Welcome to the OPKO Health Incorporated Business Update Conference Call. At this time all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday February 27, 2019. I would now like to turn the call over to Miriam Miller. Please go ahead, ma’am.

Thank you, operator. Good afternoon. This is Miriam Miller with LHA. Thank you for all for joining today’s call. I’d like to remind you that any statements made during this call by management other than statements of historical fact will be considered forward-looking and as such, will be subject to risks and uncertainties that could materially affect the company’s expected results. Those forward-looking statements include, without limitation, the various risks described in the company’s annual report on Form 10-K for the year ended December 31, 2018, and subsequent quarterly reports on Form 10-Q. Importantly, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 27, 2019. Except as required by law, OPKO undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Before we begin, let me review the format for today. Dr. Phillip Frost, Chairman and Chief Executive Officer, will open the call; followed by Steve Rubin, OPKO’s Executive Vice President, who will provide an update on the company’s various business and clinical programs. After that, Adam Logal, OPKO’s Chief Financial Officer, will review the company’s fourth quarter and fiscal year 2018 financial performance. Dr. Frost will provide closing remarks, and then we’ll open up the call to questions. Now let me turn the call over to Dr. Frost.

Thank you very much. I would like to open the call by highlighting a few topics that I think are important. First I’ll mention BioReference Laboratories, our diagnostics unit. And an important story here I believe is the new people that are present in this business. Dr. Jon Cohen has joined the company following Dr. Geoff Monk not too long ago. And between the two of them, I think we will have an unparalleled leadership group to drive the business forward in a way that is very important as this business is in a state of I think rapid evolution and I think we have the right team in place to deal with it. Next I’ll mention the 4Kscore test. As you know, we recently received a negative LCD from the CMS contractor Novitas to say the least we were disappointed, but more than that we were surprised because we had been interacting with Novitas in a way that led us to believe that we were responding to their queries. In any case, we will make every effort to reverse this decision and in the meantime we're working on a submission package for FDA approval of the product. It's a great product. It's a great test. And we just finished a two day meeting of a greatly expanded salesforce and they left fully convinced that this test so important to the men, who were suspected of having prostate cancer or of developing prostate cancer will be a commercial success and continue to grow going forward. For the moment we'll rely on other payers and cash sales as well as foreign sales and in this regard I’ll mention in tiny country of Israel, which started distributing the product not too long ago and the growth has been dramatic and their projections are if all goes well to have a number of tests used at by the end of this year, representing a significant portion of the sales that we achieved in America quite dramatic. Finally, I'll mention RAYALDEE. This is a great product and as you know it's the only one to raise the 25-hydroxy vitamin D levels in the blood while at the same time lowering parathyroid hormone levels, all of this in chronic kidney disease patients. So again, here is a product that we're very optimistic on and we'll have important new papers that are about to be published that will highlight the unique features of this product and we think will provide the impetus for growth of the product. Because of our optimism, we're in the midst of greatly expanding the salesforce that will tell the story to the nephrologist, who were the main prescribers of the product. And finally – and Steve Rubin will expand on this, we’re engaged in clinical trials that will expand the indications for the product and results its distribution in other countries. Steve?

