) In 2021, OPKO reported $18.9 million interest expense, $0.8 million derivative income, and $14.8 million other expense, with a $15.5 million tax provision Other Income and (Expense), Net (in thousands USD) | Metric | 2021 | 2020 | 2019 | | :--------------------------------------- | :---------- | :---------- | :----------- | | Interest income | $28 | $152 | $1,710 | | Interest expense | $(18,880) | $(21,934) | $(21,516) | | Fair value changes of derivative instruments, net | $846 | $50 | $174 | | Other income (expense), net | $(14,770) | $12,701 | $(11,281) | | Total Other income and (expense), net | $(32,776) | $(9,031) | $(30,913) | - Other expense in 2021 primarily included an $11.1 million non-cash loss from the exchange of 2025 Notes for common stock and net unrealized losses on equity securities[393] - The income tax provision was $15.5 million in 2021, reflecting the mix of earnings/losses in U.S. vs. foreign jurisdictions and discrete tax events[394] - Loss from investments in investees was $0.6 million in 2021, consistent with anticipated net losses from early-stage companies accounted for under the equity method[395] LIQUIDITY AND CAPITAL RESOURCES OPKO had $134.7 million cash in 2021, with $38.3 million from operations, and liquidity will be impacted by the GeneDx sale - Cash and cash equivalents were $134.7 million at December 31, 2021[428] Cash Flows Summary (in thousands USD) | Activity | 2021 | 2020 | 2019 | | :----------------------- | :---------- | :---------- | :----------- | | Operating activities | $38,337 | $39,476 | $(172,522) | | Investing activities | $35,949 | $(18,327) | $(13,270) | | Financing activities | $(10,351) | $(35,076) | $175,248 | | Net increase (decrease) in cash | $62,499 | $(13,241) | $(11,021) | - The pending sale of GeneDx to Sema4 Holdings Corp. for an upfront payment of $150 million cash and 80 million shares, plus potential milestones up to $150 million, is expected to close in Q2 2022 and will significantly impact liquidity[430][431] - In 2021, OPKO sold an EirGen facility in Ireland for $65 million cash, generating a $31.5 million gain[433][563] - Debt includes $119.4 million in 4.50% Senior Convertible Notes due 2025, $65.5 million in 5% Convertible Promissory Notes due 2023, and $3.1 million in 3.0% Senior Notes due 2033; lines of credit totaled $13.7 million outstanding at year-end 2021[635] - The company believes current cash, operations, and available lines of credit are sufficient for anticipated cash requirements beyond the next 12 months, but this is based on assumptions subject to change and the uncertain impact of COVID-19[464][466] CRITICAL ACCOUNTING POLICIES AND ESTIMATES OPKO's critical accounting policies involve significant estimates for goodwill, intangible assets, revenue recognition, and other financial items - The preparation of financial statements requires management to make significant estimates and assumptions, which can differ from actual results[469][571] - Goodwill and indefinite-lived intangible assets (IPR&D) are tested annually for impairment using qualitative and quantitative analyses, involving complex judgments on future cash flows, market conditions, and discount rates; impairment charges were $92.4 million in 2019 but none in 2020 or 2021[471][472][473][477][478][576][580][581] - Revenue recognition for services, products, and intellectual property involves estimating variable consideration, such as contractual discounts, implicit price concessions, rebates, and milestones, which are subject to retroactive adjustments and re-assessment each period[480][485][489][493][494] - Other critical estimates include allowances for doubtful accounts (considering historical collections, creditworthiness, economic conditions), income taxes (deferred tax assets, valuation allowances, uncertain tax positions), equity-based compensation (using Black-Scholes-Merton model), inventory valuation (lower of cost and net realizable value, obsolescence), and contingent consideration (revalued each period based on milestone probabilities and timing)[503][506][508][509][510] RECENT ACCOUNTING PRONOUNCEMENTS OPKO is evaluating ASU No. 2020-06, which simplifies accounting for convertible instruments, effective for fiscal years after December 15, 2021 - OPKO is evaluating the impact of ASU No. 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)," which simplifies accounting for convertible instruments[511][607] - The ASU is effective for public entities for fiscal years beginning after December 15, 2021, with early adoption permitted[511][607] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK OPKO manages foreign currency exchange rate risk with forward contracts and has minimal interest rate risk due to fixed-rate debt and short-term investments Foreign Currency Exchange Rate Risk OPKO manages foreign exchange risk from global operations, particularly with the Chilean Peso, using forward contracts to hedge inventory purchases - OPKO operates globally and is subject to foreign exchange risk from fluctuations in the Chilean Peso, Mexican Peso, and Euro, affecting revenues and margins[512] - The company uses foreign exchange forward contracts to economically hedge forecasted cash flows from inventory purchases, with gains and losses on contracts partially offsetting those on exposed transactions[513][514][515] Interest Rate Risk OPKO's interest rate risk is minimal due to short-term, low-risk investments and fixed rates on most significant debt instruments - Interest rate risk is