Good day, and welcome to the OPKO Health Fourth Quarter 2022 Financial Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Yvonne Briggs with LHA. Please go ahead.

Thank you, operator, and 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 fourth quarter of 2022. 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 SEC filings including the annual report on Form 10-K for the year ended December 31, 2022, and in subsequently filed SEC reports. The conference call contains time-sensitive information that is accurate only as of the date of the live broadcast today, February 23, 2023. 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. Dr. Phillip Frost, Chairman and Chief Executive Officer, will open the call. Dr. Elias Zerhouni, Vice Chairman and President of OPKO will then provide an overview of OPKO's pharmaceutical business as well as BioReference Laboratories. After that, Adam Logal, OPKO's CFO, and will review the company's fourth quarter financial results, and then we'll open the call to questions. Now I'd like to turn the call over to Dr. Frost.

[Technical Difficulty] Somatrogon are underway by our commercial partner, Pfizer. NGENLA is our once-weekly injectable growth hormone product developed to ease a patient's burden versus the standard daily injections. Pfizer has launched the product in 15 countries, including Japan, Germany and the U.K. and expects to have launched in all priority markets by the end of the year. As I mentioned on our last call, NGENLA is starting to post significant sequential quarterly sales growth and Adam will review OPKO's profit share and royalty payments in his prepared remarks. We believe Pfizer is making progress in the U.S. to advance NGENLA through the regulatory process and address the FDA's comments. We continue to work with Pfizer as they stand by their commitment to commercialize NGENLA globally and we'll provide further updates on its regulatory status in the U.S. and commercial progress in foreign countries. As for our clinical diagnostics business, BioReference Laboratories is making significant progress in reducing costs and rightsizing the business. In parallel, BRL is expanding its portfolio by focusing on innovation and specialty testing segments, including oncology, women's health and urology while driving growth with novel partnership arrangements. Elias will provide further details on the lab and it's performance following his commentary on the pharmaceutical business. With that brief overview, I will now turn the call over to Elias. Elias?

Yes. Thanks, Phil, and good afternoon, everyone. I think it has been an eventful 2022 for OPKO and I'm looking forward to further progress in 2023 with quite a few significant milestones on the horizon. Let me start with the pharmaceutical business division where we have made significant progress at ModeX Therapeutics by first, enhancing our proprietary platform technologies known as MSTAR and STEALTH with 8 patents filed. These multi-specific antibodies provide flexibilities to go beyond 3 targets up to a total of 6. We believe MSTAR is a plug-and-play, flexible adaptive platform that optimizes functionality and manufacturing simplicity. We believe that this provides a competitive advantage over other multi-specific technologies. In parallel, we have focused on advancing our portfolio significantly now containing 7 assets, 1 of which is in the clinic in Phase I and 5 in late preclinical stages with 3 of the 5 planned to enter the clinical stages by end of 2023 or beginning of 2024. For infectious disease, we continue to advance the development of a first-in-class Epstein–Barr virus nanoparticle vaccine. EBV infects up 95% of the global adult population during their lifetime and is associated with about 1% of all cancer cases worldwide. It also is the leading cause of infectious mononucleosis. Despite the virus' prevalence, and its role in causing life-threatening diseases, there are currently no FDA-approved vaccines or treatments for EBV. Our vaccine leverages ModeX's innovative biologics platform to target 4 major EBV proteins. This multi-targeted approach improves upon previous efforts and holds potential to provide complete protection against EBV infection. The initial indication for this vaccine will be for infectious mononucleosis, but it's ultimately intended for cancer prevention. Very much like the human papillomavirus HPV vaccines that protect against cervical cancer. EBV is associated with Burkitt lymphoma, nasopharyngeal carcinoma, certain gastric…