Thank you, Phil, and good afternoon everyone. 2018 was an eventful year. As with the first couple months of 2019, we've seen a number of successes during that time. 2018 saw improved quarter-over-quarter sales for RAYALDEE and we also completed enrolment in trials for type 2 diabetes and obesity and growth hormone deficiency. Through the efforts of our partner, Vifor Fresenius, RAYALDEE was approved in Canada and we initiated additional clinical trials including the Phase 2 clinical trial for higher dose RAYALDEE to treat Stage 5 CKD that will expand the breadth of RAYALDEE indications. As Phil noted, we appointed a new leadership team at BRL, our BioReference Labs, with Geoff Monk now serving as President and Dr. Jon Cohen joining us as Executive Chairman. Both gentlemen have deep expertise and extensive relevant experience in the management and growth of lab services and we are very pleased that they chose to join BRL. Through its GenPath Oncology diagnostics division, BRL forged that collaboration with the National Cancer Institute to participate in the institute’s precision medical clinical trial known as NCI-MATCH. In this trial, patients are assigned to receive treatment based on the genetic changes found in their tumors through genomic sequencing and other tests. We are pleased to be selective with this collaboration as it puts our GenPath Oncology diagnostics on the cutting edge of genetically based cancer therapy development. GeneDx reached another high impact milestone in June with the announced completion of 100,000 additional individual exome sequences representing one of the largest cohorts of sequence exomes by an independent clinical laboratory in the world. GeneDx has now surpassed to 140,000 exome work. This work is important because the information we gathered from the body of sequences can be used to help diagnose and therefore better manage disease, more specifically…

Thank you, Steve. During the last few months, we strengthened our balance sheet through two separate financing transactions. In November we completed a $93 million equity offering with Dr. Frost, Dr. Hsiao, and our other long-term investors, which resulted in our ending cash balance at $96.5 million. Additionally, on February 5, we completed the $200 million convertible debt offering. In connection with the closing of the convertible debt offering, we terminated the $60 million unsecured line of credit with Dr. Frost. These financing transactions have provided us with the flexibility to accelerate our R&D efforts while providing us with the ability to reinvest into our commercial activities. As Steve mentioned, we are expanding our commercial organization for RAYALDEE to accelerate the growth rates for that line of business. In addition, the R&D initiatives Steve mentioned had been competing for available funds and those financings provide us with the ability to accelerate those programs. Overall, our financial performance during the fourth quarter came in slightly below our own expectations, as a result of the challenging quarter for the lab industries overall as well as some non-recurring, non-cash impairments we’ve recorded. Overall, our net loss during the fourth quarter of 2018 decreased to $76.1 million or $0.13 per share compared to a net loss of $217.9 million or $0.39 per share for the comparable period of 2017. Our revenues improved to $221.9 million for the fourth quarter of 2018 compared to $161 million for the 2017 period. Moving to costs and expenses, we continued to invest in our R&D projects, where we incurred $33.3 million for the fourth quarter of 2018 compared to $34.2 million for the 2017 period. In addition, during the fourth quarter of 2018, we’ve recorded a non-cash impairment charge for our goodwill and in-process research and development programs…

I don’t have any other comments and will open the floor for questions if there are any.

[Operator Instructions] And our first question is from the line of Maury Raycroft from Jefferies.

Hi everyone, congrats on the progress and thanks for taking my questions. First question is on RAYALDEE, so at the beginning of the call you mentioned that there’s some new publications that could be coming out soon. Can you provide any general preview as to what it – what to expect in those publications and when we could see them?

I’ll let our expert in vitamin D, Charlie Bishop respond.

All right. Thanks for the question. We have a paper that’s been accepted for publication in the American Journal of Nephrology, which is entitled rationale for increasing the serum total 25D target in CKD. The paper shows for the first time with prospective data that the serum total 25D or vitamin D target is not where the clinical practice guidelines have placed it at 30 nanograms/mil rather it’s substantially higher. And that means that the standard of care, which is used to correct vitamin D insufficiency in CKD patients is completely unable to reach that target. 90% of CKD patients were treated with nutritional vitamin D. And our data, which will be coming out very shortly, show that nutritional vitamin D simply cannot reach that level. RAYALDEE on the other hand, is the ideal therapy for raising serum total 25D levels. It makes sense that if you want to increase the vitamin D levels in the blood, you give 25-hydroxy D and that’s the active in RAYALDEE. We can raise serum total 25D easily to the level that our data show is required in order to control elevated PTH.

Got it. That’s very helpful. And will these publications, I assume they’re going to be used to some extent, while marketing could some of the data or potentially even the reference be added to the label RAYALDEE?

