OPKO Health, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 27, 2023. OPKO operates diagnostics and pharmaceutical businesses. Its diagnostics segment is primarily BioReference, while pharmaceuticals includes Rayaldee, international pharmaceutical operations and research and development. The filing provides unaudited quarterly data, including fourth-quarter results; the principal financial comparisons below are annual.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $1,004.2 million | $1,774.7 million |
| Operating income (loss) | $(226.3) million | $18.8 million |
| Net income (loss) | $(328.4) million | $(30.1) million |
| Basic and diluted loss per share | $(0.46) | $(0.05) |
| Cash from (used in) operating activities | $(95.2) million | $38.3 million |
- Revenue mix: Services revenue was $755.6 million, down 53%; product revenue was $142.8 million, up 1%; and intellectual-property and other revenue was $105.7 million, up from $25.8 million.
- Fourth quarter: Revenue was $185.3 million, net loss was $85.2 million and loss per share was $0.11. Revenue and net loss figures are unaudited.
- Margins and segments: The filing reports operating losses of $173.7 million for diagnostics and $13.0 million for pharmaceuticals; corporate operating loss was $39.6 million. Consolidated gross margin is not stated as a single figure.
- Cash and liquidity: Cash and cash equivalents were $153.2 million at year-end, versus $134.7 million a year earlier. Current assets were $394.5 million and current liabilities $213.5 million. Management said cash and available credit were expected to cover anticipated operating and debt-service needs beyond 12 months, subject to assumptions and risks.
- Debt: Total reported debt was $256.3 million, including $142.1 million of 2025 Notes, $68.3 million of 2023 Convertible Notes, $18.1 million drawn on the JPMorgan facility, and $13.7 million on Chilean and Spanish credit lines. The $75 million secured revolving facility matures August 2024; $16.8 million was available at year-end. The 2023 Convertible Notes were amended in February 2023 to extend maturity to January 31, 2025 and reset the conversion price to $1.66.
- Cash flow and investment: Investing activities provided $91.0 million, mainly reflecting GeneDx sale proceeds, partly offset by $24.6 million of capital expenditures. Financing activities provided $23.0 million, principally net line-of-credit borrowings.
Material changes and unusual items
- Services revenue fell $851.5 million year over year, principally because COVID-19 testing demand and reimbursement declined. BioReference performed 3.1 million molecular COVID-19 tests in 2022, versus 11.9 million in 2021. Excluding COVID-19 tests, routine clinical test volume declined 2.0%.
- Pharmaceutical revenue benefited from $85 million in Pfizer milestones associated with NGENLA sales and approvals in Europe and Japan. Rayaldee revenue was $27.3 million, compared with $27.0 million in 2021; fourth-quarter prescriptions were down approximately 4.9% year over year.
- The sale of GeneDx closed in April 2022 for $150 million cash plus 80 million GeneDx Holdings shares, with a potential earnout. OPKO recorded an $18.6 million gain on sale, but a $150.9 million fair-value loss on its GeneDx Holdings investment materially affected results; that investment was valued at $21.1 million at year-end.
- OPKO acquired ModeX in May 2022 for stock. The accounting fair value of consideration transferred was $221.7 million, and approximately 90.6 million OPKO shares were issued in the transaction.
- A $63.5 million income-tax benefit partly offset the pretax loss. Other expense included the GeneDx investment’s fair-value decline. These items, milestone revenue and the GeneDx disposal make reported earnings less representative of recurring operating performance.
- Research and development expense was $73.9 million, compared with $76.9 million in 2021. Pharmaceutical R&D increased, primarily reflecting ModeX research; diagnostics R&D decreased.
Outlook, risks and contingencies
- Outlook: No quantified earnings or revenue guidance is provided. Management expects COVID-19 testing demand to continue declining in 2023 and described the return to growth in BioReference’s core testing business as gradual. It plans to grow Rayaldee, support Pfizer’s NGENLA commercialization and U.S. regulatory efforts, and develop ModeX’s early-stage pipeline.
- Somatrogon/NGENLA: NGENLA was authorized in the EU, Japan, Canada and Australia, but the FDA issued a Complete Response Letter in January 2022. OPKO and Pfizer said they would work with the FDA on a path forward. U.S. approval, commercialization and associated milestones remain uncertain.
- Cash generation and funding: OPKO has a history of losses and did not generate positive operating cash flow in 2022. The company warns that declining COVID-19 testing, development spending, credit-facility covenants and financing availability could affect liquidity; additional capital could cause dilution or impose restrictive terms.
- Legal and regulatory matters: In July 2022, OPKO and BioReference agreed to pay $10 million plus interest to resolve specified claims involving above-fair-market-value physician office rents and entered a five-year Corporate Integrity Agreement for BioReference. A separate relator complaint alleging healthcare-program claims and kickbacks remained subject to a pending motion to dismiss.
- Tax assessment: The Israel Tax Authority assessed approximately $246 million, including interest, concerning tax positions for 2014–2020. OPKO is appealing; the outcome is uncertain. The company disclosed a $6 million accrual related to uncertain tax positions, not a stated reserve for the full assessment.
- Other contingencies: In February 2023, the Texas Attorney General informed BioReference of potential Texas Medicaid fraud-law violations; the company had not determined the merits or potential liability. A separate Texas Medicaid matter relating to former subsidiary GeneDx cited potential repayment of approximately $784,000 and remained under investigation.
- Asset and market risks: Goodwill and other intangible assets totaled approximately $1.6 billion. Management cautioned that weaker diagnostics performance or failure to secure U.S. Somatrogon approval could result in material impairment charges. Other significant risks include reimbursement pressure, billing and collection estimates, cyber and patient-data security, foreign exchange and reliance on partners.
Most important facts for investors to verify
- Whether BioReference’s core testing volumes, reimbursement and cash collections improve enough to offset continuing COVID-19 declines.
- Cash burn, available borrowing capacity and compliance with JPMorgan facility covenants, alongside the amended convertible-note maturity and dilution terms.
- The status and potential value of GeneDx Holdings shares and any earnout, considering the substantial 2022 fair-value loss and subsequent share issuance.
- Pfizer’s FDA response plan for NGENLA and the timing and economics of launches, royalties, profit sharing and remaining milestones.
- Developments in the $246 million Israeli tax assessment, Texas matters, pending relator litigation and BioReference’s obligations under the Corporate Integrity Agreement.
- Whether the forecasts supporting goodwill and intangible-asset values remain achievable; the filing reported no impairment charge in 2022.
The independent auditor issued an unqualified opinion on the financial statements and an unqualified opinion on internal control over financial reporting as of December 31, 2022. The audit identified variable consideration in service revenue estimates as a critical audit matter.