minimal due to investments in short-term money market funds and marketable securities, and fixed interest rates on the 2033 Senior Notes (3%), 2023 Convertible Notes (5%), and 2025 Notes (4.50%)[517][519] - At December 31, 2021, $13.7 million was outstanding under lines of credit with a weighted average interest rate of approximately 5.4%[518] - The primary objective of investment activities is to preserve principal and maximize yields without significantly increasing risk, maintaining investments with an average maturity of generally less than three months[520] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents OPKO's audited consolidated financial statements and notes, with an unqualified opinion from Ernst & Young LLP Reports of Independent Registered Certified Public Accounting Firm (PCAOB ID No. 42) Ernst & Young LLP issued an unqualified opinion on OPKO's financial statements and internal controls, noting goodwill and revenue as critical audit matters - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the three years ended December 31, 2021, and on the effectiveness of internal control over financial reporting as of December 31, 2021[524][525][534][535] - Critical audit matters identified were the valuation of Goodwill and IPR&D for Rayaldee and Biologics, and the variable consideration in determining revenue from services, both requiring significant auditor judgment due to complex estimations and assumptions[528][530] Consolidated Balance Sheets OPKO's 2021 balance sheet shows $2.40 billion in total assets, including $315.0 million assets held for sale, and $1.69 billion in equity Consolidated Balance Sheet Highlights (in thousands USD) | Metric | December 31, 2021 | December 31, 2020 | | :--------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | $134,710 | $72,211 | | Accounts receivable, net | $259,637 | $286,314 | | Inventory, net | $86,502 | $132,341 | | Assets held for sale | $314,994 | — | | Total current assets | $823,013 | $523,179 | | Property, plant and equipment, net | $79,727 | $140,554 | | Intangible assets, net | $321,683 | $475,002 | | In-process research and development | $590,200 | $590,200 | | Goodwill | $520,601 | $680,602 | | Total assets | $2,399,715 | $2,473,063 | | Accounts payable | $82,040 | $100,883 | | Accrued expenses | $193,493 | $240,869 | | Liabilities associated with assets held for sale | $28,156 | — | | Total current liabilities | $330,008 | $375,483 | | Convertible notes | $187,935 | $221,989 | | Total liabilities | $714,589 | $801,512 | | Total shareholders' equity | $1,685,126 | $1,671,551 | - Assets held for sale of $314.994 million at December 31, 2021, primarily relate to GeneDx, which met held-for-sale accounting criteria[543][562] Consolidated Statements of Operations OPKO reported a $30.1 million net loss in 2021, despite 24% revenue growth, due to higher costs, contrasting with 2020's $30.6 million net income Consolidated Statements of Operations Highlights (in thousands USD) | Metric | 2021 | 2020 | 2019 | | :--------------------------------------- | :---------- | :---------- | :----------- | | Total revenues | $1,774,718 | $1,435,413 | $901,935 | | Total costs and expenses | $1,755,968 | $1,377,699 | $1,175,987 | | Operating income (loss) | $18,750 | $57,714 | $(274,052) | | Other income and (expense), net | $(32,776) | $(9,031) | $(30,913) | | Income tax provision | $(15,489) | $(17,617) | $(7,060) | | Loss from investments in investees | $(629) | $(480) | $(2,900) | | Net income (loss) | $(30,143) | $30,586 | $(314,925) | | Income (loss) per share basic and diluted | $(0.05) | $0.05 | $(0.53) | - Total revenues increased by $339.3 million (24%) in 2021, driven by a $344.9 million increase in revenue from services and a $21.8 million increase in revenue from products[368][546] - Operating income decreased by $39.0 million (68%) in 2021, primarily due to a $298.8 million increase in cost of revenue and a $113.3 million increase in selling, general and administrative expenses[368][546] Consolidated Statements of Comprehensive Income (Loss) OPKO reported a $56.4 million comprehensive loss in 2021, a shift from 2020's income, driven by net loss and foreign currency translation Consolidated Statements of Comprehensive Income (Loss) (in thousands USD) | Metric | 2021 | 2020 | 2019 | | :---------------------------------------------- | :---------- | :---------- | :----------- | | Net income (loss) | $(30,143) | $30,586 | $(314,925) | | Change in foreign currency translation and other comprehensive income (loss) | $(26,270) | $17,845 | $(1,939) | | Comprehensive income (loss) | $(56,413) | $48,431 | $(316,864) | - The shift from comprehensive income in 2020 to comprehensive loss in 2021 was largely due to a net loss and a negative impact from foreign currency translation[549] Consolidated Statements of Equity OPKO's equity slightly increased to $1.69 billion in 2021, influenced by equity compensation, note conversions, net loss, and foreign currency impacts Consolidated Statements of Equity Highlights (in thousands USD) | Metric | December 31, 2021 | December 31, 2020 | | :----------------------------------- | :---------------- | :---------------- | | Common Stock | $6,901 | $6,706 | | Additional paid-in capital | $3,222,487 | $3,152,694 | | Accumulated other comprehensive loss | $(30,495) | $(4,225) | | Accumulated deficit | $(1,511,976) | $(1,481,833) | | Total shareholders' equity | $1,685,126 | $1,671,551 | - Equity-based compensation expense was $13.6 million in 2021[552] - Conversion