That’s a great question. So, accompanying this particular publication, which was scheduled to come out in February, but it’s delayed, because there’s going to be a cover editorial by an independent author and we’re waiting for that editorial to be drafted. Both the paper and the editorial will be used in our promotional efforts and we’re preparing for that right now and there’s possibility that we might be able to get clarifications in our label as well.

Got it. Okay. And also for RAYALDEE, you mentioned that you just started recruiting for the Phase 2 in hemodialysis patients with that SHPT and you have the ongoing Phase 4 in a CKD and VDI with SHPT. So first, I’m wondering how important is that Phase 4 that’s going and when could we expect an update from that trial and then for both the Phase 2 and the Phase 4, can you provide any more context and how the data could be used for commercial efforts?

Yes, great question. So, we do have a Phase 4 study ongoing that’s comparing RAYALDEE to commonly used treatment regimens in the United States as well as in Europe. The day they will help us from a promotional standpoint, provided that they turned out positively, which we expect. They also will help us with our pending filing in Europe with – for RAYALDEE as a treatment for secondary hyperparathyroidism in Stage 3, Stage 4 CKD. The European filing requires a comparison against immediate release calcifediol, which that is one of the comparative arms in this space for a study. We’re confident from the early data that the results will be very good. timeline for finishing this study will be later this year. This is an open label study. So, we’re able to track the data as we go. With regard to the dialysis study that’s ongoing. The medical textbooks teach the RAYALDEE can’t possibly work in a patient that doesn’t have a functional kidney. But our data from phase 3 trials in Stage 3 and Stage 4 CKD show that the PTH lowering response with RAYALDEE is identical in Stage 3 and Stage 4 and is independent of eGFR. The rationale for this is that RAYALDEE gets activated outside the kidney and our package insert allow us for that possibility. So, we’re going to be very excited to report later this year. The results from our ongoing dialysis study.

great. Okay. Thank you very much. I’ll hop back in the queue.

Any other questions?

Indeed, our next question is from the line of Yale Jen from Laidlaw & Company.

Good afternoon and thanks for taking the questions. And first, add in that, that appreciate that you provide first quarter of 2019 guidance. So that’s very helpful for monitoring purpose, but would you be able to provide a little more longer-term sort of projection for the full year 2019 in terms how do you see the top line as well as the operating expenses on an annualized basis?

Thanks, Yale. So we’re – we obviously gave Q1 guidance. We’ll continue to provide updates as the year progresses. I think there is some uncertainty for us on the overall outlook, just given the 4K reimbursement challenges and headwinds that we’re facing. In addition that we – some, the way the lab industry has been kind of pretty choppy in the fourth quarter. We’re starting to see some rebound here in the first quarter, but obviously based on the guidance I provided, it was – we are expecting to come to come in lower than prior year. So, I think as we think about the year we want to get some more time behind us. Yes. From an OpEx perspective, we do think the lab business will continue to pull out efficiencies, as we did in 2018, and Jeff and the team there are very focused on any challenges that we have on the top line has to be addressed through the operating expense lines.

Okay. That’s very helpful. I appreciate it. In terms of timeline for the clear waiver for the Claros PSA test, is there any timeline in terms of how that maybe completed or being approved I guess?

It’s a little Yale, too early for me to answer that. So, we’re going to have our presubmission discussion with FDA shortly, which will give us a little insight, but it’s a little premature for me to answer that now.

In addition, FDA actually just finalizing their guidance in terms of CLIA waiver. Yes.

Okay. That’s very helpful. And maybe, the last question here is that in terms of submitting 4Kscore for FDA approval. first of all, have you guys spoke with agency regarding whether there is any, would be – would there be any sort of study need of it and on a longer-term, if you get approve, how would you see that potentially benefit on the sort of commercial side in terms of the commercial.

I can address the FDA question. This is Jane Hsiao. We have been…

Hi, how are you?

