Good day, and welcome to the OPKO Health Second Quarter 2024 Financial Results Conference Call. All participants will be in 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, 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 second quarter of 2024. 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 can 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, 2023, 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, August 07, 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 BioReference Health, followed by OPKO’s pharmaceutical business. After that, Adam Logal, OPKO’s CFO, will review the company’s second 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. We recently made a few announcements focused on optimizing our balance sheet and enhancing shareholder value. We entered into a $250 million note purchase agreement with HealthCare Royalty that is secured by the gross profit share arrangement we have with Pfizer, our global commercial partner for NGENLA. The transaction allows us to retain a significant portion of the near-term profit share payments and also provide substantial upside opportunities long-term. We maintain rights to the full $100 million of remaining potential milestone payments from Pfizer. The proceeds provide financial flexibility to advance our R&D efforts for ModeX and its multispecific antibody programs, other OPKO programs, and the option to repurchase shares of our common stock and convertible notes. As you know, our board authorized a $100 million share repurchase program, which at present prices represents approximately 10% of our shares outstanding. This share buyback program represents an attractive investment opportunity given our confidence in the business and our strategy. NGENLA, our long-acting growth hormone therapy continues to gain traction as Pfizer expands its launch with the product now being sold globally. NGENLA competes in a large and expanding global market opportunity. As mentioned on our last conference call, the IND for ModeX 2001 was cleared by the FDA for us to proceed to a Phase 1 clinical trial to treat solid tumors. Our goal is to develop a first-in-class tetraspecific antibody that activates T cells and the survival enhancement receptors to optimize sustained cancer treatment. The first patient is expected to be dosed in the coming weeks. In addition, we’re on track to begin clinical trials of our Epstein-Barr Virus Vaccine candidate with our partner Merck later this year. Elias will provide more detail on these and other ModeX pipeline programs in a moment. As for BioReference Health, we are making steady progress on the return to profitability, which will accelerate when we close the announced transaction with Labcorp. We are continuing to progress our collaboration with Entera Bio to develop oral tablet formulations of our proprietary long-acting GLP-2 peptide and Oxyntomodulin analogs using Entera’s proprietary N-Tab oral delivery technology. Entera recently announced in vivo PK results for oral GLP-2 tablets to treat short bowel syndrome and other GI disorders. Plasma levels compared favorably with those reported for teduglutide, a GATTEX product. Pharmacology and incremental PK were expected early in the second half of 2024. With that brief overview, I’ll turn it over to Elias. Elias?

Thank you Phil and good afternoon everyone. To echo Phil’s comments, we’re well positioned to execute on our strategy. This includes advancing our multispecific pipeline at ModeX and streamlining BioReference Health’s operations to return to profitability. Let me start with BioReference Health. We are on track to close our transaction with Labcorp in late September or early October. After this transaction closes, our ongoing diagnostic operations will include our national oncology and urology franchises and our full suite of testing services in New York and New Jersey. This transaction will streamline our remaining diagnostic business by enhancing our focus on core testing operations and supporting our efforts to reestablish profitability. As an ongoing initiative, we continue to improve BioReference’s performance and in turn build value. Our goals remain clear and that is to reduce costs, to improve efficiency and to enhance productivity as well as to drive top line growth. For instance, at the end of Q2, our FTE number at BioReference was 2,697 and this will drop to approximately 2,100 following the transfer of FTEs to Labcorp at closing of the transaction. This geographic refocusing of our operations will help further reduce our cost structures in coming quarters. Now oncology remains a growing and high value segment of the diagnostics business. In the second quarter, testing volume increased 8% and revenue overall increased 6% versus the year ago quarter due to demand for our innovative platform and competitive turnaround times. As I mentioned last quarter, the growth in this segment is being driven by collaborations with large cancer centers and mid-level health systems. We continue to expand these relationships as it is a costly proposition for a health system to run these specialty oncology tests in-house. Additionally, we grew our oncology menu in the second quarter with the addition…

