2016 Q4 Earning presentation

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Edited Transcript of OPK earnings conference call or presentation 1-Mar-17 9:30pm GMT

Thomson Reuters StreetEvents•March 1, 2017
Q4 2016 OPKO Health Inc Earnings Call

MIAMI Mar 2, 2017 (Thomson StreetEvents) -- Edited Transcript of OPKO Health Inc earnings conference call or presentation Wednesday, March 1, 2017 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anne Marie Fields

LHA - SVP

* Phillip Frost

OPKO Health Inc. - CEO & Chairman

* Steve Rubin

OPKO Health Inc. - EVP

* Adam Logal

OPKO Health Inc. - CFO

* Tom Nusbickel

OPKO Health Inc. - SVP of Marketing

* Tony Cruz

OPKO Health Inc. - CEO & Chairman of Transiiton Therapeutics

* Dave Okrongly

OPKO Health Inc. - President of Diagnostics Business Unit

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Conference Call Participants

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* Dana Flanders

JPMorgan - Analyst

* Brandon Couillard

Jefferies & Co. - Analyst

* Kevin DeGeeter

Ladenburg Thalmann & Company Inc. - Analyst

* Yale Jen

LaidLaw - Analyst

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Presentation

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Operator [1]

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Welcome to the OPKO Health 2016 financial and operating results conference call. At this time all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session.

(Operator Instructions)

As a reminder this conference is being recorded March 1, 2017. I would now like to turn the conference over to Anne Marie Fields.

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Anne Marie Fields, LHA - SVP [2]

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Thank you, Doris. Thank you and good afternoon. This is Anne Marie Fields with LHA. Thank you all for joining us today's call.

I'd like to remind you that any statements made during this call other than statements of historical fact will be considered forward-looking statements 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 annual report on Form 10-K for the year ended December 31, 2016 and its subsequent filings with the SEC.

Before we begin, let me review the format for today's call. Dr. Phillip Frost, Chairman and Chief Executive Officer of OPKO, will provide opening remarks and then he will turn over the call to Steve Rubin, OPKO's Executive Vice President, and he will provide an update on the company's various businesses and clinical programs. He will then turn the call over to Adam Logal, OPKO'S Chief Financial Officer, for review of the financials. After that, Dr. Frost will provide closing remarks and then we will take questions.

Now I would like to turn the call over to Dr. Frost. Dr. Frost?

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Phillip Frost, OPKO Health Inc. - CEO & Chairman [3]

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Thank you. I'd like to start by saying that we are very proud here at OPKO of our achievements during 2015 -- 2016, that is.

First milestone that we're proud of was the launch of RAYALDEE, our drug to treat secondary hyperparathyroidism and low vitamin D levels in phase 3 and four patients with chronic kidney disease. We invested quite a lot in building a marketing and sales team and other infrastructure, and we are very confident that this is going to turn out to be a significant product to help these patients.

Our second milestone, of which we're proud, is the acquisition of Transition Pharmaceuticals. Transition was a small company located in Canada led by an experienced team and headed by Dr. Tony Cruz, a well-known and terrific developer of new drugs.

They had several products, two of which we're extremely excited about. One is an oxyntomodulin molecule, similar in a way to the one that we had working on at OPKO, and that we acquired as part of the Prolor acquisition, but the good thing about their product is that it was further along. It had already been in 400 people and had been shown to be safe and effective. So we will enter a new trial with this product, a phase 2 trial, to determine the optimal dosing schedule to achieve maximal efficacy for treating obesity and secondary and type 2 diabetes.
 






The second product, which we are working and that we have a lot of enthusiasm for, is in the category of SARMs, which stands for selective androgen receptor modulator. And although it had been developed to treat a different set of conditions, when we looked at the data, it appeared to us that it was an ideal candidate to treat benign prostatic hypertrophy, or BPH.

It had already been in 400 men and it indicated the following characteristics that were appealing to us. It increases muscle mass, it increases bone strength, it decreased body fat, and in the 400 men it decreased the PSA levels. In separate dog trials it also significantly decreased the prostate size so we will begin a phase 2A trial in men sometime this year. The same drug, because it increases muscle mass, has potential to be used for treating stress and urgency urinary incontinence. That's a big market for which there is a great need for a new drug since the present drugs, although effective, have side effects that limit their use.

We will also begin a phase 2A trial for another molecule that we've had in our inventory. And this is a NK-1 inhibitor that along came with the package that we got from Schering Plough when we got rolapitant, and this drug seems to have the potential for treating itching.

And it fits in nicely with our overall program because the RAYALDEE will be used to treat patients with dialysis requirements and 50% of those patients experience extreme itching. So we work -- we're working on a protocol now and hope to begin a phase 2A trial together with Fresenius, a company that plays a dominant role in the dialysis market, very shortly. Once it's available we hope and believe that it will be used for itching for the various other causes as well.

Let me turn to Bio-Reference, our clinical laboratory. Bio-Reference turns out to be a very meaningful and important acquisition for us. Aside from helping us market the 4Kscore effectively, it provides some of the cash that we needed during 2015 to conduct our clinical trial program and to launch RAYALDEE. This is a company which during this time we spent a lot of time and effort and have invested in various new systems that we believe during 2017 will significantly increase the financial performance of the unit.

Altogether, we have a very solid growing business in medicines and diagnostics and an active pipeline that we believe can make OPKO one of the major factors in the healthcare industry. And with that, I'll turn the floor over to Steve Rubin.

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Steve Rubin, OPKO Health Inc. - EVP [4]

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Thank you, Phil, and good afternoon. And thank you all for joining us on today's call.

We are very pleased with our 2016 performance as we increased revenue to over $1.2 billion and made significant clinical and commercial progress that positions us for substantial short-term and long-term growth.

For today's call I will discuss our progress across our therapeutics and diagnostic businesses. Then I'll turn the call over to Adam for a review of our financial performance.

Let me begin with an update on RAYALDEE, our FDA-approved therapy for the treatment of secondary hyperparathyroidism, or SHPT, in adult patients with stage three or four chronic kidney disease and vitamin D insufficiency.