Hi. Good. So, we have been working with FDA about requirement for 4Kscore test, review and approved by FDA. So, guidance has been provided to us. And over the last year to 18 months, we’ve been working on diligently to generate the data, both from the laboratory performance requirement to feel clinical studies. So, we are at the end of completing all those and that’s why we feel comfortable. Their submission to agency is going to happen shortly.

And there’s no – go ahead. I’m sorry.

No. Go ahead. Finish up, Yale.

Is there any sort of clinical study will be needed, additional clinical study will be needed or you can just submit what you have sort of complete in the near future and to submit that the package?

In deed there’s additional clinical study, basically more from the performance aspect and which were done. So, to just give you some example of the type of clinical study FDA asked for is they wanted us to do it in the clinic and showing that the 4K together with the standard of care for diagnosing prostate cancer is consistent with what our claim and you had to do the 4K at the various level of PSA at a different level and things like that. So we know, we complete all those tests.

And the commercial value of it actually, Yale, it is, we think it will add value there. There is even though the clinical laboratory review is quite rigorous, especially, New York State licenses are like. It still remained a premature round and FDA approval. And additionally, it is one of those items that Novitas had it continually in their draft reports, who adapt coverage determination. So, we think it will be very useful for us to have it.

So, could you theoretically also resubmit to the Novitas once you get an FDA approval instead of just CLIA up for this?

Of course. Yes. It would be something, obviously, new important information that they themselves at tab indicated is important, so…

Okay, great. Thanks a lot and I appreciate taking the questions.

Okay. Any other questions?

[Operator Instructions] Our next question is wine of Mike Petusky from Barrington Research.

Thank you. A few questions. Earlier there was a comment that you guys would be greatly expanding the RAYALDEE, the sales force, I guess what’s the current number of sales reps on RAYALDEE and then what’s the guideline for how much you’re expanding that?

Yes. We currently have 64 sales reps and six managers that are in place. We’ve expanded right now by about 20% and we’re considering the timing of doing additional expansion.

So it’s 20% off of 64 or 60.

Yes. So, currently, we have plans for mid-70s of sales reps to be in place in the field in April and we’re moving forward with evaluation of whether or not to move forward with additional people, what the timing is for that this year.

Okay, okay. And then just – thank you. And then moving on to BRL, the – Adam, do you have the like segment margin there, EBITDA margins, op margins, , anything like that for the quarter?

Yes. So, Mike we haven’t – we haven’t filed our K, we filed our K by the end of the week. So, I haven’t – I’m kind of limited to what we put out a press release.

Okay. Do you by any chance since the case is not going to be filed tonight – do you have any ability to fill in like DNA for the quarter, CapEx for the court or anything like that or…

Yes. I mean DNA is consistent with last quarter. So, I don’t – there wouldn’t be any surprises within there.

Okay, CapEx?

CapEx was marginally down.

Okay. Stock comps, do you have any recollection of that one?

Yes. Again, it’s consistent with last quarter. They weren’t meaningful changes there.

Okay. All right. And forgive me, Adam, I may have missed this. I briefly was off the call for about 30 seconds. It sounded like you may have been answering this, but are you guys – essentially, the expectation given the reimbursement headwinds at BRL? Are you guys essentially expecting kind of down revenue year for 2019?

So, I think we’re not – I don’t want to get ahead of ourselves. I do think that that Q1 is particularly challenging and uncertain coming off the year-end volumes that we saw. We’ve been bullish on volume potentials and it remained that way. I think we’ll get to have a better sense of the reimbursement improvement [ph] over these next couple of weeks and in May, should be able to provide a broader outlook.

Okay. All right. Thank you.

[Operator Instructions]

Well, if there are no other questions, I want to thank all the participants today and we look forward to greeting you at the call to commemorate the end of the first quarter.

Okay. Thank you.

Thanks. Ladies and gentlemen, that does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines.