OPKO Health(OPK) - 2023 Q4 - Annual Report

Part I Business OPKO Health, Inc. is a diversified healthcare company operating in pharmaceutical and diagnostic segments, featuring products like Rayaldee® and NGENLA®, and diagnostic services through BioReference Health Overview OPKO Health is a diversified healthcare company with leading pharmaceutical products like Rayaldee® and NGENLA®, complemented by its BioReference diagnostics business and international pharmaceutical platforms - The company operates through two main business segments: pharmaceuticals and diagnostics[20][22] - Key pharmaceutical products are Rayaldee® (for SHPT in CKD) and NGENLA® (Somatrogon, a once-weekly human growth hormone), which is partnered with Pfizer and approved in over 50 markets including the U.S., EU, and Japan[20] - In May 2022, OPKO acquired ModeX Therapeutics to expand its pharmaceutical pipeline with multi-specific immune therapies for cancer and infectious diseases[21] - The diagnostics business is primarily BioReference Health, one of the largest full-service laboratories in the U.S., offering a comprehensive test menu and the proprietary 4Kscore® prostate cancer test[22] - OPKO has established revenue-generating pharmaceutical platforms in Spain, Ireland, Chile, and Mexico, along with a specialty API manufacturer in Israel[23] Growth Strategy OPKO's growth strategy centers on expanding its next-generation therapy portfolio through enhanced commercialization, regulatory approvals, market expansion, and leveraging the ModeX acquisition for pipeline growth - Continue marketing and commercialization of Rayaldee, with potential label expansion[32] - Support Pfizer's efforts to seek approval for additional indications for NGENLA® (Somatrogon), including adult growth hormone deficiency[32] - Leverage the acquisition of ModeX to expand the pharmaceutical product line, utilizing its MSTAR platform for multispecific antibodies and vaccines against cancer and infectious diseases[28] - Continue to commercialize and increase adoption of the 4Kscore® test for prostate cancer through BioReference[29] Current Products and Services OPKO offers comprehensive diagnostic services through BioReference, including the 4Kscore® test, and commercial pharmaceutical products like Rayaldee® and NGENLA®, alongside a pipeline of novel therapies - BioReference, a top U.S. lab, offers comprehensive testing services and reached approximately 9 million patients in 2023[34][39] - The 4Kscore® test, for assessing aggressive prostate cancer risk, was FDA-approved in December 2021 and has a Category I CPT® code to facilitate reimbursement[42][46] - Rayaldee® prescriptions increased by 13.6% in Q4 2023 compared to Q4 2022. The product has secured unrestricted access for 63% of commercial and 71% of Medicare Part D covered lives[52] - NGENLA® (Somatrogon), partnered with Pfizer, is a once-weekly human growth hormone approved in over 50 markets, including a June 2023 FDA approval for pediatric GHD[79][82] - The ModeX acquisition brought a pipeline of multispecific antibodies and vaccines, including a tetra-specific antibody for solid tumors expected to enter clinical testing in 2024 and an EBV vaccine candidate licensed to Merck[62][66] Intellectual Property OPKO protects its key products like Rayaldee® and NGENLA®, along with its pipeline, through a robust portfolio of owned and licensed U.S. and foreign patents and applications - Rayaldee is protected by multiple U.S. patent families, with expirations in 2027 and 2028, and additional pending applications extending to 2034[102] - The NGENLA® (Somatrogon) patent estate, exclusively licensed to Pfizer, includes patents covering the modified hormone, its uses, and manufacturing methods, with core patents expiring in 2027/2028 and formulation patents pending until 2033[103] - OPK88003 (oxyntomodulin) is covered by a U.S. patent expiring in December 2030, while OPK88004 (SARM) is covered by a patent expiring in November 2027[104] - ModeX Therapeutics has multiple patents and applications, both owned and licensed (e.g., from Sanofi), covering its vaccine candidates (like the EBV vaccine out-licensed to Merck) and multispecific antibodies for infectious disease and cancer[106] Competition OPKO operates in highly competitive pharmaceutical and diagnostic markets, facing larger competitors for products like Rayaldee® and NGENLA®, and for its BioReference laboratory services - Competitors include major pharmaceutical, specialty pharma, and biotech companies with substantially greater financial and operational resources[110] - Rayaldee's competition includes activated vitamin D analogs (calcitriol, doxercalciferol) and vitamin D supplements[111] - NGENLA® (hGH-CTP) competes with other long-acting hGH products and numerous generic daily