Thank you, Elias. Starting with our pharmaceutical segment. Revenues for the 3 months ended December 31, 2022, were an increase of $7.4 million from the comparable period of 2021. Total costs and expenses for the 2022 quarter were $67.9 million, including $16.5 million of noncash intangible amortization. Research and development expenses were $16.6 million, which is consistent with the fourth quarter of 2021. Operating loss from our pharmaceuticals segment was $22 million for the fourth quarter compared to an operating loss of $14.8 million for the prior year quarter. The increase in losses reflects the amortization of our intangible assets upon the approval of NGENLA earlier in 2022. Moving to our diagnostics segment. We reported revenue for Q4 of 2022 of $139.4 million compared to $362.8 million for the 2021 period. This decline reflects lower COVID testing volumes as the market shifted to rapid at-home testing earlier this year. We continue to execute our Reach expense reduction program, as Elias mentioned. We've reduced our expense run rate by over $140 million and realized benefits from this program in each sequential month during the quarter. As Elias mentioned, we have identified a number of near- and medium-term growth programs that we expect to realize in the first half of 2023, which will help return BioReference to profitable growth. Operating loss for our diagnostics segment was $23.3 million for the quarter, which reflects a sequential improvement of approximately $26.4 million. In the fourth quarter of 2021 and we reported an operating loss of approximately $18.6 million. Turning to the consolidated financial results for the quarter. We reported an operating loss of $55.3 million compared to Q4 2021 operating loss of $63.1 million. Net loss for the fourth quarter of 2022 included a $49.1 million noncash mark-to-market adjustment reflecting the decline in value…

[Operator Instructions]. The first question comes from Maury Raycroft with Jefferies.

This is Kevin on for Maury. Congrats on the update. I just had a first one on somatrogon. Is there any granularity you can say about what sort of update we could expect this year from Pfizer? And would this likely be a resolution either way? Or could it be a status update? And then on timing, could this be a midyear update? And what are some of the drivers behind potential time lines there?

This is Steve Rubin. We do expect some form of definitive communications from the FDA around NGENLA. So obviously hoping for by midyear, but I can't guarantee when that will be, but we do expect that to be a definitive yes or no at that point.

Okay. Great. And then a quick question for Adam. You mentioned you expect to shift to gross profit share in Europe. And I think -- I believe 2023, is there any granularity on when that could be and what the gating factors are there to that shift?

Kevin, yes, so we expect -- what requires in the European region to move to gross profit share is for the -- for us to get pricing in 2 additional major markets. We have pricing in Germany. There's -- the other major markets are expected to launch this year. We've guided that we expect them in the first half of this year and in Q2 for the territory to shift to gross profit share.

Okay. Great. And just a last one for Elias on maybe the ModeX pipeline, just the types of deals or partnerships that you're looking to make there and when we might see an update in that regard potentially this year?

So it depends on each product. And in terms of the portfolio. We've had a lot of incoming interest, both for the multispecific antibodies as well as the vaccine. So we're in active conversations. I hope to see 1 or maybe 2 transactions complete this year, hopefully, in the first half. The structure of it is pretty classic. In other words, upfront plus milestones cash royalties, and this is the dominant type of transaction we're looking for. Others are looking for more long-term collaborations and that can be variable depending upon the scope of the collaboration. But we will also keep some products and attempt to develop them with our own resources because they're very, very valuable.

The next question comes from Jeffrey Cohen with Ladenburg Thalmann & Company.

So I guess to start, Adam, any commentary generally speaking, on the margins, which were better than we thought, any pull-through? It looks like you're balancing back a little on a linear basis?

Yes. So there's a couple of things that obviously, the Reach program had its biggest impact during Q3. So we saw a full quarter of the Q3 exits and reductions that we expected to see. So that was one of the drivers. We also received a $2.5 million payment on the pharmaceutical side of our business from our Chinese partner for the commercialization or development activities that are ongoing in China for RAYALDEE. So those are the 2 main drivers, Jeff.

Okay. Got it. And I guess next, Elias, could you talk a little further about this urgent care network and the number of facilities, where they're located, what a typical facility looks like as far as size and scope.

You're talking about the patient service centers? I could hear your question.

Yes.