Thank you, Elias. As Phil and Elias have discussed, the first half of 2024 was transformational for our balance sheet as we position ourselves to realize and demonstrate the inherent value of our assets for our shareholders. We initiated and completed five significant transactions which Phil and Elias have already discussed in part including the refinancing of our convertible notes in January, which allowed us to extend the maturity of our notes, repurchased 55 million shares of common stock, and added approximately $25 million of cash to our balance sheet, while working to realize the significant value of our underlying assets. We then announced the Labcorp transaction to position Bioreference to return to profitable growth through focus on certain strategic and geographic customer segments, as well as demonstrate the value of the remaining business of Bioreference. We announced the HealthCare Royalty financing transaction recently, pulling forward $250 million of cash while maintaining significant upside in the gross profit share payments and all remaining milestone payments. Fourth, we announced an additional common stock buyback of up to $100 million. And finally, we’ve begun to monetize a portion of our holdings in GeneDx. We look at all options of enhancing shareholder value and will continue to execute operational through strategic transactions like the ones I just mentioned. This includes opportunities to realize the inherent value of our assets and through the return of capital to shareholders through our stock buyback program, as well as repurchasing our convertible notes as market conditions allow. We expect to have a significant cash balance which we will use to invest in our highest priority R&D programs and to fund prudent equity repurchases. Before I move to the financial results for the quarter, I wanted to summarize the key terms of our recent HealthCare Royalty transaction. Through…

Thank you. We will now begin our question-and-answer session. [Operator Instructions] And the first question will be from Maury Raycroft from Jefferies. Please go ahead.

Hi, thanks for taking my questions and congrats on the progress for the quarter. Maybe first one just on NGENLA. So it seems like the guidance for second half of this year is narrowing and lowering a little bit. Just checking if anything changed commercially since last quarter, or is this related to just getting experience with the gross profit share economics, or is it due to inventory or anything else commercially that the Pfizer could be seeing?

Yes. No, this is tied into the inventory adjustment that we talked about last quarter, Maury. So it’s just the final pull through of certain territories, that adjustment getting flushed out. We had hoped it would be earlier in the third quarter. It looks like it’s going to be late third quarter based on our internal factors. So that’s why the annual range came down to kind of the mid-30s from potentially as high as 40.

Got it. Okay, that’s helpful. And then is it possible to bookend timing for when Pfizer could aim to refile for the adult growth hormone opportunity? And is there more you can say on the status and plan for the additional pediatric indications?

So on the pediatric indications, so Pfizer is planning their registration studies to bring those forward for the global launch for those additional indications. We haven’t provided any specific timelines for those trials to be completed yet, Maury, but I think more to come, they’re definitely actively working on the programs. As it relates to the U.S., the U.S. for the adult, they’re still working with their team to formulate their strategy for the U.S. approval.

Understood. Okay, and then last question, I’ll hop back in the queue. Just for the deal closing with BioReference. Thanks for providing the clarity into when you expect that to happen. Is there anything else you can share about where you’re at with the process and what are specific gating factors to the closing?

Yes. So right now it’s really focused heavily on the integration steps between the clients in Labcorp. So those are the main gating items. There’s a couple of minor regulatory filings that just need to get cleared up. But all of the major hurdles are behind us, which is why we have pretty certain clarity. But that this transaction will get closed late September, early October.

Got it. Okay. Thanks for taking my questions.

And the next question will be from Yale Jen with Laidlaw and Company. Please go ahead.

Good afternoon and thanks for taking the questions. My first one is that in terms of closing the record deals, and you mentioned some of the savings, should that all be realized? Could you give us some sort of quantitative look in terms of how far from that to breakeven and cash breakeven? And then we have a follow-up.

Yes. So, Yale, I think if you step through the numbers and the cost savings plan and the realization of the price increases coupled with the closing of the Labcorp transaction. That will put us to a point where the business is breakeven to slightly profitable. So we only gave the initiatives that will we expect or we have in hand that we’ve – that we’ll initiate upon the closing of the Labcorp transaction. A handful of those are not dependent on the Labcorp transaction closing. Some of the larger ones are as it relates to some of the facility closures. However, we feel highly confident in our ability to deliver the savings that we walk through. And the price increases have already been put into effect. So we feel very confident on those numbers being realized in our run rate numbers by the end of the year, which is where we had previously guided to.

