From seeking alpha:
OPKO Health, Inc. (NYSE:OPK)
Q4 2014 Results Earnings Conference Call
March 02, 2015, 08:30 AM ET
Executives
Steven Rubin - Executive Vice President, Administration
Adam Logal - Senior Vice President and Chief Financial Officer
Charles Bishop - Chief Executive Officer, Renal Division
David Okrongly - President, Diagnostics Division
Phillip Frost - Chief Executive Officer and Chairman
Analysts
Rohit Vanjani - Oppenheimer
Kevin DeGeeter - Ladenburg Thalmann
Presentation
Operator
Greetings, and welcome to the OPKO Health Fourth Quarter 2014 Financial Results. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Steve Rubin, Executive Vice President of Administration for OPKO. Thank you, Mr. Rubin. You may now begin.
Steven Rubin
Thank you, and good morning. Before we begin, I'd like to remind you that any statements made during this call, which are historical will be considered forward-looking, and as such will be subject to risk and uncertainties, which could materially affect our expected results, including without limitation the various risks described in our Annual Report on Form 10-K for the year ended December 31, 2014 and our subsequent filings with the SEC.
I'd like to discuss the format for today's call. Adam Logal, our Chief Financial Officer will first talk about our financial results for the quarter. Charlie Bishop, the CEO of our Renal Division will then provide a brief update on our Rayaldee development program; followed by David Okrongly, President of our Diagnostics Division, who will provide an update of our diagnostics projects; and Dr. Frost will follow-up with a brief wrap up. We have the entire team here including Dr. Gilly Hart [ph] Head of Clinical Development for OPKO Biologics. He is with us to answer any questions you might have after our remarks.
With that, I'll turn it over to Adam Logal, our CFO.
Adam Logal
Thank you, Steve, and good morning, everyone. 2014 was an important year for us with our investments in R&D having begun turning [ph] in to commercial opportunities. In the first quarter of 2014, we successfully validated and launched the 4Kscore test in the U.S. launching in Europe in September and Latin America through the launch in Mexico last month.
Our investments in Rayaldee resulted in the completion of two successful Phase 3 clinical trials with the NDA filing coming shortly. Finally, in December we entered into an agreement with Pfizer which allows us to have a global commercial partner for our hGH-CTP product.
The $295 million in cash we received – from Pfizer in addition to the cash already on hand on our balance sheet puts us in the strongest financial position we’ve been in today.
In June, we successfully converted approximately $75 million of our convertible debt, leaving us with approximately $87 million of convertible debt outstanding as of December 31, 2014.
OPKO's pharmaceutical operating units continue to show positive results during the three months and for the full year 2014, with increases of $1 million and $8.8 million in year-over-year product revenue growth, principally being driven by our growth at FineTech our API manufacturer and our Spanish based business.
Pharmaceutical product revenue grew, despite foreign currency pressure impacting our Latin American businesses in comparison to the 2013 periods.
Total revenue for the three months ended December 31, 2014 were $25.5 million and $91.1 million compared to $20.7 million and $96.5 million for the comparable periods of 2013. The 2013 annual period included non-recurring licensing revenue of $16.3 million related to the 2013 transactions with Pharmsynthez and RXi.
The 2014 annual period included the milestone payment received under our license agreement with TESARO, as a result of their successful NDA submission.
Turning to our operating expenses, we had several events during the period that I would like to highlight. As a result of our successful Phase 3 clinical trials for Rayaldee, our net loss for the three months and year ended December 31, 2014 reflects an increase in the valuation of our contingent consideration payable to the sellers of Cytochroma.
This increase in value is the result of a significant increase in the probability of the future development milestones being met as a result of the clinical trials. The three months and annual periods of 2014 include $2 million and $21 million of contingent consideration expense related to the increase in value of those future payments [ph], which can be satisfied in cash or stock at our discretion.
Our continued investment in research and development expense -- research and development resulted in increased expense of $2.5 million to $25.8 for the three months and increased $29.7 million to $83.6 million for the year ended December 31, 2014. In addition, we’ve recorded non-recurring in-process research and development expense of $12 million related to the acquisition of Inspiro and payment due to MEC related to TESAROs successful NDA submission.