Okay. So what we did, we did a full analysis of the return on investment, if you will, of each PSC as a system. And what we found is that there are some that really were not either located in the optimal position, some that when you looked at the totality of the revenue and expenses needed to be displaced or closed. And then we opened 11 ones in very promising locations that really attract not just our own clients, but also a volume that we're starting to see whereby you can do what I think our minimum productivity requires, which is 50 to 60 draws a day. With the increase in reimbursement for draws, as you know, we expect then that investment, if you will, and redeployment to be very positive to the revenue line.

Okay. Got it. And then could you talk a little bit more about the OnkoSight testing? And how are the payers and the money flows on that?

So the team at GenPath did an excellent job with their approach to the full gene sequencing. And so they are able to do all the 525 tests in 1 run. And the turnaround time that is basically industry best with 3 to 5 days. But as you know, the CPT codes are specific to each -- 1 type of cancer that the patient may have, breast cancer or colon cancer. And so typically, the oncologist -- the treating oncologist requires to reduce that. However, as the patient goes on, first line, second line and so on, there may be a need for readjusting the therapy, understanding maybe what other pathways are really active in that tumor, whether it be liquid tumor or solid tumor. So the there is a demand for going back in 2 areas. One is understanding better the biology of the cancer; and two, figuring out if there is minimal residual disease or not. So we developed 2 approaches. One is to say -- and we have the software for it to look back at the whole set, 525 and inform the oncologist for that particular patient. But what we found is that the highest demand is really for clinical trials in oncology by large oncology practices like U.S. oncology and others. We say we want to participate in trials, but we want to know what are the gene , the genetic abnormalities that the pharma companies or the biotech companies are looking for. And so many, many therapies today are developed as a function of the genetic makeup of the cancer that the patient harbors. And this is what we put in place. And now we are going to launch the minimal residual disease test, which will complement our full offering to oncology. I hope that's clear.

Yes, that's very helpful. And then lastly, I heard a comment about March 20, the complete portfolio analysis. What will that be? And where will that be?

I'll let Gary respond, he's preparing there.

Yes. This is Gary Nabel. And we are planning to have the R&D Day as a virtual event. It will be on March 20 at 4 in the afternoon, and we'll be providing the specifics in terms of logging in. At that time, what you'll hear is you'll hear about the evolving portfolio, starting with the multi-specific antibodies, their applications to solid tumors, liquid tumors. We also will cover the infectious disease portfolio, HIV, SARS-CoV-2 and in addition to that, some work on other emerging pathogens. And then finally, as Elias described, the EBV vaccine, what the status is of the programs and what the prospects are for the future. So we're really looking forward to sharing our excitement about the portfolio and really the advantages that our new technologies offer for a variety of diseases.

Just as an add-on, Gary, if you allow me, the EBV vaccine is the most advanced in our portfolio and is likely to enter the clinic by the end of the year, beginning of next year as well. It's one of those molecules -- I mean programs that are pretty much going through the last stages of IND approval.

The next question comes from Edward Tenthoff with Piper Sandler.

Great. Thank you very much for the update and really looking forward to the R&D Day next month. I guess my question has to do just with respect to overseas and really how in NGENLA is doing? Are you seeing competition at this point from SKYTROFA? And how much of a delay do you think in terms of ultimate competition in the U.S. is the head start that SKYTROFA has gotten? How much of a setback do you think that might be for the ultimate market share here in the U.S.

It's Adam. I'll start off, and I'm sure others will weigh in. So outside of the U.S. right now, at least in the Japanese markets or Japanese region, we don't expect long-acting growth hormones to enter that market for a few years. In Europe, there is a head start that Pfizer has had on SKYTROFA as well. I think they've -- SKYTROFA won't be launched until the second half of this year in the European market. So there is a good deal of progress that Pfizer has been able to make in that market. As far as the U.S. delay is going, there's -- it's a big market. Payer landscapes are challenging for all new entrants into the market, which is -- which may have impacted SKYTROFA's launch. So we think Pfizer is well positioned once they do have approval to launch in the U.S. So we expect it to be a competitive market. Today, it's fragmented with 7 players in the daily market. So having 2 or 3 competitors should put us in a good spot.

