Good day, and welcome to the OPKO Health Fourth Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Yvonne Briggs. 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 fourth quarter of 2023. 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 2023 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, February 27, 2024. 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, will then provide an overview of OPKO's pharmaceutical business as well as BioReference Health. After that, Adam Logal, OPKO's CFO, will review the company's fourth quarter financial results, and then we'll open up the call to questions. Now I'd like to turn the call over to Dr. Frost.

Good afternoon, and thank you for joining us today. 2023 was a year of significant achievement for OPKO, and we expect continued progress in 2024. In 2023, NGENLA, our long-acting growth hormone therapy, was approved by the FDA for sale in the U.S., the largest growth hormone market in the world. Pfizer, our global commercial partner, has now launched NGENLA in over 40 markets worldwide, and we're optimistic about Pfizer's ability to convert users to the weekly injection from the daily to further penetrate this growing $5.5 billion market. ModeX made great strides last year, in particular, in executing its strategy to secure important collaborations to advance its multi-specific biologics platform into the clinic. These collaborations provide non-dilutive funding to advance our unique pipeline to commercial realization. Specifically, last March, we announced an exclusive worldwide license and collaboration agreement with Merck to develop ModeX's nanoparticle vaccine candidate against Epstein-Barr virus. We received a sizable upfront payment and are eligible for milestone and royalty payments. In September, ModeX was awarded a contract from the Biomedical Advanced Research and Development Authority, known as BARDA, to develop novel multi-specific antibodies against viruses that cause infectious diseases deemed to be public health threats. The BARDA contract included an initial payment to develop multi-specific antibodies to treat and prevent COVID-19, and additional funding may be available to develop multi-specific antibodies targeting other viral pathogens such as influenza. Elias will provide more detail on those programs. Sales of RAYALDEE, our drug to treat chronic kidney disease patients with elevated parathyroid hormone and low vitamin D levels, grew 13% last year, and we're expecting further progress this year. We're gathering data, which indicate that RAYALDEE may slow chronic kidney disease progression. Some of you have been asking about my long-time enthusiasm for our once-weekly oxyntomodulin product to…

Thank you, Phil, and good afternoon, everyone. As Phil mentioned, last year was quite eventful for both of our operating segments of OPKO Health. And NGENLA launches in all major global markets, as mentioned by Phil, is progressing well, and we believe this drug is well positioned for significant growth. This next-generation long-acting therapy is administered once a week and not daily and assisted easing the burden, especially for the pediatric market, and increases medication adherence. NGENLA annual growth is anticipated to be in excess of 12%. But as part of our partnership with Pfizer, OPKO's anti-oral additional $100 million in milestone payments associated with approvals for an adult indication for growth hormone deficiency and additional pediatric indications. These are global registration strategies underway for the adult application and other pediatric indications, which are currently in Phase 3 clinical trials. Phil also mentioned our success last year in securing collaborations for ModeX Therapeutics with BARDA and Merck. Most recently with BARDA, we secured an initial $59 million grant to fund R&D and clinical evaluation through a Phase 1 study of our multi-specific antibodies against known variants of SARS-CoV-2 for the treatment and as well as prevention of COVID-19, which remains a particular threat, especially for immune-compromised patients. Additional funding of up to $109 million based upon the achievement of certain milestones in the first phase may be available from BARDA to develop more multispecific antibodies targeting other viral pathogens, such as influenza. And as part of the research program, gene-based delivery methods for the multispecific antibodies will be developed using mRNA or DNA vectors to supplement the body's natural protein production processes and hopefully provide BARDA with a platform that can be used very quickly for any emerging threat. In addition, we announced the collaboration with Merck to develop MDX-2201,…

Thank you, Elias. Starting with our Pharmaceuticals segment, revenue increased to $57.7 million for the fourth quarter of 2023 from $46 million for the comparable period of 2022. Revenue from products, including our international pharmaceutical businesses and RAYALDEE, increased by $5.1 million, reflecting from improvements in the number of prescriptions and in overall net price. Further, revenue increased as a result of gross profit share payments from Pfizer due to the global launch of NGENLA, resulting in $12.2 million of revenue during the quarter. The fourth quarter revenue includes a catch-up payment for the U.S. market related to the third quarter of $3.1 million. As I mentioned last quarter, the U.S. launch occurred mid-August, and Pfizer was delayed in reporting our gross profit share amounts. And as a result, none were included in our third quarter results. Costs and expenses were $73.8 million for the fourth quarter of 2023 compared to $68 million for the 2022 period. Research and development expenses for the fourth quarter of '23 were $18.7 million compared to $16.6 million for the comparable period of 2022. This increase reflects activities for our ModeX development programs, partially by decreased spending on NGENLA as well as an R&D tax credit for our Irish activities. The resulting operating loss for the quarter ended December 31, 2023, was $16 million, a $6 million improvement from the operating loss of $22 million for the fourth quarter of 2022. Amortization expenses related to intangible assets were $16.4 million and $16.5 million for the 2023 and 2022 4th quarters, respectively. Moving to our Diagnostics segment. We reported revenue for Q4 2023 of $124.2 million compared with $139.4 million for the 2022 period. This decline primarily reflects lower COVID testing of $7.1 million as well as a change to our estimated collections of $8.1…