human growth hormone products[112] - In clinical laboratory operations, major competitors are Quest Diagnostics and Laboratory Corporation of America[113] Government Regulation OPKO's operations are subject to extensive U.S. and international regulations, including FDA drug approval processes, CLIA standards for labs, and laws governing billing, data privacy, and fraud and abuse - Clinical laboratory operations are regulated under the Clinical Laboratory Improvement Amendments (CLIA) to ensure quality and reliability, requiring certification and periodic inspections[117] - Drug development is a multi-year process requiring preclinical studies and three phases of clinical trials to establish safety and efficacy before an NDA or BLA can be submitted to the FDA for approval[119][121] - The company is subject to data privacy and security regulations, including HIPAA in the U.S. and the General Data Protection Regulation (GDPR) in Europe[140][142] - Operations must comply with healthcare fraud and abuse laws, including the Anti-Kickback Statute, the Stark Law (physician self-referral), and the False Claims Act[143][145][148] Human Capital Resources As of December 31, 2023, OPKO employed 3,930 full-time staff globally, prioritizing employee safety, competitive compensation, diversity, and talent development - As of December 31, 2023, the company had 3,930 full-time employees worldwide[156] - The company emphasizes employee safety, complying with CLIA and OSHA regulations, and has implemented measures to address risks such as the COVID-19 pandemic[157] - OPKO is committed to diversity and inclusion, competitive pay and benefits, and talent development to strengthen employee retention[158][159][161] Risk Factors OPKO faces significant risks including historical operating losses, funding needs, R&D uncertainties, intense competition, regulatory hurdles, intellectual property challenges, and dependence on key products and leadership - The company has a history of operating losses and may require additional funding, which may not be available on acceptable terms[165][167] - Business success is substantially dependent on generating profits from laboratory operations and the successful commercialization of NGENLA® (in partnership with Pfizer) and Rayaldee®[179][186] - The company faces risks from intense competition, potential failure of R&D to produce viable products, and the possibility that clinical trial results may not be predictive of future success[171][191] - Regulatory risks are significant, including failure to obtain or maintain approvals from the FDA and other authorities, and compliance with complex laws like CLIA, HIPAA, and anti-kickback statutes[258][261][273] - Intellectual property risks include the inability to obtain and enforce patent protection, which could materially harm the business[233] - International operations are subject to risks including currency fluctuations, political instability in regions like Israel, and compliance with the Foreign Corrupt Practices Act (FCPA)[296][297][298] - The company's success is significantly dependent on the involvement and reputation of its Chairman and CEO, Dr. Phillip Frost[211] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[315] Cybersecurity OPKO maintains a comprehensive cybersecurity risk management program with Board oversight, technical safeguards, and incident response, reporting no material breaches affecting its operations - The Audit Committee of the Board has direct oversight of cybersecurity risks, receiving regular reports from the Chief Compliance & Audit Officer (CCO/CAO) and Chief Information Security Officer (CISO)[319] - The company's risk management strategy includes regular risk assessments, technical safeguards, incident response plans, third-party risk management, and employee training[319] - OPKO maintains industry certifications such as SOC 2 Type 2 and PCI DSS attestations and conducts annual vulnerability and penetration tests[319] - As of the filing date, the company reports no material breaches or cybersecurity incidents that have materially affected or are reasonably likely to materially affect its business, operations, or financial condition[319] Properties OPKO's properties include leased corporate offices in Miami, owned manufacturing facilities in Mexico and Spain, and leased R&D and diagnostic labs globally Property Locations | Location | Segment and Purpose | Type of Occupancy | | :--- | :--- | :--- | | Miami, FL | Diagnostics & Pharmaceutical: Corporate Headquarters | Leased | | Elmwood Park, NJ | Diagnostics: Main Laboratory | Leased | | Kiryat Gat, Israel | Pharmaceutical: Research and Development, CTP | Leased | | Nesher, Israel | Pharmaceuticals: API Manufacturing | Leased | | Guadalajara, Mexico | Pharmaceuticals: Pharmaceutical