Our net loss was $53 million for the three months ended and $171.7 million for the year ended December 31, 2014, in comparison to $16.8 million and $114 million for the comparable periods of 2013. In addition to the managed items I previously mentioned, our net loss for the fourth quarter of 2014 included $14.4 million of non-cash derivative liability expense associated with our convertible notes as a result of our increased stock price.
The fourth quarter and year ended December 31, 2013 also benefitted from the successful exit of two strategic investments resulting in non-recurring income of $18.9 million and $29.9 million respectively.
I’d like to turn the call over to Charlie Bishop, the CEO of OPKO’s Renal Division. Charlie?
Charles Bishop
Thanks, Adam. Good morning. I'm pleased to report good progress with Rayaldee since the previous earnings call. Two weeks ago we completed the third study in our core Phase 3 clinical program. This study was an open label extension of the two pivotal trials which concluded successfully last year.
You will recall that the two pivotal trials had identical randomized, double blend designs and involved patients with stage 3 or 4 chronic kidney disease, elevated PTH and vitamin D insufficiency. They were randomized to receive daily doses of either Rayaldee or placebo for 6 months.
Patients who completed these pivotal trials were treated at their election for an addition of six months with Rayaldee. Those who had received 30 or 60 micrograms per day of Rayaldee during the pivotal trials continued those dosing as people were during the extension.
Those who had received placebo switched to Rayaldee, starting at 30 micrograms per day and escalating to 60 as needed after 12 weeks. A total of 298 surgeons [ph] participated in the extension study. The data from this study look excellent and are consistent with their expectations.
We are completing the calculation of the datasets from all three trials and will proceed to submit the NDA as soon as possible expected later this month. We presented topline Phase 3 data on Rayaldee last November in a late breaking clinical presentation during the annual meeting of the American Society of Nephrology. We will present more detailed data in a second late breaking clinical presentation at the end of this week in San Diego during the annual meeting of the Endocrine Society.
We will present further Phase 3 data in late March in Dallas at the spring clinical meetings of the National Kidney Foundation and in late April in the Netherlands at the Vitamin D workshop.
Detailed disclosures of our earlier Phase 2A and 2B clinical data were published late last year in the Journal of Steroid Biochemistry & Molecular Biology, and in the American Journal of Nephrology respectively. Copies of these publications are available for download on the OPKO Renal website.
In late January, we received FDA approval of our pending paediatric development plan which is required prior to submission of the NDA. Finally, during the last quarter we initiated a new clinical study which will examine the safety of escalating Rayaldee doses in patients with prostate or breast cancer that is metastasize to bone, and who require treatment with antiresorptive or bone-sparing agents.
We expect to obtain early data from this open label study later this year. At this point, I will turn the presentation over to Dave Okrongly. Dave?
David Okrongly
Thank you, Charlie. I’m going to start out with an update on 4Kscore, which is our test for aggressive prostate cancer. The 4Kscore is actually a lot of information available about 4Kscore.com. We’re very excited about the publication which we announced a few weeks back on 20-year outcomes data for the 4Kscore used in determining whether or not a man was going to develop aggressive metastatic prostate cancer. We now know that if a 4Kscore is elevated upto 20 years down the road we can see it increased risk for developing metastatic disease and if the 4Kscore result is very low less than 7.5%, the chance for [Indiscernible] within the next 10 years is next to zero, it’s less than 1%.
This gives a man confidence in deferring a biopsy with a low 4Kscore test and really has provided a tremendous boost or confidence in the use of the test. At ASCO GU which is the leading oncology meeting for prostate cancer we had 2500 participants listen to only one of the two oral presentations presented at the opening session which was about the 4Kscore test on U.S. validation trial. This is a great exposure to the leading oncologists from around the world and we are very honoured to be one of only two presentations selected for that opening session.
As Adam mentioned in the U.S. we’ve continued to ramp up our commercialization we now have over 550 urologists who have used the 4Kscore test in their routine practise. We also did announce our launch in Mexico in January. We’re also gearing up for other launches in Latin America this year through our subsidiaries there.