We launched RAYALDEE at the end of November with a team of 50 highly qualified professionals with considerable experience and notable past successes in the nephrology market, comprised of territory managers, field-based sales reps, and medical science liaisons. We also have over 100 key opinion leaders supporting this launch and they are meeting with physicians in a variety of settings on a continuous basis to educate them on the SHPT disease state and RAYALDEE's benefits.

The input shown by clinicians is strong and the feedback on RAYALDEE has been very positive. We continue to find-tune our commercial strategy and tactics as we learn more about the needs of our targeted healthcare providers, patients, and our payers. We are undertaking a comprehensive ongoing market education campaign to highlight the unmet medical need of effectively and safely treating SHPT and the underlying vitamin D insufficiency in patients with chronic kidney disease, or CKD.

RAYALDEE is the only FDA-approved therapy that lowers parathyroid hormone, or PTH levels, by correcting the associated vitamin D insufficiency. RAYALDEE is approved for treatment of SHPT in adults with stage three or four CKD, a population numbering approximately million in the US alone. Competitive therapies for SHPT and stage three or four CKD are limited to vitamin D receptor activators which effectively suppress elevated PTH but drive the vascular calcification, the leading cause of patient morbidity and mortality.

The forthcoming revisions to the kidney disease improving global outcomes, or KDIGO, clinical practice guidelines for CKD are expected to recommend against the routine use of vitamin D receptor activators for the treatment of SHPT in this population. These guidelines are also expected to highlight the improving effectiveness of nutritional vitamin D as a treatment for SHPT. We believe that RAYALDEE will become the drug of choice to effectively and safely treat SHPT and stage three and four CKD.

We made excellent progress on a reimbursement front for RAYALDEE and have set the wholesale acquisition cost, or WAC, at $928 per month for the lowest dose. RAYALDEE is now included in commercial and part D insurance under contract for more than 60% of US covered lives and we expect to surpass 75% of US covered lives by the end of 2017.

We plan to our leverage our nephrology infrastructure to events four additional programs for renal indications. First is the final phase 3 clinical study for Alpharen, our iron magnesium-based phosphate binder for the treatment of hyperphosphatemia is dialysis patients. Alpharen, also known as Fermagate, is a new, potent, and calcium free phosphate binder that has been shown to be safe and effective in treating hyperphosphatemia in phase 2 and 3 trials. Hyperphosphatemia, or elevated serum phosphorus, is common in dialysis patients and tightly linked to progression of SHPT and vascular calcification, both of which drive patient morbidity and mortality.

Second is the phase 2 clinical trial of a higher strength formulation of RAYALDEE for hemodialysis patients, which we plan to conduct in collaboration with our international partner, Vifor Fresenius. This study should initiate in the second half of this year.

Third is our plan to develop a Claros 1 point-of-care diagnostic test for vitamin D insufficiency.

And fourth is initiation of early-stage clinical work on an NK-1 inhibitor for pruritus associated with dialysis.

I will note also that our partner Vifor Fresenius is preparing marketing applications for RAYALDEE for submission to regulatory authorities in Europe, Canada, and Mexico as a treatment for SHPT in stage three and four CKD patients. We are very excited about these opportunities for OPKO in nephrology.

RAYALDEE is the first FDA-approved product in this indication and it fills a void in the available treatment options for the approximately 9 million Americans with SHPT, stage three or four CKD, and vitamin D insufficiency.

We also have a number of important clinical programs underway with our improved long-acting proteins and peptide technologies and have made significant progress advancing several of these studies. Our most clinically advanced product is our long-acting human growth hormone product, hGH-CTP which is partnered for worldwide collaboration with Pfizer.

Last year we reported topline data from the phase 3 study in adults with growth home growth hormone efficiency. This is a multinational, multicenter study which utilized a two-to-one randomization between hGH-CTP and placebo in 198 subjects. Treatment was administered through weekly subcutaneous injections, the primary endpoint was change in trunk fat mass. The primary topline data showed that the hGH-CTP group had a mean reduction in trunk fat mass of 0.4 kg compared with no change in the placebo group, a difference which did not meet statistical significance. 97% of hGH-CTP groups versus only 6% of placebo group showed insulin-like growth factor one, or IGF1 normalization. This is the biochemical marker which indicates the effectiveness of the human growth hormone.

The safety profile of hGH-CTP was consistent with that of daily injected growth hormone. We believe there was an outlier subject in the placebo group who had embarked on a particularly strenuous exercise and weight loss program during the course of the trial that appears to have skewed results in the placebo group.
 






We are in the process of conducting an outlier sensitivity and modified analysis of the data from this study and we along with Pfizer are working diligently to prepare all documentation on this modified analysis in a manner that will be suitable for FDA review. Our preparation for the forthcoming submission to the FDA of the BLA are progressing well.

We initiated our 220-subject global pivotal phase 3 study in pre-pubertal growth hormone deficient children, which is evaluating a single weekly dose of hGH-CTP versus daily injections of currently marketed growth hormone. This trial will be performed in over 30 countries in North America, Europe, and Asia. The pediatric segment represents approximately 80% of the commercial market for the treatment of growth hormone deficiency.

Note that efficacy end points for treating growth hormone deficiency in adult patients is the reduction of body fat mass which includes trunk fat mass and this endpoint is different from those for treating pediatric patients, which of course assess growth velocity. Clearly the hGH-CTP program represents a very large opportunity for OPKO and we're excited to be advancing this late-stage program towards commercialization.

Let me now update you on our long-acting Factor VIIa-CTP for the treatment of bleeding episodes in hemophilia A or B patients with inhibitors to Factor VIII or Factor IX. We are in clinical studies evaluating both an intravenous and a subcutaneous formulation of Factor VIIa-CTP for the treatment of spontaneous bleedings with the aim of reducing the frequency of dosing as well as establishing prophylactic efficacy. We have FDA and EMA orphan drug designation for Factor VIIa-CTP for this indication.