Okay, great. That’s very helpful. And congrats on that. And just one more question on the MDX2001, which is the first, have you guys review what the specific target for the [indiscernible] against. And the second one actually is on the size of study, which you mentioned about 45 patients, is that just only the Phase 1a, 1b, or that’s more. I understand the full study also has the 2a portion – Phase 2a portion. So would you be able to clarify a little bit more on this specific and thanks.

Yes. Yes, I can do that. Elias here. Thanks for the question. On the target, I think it’s something we have now shared, so I think it’s no problem sharing it with you. So it’s a quadri specific antibody that has, for tumor targeting, has two targets. One is Trop-2, and the other one is c-MET. These are the two targets we chose, because they’re present on about 14 different tumors in oncology. So that’s the answer to that. The size of the study really reflects what you typically do, is what we do, we call a basket trial, where you really try different tumor types. We have eleven ones identified, and you try to get signals about the most promising one, which we believe is going to be non-small cell lung cancer, breast cancer, the solid tumors, pancreatic cancer. We don’t know. So that’s the first phase of the study. That’s what you call the 1a phase. Once we do that, then we’ll narrow down to one or maybe two tumor types, which is contained within the patient volume that we identified for the patient number, and then we’ll expand that depending on the results, obviously the side effects. And so that’s clinical development. We need to learn from the basket trial and then decide how we go. And yes, indeed, we have 1a or 1b phase or go straight to a 2a. That’s to be determined by the clinical.

Great. And maybe just tap one more here, which is with any timeline, we can start to get some top line or initial readouts.

Okay. So typically when you do an immune-oncology trial, you have a first phase, which is safety. So we are isolating the dose. We hope that this will take about six months, if everything goes well, and then we’ll go into a more efficacy type trial with a cohort of patients, about three patients per dose, ascending dose. So it’s hard to predict, really, because you can’t really tell how many patients are going to show up at what time in the six sites. We have two sites right now, and we have four more. Two are imminently going to get activated and two more after that. And so it’s really hard to tell. But I think that by 2025, first quarter, we will know if we have a drug that is safe and that can be increasingly dosed. Okay, so that’s step one. And we don’t know that at this time. Immuno-oncology is always a – they’re very powerful therapies, but they also have side effects we need to understand and manage. So that’s where you would get a readout as to the viability of the program is probably the first half of 2025, and then we will know what targets to go after within 2025, depending on results.

Okay, great. That’s very, very helpful. And again, congrats on all the progresses.

Thank you.

And the next question will be from Michael Petusky from Barrington Research. Please go ahead.

Yes. Good afternoon, guys. So I guess the first question. At the end of this year it seems like a lot of things are sort of converging, going in the right direction. Presumably you’ll have approximately $240 million, just under $240 million coming in from the Labcorp. Obviously, you just did something a couple weeks ago that gives you additional financial flexibility in terms of the $250 million you’ll have a lab business that presumably by the end of the year won’t be losing much money, if losing money at all. Can you just talk about capital allocation priorities as you sort of end this year and look towards the future? I mean, what – what matters the most as far as the sort of unprecedented financial flexibility you guys will have going forward? Thanks,

Elias you want to kick us off and I can fill in?

