OPKO Health, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; financial statements are unaudited. OPKO operates pharmaceutical and diagnostics businesses, including BioReference laboratories, Rayaldee, and partnered drug-development programs.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $329.2 million | $545.2 million; down 40% |
| Service revenue | $286.6 million | $507.0 million; down 43% |
| Product revenue | $36.7 million | $33.9 million; up 8% |
| Gross profit / gross margin | $85.3 million / 25.9% | $181.7 million / 33.3% |
| Operating income (loss) | $(72.4) million | $38.4 million |
| Net income (loss) | $(55.4) million; $(0.08) per share | $31.1 million; $0.05 per share |
| Operating cash flow | $(19.9) million | $26.0 million |
| Cash and cash equivalents | $102.3 million at March 31 | $134.7 million at December 31, 2021 |
| Total debt | $230.3 million | $205.3 million at December 31, 2021 |
| Current assets / current liabilities | $754.1 million / $309.2 million | Includes assets and liabilities held for sale |
Cash used in investing activities was $4.9 million, mainly capital expenditures of $5.3 million. Financing activities used $7.9 million, primarily net repayments on lines of credit. The $75 million BioReference revolving facility had $64.8 million available to borrow at quarter-end; no balance was outstanding under that facility. Lines of credit and notes payable, excluding convertible and senior notes, included $16.5 million drawn on Chilean and Spanish facilities.
Pharmaceutical revenue rose 12% to $42.6 million, while the segment recorded an operating loss of $18.1 million. Diagnostics revenue fell 43% to $286.6 million and the segment recorded an operating loss of $43.5 million. Corporate operating loss was $10.8 million.
Material changes and unusual items
- Lower COVID-19 testing volumes and reimbursement drove most of the service-revenue decline. BioReference performed 2.0 million COVID-19 molecular tests and 0.1 million antibody tests, versus 4.1 million and 0.2 million, respectively, a year earlier. Excluding COVID-19 tests, genomic test volume increased 14.0% and routine clinical test volume increased 0.4%.
- Management reported that COVID-19 testing demand was expected to trend down in 2022 versus 2021, although demand could fluctuate. The HRSA stopped accepting new claims under its COVID-19 Uninsured Program after March 22, 2022; the program represented 7.9% of Q1 COVID-19 testing revenue.
- Q1 included a $21.3 million income tax benefit, principally reflecting a discrete $22.0 million benefit from reduced tax rates applicable to foreign deferred tax liabilities. The company nevertheless reported a net loss.
- OPKO adopted ASU 2020-06 for convertible-debt accounting on January 1, 2022. Adoption increased convertible notes by $21.6 million, reduced additional paid-in capital by $39.1 million and reduced accumulated deficit by $17.5 million. This accounting change affected comparability with prior-period debt and interest expense.
- Following European and Japanese approvals of NGENLA (somatrogon), OPKO reclassified approximately $590.0 million of in-process R&D to finite-lived intangible assets, to be amortized over about 12 years. Q1 amortization expense increased to $22.0 million from $12.6 million.
- Rayaldee sales were $5.1 million, down from $5.8 million. Revenue also included a $3.0 million milestone for the first European sale of Rayaldee.
Outlook, transactions and risks
- Management said cash on hand, expected $85 million in somatrogon milestone payments, GeneDx transaction proceeds and borrowing availability were expected to fund anticipated operations and debt service beyond 12 months. This assessment depends on assumptions that may change; OPKO noted its history of not generating sustained positive operating cash flow.
- GeneDx was sold to Sema4 on April 29, 2022, after quarter-end, for $150 million cash subject to adjustments and 80 million Sema4 shares, with up to $150 million of additional revenue-based consideration over two years. OPKO estimated upfront consideration at approximately $322 million and potential aggregate consideration at approximately $472 million using Sema4’s closing share price on that date.
- In April 2022, Pfizer notified OPKO that NGENLA had received pricing approvals in Germany and Japan. OPKO said it was entitled to aggregate milestone payments of $85 million. The FDA had 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.
- On May 9, 2022, OPKO acquired ModeX Therapeutics for $300 million in OPKO common stock, after the reporting date. The filing also describes associated management and board changes.
- Risks include further reduction in COVID-19 testing, reimbursement pressure, uncertain product commercialization and regulatory outcomes, financing needs, possible impairment of goodwill or intangible assets, and foreign-exchange exposure. OPKO reported a continuing False Claims Act and related state-law complaint after the federal government and certain states declined to intervene; the company said it had not determined the merits or potential liability. Separately, a BioReference DOJ matter had a verbal settlement agreement of approximately $10 million, excluding attorney fees; $10.5 million was accrued at March 31.
- OPKO reported approximately $252.4 million of ordinary-course inventory and other purchase commitments. Potential contingent consideration obligations may aggregate up to $144.1 million, subject to milestones.
Investor verification points
- Confirm the final cash and share value, adjustments and any milestone outcomes from the GeneDx sale; assess the liquidity and market value of Sema4 shares received.
- Verify timing and receipt of the $85 million NGENLA milestone payments, and monitor the FDA’s requested actions and U.S. approval path.
- Track core diagnostics revenue, COVID-19 testing volumes and reimbursement, and whether routine and genomic growth can offset continuing pandemic-related declines.
- Review cash burn, debt maturities and refinancing needs, including the 2023 and 2025 convertible notes, and test management’s stated liquidity runway against actual results.
- Monitor the False Claims Act complaint, BioReference settlement finalization and other reimbursement or regulatory matters for changes to accruals or potential exposure.