Good afternoon, and welcome to OPKO Health's First Quarter 2022 Financial Results Conference Call. All participants are in a listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Yvonne Briggs with LHA. Please go ahead.

Thank you, Operator. Good afternoon. This is Yvonne Briggs with LHA. Thank you all for joining today's call to discuss OPKO Health's financial results for the first quarter of 2022 as well as the recently announced ModeX Therapeutics acquisition. 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. These forward-looking statements include, without limitation, the various risks described in the company's SEC filings, including the annual report on Form 10-K for the year ended December 31, 2021, and in subsequently filed SEC reports. This conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 9, 2022. 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's call, which will be a bit different given the exciting announcement about ModeX. Dr. Phillip Frost, Chairman, and Chief Executive Officer, will open up the call. Dr. Elias Zerhouni, the incoming President and Vice Chairman of OPKO will then provide an overview of ModeX Therapeutics. Then Dr. Jon Cohen will discuss BioReference Laboratories. After that, Adam Logal, OPKO's CFO, will review the company's first-quarter financial results. Following, we'll open the call to questions. Now I'd like to turn the call over to Dr. Philip Frost.

Good afternoon, and thank you for joining today's call to discuss our first-quarter financial results and business progress. Earlier today, we made an important announcement that is that OPKO has acquired ModeX Therapeutics. ModeX is a privately held biotechnology company focused on developing innovative, multi-specific immunotherapies for cancer and infectious diseases. Dr. Elias Zerhouni, Co-Founder and Chairman of ModeX, has been appointed President of OPKO Health and has joined our Board of Directors as Vice Chairman. Dr. Zerhouni is not only a leading authority on emerging trends and issues in medical care and biomedical research and development, but he also has a long entrepreneurial and distinguished academic, government, and industry career. He served under President George W. Bush for six years as Director of the National Institutes of Health, after which he became President of Global Research and Development for Sanofi for nine years. Elias will provide some detail about the rest of the team, but I'd like to also welcome Dr. Gary Nabel and Alexis Borisy to our Board of Directors, both of whom have impressive scientific and business backgrounds. Dr. Nabel will become our Chief Innovation Officer; and his wife Betsy, our Chief Medical Officer. You'll have the opportunity to hear directly from Dr. Zerhouni shortly, and Adam will provide further detail on the transaction. I want to highlight the significant progress we and our partner, Pfizer, have made with Neglina. Pfizer recently launched Neglina in the major markets of Germany and Japan as well as in Canada and Australia. In the U.S., Pfizer is continuing to work with the FDA to resolve any remaining issues to bring the Neglina to patients in the U.S. as soon as possible. On May 2nd, Sema4 Holdings Corporation announced the completion of their acquisition of GeneDx. We believe this is another…

Thank you, Jon. Before I go into the details of our quarter and full-year outlook, I wanted to highlight a few details about our ModeX, Sema4, and Pfizer relationships. As Phil outlined, we entered into our transaction to acquire ModeX today and paid a total of $287 million in shares of OPKO, issuing approximately 90 million shares as well as restricted stock and stock options totaling approximately 6 million shares that we will invest over the next four years. The principal sellers of ModeX have agreed to have their shares locked up for the next four years, subject to certain conditions. On April 29, we closed our transaction with Sema4 with their acquiring GeneDx for $150 million in gross proceeds at closing and 80 million shares of Sema4 stock, which we have agreed to lock up from 1 year from the closing date. After considering transaction expenses and a $13.4 million cash escrow, net proceeds at closing were approximately $116 million. We're eligible to receive up to an additional $150 million payable in cash or Sema4 shares upon the achievement of certain revenue targets for GeneDx during 2022 and 2023. In addition, as Phil mentioned, Pfizer, our partner for our long-acting growth hormone recently launched in Japan and Germany, which triggered $85 million in milestone payments, which we will receive in the second quarter of this year. Moving to the financial results for the quarter. Our Diagnostics segment reported revenue of $286 million compared to $507 million for the 2021 period. This decline reflects decreasing testing levels. However, as Jon highlighted, we performed more than 2 million COVID diagnostic tests during the quarter. As we discussed during our fourth quarter call, margins during the first quarter were impacted by an increase in labor costs while we manage through the surge…

[Operator Instructions]. Our first question comes from Maury Raycroft with Jefferies. Q - Kevin Strang This is Kevin on for Maury. Congrats on the acquisition. I just wanted to ask about how we should view R&D spend going forward? And maybe if you could talk about what you're most excited about in the ModeX pipeline and how you're going to prioritize these programs moving forward.

So I'll touch on the R&D expense first and then let Elias and Phil talk on the R&D program. So for overall, the ModeX programs are not significantly expensive compared to the clinical products. As we move into the clinic over the next 18 months or so, we'll start to see R&D expense start to increase. But you'll notice in our guide today, a fairly modest increase in overall R&D spent planned for 2022.