We are nearing completion of phase 2A dose escalation study to evaluate the safety of pharmacokinetic and pharmacodynamic properties of intravenous Factor VIIa-CTP and we have initiated a phase 1 clinical study of subcutaneous administration of this drug. This is a single escalating dose trial in healthy volunteers to evaluate the safety, including immunogenicity as well as pharmacokinetic and pharmacodynamic properties.

Current treatment options with Factor VII require multiple infusions to manage bleeding episodes because of its extremely short half-life. Frequent infusions are particularly onerous when used as prophylactic therapy, especially for children.

This is a $1.7 billion market which is growing by 7% annually and only 25% of patients are currently being treated. We believe that a longer-acting Factor VII administered by subcutaneous administration could change the landscape by permitting children and adults to more easily self-administer at home on a prophylactic basis and could increase the percentage of patients being treated.

We have two other exciting late stage clinical development projects that Dr. Frost already noted, a SARM for BPH and once-weekly oxyntomodulin for obesity and type 2 diabetes.

Turning now to our diagnostic segment, Bio-Reference Laboratories posted solid revenue during 2016, with the bulk coming from traditional reference lab testing along with modest sequential quarter growth with 4Kscore. And with over $1 billion of revenue, it provides us with significant cash flow, which Adam will speak to in his financial discussion. As you know, 4Kscore is the only blood test that accurately identifies the risk for aggressive prostate cancer.

We continue to work with payers to secure favorable reimbursement and are making incremental progress. Last year the American Medical Association granted a CPT 1 code for 4Kscore which became effective as of January 1, 2017. We are also included in the 2016 National Comprehensive Cancer Network and 2016 European Association of Urology Prostate Cancer Guidelines. We have a number of positive regional coverage decisions with commercial payers, and pricing agreements have been obtained.

With regards to Medicare coverage, Novitas Solutions, a Medicare administrative contractor, of MAC, matters most to 4Kscore. This is because all blood samples collected in the US are sent to our facility in New Jersey and all billing to Medicare takes place there to Novitas. Novitas has been and continues to pay for the majority of 4Kscore tests at the 2017 clinical lab fee scheduled price for the category 1 CPT code.

Last year we completed and submitted a complete clinical dossier to Novitas which included background information, physician experience, and extensive clinical validation. While we expected Novitas to include 4Kscore in its February review cycle for a draft local coverage determination, or LCD, there is no guarantee that 4Kscore would be included in that review cycle. To date, Novitas has not announced LCDs for any diagnostic test in the February review cycle. Nevertheless, as noted previously, Novitas has been and continues to pay for the majority of 4Kscore tests.

We remain confident in our value proposition for the 4Kscore test as there is ample clinical validation in peer reviewed published articles and inclusion in an NCCN and EAU guidelines that I mentioned earlier. 4Kscore continues to be marketed by approximately 200 Bio-Reference Labs sales reps to physicians, and we have sequential quarterly growth in samples and we remain very encouraged by increasing physician use of the test.

Which then leads me to a discussion of our plans for the Claros 1 point-of-care system, our novel multiplex instrument system to provide rapid, high-performance blood test results at the point of care. As a recap, Claros 1 can run a 10-minute immunoassay test in the physician's office or hospital nurses station using a single drop of blood, negating the need for a phlebotomist, which is of course someone who draws blood from an arm vein, or centralized laboratory.

We have ramped up our efforts to advance Claros 1 through the regulatory pathway towards commercialization in the US and have initiated a study for a PSA point of care test. We expect to submit a PMA with the FDA in the first half of this year. We anticipate the review process to take up to nine months. Upon FDA clearance we plan to leverage Bio-Reference Labs' marketing, sales, and distribution resources for the launch of the Claros 1 system with a PSA test in the United States.

In tandem with conducting with the PSA study, we are developing additional tests for the Claros 1 including a test for testosterone, for which we expect to file a 510(k) by the end of this year. And we are also developing a test to measure vitamin D levels. We believe there are many more applications for this platform technology, including infectious diseases, cardiology, women's health, and companion diagnostics.

In closing, 2016 was marked by great progress across all business segments. We are reporting increase in revenue and cash flow and have expanded our business through acquisitions and internal developments. We expect continued revenue growth from our core diagnostic business and from our newer products as we advance the 4K score test, increase patient volumes for GeneDx, and advance Claros 1 test towards commercialization.

Throughout 2017 we expect to achieve a number of value-creating milestones including the following. Continued preparation for the BLA submission to FDA of our adult hGH-CTP, a PMA filing for Claros 1 PSA point of care test, a 510(k) filing for Claros 1 point of care testosterone test, initiation of a phase 2 dose-ranging study of TT701 in BPH, progression of a pivotal phase 3 study of pediatric hGH-CTP, and topline data from the safety studies of Factor VIIa CTP.

We look forward to keeping you apprised of our progress with all these programs. With that overview of our business, let me turn the call over to Adam for a discussion of our 2016 financial performance

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Adam Logal, OPKO Health Inc. - CFO [5]

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Thank you, Steve. Good afternoon, everyone.

During the quarter ended December 31, 2016, revenue was $276 million, which was consistent with the comparable period of 2015. Revenue for the 2016 period benefited from an increase of revenue at our Bio-Reference operations of approximately 6%, while the 2015 period benefited from a nonrecurring $15 million milestone from Tesaro.

We continue to make efforts to improve the financial performance of Bio-Reference through a revenue cycle management program. As I mentioned on our last call, the most critical component of this program was the successful implementation of a new billing system which occurred on October 1. We continue to evaluate and improve our overall revenue cycle from the customers we service to improving our positions with the insurance companies and importantly, the way we bill and collect from our customers and patients.

Our investments in our pharmaceutical and diagnostic research and development programs reached nearly $28 million during the quarter compared to $25 million for the 2015 period. Loss from operations for the three months ended December 31, 2016 was $50 million compared to $8 million for the comparable period of 2015. As I mentioned the 2015 period benefited from a $15 million milestone payment received from Tesaro.
 






During the fourth quarter of 2016, SG&A expense included approximately $13 million related to the launch of RAYALDEE. There were a number of launch initiatives that occurred during the fourth quarter of 2016, including the sales training and launch meetings, as well as the largest trade show of the year, where we introduced RAYALDEE to the nephrology community. This was also the first full quarter with our full commercial team in place.

Our balance sheet remains strong in a position with approximately $160 million of cash and cash equivalents, and we also have access to an additional $104 million under our existing credit facilities giving us over $270 million of total liquidity

As Phil mentioned earlier, I wanted to expand on the financial performance of Bio-Reference. During 2016 Bio-Reference contributed over $1 billion of revenue and nearly $120 million of cash flow from operations, $42 million of which was used to reduce our credit facility at JPMorgan with the remainder available for reinvestment in the business or to be invested in our various R&D programs.

As mentioned earlier, we remain focused on improving the operating performance of Bio-Reference which will enhance the financial performance as a group but also provide a source of cash flow to invest in our higher-margin novel diagnostics and therapeutic development programs. We anticipate the revenue cycle management program which was initiated in the second half of 2016 to begin the result of financial -- improved financial performance during 2017 with 2018 benefiting from a full-year of investment.

As Steve discussed, we launched RAYALDEE in November. I'd like to remind you of our expectations for revenue recognition for RAYALDEE during the early days of the launch. Accounting guidelines imposed by the SEC have a high threshold for revenue recognition, particularly for a company that is launching its first commercial product. Key elements of our ability to recognize revenue under US GAAP include having sufficient activity over time to provide visibility to the distribution channel, the payer mix, and any discounts, rebates, and product returns.

We expect the earliest we will have sufficient visibility to reliably make estimates necessary to recognize product revenues will be later this year. After accounting for all fees, rebates, and other discounts, the net sales price we expect to recognize on sales will be around $550 per unit or approximately 60% of our WAC price of just over $900.

We expect after factoring in fees to distribution partners, group purchasing organizations, mandated government discounts, and the discounts that we expect to be earned on our value-based contracts with providers that the net sales price we realize will be approximately 55% to 65% of the WAC price over the life of the product. However, throughout 2017 as we establish RAYALDEE's position in the marketplace, we expect the net price that we will realize to be at the low end of the range.

As Steve mentioned, we continue negotiations with top Medicare Part D plans, managed care plans and pharmacy benefit managers which we are not under contract with. As Steve mentioned, we have achieved great success in the early part of the year in obtaining formulary access with over 60% of covered lives having access to RAYALDEE. About 50% of those covered lives have no restrictions on the use of RAYALDEE while 50% require a prior authorization.

The majority of the access restrictions are in the form of confirmation by the prescribing physician that the patient meets the definition of the package insert, meaning the patient has stage three or four CKD, has elevated PTH levels, and vitamin D insufficiency. We have a number of access programs to help mitigate the impact including patient assistance programs as we anticipated the access restrictions. I would like to turn the call back to Phil.

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Phillip Frost, OPKO Health Inc. - CEO & Chairman [6]

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I will close by just repeating that I personally am very, very satisfied with what we have going on now at OPKO.

The products that we have on the market, 4Kscore to identify men at risk for developing prostate cancer or having prostate cancer; RAYALDEE a unique product to treat the stage three and four kidney chronic disease patients who have low vitamin D levels and secondary hypoparathyroidism. These are both unique products and that's what I really like. I like to be able to go out there with products that have their own story with limited competition.

The pipeline I can only characterize as being outstanding. You can tell from my tone of voice that I'm very enthusiastic about the SARM, the molecule that we got with the Transition acquisition to treat benign prostatic hypertrophy. You can imagine with the constellation of properties of decreasing body fat, increasing muscle mass and bone strength, and at the same time lowering the PSA and decreasing the size of the prostate and therefore helping with the symptoms of BPH. You can imagine that's a product whose appeal would be irresistible by physicians and patients who require it. And I should tell you that in the United States alone, there are approximately 50 million men who suffer from BPH so the market is, to say the least, quite large.

The oxyntomodulin product, the dual-acting agonist for treating obesity and type 2 diabetes, that has the potential to be the best drug in its class to treat these conditions. We will know a little bit more after next trial but what I said is absolutely true. It can be the best drug in its class.

And so far as Bio-Reference is concerned, you heard that we are working on making it more efficient. It already is generating nice cash flow. We're hoping that that will only increase. It's helping with the marketing of the 4K product. And above and beyond that you can only imagine that we are very open to new initiatives that will take that whole business to another level. We spent time considering such possibilities.

With that I will open the floor to questions.
 






Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question is from Dana Flanders with JPMorgan.

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Dana Flanders, JPMorgan - Analyst [2]

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Thank you for the questions. Just my first, can you provide some more color on just what you're seeing in the RAYALDEE launch? I know it's still relatively early and scripts have picked up in the last couple weeks but so far it's running a little bit below our expectations. And maybe if you could just comment on what you think you're doing well, what needs to be worked on, and just how you plan to accelerate scripts going forward? And then I have a few follow-ups.

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Phillip Frost, OPKO Health Inc. - CEO & Chairman [3]

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You know, we have with us our director of marketing and sales, Tom Nusbickel, so he will be happy to have a try at that.

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Tom Nusbickel, OPKO Health Inc. - SVP of Marketing [4]

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The product has been very well received in the marketplace by the physicians. But again, the physicians are also very busy, and they need to continue to be educated in regards to what the significant consequences are of vitamin D insufficiency and SHPT in this CKD three and four population.

So we have been working to ensure that we are getting closely aligned sales and medical calls to address the key concerns that physicians have and to create champions who will go forward and basically help us continue to grow the business quickly.

We've seen a lot of physicians now who are writing multiple prescriptions, they're in large practices, they're local and national thought leaders, so we're excited about we have found the mix and that we will continue to increase the business.

And as was mentioned earlier, as we continue to improve our reimbursement situation through continuing to negotiate contracts with the large payers, we expected that will also help us to take off even more quickly.