of $55.4 million of 2025 convertible notes resulted in the issuance of 19,051,270 shares of Common Stock in 2021[552] - Accumulated other comprehensive loss increased by $26.3 million in 2021, primarily due to foreign currency translation[552][666] Consolidated Statements of Cash Flows OPKO generated $38.3 million cash from operations in 2021, with a $62.5 million net increase in cash, ending at $134.7 million Consolidated Statements of Cash Flows (in thousands USD) | Cash Flow Activity | 2021 | 2020 | 2019 | | :--------------------------------- | :---------- | :---------- | :----------- | | Net cash provided by (used in) operating activities | $38,337 | $39,476 | $(172,522) | | Net cash provided by (used in) investing activities | $35,949 | $(18,327) | $(13,270) | | Net cash (used in) provided by financing activities | $(10,351) | $(35,076) | $175,248 | | Effect of exchange rate changes on cash and cash equivalents | $(1,436) | $686 | $(477) | | Net increase (decrease) in cash and cash equivalents | $62,499 | $(13,241) | $(11,021) | | Cash and cash equivalents at end of period | $134,710 | $72,211 | $85,452 | - Cash from operating activities in 2021 primarily reflects cash generated by the diagnostics segment due to COVID-19 testing volumes[428] - Investing activities in 2021 were positively impacted by $66.0 million from the sale of property, plant, and equipment, partially offset by $32.2 million in capital expenditures[429][554] - Financing activities in 2021 primarily reflect net repayments on lines of credit[429] Notes to Consolidated Financial Statements Notes provide detailed disclosures on OPKO's business, accounting policies, financial captions, debt, equity, and commitments, including COVID-19 impacts - Notes provide detailed information on OPKO's business, organization, and significant accounting policies, including the impact of COVID-19 and the pending GeneDx transaction[556][560][564][570] - Key accounting policies cover goodwill and intangible assets, revenue recognition (services, products, intellectual property), investments, debt, equity-based compensation, and income taxes[575][589][593][599][600][606][608] - Detailed breakdowns are provided for accounts receivable, inventories, property, plant and equipment, intangible assets, accrued expenses, and other long-term liabilities[628][629] - Information on debt instruments (convertible notes, lines of credit), shareholders' equity, equity-based compensation, income tax provisions, related party transactions, employee benefit plans, commitments, contingencies, strategic alliances, leases, segments, fair value measurements, and derivative contracts is included[635][660][667][676][697][714][715][725][750][778][782][788][793] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[804] ITEM 9A. CONTROLS AND PROCEDURES Management concluded OPKO's disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of December 31, 2021[805] - Management assessed and concluded that internal control over financial reporting was effective as of December 31, 2021, based on the 2013 COSO framework[807] - Ernst & Young LLP audited and expressed an unqualified opinion on the effectiveness of internal control over financial reporting[808] - No material changes to internal control over financial reporting occurred during the quarter ended December 31, 2021[809] ITEM 9B. OTHER INFORMATION There is no other information to report - None[810] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. This item is not applicable for the report - Not applicable[811] PART III This part incorporates information on directors, executive officers, corporate governance, executive compensation, security ownership, and related transactions by reference ITEM 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 proxy statement - Information is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders[814] ITEM 11. Executive Compensation Information on executive compensation is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting - Information is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders[814] ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2022 proxy statement - Information is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders[814] ITEM 13. Certain Relationships and Related Transactions and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2022 proxy statement - Information is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders[814] ITEM 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2022 proxy statement - Information is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders[814] PART IV This part details exhibits and financial statement schedules filed as part of the 10-K report, including various agreements and certifications Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. This section lists all exhibits and financial statement schedules filed as part of the 10-K report, including agreements and certifications - The report includes financial statements as per Part II, Item 8, and an Index to Exhibits[819] - Exhibits include underwriting agreements, merger agreements (e.g., GeneDx Merger Agreement), corporate governance documents (Certificate of Incorporation, Bylaws), debt instruments (indentures for convertible notes), and various license and asset purchase agreements[819][820] - Certifications by the CEO and CFO (pursuant to Sarbanes-Oxley Act Sections 302 and 906) are also included[820] Item 16. Summary This item is not applicable for the report - None[822]