Yes. Thank you for your question, [indiscernible]. Fundamentally, we have prioritized our portfolio for near-term opportunities that are related to the products that are most advanced. The ones that are most advanced are the ones that we out-licensed from Sanofi on an exclusive basis, meaning the price-specific HIV program, which has been developed in Phase I right now in collaboration with NIH, which funds actually the clinical trials at this point. We have backup molecules for that program, obviously, we have also a SARS trispecific and the quadrispecific that we're working on, that the government DARPA agency is interested in, and we will continue to do that. We have a vaccine that Gary Nable has led the development of and is just published on against EBV, [indiscernible] virus and we are really accelerating this one because we have a lot of incoming interest from large companies that would like to partner with us. So those are the main priorities. We need to execute on those. In parallel, we've developed novel platforms, as I described, very versatile with a lot of specificities and functionalities. And we have in that category basically three advanced quadrispecifics for cancer. Those we do not want to partner at this time because we believe they have great potential, and the results that we have observed lead us to believe that we should really drive these molecules to Phase II. -- or entry into Phase II, entry to pivotal once we've conducted all of the pre-IND studies, which are ongoing at this point and the early basket trials to identify the best tumors to go after. So that's really the prioritization we have in mind. And again, as I said in my discussion, we will organize an R&D day for oral at some point in the next few weeks, hopefully, to give you a little more color on that.

Yes. I would just add, what I liked about the whole program is not only that it's innovative, but it's practical. One of the advantages of multi-targeted antibodies and vaccines is that it's cheaper to manufacture, one protein, then 3 or 4 or 5 proteins. And also, it's less risky. With each one of your manufacturer, there's a risk of failure at some point along the way. And finally, there's the possibility of greater efficacy and even possible better safety. That is something that will be talked about by Dr. Nable and Cirone in the future time. But all in all, it represents a program that is differentiated from the many similar but yet very different programs that are underway elsewhere.

Great. Yes. And then just a really quick one on Somatrogon. Are you still on track this quarter to start the gross profit share in Japan? And then do you have any update on the line of sight for when that might occur in Europe?

So on the gross profit share, the Japanese or the region we call the Japanese region does start in the second quarter once they've established pricing, that region moves into the gross profit share. For Europe, we'll need to achieve pricing in two additional major markets -- we've kind of projected out that, that would take about a year from the initial approvals. However, it could come sooner, depending on how each individual country moves.

Great. I'll hop back in the queue.

Our next question comes from Jeffrey Cohen with Ladenburg Thalmann.

Congratulations on the ModeX deal. So I've got a few here. So firstly, is ModeX closed? Or what's the expected timeline on the closing of the transaction?

Yes, the closing happened today, we signed and closed simultaneously.

Okay. Wonderful. So the $85 million milestones from Pfizer as well as the Sema4 $18 million that you referenced, we should expect both of us to hit the income statement in the second quarter. Is that correct?

Yes. The $85 million, yes, the cash from Sema4 and the shares will hit the balance sheet, we're still working through the gain and loss calculations.

I got it. Okay. And Dr. Cohen, some of your comments on COVID testing. So the anticipated for the full year as far as the number of tests. Can you give us any additional flavor on point of care versus PCR?

Well, I think the -- what's happened is the point of care has significantly increased at many of our surveillance sites, but not all. So we still do both for the cruise lines, although it's become much more point of care. We do both for the sports industries, but most of its point of care. Many of the schools have stayed with PCR, quite honestly. So it is variable client to client. We have seen an uptick which is no surprise. I think if you see what's going on and you saw in the CDC numbers recently, we have seen an uptick in the general public testing through our partners in the last two weeks. So I think the answer is it is like all the stuff with COVID is unknown. We do have, as I said, a steady flow on the surveillance side, and the general public will continue to go up and down depending on what variant appears next.

Okay. Got it. What's the timing on you filing your Q for the quarter?

It should be out today, Jeff.

Okay. So I'll get more little clarity on the cost of service versus the cost of product revenue?

Yes. We'll have it broken down. You will see the cost to serve on the BioReference that was impacted by labor as we had spoken about.

Yes. Okay. And one more on your guide. The second category, I think I missed that. That was between services and [indiscernible] those products, what range was that? Was that $200 million something to $250million?

It was just confirmed from what we originally provided $145 million to $155 million.

Okay. Got it. $145 million to $155 million. Okay, perfect. It does it for us.

[Operator Instructions]. There are no further questions at this time. And with this, this concludes our question-and-answer session. I would now like to turn the conference back over to Dr. Phillip Frost for any closing remarks.

I'd like to thank you all for attending this conference. I will say that the acquisition announced today is an important next chapter in the history of OPKO. And we're really thrilled and happy to have the addition of Dr. Zerhouni, Dr. Nabel, and their colleagues to the OPKO family. We look forward to working together with all kinds of successes. With that, I'll invite you to attend the conference call for this quarter's earnings, which we will anticipate being in three to four months. Thank you again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.