We will now begin the question-and-answer session. [Operator Instructions]. And our first question comes from Jeffrey Cohen of Ladenburg. Please go ahead.

Good afternoon, everyone. Thanks for taking our questions. I guess, first, Adam, could you just recap your financials with regard to the 4.5% and 5% instruments out there? So currently, the share count is down toward approximately 700, and then what would be appropriate cash and debt levels of what we're estimating pro forma?

Yes. So we ended the year with 95 million in cash. So if you pro forma in the additional 25 million, that would put us right at about 120 million in cash on a pro forma basis. The total convertible notes were just over 300 million, so just right at 300 million in principal. And you've got the share count right, the --

Okay. Perfect. Got it. Could 1 of you discuss a little bit about the press release with regard to the Alibaba global platform in China and talk about perhaps some of the products that you're planning on offering and what would -- we should expect as far as the status during '24?

The products involved are made by our Irish company and -- I'm sorry, by our Spanish company, and are primarily nutritional products for animals, for which there appears to be a large market in China, and it is just beginning. So there's not much else to say about it.

Okay. Got it. And then lastly for us, could you provide any commentary on NGENLA and RAYALDEE going to weekly and what you've learned or what Pfizer's learned perhaps versus what's anticipated as far as costs and transferring to patients from one to the other and new patients and how that may look over the coming year?

I'll start off, Jeff. I think what we've seen in the markets that are the most mature from Pfizer where they launched initially is good, steady growth in the conversion is happening. Broadly, I think with one of the competitors launching a bit earlier in the U.S. market, we've seen that conversion happen, similar to what we've seen globally. We expect that to continue and accelerate as Pfizer enters the market as well as if Novo eventually enters the market with their long-acting products. So the conversions are happening, and we expect those to accelerate over the next 18 to 24 months.

Okay. Perfect. And then lastly, on d RAYALDEE. It sounds like you're expecting growth, and it looks like Q4 had some strong growth. Could you identify for us where they may be coming from, either demographically or geographically or pricing-wise and what we should expect for that?

So, Charlie, do you want to go?

Yes, happy to do that. So we're seeing growth for a number of reasons with the RAYALDEE brand. First is the obvious passing of the adverse effects of the pandemic, which slowed the ability of our sales force to get into clinics and promote the brand, and it also slowed the ability of patients to get into the clinics to get prescriptions. That seems to have abated as of the beginning of Q2 of last year. In addition, our sales force is much more adept now at moving the product into areas of business that have low co-pays. This would include the Medicaid sector. This includes the low-income subsidy Medicare Part D patients. And it also includes the commercial patients who have zero co-pay. So these are the main drivers of the growth in the business.

Okay. Got it. It seems like its unmeshed trajectory, post COVID currently. Okay. I think that does it for us. Thanks for taking all the questions.

Thanks, Jeff.

The next question comes from Maury Raycroft of Jefferies. Please go ahead.

Hi, thanks for taking our questions. I was wondering if you can talk more about timing and next steps for NGENLA label expansions for the adult setting an additional pediatric indications.

Yes, quickly. The adult indication, basically, we're in the process with Pfizer, obviously, to put our application to the FDA. And as I mentioned in my comments, we're in towards the end of Phase 3 for the pediatric indication. So timing-wise, probably the end of the year, beginning of next year for the adult and probably early next year for the pediatrics if everything as well.

Got it. Okay. And then for profit share with Pfizer, I just wanted to make sure I heard this correctly, that the guidance for 2024 is 40 million to 50 million. Is that right? And wondering if there are more details you can provide on the profit share currently and how that will change as NGENLA takes more market share from Genotropin. And what would a peak profit share percent look like?