Manufacturing | Owned | | Banyoles, Spain | Pharmaceuticals: Pharmaceutical Manufacturing | Owned | | Waterford, Ireland | Pharmaceuticals: Pharmaceutical Manufacturing | Leased | Legal Proceedings OPKO is involved in legal proceedings including a potential Texas Medicaid fraud violation, a $246 million Israel tax assessment, and a recently dismissed False Claims Act case - In February 2023, the Texas Attorney General's Office notified BioReference of a potential violation of the Texas Medicaid Fraud Prevention Act, with potential liability yet to be determined[327] - On December 29, 2022, the Israel Tax Authority issued a tax assessment of approximately $246 million (including interest) against OPKO Biologics for tax years 2014-2020, which the company is appealing[328] - A Civil Investigative Demand from the U.S. Department of Justice related to the False Claims Act and Anti-Kickback Statute, which led to a relator's complaint, was dismissed with prejudice on January 23, 2024[329] Mine Safety Disclosures This item is not applicable to the company - Not applicable[330] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities OPKO's common stock trades on NASDAQ and the Tel Aviv Stock Exchange, with no cash dividends paid or anticipated, and no share repurchases in Q4 2023 - The company's common stock trades on NASDAQ and the Tel Aviv Stock Exchange under the ticker "OPK"[333] - No cash dividends have been declared or paid, and none are anticipated for fiscal 2024[334] - No shares of common stock were repurchased during the fourth quarter of the year ended December 31, 2023[334] Selected Financial Data This item is not applicable - Not applicable[339] Management's Discussion and Analysis of Financial Condition and Results of Operations OPKO reported an improved operating loss in FY2023 on decreased total revenues, driven by lower diagnostics services but offset by increased pharmaceutical revenue and bolstered liquidity from recent financing Results of Operations In 2023, OPKO improved its operating loss to $157.0 million despite a 14% revenue decrease, driven by a 32% decline in diagnostics offset by a 40% pharmaceutical revenue increase Consolidated Statements of Operations Data | (In thousands) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $863,495 | $1,004,196 | (14)% | | Revenue from services | $515,275 | $755,630 | (32)% | | Revenue from products | $167,557 | $142,845 | 17% | | Revenue from transfer of IP | $180,663 | $105,721 | 71% | | Total costs and expenses | $1,020,515 | $1,230,449 | (17)% | | Loss from operations | ($157,020) | ($226,253) | 31% | - The Diagnostics segment's revenue from services decreased by 32% in 2023, primarily due to a $189.7 million reduction in COVID-19 testing demand and lower reimbursement[348] - The Pharmaceuticals segment's total revenue increased by 40% in 2023, driven by a $90.0 million milestone from Pfizer for NGENLA®'s FDA approval, a $50.0 million upfront payment from Merck, and a 14% increase in Rayaldee sales to $31.0 million[357][358] - Research and development expenses increased 21% in 2023 to $89.6 million, mainly due to increased activity at ModeX, including a $12.5 million payment to Sanofi[347][362] Liquidity and Capital Resources As of December 31, 2023, OPKO held $95.9 million in cash, with liquidity significantly bolstered in January 2024 by a $230.0 million convertible notes offering and strategic debt repurchases - The company held $95.9 million in cash and cash equivalents as of December 31, 2023[402] - In January 2024, OPKO completed a private offering of $230.0 million of 3.75% Convertible Senior Notes due 2029, receiving net proceeds of approximately $222.0 million[403][404] - Proceeds from the 2024 note offering were used to repurchase approximately $144.4 million of existing 2025 notes for $146.3 million and to repurchase $50.0 million of the company's common stock[404][405] - In 2023, the company received significant cash inflows from milestone payments, including $90.0 million from Pfizer for NGENLA®'s FDA approval and a $50.0 million upfront payment from Merck[411][412] - As of December 31, 2023, the company had $37.9 million in total commitments under its credit facilities, with $25.3 million drawn[421] Critical Accounting Policies and Estimates Management's critical accounting policies involve significant estimates for goodwill and intangible asset impairment, complex revenue recognition for services and products, and fair value measurement of contingent consideration - Goodwill and intangible assets are tested for impairment annually or when indicators are present. The fair value estimation is highly sensitive to changes in projections and assumptions. The combined goodwill of the diagnostics segment and Ireland reporting unit was $367.3 million at year-end 