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Phillip Frost, OPKO Health Inc. - CEO & Chairman [5]

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I would just add that because this is a novel product with a novel mechanism of action, it's something that the physicians are not accustomed to and therefore requires a little more education. But as they learn about it, they become very enthusiastic about it. And my own view is -- I can't guarantee it, of course, is that this will start to move geometrically.

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Dana Flanders, JPMorgan - Analyst [6]

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Okay. Great. And on the 4Kscore, what is your level of discussion right now with Novitas? I know they're paying for it, but what's the holdup? And when you expect them to give you an answer? Is that their next review cycle? Or maybe just some more color on timing there.

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Steve Rubin, OPKO Health Inc. - EVP [7]

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It's difficult to tell the timing. We haven't had a lot of constant interaction with Novitas. We provide supplements from time to time as we complete other clinical studies, but and they acknowledge of course receipt of the studies and perhaps ask questions, but it's not a day-to-day interaction.

So we actually have reached out to them to see when they're going to do any of their February cycles, but they have done none, as I mentioned. We're not singled out. They just haven't -- no diagnostic tests have received new LCDs in February. We just have to assume it's coming up.

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Dana Flanders, JPMorgan - Analyst [8]

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Okay. And maybe just my last one and I will jump back into queue. Adam, I know you mentioned better cash conversion on BRL over the course of 2017 and into 2018, and I think you said it $1 billion of revenue and $120 million in operating cash flow, if I'm not mistaken. So can you just help us understand the magnitude of the better cash conversion that we could see as we go into 2018 just on an annualized basis? Thank you.

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Adam Logal, OPKO Health Inc. - CFO [9]

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Thank you. When we target from an operating metric that we think the Bio-Reference Lab should be is -- on an EBITDA basis somewhere between 15% and 20% on a normalized basis. I think that's where we are striving to go to, and I think during 2017, we'll make good progress on that and be able to realize that for the full year of 2018.

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Dana Flanders, JPMorgan - Analyst [10]

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Thanks.

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Operator [11]

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Our next question is from the line of Brandon Couillard with Jefferies.

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Brandon Couillard , Jefferies & Co. - Analyst [12]

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Thank you, and good afternoon. Adam, back on RAYALDEE, in the context of the IMS script tends. Could you give us some goalposts, some parameters of how to think about revenue contributions from that drug this year?

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Adam Logal, OPKO Health Inc. - CFO [13]

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Brandon, I think from an overall perspective we are not in a position where we're are going to guide to it. I think where we want to make sure we are focused, or certainly are making sure you know where we're focused, is working towards getting about 75% to 80% of covered lives, getting that market access window open.

And then to measure ourselves on script growth, so to the point you made and what Dana made a few minutes ago, the script -- the scripts are growing. They're not where we expect or hope them to be, but we expect to see now that we're getting more market access to see those numbers start to grow over time. Really the story for us and where we are measuring ourselves is opening that market access and then seeing the script growth come.

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Brandon Couillard , Jefferies & Co. - Analyst [14]

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Maybe one for Steven. Do you have any type of timeline you can share with respect to the hGH program and when you might get -- when you might expect to file and get some sign-off from the FDA on the I guess, the one outlier analysis?

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Phillip Frost, OPKO Health Inc. - CEO & Chairman [15]

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This is Tony Cruz, who's sitting with us, who will respond.

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Tony Cruz, OPKO Health Inc. - CEO & Chairman of Transiiton Therapeutics [16]

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Yes, I think Steve already mentioned that we are working really diligently to -- with Pfizer to make sure that the data is properly validated so that everything is ready, including the documentation from the previous studies to support the adult study for FDA inspection ready.

And once that's done, the plan is to progress and to do an analysis, and following that analysis, then do a BLA submission. That is actually going to be carried out by Pfizer. So until that is complete, we really don't have a timeline, and it's partially dependent on both Pfizer and OPKO to agree that it's ready to move forward. I think over the next few months we will have a better idea of the timeline for the submission.
 






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Brandon Couillard , Jefferies & Co. - Analyst [17]

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Just one on Claros. Would you report out any top-line data readouts from the PSA study at any point before the filing? And if so, when and what venue might what that might be?

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Dave Okrongly, OPKO Health Inc. - President of Diagnostics Business Unit [18]

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This is Dave Okrongly. I will take that one. We submitted an abstract to the AACC, which will hopefully be accepted and we expect to report some data at that meeting, the American Association of Clinical Chemistry meeting.

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Brandon Couillard , Jefferies & Co. - Analyst [19]

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Super. I think that's all. Thank you.

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Operator [20]

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Kevin DeGeeter with Ladenburg.

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Kevin DeGeeter, Ladenburg Thalmann & Company Inc. - Analyst [21]

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Thanks for taking my questions. Just kind of getting back to the RAYALDEE market access theme. For the 50% of patients who have plans that require prior authorization, just any sense as to what percentage of patients ultimately are deemed appropriate candidates? And how that may evolve as your experience matures with the plans?


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Yale Jen with Laidlaw.

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Yale Jen, LaidLaw - Analyst [29]

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Good afternoon, and thank you for taking the questions. Also starting with RAYALDEE that in coverage you have roughly 60% of the lives covered. Was that -- meet your expectations, exceeds that, or under that as this point?

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Steve Rubin, OPKO Health Inc. - EVP [30]

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I think when we went into the launch not necessarily knowing how all payers would respond, we had set some goals of trying to be at about 60% by June 30. So I think we are a little ahead of schedule on a couple of the payers.

I think from us to get from the current 60% to the 75% to 80% is going to be a much longer discussion, and there are various review meetings scheduled in the summer. So I don't think we're going to see further acceleration but certainly working hard to get as many as we can in place now.

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Yale Jen, LaidLaw - Analyst [31]

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And second question is about the Bio-Reference Lab revenue in the fourth quarter. It seems to be slightly lower than last year, the same quarter, but you anticipate better financial performance in 2017 and beyond. Was that mainly from more streamlining the operation or you anticipate a greater top-line growth as well going forward?

