OPKO Health, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. OPKO operates diagnostics (principally BioReference) and pharmaceuticals, including Rayaldee and a development pipeline.
Financial performance and position
| Metric | Q2 2022 | First half 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $309.9 million, down 30% | $639.1 million, down 35% | Q2: $442.4 million; first half: $987.6 million |
| Operating income (loss) | $(10.7) million | $(83.2) million | Q2: $5.6 million; first half: $44.0 million |
| Net income (loss) | $(101.7) million | $(157.1) million | Q2: $(16.2) million; first half: $14.9 million |
| Loss per share, basic and diluted | $(0.14) | $(0.23) | Q2: $(0.03); first half: $0.02 |
| Operating margin | Approximately (3.5%) | Approximately (13.0%) | Calculated from reported operating income and revenue |
First-half operating cash flow was a use of $31.3 million, versus cash provided of $10.6 million in 2021. Investing activities provided $103.6 million, primarily reflecting $115.4 million of GeneDx sale proceeds, partly offset by capital expenditures of $10.6 million. Financing activities provided $4.4 million. Cash and cash equivalents were $210.5 million at June 30, compared with $134.7 million at year-end 2021.
Total debt was $232.4 million, including $211.5 million of convertible notes. Current assets were $494.8 million and current liabilities $215.5 million. BioReference’s revolving credit facility had $53.1 million available to borrow; total commitments under the credit agreement and other cited lines of credit were $82.3 million, with $18.2 million drawn. Shareholders’ equity was $1.72 billion.
Material changes and notable transactions
- Services revenue fell 48% in the first half, mainly from lower COVID-19 testing demand and reimbursement. Excluding COVID-19 tests, routine clinical test volume declined 26.2% year over year. BioReference’s COVID-19 testing volume and genomic testing revenue also declined; GeneDx was sold in April.
- Pharmaceutical revenue rose to $165.7 million in the first half, including $85.0 million in Pfizer milestone revenue tied to NGENLA sales commencing in Europe and Japan, and a $3.0 million Rayaldee milestone. Rayaldee sales were $11.3 million, versus $10.8 million.
- The GeneDx transaction provided $150 million in cash before customary adjustments and 80 million Sema4 shares; up to a further $150 million may be payable subject to revenue targets. OPKO recorded a $15.4 million gain on sale. Its Sema4 investment was measured at fair value, and a $71.2 million fair-value loss contributed substantially to first-half other expense.
- OPKO acquired ModeX in May, issuing approximately 89.9 million OPKO shares. The filing describes a $300 million purchase price; the shares were valued at $219.4 million for accounting purposes, and the preliminary purchase price allocation totaled $221.7 million.
- OPKO adopted accounting guidance for convertible debt in January. The adoption increased reported convertible notes by $21.6 million and reduced additional paid-in capital by $39.1 million, with a $17.5 million adjustment to accumulated deficit.
Outlook, risks and contingencies
- Management expects COVID-19 testing demand to continue declining in 2022. The HRSA program stopped accepting claims for testing and treatment of uninsured individuals after March 22, 2022.
- NGENLA received approvals in Europe and Japan, as well as earlier approvals in Canada and Australia; the FDA issued a Complete Response Letter for the U.S. application in January 2022. OPKO and Pfizer were evaluating the FDA’s comments and next steps.
- Management stated that cash on hand and available credit were expected to cover anticipated operating and debt-service needs beyond 12 months. However, OPKO has a history of not generating sustained positive cash flow and cautioned that estimates depend on assumptions and may change. Financing availability, COVID-19 effects, product development and commercialization, and legal and payor matters remain risks.
- Open purchase commitments totaled approximately $197.2 million. Potential contingent consideration under acquisition agreements could aggregate up to $144.1 million; timing and amounts depend on milestones.
- Subsequent to quarter-end, OPKO and BioReference agreed to pay $10 million plus interest to resolve a government investigation and related civil action. Payment was made July 18, 2022. BioReference also entered a five-year Corporate Integrity Agreement effective July 14, 2022, with compliance, audit, training and reporting requirements; failure to comply could lead to penalties or exclusion from federal healthcare programs.
- The filing identifies ongoing litigation and investigations, including a relator complaint alleging False Claims Act and other violations. The company said it had not determined the merits or potential liability; the outcome could be material.
Investor verification checklist
- Track BioReference’s routine testing volumes, reimbursement, collections and profitability as COVID-19 testing recedes.
- Verify whether Sema4 meets the GeneDx revenue targets for additional consideration, and monitor the value and eventual liquidity of OPKO’s Sema4 shares.
- Monitor U.S. regulatory progress for Somatrogon, commercial launches and royalties or milestones from NGENLA and Rayaldee.
- Assess cash burn, available borrowing capacity, debt maturities and the ability to meet purchase commitments and contingent obligations.
- Follow implementation of BioReference’s Corporate Integrity Agreement and the outcome of remaining legal, regulatory and payor matters.
- Note potential dilution from the ModeX share issuance; OPKO reported 771,959,579 common shares outstanding as of July 28, 2022.