2023[432][434][438] - Revenue from laboratory services is recognized net of variable consideration, including contractual allowances and implicit price concessions. In 2023, negative revenue adjustments of $19.2 million were recognized for performance obligations from prior periods[442][447] - Revenue from product sales, like Rayaldee, is recorded net of estimated Sales Deductions (rebates, chargebacks, discounts) and product returns. For 2023, the provision for these deductions was 54% of gross Rayaldee sales[451][708] - Revenue from intellectual property involves estimating variable consideration for milestones and constraining it until achievement is probable and a significant reversal is not expected[456][458] - Contingent consideration from acquisitions is revalued each period, and changes in fair value are recorded in earnings. These estimates are subject to significant judgment regarding milestone achievement and timing[472] Quantitative and Qualitative Disclosures about Market Risk OPKO faces market risks from foreign currency fluctuations, with 29.6% of 2023 revenue in non-USD currencies, and interest rate changes on its variable-rate debt and cash portfolio - In 2023, 29.6% of revenue was denominated in currencies other than the U.S. Dollar, primarily the Euro and Chilean Peso, exposing the company to foreign exchange risk[483] - The company uses foreign exchange forward contracts to manage currency risk. As of December 31, 2023, it had 52 open contracts with a total notional value of approximately $2.9 million[346] - Interest rate risk is related to cash and investments, and variable-rate borrowings. As of December 31, 2023, the company had $25.3 million in outstanding variable-rate debt at a weighted average interest rate of 7.52%[485] - Outstanding convertible senior and senior notes have fixed interest rates, which limits interest rate risk on those specific debt instruments[486] Financial Statements and Supplementary Data This section presents OPKO's audited consolidated financial statements for FY2023, including balance sheets, income statements, and cash flows, with an unqualified opinion from Ernst & Young LLP Consolidated Balance Sheets | (In thousands) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $2,011,698 | $2,167,259 | | Cash and cash equivalents | $95,881 | $153,191 | | Goodwill & Intangibles | $1,533,543 | $1,614,371 | | Total Liabilities | $622,479 | $605,611 | | Convertible notes | $214,325 | $210,371 | | Total Shareholders' Equity | $1,389,219 | $1,561,648 | Consolidated Statements of Operations | (In thousands, except per share data) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total revenues | $863,495 | $1,004,196 | $1,774,718 | | Operating income (loss) | ($157,021) | ($226,253) | $18,750 | | Net loss | ($188,863) | ($328,405) | ($30,143) | | Loss per share basic and diluted | ($0.25) | ($0.46) | ($0.05) | Consolidated Statements of Cash Flows | (In thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($28,197) | ($95,189) | $38,337 | | Net cash (used in) provided by investing activities | ($18,198) | $91,038 | $35,949 | | Net cash (used in) provided by financing activities | ($11,303) | $22,971 | ($10,350) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[790] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with an unqualified audit opinion from Ernst & Young LLP - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[791] - Based on the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, 2023[793] - The company's independent auditor, Ernst & Young LLP, issued an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2023[794] Other Information No officers or directors adopted or terminated Rule 10b5-1 trading plans during the fourth quarter ended December 31, 2023 - No officers or directors adopted or terminated Rule 10b5-1 trading plans during the fourth quarter ended December 31, 2023[796] Disclosure regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[797] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships and Related Transactions, and Principal Accounting Fees and Services Information for Items 10 through 14 is incorporated by reference from the company's forthcoming definitive proxy statement for its 2024 Annual Meeting of Stockholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the forthcoming 2024 proxy statement[799] Part IV Exhibits, Financial Statement Schedules This section provides an index of all financial statements, schedules, and exhibits filed as part of the Form 10-K, including various agreements and certifications - This section provides an index of all exhibits filed with the Form 10-K, including material contracts, indentures, and certifications[801][802] Form 10-K Summary The company reports that there is no Form 10-K summary - None[810]