OPKO Health(OPK) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements OPKO Health reported $237.6 million in Q1 2023 total revenues and a net loss of $18.3 million, an improvement from the prior year's $55.4 million net loss, with $2.17 billion in total assets Condensed Consolidated Balance Sheets Total assets reached $2.17 billion as of March 31, 2023, with cash at $110.8 million and total liabilities at $617.9 million Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $110,830 | $153,191 | | Total current assets | $406,418 | $394,525 | | Goodwill | $597,380 | $595,851 | | Intangible assets, net | $803,616 | $823,520 | | Total assets | $2,169,670 | $2,167,259 | | Liabilities & Equity | | | | Total current liabilities | $222,422 | $213,480 | | Long term portion of convertible notes | $211,328 | $210,371 | | Total liabilities | $617,860 | $605,611 | | Total shareholders' equity | $1,551,810 | $1,561,648 | Condensed Consolidated Statements of Operations Q1 2023 total revenues declined to $237.6 million, but operating loss narrowed to $30.6 million and net loss improved to $18.3 million Q1 2023 vs Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenue from services | $132,368 | $286,599 | | Revenue from products | $40,383 | $36,658 | | Revenue from transfer of intellectual property | $64,826 | $5,962 | | Total revenues | $237,577 | $329,219 | | Total costs and expenses | $268,171 | $401,643 | | Operating loss | $(30,594) | $(72,424) | | Net loss | $(18,267) | $(55,433) | | Loss per share | $(0.02) | $(0.08) | Condensed Consolidated Statements of Cash Flows Operating activities used $22.6 million in Q1 2023, leading to a $42.4 million net decrease in cash, ending at $110.8 million Q1 2023 vs Q1 2022 Cash Flows (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(22,647) | $(19,856) | | Net cash used in investing activities | $(7,717) | $(4,903) | | Net cash used in financing activities | $(13,119) | $(7,891) | | Net decrease in cash and cash equivalents | $(42,361) | $(32,429) | | Cash and cash equivalents at end of period | $110,830 | $102,281 | Notes to Condensed Consolidated Financial Statements Notes detail business structure, key transactions, and accounting policies, including a $50 million Merck alliance and a $246 million tax assessment - Revenue from services for Q1 2023 decreased by $154.2 million compared to Q1 2022, driven by lower COVID-19 testing volumes, but routine clinical test volume increased by 6.8% excluding COVID-19 tests[39] - In March 2023, ModeX entered a license and research collaboration with Merck for an Epstein Barr Virus vaccine candidate, receiving a $50.0 million upfront payment and eligibility for up to $872.5 million in milestones[191][192] - The Israel Tax Authority (ITA) issued an assessment of approximately $246 million (including interest) against OPKO Biologics for tax years 2014-2020, which the company is appealing[156] - In February 2023, the company amended its $55.0 million 5% Convertible Promissory Notes, extending maturity to January 31, 2025, and resetting the conversion price to $1.66[122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated revenue declined 28% due to lower COVID-19 testing, but operating loss improved to $30.6 million driven by intellectual property revenue Results of Operations Q1 2023 operating loss improved to $30.6 million, with Diagnostics revenue down 54% and Pharmaceuticals revenue up 147% Segment Operating Income (Loss) (in thousands) | Segment | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Pharmaceutical | $18,955 | $(18,108) | | Diagnostics | $(40,007) | $(43,548) | | Corporate | $(9,542) | $(10,768) | | Total Operating Loss | $(30,594) | $(72,424) | - Diagnostics revenue decreased by $154.2 million, primarily due to lower demand and reimbursement for COVID-19 testing, with BioReference performing only 68,000 molecular COVID-19 tests in Q1 2023 compared to 1,981,000 in Q1 2022[248] - Pharmaceuticals revenue from transfer of intellectual property increased to $64.8 million from $6.0 million, mainly due to a $50.0 million upfront payment from Merck and a $7.0 million milestone from Vifor[257] - Pharmaceutical R&D expenses increased to $31.9 million from $12.3 million, primarily due to a $12.5 million payment to Sanofi related to the Merck collaboration[261] Liquidity and Capital Resources Q1 2023 ended with $110.8 million in cash, supported by a $50 million Merck payment, ensuring sufficient liquidity for the next 12 months - As of March 31, 2023, the company had cash and cash equivalents of $110.8 million[272] - A one-time, non-refundable upfront payment of $50.0 million from Merck was received in April 2023[273] - The company believes its cash on hand and available credit lines are sufficient to meet anticipated cash requirements for operations and debt service beyond the next 12 months[286] Known Contractual Obligations as of March 31, 2023 (in thousands) | Obligation Type | Total | Due in < 1 Year | Due in 1-3 Years | Due in 3-5 Years | Due Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | 2025 and 2023 Convertible Notes | $211,328 | $0 | $211,328 | $0 | $0 | | Lines of credit | $22,259 | $22,259 | $0 | $0 | $0 | | Operating leases | $37,952 | $9,041 | $12,722 | $6,728 | $9,461 | | Open purchase orders | $52,809 | $52,568 | $241 | $0 | $0 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, primarily Euro and Chilean Peso, and interest rate changes on variable-rate borrowings - The company is subject to foreign exchange risk, with approximately 18.5% of Q1 2023 revenue denominated in currencies other than the U.S. Dollar, primarily the Euro and Chilean Peso[300] - Interest rate risk exposure relates to cash and investments and variable-rate borrowings, with $22.3 million outstanding under lines of credit at a weighted average interest rate of approximately 5.4% as of March 31, 2023[302] - The company's $55.0 million 2023 Convertible Notes (5% fixed rate) and $200.0 million 2025 Notes (4.50% fixed rate) are not subject to fluctuations in market interest rates[303] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - Based on an evaluation as of the end of the period, management concluded that the company's disclosure controls and procedures were effective[306] - No changes occurred during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[307] PART II. OTHER INFORMATION Item 1. Legal Proceedings BioReference was informed by the Texas Attorney General's office of potential Medicaid Fraud Prevention Act violations - In February 2023, the Texas Attorney General's office informed BioReference of potential violations of the Texas Medicaid Fraud Prevention Act regarding claims presented to Texas Medicaid for reimbursement from 2005 to February 2023[310] - The company cannot currently predict the outcome or determine the extent of any potential liability for the Texas OAG matter[310] Item 1A. Risk Factors No material changes to risk factors were reported from the 2022 Annual Report on Form 10-K - There have been no material changes to risk factors previously disclosed in the 2022 Annual Report on Form 10-K[313] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported Item 5. Other Information No other information was reported Item 6. Exhibits Key exhibits include the License and Research Collaboration Agreement with Merck and certifications by the CEO and CFO - A key exhibit filed is the License and Research Collaboration Agreement between ModeX Therapeutics, Inc., OPKO Health, Inc., and Merck Sharp & Dohme LLC, dated March 7, 2023[318]