OPKO Health, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated results. OPKO operates pharmaceutical and diagnostics businesses, including BioReference Laboratories, Rayaldee and a drug-development portfolio. The filing compares results with Q1 2020.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Total revenue | $545.2 million | $211.5 million | Up 158%; services revenue increased 197%, primarily due to COVID-19 testing. |
| Operating income (loss) | $38.4 million | $(40.8) million | Diagnostics operating income was $67.0 million; pharmaceuticals recorded a $19.2 million operating loss. |
| Net income (loss) | $31.1 million | $(59.1) million | Basic and diluted earnings per share were $0.05, versus a loss of $0.09. |
| Gross margin | Approximately 33.3% | Approximately 33.7% | Calculated from reported revenue and cost of revenue; essentially flat year over year. |
| Operating margin | Approximately 7.1% | Approximately (19.3)% | Returned to operating profitability. |
| Cash from operations | $26.0 million | $(43.4) million | Management attributed the improvement principally to COVID-19 testing volumes. |
| Cash and cash equivalents | $89.5 million | $72.2 million at Dec. 31, 2020 | Quarter-end cash increased by $17.3 million. |
| Total debt | $246.5 million | $251.2 million at Dec. 31, 2020 | Includes $224.8 million of convertible notes and $17.8 million current lines of credit and notes payable. |
| Current assets / liabilities | $599.0 million / $403.9 million | — | Working capital was approximately $195.1 million; current ratio approximately 1.48. |
Business drivers and changes from the prior period
- COVID-19 testing drove the majority of the revenue increase: BioReference performed 4.1 million molecular tests and 0.2 million antibody tests, together 67% of total test volume. Q1 2020 included 0.1 million molecular tests.
- Service revenue included a $28.0 million positive adjustment for estimates on services in prior periods, primarily reflecting improved COVID-19 reimbursement estimates. Q1 2020 included an $8.9 million negative adjustment.
- Excluding COVID-19 tests, genomic test volume rose 10.3% year over year, while routine clinical test volume fell 6.8%. Management said routine and genomic volumes were trending toward normalization, but recovery remained uneven.
- Pharmaceutical revenue declined 6% to $38.2 million. Rayaldee sales fell to $5.8 million from $9.9 million, with management citing difficulty onboarding patients and restricted sales access to physician offices. A $2.7 million Rayaldee inventory reserve was recorded.
- Somatrogon regulatory submissions for pediatric growth hormone deficiency were accepted in the U.S., Europe and Japan. The U.S. FDA target action date was October 2021; management expected a European Commission decision in 2022.
Liquidity, debt, outlook and risks
- Management stated that cash on hand, operating cash flow and available credit were expected to cover operating needs and debt service beyond the next 12 months, based on assumptions that may change. It also cautioned that COVID-19-related cash generation is uncertain and that OPKO has historically not generated sustained positive cash flow.
- BioReference had $64.7 million available under its $75 million secured revolving credit facility, which matures November 5, 2021. The facility was undrawn at quarter-end. OPKO also reported a $100 million unsecured affiliate line of credit bearing 11% interest; no funds were drawn at March 31, 2021.
- COVID-19 testing demand, reimbursement and pricing may decline or change; renewed restrictions could reduce routine testing. Management said the duration and sustainability of testing volumes and related cash flows could not be predicted.
- Other material risks include reimbursement and payor recoupments, regulatory approval and commercialization of products, R&D outcomes, impairment of goodwill or intangible assets, access to financing, and legal or government inquiries. Goodwill and in-process R&D were significant assets, and the filing notes that impairment could be material.
- Contractual obligations included approximately $301.5 million of open purchase orders, primarily due in the remaining nine months of 2021. Potential contingent consideration could aggregate up to $144.1 million, payable in cash or stock depending on milestones.
- Legal matters include a newly consolidated derivative lawsuit alleging failures related to diversity and proxy disclosures. A previously disclosed class-action settlement for $16.5 million received final court approval on April 28, 2021; a significant portion was covered by insurance. The filing also describes ongoing regulatory and payor inquiries for which potential losses may not be estimable.
- No numerical company-wide revenue or earnings guidance was provided. Management’s cash-flow outlook was conditional on testing trends, reimbursement and other assumptions.
Important facts for investors to verify
- How much of revenue, operating profit and operating cash flow depends on COVID-19 testing, and whether testing prices, reimbursements and volumes remain sustainable.
- The collectability and timing of receivables, including amounts due from government and municipal customers, and the durability of the $28.0 million favorable prior-period revenue adjustment.
- Refinancing or repayment plans for BioReference’s revolving credit facility at its November 2021 maturity, alongside upcoming debt service and other liquidity needs.
- Somatrogon regulatory decisions and commercial economics, as well as progress in Rayaldee sales and the Vifor launch outlook.
- Potential exposure from legal, regulatory and payor matters, purchase commitments, contingent consideration, and impairment-sensitive goodwill and R&D assets.