The next milestones we’re looking forward to are the NCCN Early Detection Guidelines. We expect those to be announced in the first quarter of 2015. The -- we are also initiating a financial assistance program for the test. This is to coincidence with our metacare and private insurance reimbursement program which we’re getting in full gear now. And also we have upcoming two very important meetings, the European Association of Neurology in Madrid, two abstracts have been accepted for the 4Kscore test that we’ll be presenting at that meeting and at the AUA the large annual meeting of the American Urological Association meetings we’ve have four abstracts accepted for presentation and two of those will be oral presentations.
And we’re also getting ready to begin a very large study in active surveillance using a cohort that has been followed for five years now under active surveillance. Active surveillance is when a man is diagnosed with Gleason 6 or indolent cancer, they go onto a program of repeated PSA testing and biopsying and we think that the 4Kscore test should provide exceptional clinical value in awarding biopsies during active surveillance.
I’m going to turn now to the Claros 1 program. Claros 1 is our platform for in office diagnostic testing and we really focus there on addressing very large markets. Our first markets that we are going after are in the urological space, PSA and testosterone aretwo of the most commonly ordered tests in the urologist’s office. PSA in total volume is about 30 million test per year, testosterone about half that, about 15 million test per year in the United States.
While, I’m happy to report that our PSA production qualification that’s our internal validation of the process for making the cassettes has been completed. We’ve had a number of discussions with the FDA about our clinical trial design and we’ve submitted what we believe are the final comments to the FDA about the trial and we’re getting geared up to begin that testing.
Testosterone is only a few weeks behind that. We are beginning to do our production qualification this month and we’ll begin our trials in the second quarter. We’re also continuing to work on our renal panel vitamin D of course is the hallmark of our renal panel, but that panel could include upto three other assays in fact PTH Cystatin C and another marker that we are currently looking at for [Indiscernible]
We also announced in January that we were the recipient of a grant for Lyme disease diagnostic test. Lyme disease is a very common infectious disease particularly in areas in the North and it’s one of the test that must be detected quickly and treated promptly in order to avoid a long term side effects.
We also have a contract with a very large pharma companies who are companion diagnostics for Claros. We haven’t been particularly aggressive in marketing the platform as a companion diagnostic. This was really more opportunistic than anything else but it’s a very large pharma company looking to do work with us on a blockbuster drug that they have. So that’s just you know I think a harbinger of the kind of things that we’re going to be doing with the Claros platform in the future.
That’s wrapping up for diagnostics; I’ll turn it over to Phillip Frost our Chairman and CEO.
Phillip Frost
Good morning. I’d like to give you a little perspective of what’s going on at OPKO. We’ve talked a bit about the licensing partnership deal with Pfizer on the one product, the human growth hormone. We consider this to be an exceptionally good deal. What’s a good deal?
A good deal is one which is successful for both sides, which is meaningful for both sides. From OPKO’s point of view the deal was exceptionally good in that we were able to recover or will have recovered almost the entire price we paid for the acquisition of PROLOR and then go onto enjoy the benefits of royalties and profit sharing once the product of human growth hormone is on the market.
From Pfizer’s point of view, it’s a very good deal we believe, in that as a leader in the marketing of human growth hormone and they have approximately $700 million to $750 million in worldwide sales and with the roaming [ph] of more than once a week injectable form of the drug presently the drug has to be given daily, they need it to protect their market.
Booking up with OPKO served that purpose. Now there are approximately 6 to 7 products in the market that is human – daily human growth hormones. Eventually there may be a few weekly products in the market.
Now with the tremendous muscle of Pfizer’s marketing and sales group internationally we all feel that they will be able to capture a significant part of the market for the daily product and so they will be competing with an advanced products against fewer products than they are competing against now so it’s entirely possible that their overall sales could exceed even and profits also with sharing in those profits with OPKO. So, it’s a good deal from their side, it’s a very good deal from our side.
And by the way, the arrangement is that we will share in the profits eventually not only of the once weekly, but in their daily product as they continue to go on.
Now, I mentioned PROLOR that’s our biologic companies and Gilly Hart [ph] is standing by an Israel to answer questions about their group. But there are other products already at various stages of clinical development, factor seven for one can be a very significant product. The present market is a little over a $1.5 billion a year as it used now to treat patients after they have a bleed.