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Steve Rubin, OPKO Health Inc. - EVP [32]

--------------------------------------------------------------------------------

Comparing 2016 fourth quarter to the fourth quarter of 2015, we did see about a 6% growth quarter over quarter. So that was about a $13 million or so increase in overall revenue. We historically -- the fourth quarter for Bio-Reference, and we realized again this quarter, in the fourth quarter of this year is a lighter quarter just based on patient visits to physician offices and volumes overall in general. I do think the growth that we saw in 2016 for Bio Reference revenue our target is certainly to continue to grow in that 10% range on year-over-year basis.

--------------------------------------------------------------------------------

Yale Jen, LaidLaw - Analyst [33]

--------------------------------------------------------------------------------

My last question -- thanks for that -- my last question is for the (inaudible) IV treats was study. Any time you have planned talking reporting the data? And what might be the next step to reconsider between the IV and subQ to move forward or concurrently in two separate formats?

--------------------------------------------------------------------------------

Steve Rubin, OPKO Health Inc. - EVP [34]

--------------------------------------------------------------------------------

We plan on bringing both to market because you need to have both. For surgery and rescue, you will need to have the IV version. The subcutaneous would be ideally used prophylactically.

So the 2a dose rate and study in patients in hemophiliacs and the Phase 1 subcutaneous that's ongoing now as well as in healthy individuals, so the next step for both would be -- we'll meet with FDA and the intention is to try to do a Phase 2 that will roll into a Phase 3. That's really requires a subsequent meeting with the FDA, but again, we intend to develop both dosage forms.

--------------------------------------------------------------------------------

Yale Jen, LaidLaw - Analyst [35]

--------------------------------------------------------------------------------

And would this meeting with the FDA be in 2017? Or that will be next year?

--------------------------------------------------------------------------------

Steve Rubin, OPKO Health Inc. - EVP [36]

--------------------------------------------------------------------------------

It will be in 2017.

--------------------------------------------------------------------------------

Yale Jen, LaidLaw - Analyst [37]

--------------------------------------------------------------------------------

Thanks a lot. I appreciate it.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

That is all the time for questions we have today.

Dr. Frost, please go ahead with your closing remarks.

--------------------------------------------------------------------------------

Phillip Frost, OPKO Health Inc. - CEO & Chairman [39]

--------------------------------------------------------------------------------

I'd just like to thank everybody for participating, and we are all here to answer any further questions if you wish to give us a call tomorrow.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

Dr. Frost, we do have another question that has come into queue. Do you have time to take that?

--------------------------------------------------------------------------------

Phillip Frost, OPKO Health Inc. - CEO & Chairman [41]

--------------------------------------------------------------------------------

Sure.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

We do have a follow-up from the line of Brandon Collier with Jefferies.

--------------------------------------------------------------------------------

Brandon Couillard , Jefferies & Co. - Analyst [43]

--------------------------------------------------------------------------------

Just curious on what you can share, some doc metrics, or the number of urologists, or perhaps the size of the GP uptake to a number of factors, if you can share with us there.

--------------------------------------------------------------------------------

Steve Rubin, OPKO Health Inc. - EVP [44]

--------------------------------------------------------------------------------

Brandon, I think it's fairly consistent with the little over 5,000 ordering physicians that we've had that we talked about in prior calls. I don't think we have expanded the use much more broadly than where we were at in the third quarter.

--------------------------------------------------------------------------------

Brandon Couillard , Jefferies & Co. - Analyst [45]

--------------------------------------------------------------------------------

Thank you.
 






--------------------------------------------------------------------------------

Brandon Couillard , Jefferies & Co. - Analyst [17]

--------------------------------------------------------------------------------

Just one on Claros. Would you report out any top-line data readouts from the PSA study at any point before the filing? And if so, when and what venue might what that might be?

--------------------------------------------------------------------------------

Dave Okrongly, OPKO Health Inc. - President of Diagnostics Business Unit [18]

--------------------------------------------------------------------------------

This is Dave Okrongly. I will take that one. We submitted an abstract to the AACC, which will hopefully be accepted and we expect to report some data at that meeting, the American Association of Clinical Chemistry meeting.

--------------------------------------------------------------------------------

Brandon Couillard , Jefferies & Co. - Analyst [19]

--------------------------------------------------------------------------------

Super. I think that's all. Thank you.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

Kevin DeGeeter with Ladenburg.

--------------------------------------------------------------------------------

Kevin DeGeeter, Ladenburg Thalmann & Company Inc. - Analyst [21]

--------------------------------------------------------------------------------

Thanks for taking my questions. Just kind of getting back to the RAYALDEE market access theme. For the 50% of patients who have plans that require prior authorization, just any sense as to what percentage of patients ultimately are deemed appropriate candidates? And how that may evolve as your experience matures with the plans?

--------------------------------------------------------------------------------

Steve Rubin, OPKO Health Inc. - EVP [22]

--------------------------------------------------------------------------------

The experience that we've seen to date is that nearly all the patients meet the requirements for the prior authorization based on their PTH score, their 25-D levels, and their indications.

But again as with anything, we need to ensure that the proper documentation is the submitted and we provided comprehensive service and other programs to ensure that, that success rate is as high as possible, but we are shooting for 90 or better.

--------------------------------------------------------------------------------

Kevin DeGeeter, Ladenburg Thalmann & Company Inc. - Analyst [23]

--------------------------------------------------------------------------------

Great. And then just going over to Claros as well for a moment. As we think about later in 2017 building out and think about commercialization potentially of Claros, how should we think about potential synergies between either the Bio-Reference sales force or even the RAYALDEE sales force depending on where the menu goes? Should we think about Claros as largely a new and to some extent stand-alone sales force?

--------------------------------------------------------------------------------

Steve Rubin, OPKO Health Inc. - EVP [24]

--------------------------------------------------------------------------------

It's always been our intention to utilize the Bio-Reference sales team for sales and as our menu particularly bringing on board vitamin D and PTH, which is our menu plans, that would also then play very nicely with the RAYALDEE sales force as well.