Sure. So Maury, the way -- so the 40 to 50, you're correct, is the full year guide based on the information we know today, right? So Pfizer doesn't separately forecast out NGENLA or Genotropin sales. So we're using our internal models to calculate what we anticipate the franchise revenues to be globally. And then we apply the various tables that we have to come up with our estimated calculation. So we've got some conservatism built into that with some uncertainty on the daily portion for Genotropin and modest growth rates that we would expect for NGENLA. So you've got the 40 to 50, right? So in the fourth quarter, if you take out the third quarter catch-up, we had about $9 million in gross profit share payments. So when you think about that modest growth that we're forecasting in the gross profit share, you can see what that math kind of looks like overall. When we look out at peak, when you look at the growth hormone franchise as a whole, so the combination of NGENLA and Genotropin, when the product is at its peak where we think the peak could be -- and I think Pfizer has stated what they think the total market potential is for NGENLA. It's a substantial revenue stream. We have estimated an effective royalty rate to be in the mid-20s on that franchise. So at peak, it's a pretty substantial cash flow, we would expect to see the growth from now until we hit that peak.

Got it. That's helpful. And maybe last question, just on oxyntomodulin. If you could talk about time lines for the new formulation and what would a clinical development path look like there? And is this something you're going to keep in-house or partner out? And does LeaderMed have any rights to this program?

I think with respect to both of those questions, it's early. We'll get back to you as soon as we have something more definitive to talk about.

Understand. Okay, thanks for taking my questions.

Thanks Maurice

The next question comes from Edward Tenthoff of Piper Sandler. Please go ahead.

Great. Good evening everyone. Two quick questions, if I may. Firstly, just at a high level with respect to NGENLA versus Genotropin. What are the differences that Pfizer is pushing in terms of marketing? Or is it really just a land grab at this point where they're going to the Genotropin clients and converting them over and basically trying to get into as many other accounts as possible? And then the second question really for Phil, high level, as BioReference in the diagnostic business returns to breakeven, is the plan here still to keep that as part of OPKO or potentially to monetize it, how you have for some of the other diagnostic segment/products, do you ultimately see this business being Pharma and Diagnostics going forward? Thanks.

For those of you who know me, you realize that, first and foremost, we will always do what's in the best interest of the shareholders in terms of creating value. So at a particular point in time, if one approach seems advisable, we'll certainly consider it seriously. I don't want to be more specific than that right now. But it's clear that we have an asset on our books that is, at the moment, losing money, although we're very optimistic about turning that around that highest inherent value as an asset. And so we're very mindful of that. Sure.

Year Thank you. And then on the competition and sort of a little bit more on the marketing and the long-acting or weekly [indiscernible]. Thanks.

Yes. So obviously, Pfizer is leading the charge on the commercial efforts. So where we think that they are going to be very successful is in the near term is where they're alone in the market, right? So when you think about the Japanese market, which is a substantial market for the growth hormone space where they're by themselves currently, they've had meaningful market share penetration and continued growth. And there's a number of other countries where they buy themselves. They've done a great job marketing throughout Europe as well and forcing the conversion or suggesting the conversion there as well. In the U.S. market, they've got access commercially to a strong number of plans. We think they're well positioned with their team to go ahead and take substantial share in the U.S. as well. As far as how they're going to go about that, I think that's a question for Pfizer to answer.

Okay. Great. Thank you, guys

The next question comes from Yi Chen of H.C. Wainwright & Co. Please go ahead. Yi, your line is open. Are you muted on your end?

Hello?

Hey, Yi. We can hear you now.

Sorry about that. So regarding the storefront and Alibaba. Can you talk about the potential market size that OPKO can target? And what is the potential revenue contribution in 2024? And how is the current economic environment could affect your market prospects? Thank you.

This is a product line that is very successful and is sold by our Spanish unit. They manufacture the products, develop the products and have done so well that they're beginning to expand into France, as a matter of fact, they have every intention to continue to expand geographically. We were approached by a company that has a partnership with Alibaba. And thinking that because of the tremendous interest in pet animals now in China and because such products as we have are successful, that we might be willing to let them distribute them through Alibaba in China. And we said, why not? And that's where we are now. It's just getting launched. So it's too early to say much more about the market size for our products that is sold by Alibaba. It's a wait-and-see situation.

So strictly animal health products, right? There are no human products offered on this stuff?

So there's a combination of human health and veterinary products that will eventually go on the platform.

All right. Thank you.

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

Well, we'd like to certainly thank you for participating in today's session. And we hope you'll be with us again when we report the first quarter results. Thank you.

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