Our goal is to develop our products so that it can be used prophylatically and in that sense we expect the market to be even bigger. And we are working on of my favourite project oxyntomodulin, for the treatment of over-weight obesity and Type 2 diabetes.
The market for that product is obviously tremendously important. So that brings us to the question of overall strategy. We did a licensing partnership deal with Pfizer, a great company for the human growth hormone.
Certain products and we’re not sure exactly which ones they will turn out to be. We will continue to out license and partner, because they will be the products that are a little bit outside the purview of our main interest and that will permit us to focus on those that we decide to market and sell ourselves.
For example, at the movement we feel strongly about developing marketing and sales team for the Renal group and we hope to expand the offering of products beyond just the reality. And we also plan to market our products to the Urology Community starting with the diagnostic products.
And again, we hope to have more products to offer as we go along. So, what we will wind up with is the combination of income from royalties and fees and then from our sales and profits of our own products.
We think that this is a very good and effective model for us and we look forward to having huge benefits for our shareholders as we go forward. Thank you.
We’ll now go into the question-and-answer period.
Question-and-Answer Session
Operator
Thank you. We will now be conducting the question and answer session. [Operator Instructions] Thank you. Our first question is from the line of Eun Yang with Jefferies. Please go with your question.
Unidentified Analyst
Good morning. This is John [ph] for Eun. Thanks for taking my question. For Rayaldee, can you help us think about your commercial strategy including EAU sales force sizing in any potential discussions with commercial payers about Rayaldee reimbursement? Thanks.
Charles Bishop
Thanks Jon. This is Charlie. In the United States and in North America as well, we intend to build our own sales force as Dr. Frost just mentioned. The size of that sales force will be consistent with what has been built for other products directed to nephrologists and endocrinologists, who treat CKD patients.
We expect that ultimately the sales force will be about a size of 75 reps to 80 reps, there will also be infrastructure and marketing personnel as well. In addition, we likely will have a significant clinical support specialist’s staff which will help detail the product and its mechanism of action and its proper use to the healthcare professionals in dialysis care centers and pre-dialysis care centers.
In Europe, it’s not our intension to build our own sales force rather we will likely find a partner, unless it turns out that the OPKO’s strategy brings another company into the fold that is capable of commercializing the product in their region. For Asia, even though you didn’t ask we likely will find a partner or series of partners for the major markets there.
Operator
Thank you. Our next question comes from the line of Rohit Vanjani with Oppenheimer.
Please go ahead with your question.
Rohit Vanjani
Hi, everybody. Thanks for taking the questions. Dave, the CPT code for 4Kscore, did you get the publication of that code or if not, when can we expect that?
Phillip Frost
It’s not been posted yet on the CNS website. We do have the identifier for the test, unique identifier for the 4Kscore test. The AMA asks you not to make that public. So we have not. But we do have the identifier and it just the matter of the CMS folks getting that published on their website. And I probably anticipate your question, where we at with reimbursement discussions, so we’re there.
As I mentioned, getting our financial assistance program put in place. This will be a part of our strategy for the reimbursement. Our list price for the test is $1,185 or $1,185 the financial assistance program will allow us to continue to offer the test for people within certain income brackets at or out-of-pocket pay price of $395 or even lower if their income is particular low. And we have [indiscernible] now pretty much finished and ready to go and we’re just really waiting on the NCCN guidelines to take our story to the payers. We think it’s a very powerful package.
Rohit Vanjani
And Dave, you mentioned last time that you were negotiating with CMS and around the protecting access to Medicare Act of 2014, I think you’d mentioned on working reimbursement issues? Where there any kind of an update there?
Charles Bishop
Well, PAMA, the Protecting Access to Medicare Act really does affect us until 2017. So, it’s an important thing for us to keep in minds as we develop our strategy around reimbursement, but it’s not something that’s going to have a direct impact on us in 2015 or even 2016. But we are keeping an eye on developments there as implementation of PAMA starts to take shape with CMS.