--------------------------------------------------------------------------------

Kevin DeGeeter, Ladenburg Thalmann & Company Inc. - Analyst [25]

--------------------------------------------------------------------------------

And then just lastly, just to follow-up on your observation regard to menu expansion for vitamin D. Have all the technical specifications at this point have been largely addressed to be able to bring a vitamin D test to market, or is there additional optimization that needs to be done there? Before considering moving forward for potential validation registration study?

--------------------------------------------------------------------------------

Steve Rubin, OPKO Health Inc. - EVP [26]

--------------------------------------------------------------------------------

Good question. And we have been working on it here. I'm actually in the Woburn facility today and there's been some progress on the development.

We are not ready to declare victory on the feasibility, but we're making progress and we're confident that we can bring something out here in a reasonable time frame to support launch of RAYALDEE and really bring the two diagnostics that are really critical for use and monitoring of RAYALDEE therapy which is the vitamin D and PTH.

--------------------------------------------------------------------------------

Kevin DeGeeter, Ladenburg Thalmann & Company Inc. - Analyst [27]

--------------------------------------------------------------------------------

Thank you so much. I will get back into the queue.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

Yale Jen with Laidlaw.

--------------------------------------------------------------------------------

Yale Jen, LaidLaw - Analyst [29]

--------------------------------------------------------------------------------

Good afternoon, and thank you for taking the questions. Also starting with RAYALDEE that in coverage you have roughly 60% of the lives covered. Was that -- meet your expectations, exceeds that, or under that as this point?

--------------------------------------------------------------------------------

Steve Rubin, OPKO Health Inc. - EVP [30]

--------------------------------------------------------------------------------

I think when we went into the launch not necessarily knowing how all payers would respond, we had set some goals of trying to be at about 60% by June 30. So I think we are a little ahead of schedule on a couple of the payers.

I think from us to get from the current 60% to the 75% to 80% is going to be a much longer discussion, and there are various review meetings scheduled in the summer. So I don't think we're going to see further acceleration but certainly working hard to get as many as we can in place now.

--------------------------------------------------------------------------------

Yale Jen, LaidLaw - Analyst [31]

--------------------------------------------------------------------------------

And second question is about the Bio-Reference Lab revenue in the fourth quarter. It seems to be slightly lower than last year, the same quarter, but you anticipate better financial performance in 2017 and beyond. Was that mainly from more streamlining the operation or you anticipate a greater top-line growth as well going forward?

--------------------------------------------------------------------------------

Steve Rubin, OPKO Health Inc. - EVP [32]

--------------------------------------------------------------------------------

Comparing 2016 fourth quarter to the fourth quarter of 2015, we did see about a 6% growth quarter over quarter. So that was about a $13 million or so increase in overall revenue. We historically -- the fourth quarter for Bio-Reference, and we realized again this quarter, in the fourth quarter of this year is a lighter quarter just based on patient visits to physician offices and volumes overall in general. I do think the growth that we saw in 2016 for Bio Reference revenue our target is certainly to continue to grow in that 10% range on year-over-year basis.

--------------------------------------------------------------------------------

Yale Jen, LaidLaw - Analyst [33]

--------------------------------------------------------------------------------

My last question -- thanks for that -- my last question is for the (inaudible) IV treats was study. Any time you have planned talking reporting the data? And what might be the next step to reconsider between the IV and subQ to move forward or concurrently in two separate formats?

--------------------------------------------------------------------------------

Steve Rubin, OPKO Health Inc. - EVP [34]

--------------------------------------------------------------------------------

We plan on bringing both to market because you need to have both. For surgery and rescue, you will need to have the IV version. The subcutaneous would be ideally used prophylactically.

So the 2a dose rate and study in patients in hemophiliacs and the Phase 1 subcutaneous that's ongoing now as well as in healthy individuals, so the next step for both would be -- we'll meet with FDA and the intention is to try to do a Phase 2 that will roll into a Phase 3. That's really requires a subsequent meeting with the FDA, but again, we intend to develop both dosage forms.

--------------------------------------------------------------------------------

Yale Jen, LaidLaw - Analyst [35]

--------------------------------------------------------------------------------

And would this meeting with the FDA be in 2017? Or that will be next year?

--------------------------------------------------------------------------------

Steve Rubin, OPKO Health Inc. - EVP [36]

--------------------------------------------------------------------------------

It will be in 2017.

--------------------------------------------------------------------------------
 






--------------------------------------------------------------------------------

Yale Jen, LaidLaw - Analyst [37]

--------------------------------------------------------------------------------

Thanks a lot. I appreciate it.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

That is all the time for questions we have today.

Dr. Frost, please go ahead with your closing remarks.

--------------------------------------------------------------------------------

Phillip Frost, OPKO Health Inc. - CEO & Chairman [39]

--------------------------------------------------------------------------------

I'd just like to thank everybody for participating, and we are all here to answer any further questions if you wish to give us a call tomorrow.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

Dr. Frost, we do have another question that has come into queue. Do you have time to take that?

--------------------------------------------------------------------------------

Phillip Frost, OPKO Health Inc. - CEO & Chairman [41]

--------------------------------------------------------------------------------

Sure.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

We do have a follow-up from the line of Brandon Collier with Jefferies.

--------------------------------------------------------------------------------

Brandon Couillard , Jefferies & Co. - Analyst [43]

--------------------------------------------------------------------------------

Just curious on what you can share, some doc metrics, or the number of urologists, or perhaps the size of the GP uptake to a number of factors, if you can share with us there.

--------------------------------------------------------------------------------

Steve Rubin, OPKO Health Inc. - EVP [44]

--------------------------------------------------------------------------------

Brandon, I think it's fairly consistent with the little over 5,000 ordering physicians that we've had that we talked about in prior calls. I don't think we have expanded the use much more broadly than where we were at in the third quarter.