Just one more thing, if I could, Adam. In addition to the upside or setbacks, as you asked, -- there is an element that is important. And that is if and when, hopefully, we get approval for the FDA. Our R&D expenses in somatrogon will decrease significantly because we're keeping sites open with extensions as long as we haven't finalized the approval of that. So that will also help in the balance sheet, if you will, of the program. that I don't think is taken into account and maybe Adam can give you the numbers eventually.

The next question comes from Yale Jen with Laidlaw & Company.

My first question is in terms of NGENLA selling in Europe, and you will start to have a profit sharing later this year. Do we anticipate either Pfizer or you guys provide some sales figures over those territories to provide more colors.

So Pfizer -- I don't know what their plans are to split out NGENLA's revenue numbers. So we wouldn't provide those when it becomes material to the overall financials of OPKO, we would potentially break out the profit share or royalty income that we're receiving from it.

And maybe a follow-up question on this point is that I think in the press release, you mentioned that there's all priority markets to be launched this year. Could we give a little bit more color in terms of what to the priority markets in this statement?

It's the major pharmaceutical markets, is the way I would define it.

Okay. And maybe the last question here is in terms of the diagnostics sector -- groups. Could we get some sense of in terms of the headcount from the height of the COVID days to recently as well as -- how does that compare to the pre-COVID days.

I can answer that question Yale Jen. At the peak of the COVID, basically at the end of '21, beginning of '22, 8,000. Today, we're 3,300.

Okay. How would that also compare to prior to the COVID?

So in 2019, it was the same headcount, 3,300. And we're still working on it, as Adam mentioned.

And maybe just -- sorry.

Go ahead.

Just as we to bring the company back to profitability, we are hoping to achieve another $30 million of efficiencies.

The next question comes from Yi Chen with H.C. Wainwright.

First question, just to clarify, have you disclosed how much royalty based on sales of somatrogon you have received in the first quarter?

We have not broken it out separately. No.

Okay. Do you plan to do that at some point in the future?

Yes. So once the number becomes a material number, which you could expect could happen later this year based on the gross profit share shifting or the royalty scheme in Europe shifting to a gross profit and the potential U.S. market coming online.

And has Pfizer indicated whether -- when there will be an update regarding the U.S. resubmission, could it be first half of this year or second half of this year?

So we know exactly when. Pfizer has a regular dialogue with FDA to approval, and we hope it to be first half of this year, but they haven't provided a specific date.

Okay. Lastly, could you comment on the most recent trends of diagnostic volume specifically for non-COVID tests? And whether do you expect the diagnostic segment revenue could resume growth in the first half of this year.

That's exactly what we're working on. And it is actually essentially at the same level as 2019 base -- I'm talking about the core business now. And as Adam said, we're planning on the growth of that core business of about 3%, 4%. But the main growth is going to come from the specialty testing, as I described, in oncology, urology, women's health and also large health systems partnerships, which is in the high single, low double-digit range.

This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Phillip Frost for any closing remarks.

Thank you for your questions and for your interest in OPKO. As you've heard, we are working on all fronts. There's great interest in the progress of NGENLA. And your questions about what's forthcoming in the United States are of great interest, of course. And you can be sure that Pfizer working with our team address the questions that were raised by the FDA, and we hope that -- we think that they were answered in a very positive, favorable way. We hope the FDA agrees with us. And so far as the rest of the business is concerned, as it was pointed out, we have a lot of work to do, but we're working diligently with the BioReference business to bring it back to where it should be and where we think it will be. And so far as RAYALDEE is concerned. We didn't talk much about it, but you can be sure that we're working very hard to increase the revenues and profitability, and we're enthusiastic about the work that our partners are doing on the product as well. So I'll leave you with that and hope that as many of you as possible will participate in the R&D event on the 20th of March, and we look forward to again meeting with you to discuss the first quarter results. Thank you and have a good evening.

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