Rohit Vanjani
Okay. And then have you seen an increased number of orders you mentioned the 550 urologists I think that have use it. But have you seen an increased number of tests used per quarter that you have the test even going into 1Q, 2015?
Phillip Frost
Yes. We’re seeing, again, with a very limited sales force we’ve not grown the sales force launch of the test. We have a total of nine sales people, seven of them actually field-based. But we’re seeing really good growth and good solid with groups of urologists event was continuing grow. We’ve got fairly large number of valuations going out there in the field with the test right now. So, we’re seeing good acceptance.
The ASCO view kind of highlighted the mood out there with the urology field is that we really got to recognize that we don’t want to be discovering indolent cancers and the 4Kscore test is the perfect solutions that prevent using a PSA and then jumping right to a biopsy, use this as a reflex test to an elevated PSA and I think we’ll have the right formula for how to implement screening without having the problem of OPKO diagnosis and OPKO treatment.
Rohit Vanjani
Okay. And just to confirm you’re selling in the U.S., in Spain, as of mid September, 2015 you launch in Mexico at the end of January and then you talked about branching out in the Portugal, France and Italy. Have you gone for those markets and then how long before you enter kind of rest of Latin America?
Phillip Frost
There are some decisions and some limited sales going on outside of Spain. We’re going to be talking with a lot of people at the EAU meeting in Madrid that’s coming up 13 weeks about expansion into other areas in Europe with distribution. And our rollout in Latin America will be announcing it. But you know we have subsidiaries in July. We have some partnerships that OPKOLab has in Latin America that will be looking at expanding those partnerships to include 4Kscore. And so stay tune. We’ve got very busy year plan commercially in Latin America.
Rohit Vanjani
Okay. And then, last one for me, it’s for Charlie actually, Charlie, did you start the Phase 3 Alpharen trial yet or what’s the timeline on that?
Phillip Frost
Thanks for asking, Rohit. No, we haven’t started this study yet. We’re still making drug supplies to support that study. We expect to have the manufacturing of drug supplies completed by the end Q2, which will put us in position to start the study later in the year. It would be our intension to put in place also an SPA for that trial and that will take us some time to establish.
Rohit Vanjani
Okay, great. Thanks for taking my questions.
Operator
[Operator Instructions] The next question comes from the line Kevin DeGeeter with Ladenburg Thalmann. Please go ahead with your question.
Q - Kevin DeGeeter
Yes, sir. Good morning. Thanks for taking my questions. Can you actually provide us some more detail with regard to the perspective patient population for the Phase 1 Oxyntomodulin study and your additional issue would be thinking about that is a single dose Phase 1 or we’ll see that PK/PD that are for repeat dose from that study?
Phillip Frost
Gilly [ph]
Unidentified Company Representative
So, yes, so with respect to long acting Oxyntomodulin modelling, the first human study will be Phase 1 classical Phase 1 study, meaning a single dose study where we’re going to initially evaluate the safety of this product. It will be accommodated by single dose PK/PD cross-out of our drug. Following that, we are aiming to move directly forward and initiate a multi-dose study where we are going to evaluate both, safety PK/PD of multi-dosing and also to evaluate the effectiveness of this drug with respect to weight loss.
Kevin DeGeeter
Great. Thanks, Gilly. And so can you just provide an update with regard to pace of enrolment for the adult human growth hormone study. Is that anyway impacted by the Pfizer agreement? And just how should we think about time line for completion of that study?
Unidentified Company Representative
So the Phase 3 adult study, the pivotal study is on track, it has been our expectation. We do anticipate to complete the study by early 2016, hopefully earlier or no doubt about that having Pfizer as our partner can accelerate the recruitment. We are all aware of the quite – I would say extensive network and their tight relationship with endocrinologists all around the world. So this is within our benefit.
Kevin DeGeeter
Perfect. Thanks so much.
Operator
Thank you. At this time, I'd like to turn the floor back over to management for any comments.
Phillip Frost
I just want you thank you all participating and we all look forward ourselves to being contact with you frequently through our press releases and calls if necessarily.
Charles Bishop
Thank you.
Operator
This concludes today’s teleconference. You may disconnect your lines at time. And thank you for your participation.