--------------------------------------------------------------------------------

Brandon Couillard , Jefferies & Co. - Analyst [45]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Phillip Frost, OPKO Health Inc. - CEO & Chairman [46]

--------------------------------------------------------------------------------

Thank you again.

--------------------------------------------------------------------------------
 












anonymous said:
During the fourth quarter of 2016, SG&A expense included approximately $13 million related to the launch of RAYALDEE. There were a number of launch initiatives that occurred during the fourth quarter of 2016, including the sales training and launch meetings, as well as the largest trade show of the year, where we introduced RAYALDEE to the nephrology community. This was also the first full quarter with our full commercial team in place.

Our balance sheet remains strong in a position with approximately $160 million of cash and cash equivalents, and we also have access to an additional $104 million under our existing credit facilities giving us over $270 million of total liquidity

As Phil mentioned earlier, I wanted to expand on the financial performance of Bio-Reference. During 2016 Bio-Reference contributed over $1 billion of revenue and nearly $120 million of cash flow from operations, $42 million of which was used to reduce our credit facility at JPMorgan with the remainder available for reinvestment in the business or to be invested in our various R&D programs.

As mentioned earlier, we remain focused on improving the operating performance of Bio-Reference which will enhance the financial performance as a group but also provide a source of cash flow to invest in our higher-margin novel diagnostics and therapeutic development programs. We anticipate the revenue cycle management program which was initiated in the second half of 2016 to begin the result of financial -- improved financial performance during 2017 with 2018 benefiting from a full-year of investment.

As Steve discussed, we launched RAYALDEE in November. I'd like to remind you of our expectations for revenue recognition for RAYALDEE during the early days of the launch. Accounting guidelines imposed by the SEC have a high threshold for revenue recognition, particularly for a company that is launching its first commercial product. Key elements of our ability to recognize revenue under US GAAP include having sufficient activity over time to provide visibility to the distribution channel, the payer mix, and any discounts, rebates, and product returns.

We expect the earliest we will have sufficient visibility to reliably make estimates necessary to recognize product revenues will be later this year. After accounting for all fees, rebates, and other discounts, the net sales price we expect to recognize on sales will be around $550 per unit or approximately 60% of our WAC price of just over $900.

We expect after factoring in fees to distribution partners, group purchasing organizations, mandated government discounts, and the discounts that we expect to be earned on our value-based contracts with providers that the net sales price we realize will be approximately 55% to 65% of the WAC price over the life of the product. However, throughout 2017 as we establish RAYALDEE's position in the marketplace, we expect the net price that we will realize to be at the low end of the range.

As Steve mentioned, we continue negotiations with top Medicare Part D plans, managed care plans and pharmacy benefit managers which we are not under contract with. As Steve mentioned, we have achieved great success in the early part of the year in obtaining formulary access with over 60% of covered lives having access to RAYALDEE. About 50% of those covered lives have no restrictions on the use of RAYALDEE while 50% require a prior authorization.

The majority of the access restrictions are in the form of confirmation by the prescribing physician that the patient meets the definition of the package insert, meaning the patient has stage three or four CKD, has elevated PTH levels, and vitamin D insufficiency. We have a number of access programs to help mitigate the impact including patient assistance programs as we anticipated the access restrictions. I would like to turn the call back to Phil.

--------------------------------------------------------------------------------

Phillip Frost, OPKO Health Inc. - CEO & Chairman [6]

--------------------------------------------------------------------------------

I will close by just repeating that I personally am very, very satisfied with what we have going on now at OPKO.

The products that we have on the market, 4Kscore to identify men at risk for developing prostate cancer or having prostate cancer; RAYALDEE a unique product to treat the stage three and four kidney chronic disease patients who have low vitamin D levels and secondary hypoparathyroidism. These are both unique products and that's what I really like. I like to be able to go out there with products that have their own story with limited competition.

The pipeline I can only characterize as being outstanding. You can tell from my tone of voice that I'm very enthusiastic about the SARM, the molecule that we got with the Transition acquisition to treat benign prostatic hypertrophy. You can imagine with the constellation of properties of decreasing body fat, increasing muscle mass and bone strength, and at the same time lowering the PSA and decreasing the size of the prostate and therefore helping with the symptoms of BPH. You can imagine that's a product whose appeal would be irresistible by physicians and patients who require it. And I should tell you that in the United States alone, there are approximately 50 million men who suffer from BPH so the market is, to say the least, quite large.

The oxyntomodulin product, the dual-acting agonist for treating obesity and type 2 diabetes, that has the potential to be the best drug in its class to treat these conditions. We will know a little bit more after next trial but what I said is absolutely true. It can be the best drug in its class.

And so far as Bio-Reference is concerned, you heard that we are working on making it more efficient. It already is generating nice cash flow. We're hoping that that will only increase. It's helping with the marketing of the 4K product. And above and beyond that you can only imagine that we are very open to new initiatives that will take that whole business to another level. We spent time considering such possibilities.

With that I will open the floor to questions.
Click to expand...

ALL lies.
 






Phillip Frost, OPKO Health Inc. - CEO & Chairman [5]
--------------------------------------------------------------------------------
I would just add that because this is a novel product with a novel mechanism of action, it's something that the physicians are not accustomed to and therefore requires a little more education. But as they learn about it, they become very enthusiastic about it. And my own view is -- I can't guarantee it, of course, is that this will start to move geometrically.
About freaking time.

Adam Logal, OPKO Health Inc. - CFO [13]
--------------------------------------------------------------------------------
Brandon, I think from an overall perspective we are not in a position where we're are going to guide to it. I think where we want to make sure we are focused, or certainly are making sure you know where we're focused, is working towards getting about 75% to 80% of covered lives, getting that market access window open.

And then to measure ourselves on script growth, so to the point you made and what Dana made a few minutes ago, the script -- the scripts are growing. They're not where we expect or hope them to be, but we expect to see now that we're getting more market access to see those numbers start to grow over time. Really the story for us and where we are measuring ourselves is opening that market access and then seeing the script growth come.

Du huh.
 






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