I’ll talk about capital allocation in terms of R&D and bio-reference. So when we look at bio-reference, it’s clear that we will need to grow the business once it becomes profitable. And whether or not we need to allocate capital to that is unclear. But it’s clearly true that if you look at the market in New York and New Jersey, it’s still very fragmented and so definitely accelerate the growth in bio-reference for increasing revenues. The second is ModeX. I mean, ModeX has a rich portfolio. And we’re going to do two things. We’re going to explore partnerships, as we’ve done with Merck and BARDA and others in the hopper. But because we have some capital, we can get better economics with a partner than we do with that capital being available. So, for example, if you look at certain assets, you get a much higher inflection point in value if you can progress the program to proof of concept. And that may be actually the best way to achieve greater economics for the portfolio. So it’s going to be depending upon results obviously, depending upon partnerships because we think that we’re not going to take the risk, I believe, unless we have exceptional results of allocating the capital to completely carry the development program all the way to approval. I don’t think we have enough of that. And it will not be hedging and not be reasonable to do that unless you have outstanding exceptional results. But the best path forward right now is to really try to get a bigger share of the economics of our portfolio by very judicious and very limited capital allocation. You’re not talking about hundreds of millions of dollars but if you can advance a program to a POC, a feasibility stage, then it really increases in value for potential strategic partners or other moves. I don’t know if I’m making myself clear. Now in terms of the other users of capital, I’ll let Adam comment on that.

Yes. So, Mike, I think the other components we announced, $100 million share buyback. I think we’ve talked a little bit about potentially taking out portions of the convertible notes that are outstanding as well. But I think we’re going to be allocating that capital based on the market conditions for both of those items will provide longer term guidance as it relates to the R&D budget and other items in upcoming calls. But we’re sitting here today working through all of those different pulls and pushes on creating that shareholder value and are committing significant dollars already to returning capital to shareholders through those, those two repurchase programs.

Adam, if I could ask, is there any sort of targeted timeframe on sort of achieving or executing most of the share repurchase or whatever notes you might decide to repurchase?

We haven’t set a timetable to it right now.

Okay. And then I guess on reality, you guys have been maybe for the last few quarters sort of suggesting, hey, we think we’ve got some data that could be interesting to nephrologists in terms of the efficacy for these CKD patients. Hasn’t really shown up in the numbers. I think we’re about flat year-over-year for the first half versus first half of 2023. I mean, is there anything anecdotal that you’re getting back from sales in terms of this data that you guys are trying to argue, hey, this should matter to you guys? I mean, is there anything to say on that that would be encouraging, or is this missionary and it takes a while? Thanks.

I don’t know if Charlie is online, Dr. Bishop?

He’s not. Okay. So let me take it. So when you look at the issue of growth for Rayaldee, the number one request from nephrologist is, does it have a good outcome impact? And that’s defined as delaying dialysis and delaying the onset of total renal failure. Now, one of the factors that drives that is when your hyperparathyroid is producing a large amount of hormone, because the kidney itself is no longer producing Vitamin D. And the only drug that really has been shown to be able to raise the levels of Vitamin D to the levels where the parathyroid hormone goes down is Rayaldee. We’ve shown that before, so it’s not new. However, what we haven’t shown and this is where we are hoping that the nephrology world, which has been supported would like to – what we would like to show is, in fact, that there is an impact. Now, there are publications that are coming out that Dr. Bishop is pushing, and obviously the guidelines will have to be changed, so that takes time. As medical practice is not something you can change overnight. But we’re optimistic. Now, is this going to be a short-term big bang for Rayaldee? I don’t think so. Honestly. I think it’s going to take time to sink in into the practice world.

Can I ask one last question that sort of links both of the questions I’ve already asked so far? Is there any rationale for trying to buy maybe a commercial product that could be marketed to nephrologist just to give the Rayaldee sales team just another arrow in the quiver? I mean, would something like that make sense? Or is there just nothing out there that really would fit like that in terms of potentially looking at that as a source of capital allocation priority? Thanks.

I’ll answer that. And your question is a good one. It’s perfectly rational. And I will tell you that we have been looking for opportunities of that sort. And if you come across one, please let us know.

Fair enough. All right. Thank you.

And ladies and gentlemen, this concludes today’s question-and-answer session. I would like to turn the conference back over to Dr. Frost for any concluding remarks.

Well, I just want to thank everybody for your participation and for your good questions. And we look forward to meeting with you again after our next quarter’s results. Thank you and have a good evening.

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

Thank you.