OPKO HEALTH, INC. annual report, FY2021

OPKO Health, Inc. — 2021 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2021. The filing also reports unaudited fourth-quarter results. OPKO operates diagnostics, principally BioReference Laboratories, and pharmaceuticals, including Rayaldee and a development pipeline.

Financial performance and liquidity

Metric20212020
Total revenue$1.775 billion$1.435 billion
Operating income$18.8 million$57.7 million
Net income (loss)$(30.1) million$30.6 million
Cash from operating activities$38.3 million$39.5 million
Cash and cash equivalents at year-end$134.7 million$72.2 million
Total debt disclosed$205.3 million$251.2 million

Revenue grew 24%, primarily from COVID-19 testing. Operating margin was approximately 1.1%, down from 4.0%; net margin was approximately (1.7)%, versus 2.1%. Cost of revenue rose 33%, faster than revenue, while selling, general and administrative expense rose 32%. Research and development expense was $76.9 million, compared with $75.3 million.

Fourth-quarter 2021 revenue was $401.3 million, down from $494.7 million in Q4 2020. The quarter reported a net loss of $73.8 million, or $0.11 per share, versus net income of $32.3 million, or $0.05 per share, a year earlier. The filing does not clearly attribute the entire fourth-quarter loss to a single cause.

Diagnostics generated $1.607 billion of revenue and $98.1 million of operating income, down from $138.9 million. Pharmaceuticals generated $167.6 million of revenue and had a $19.1 million operating loss, improved from a $43.5 million loss. Corporate operating loss increased to $60.3 million from $37.7 million, principally due to higher legal fees.

Current assets were $823.0 million and current liabilities were $330.0 million at year-end. Debt included $119.4 million of 2025 convertible notes, $65.5 million of 2023 convertible notes, $3.1 million of 2033 senior notes, and $13.7 million drawn on Chilean and Spanish credit lines. No balance was drawn on BioReference’s $75 million revolving facility; $64.8 million remained available. Management said available cash, operating cash flow and credit lines were expected to fund operations and debt service beyond 12 months, while emphasizing that assumptions and COVID-related cash flows are uncertain.

Material changes and notable items

  • COVID-19 testing contributed to service revenue increasing by $344.9 million year over year. BioReference performed 11.9 million molecular COVID-19 tests and 0.7 million antibody tests in 2021; together these represented 58.5% of total test volume. Demand declined in the second half of the year.
  • Excluding COVID-19 testing, genomic and routine clinical test volumes increased 26.4% and 6.9%, respectively, compared with 2020. Management described routine testing as trending toward normalization.
  • Rayaldee U.S. sales fell to $27.0 million from $36.8 million. Fourth-quarter prescriptions were down approximately 28.8% year over year; the company cited pandemic-related difficulty onboarding patients. An inventory reserve of $3.8 million was recorded.
  • A $31.5 million gain followed the sale of an Irish facility for $65 million in cash, less certain assumed and accrued liabilities. The sale also contributed to investing cash flow; capital expenditures were $32.2 million.
  • Positive revenue adjustments of $40.4 million related to estimates for services performed in prior periods were recognized in 2021, versus $0.3 million in 2020. Revenue depends on estimates of payer collections, reimbursement and price concessions.
  • OPKO exchanged $55.4 million principal amount of 2025 notes for 19.1 million common shares and recorded an $11.1 million non-cash loss. This reduced debt but increased shares outstanding.
  • GeneDx was classified as held for sale at year-end. A January 2022 agreement provides for $150 million cash and 80 million Sema4 shares, plus up to $150 million in revenue-based consideration. The transaction was expected to close in Q2 2022; the share value and potential impairment are uncertain.

Outlook, risks and contingencies

  • No quantified 2022 revenue or earnings guidance is provided. Management expects COVID-19 testing demand to remain uncertain and notes that lower testing volumes or reimbursement could pressure results and liquidity.
  • Somatrogon received approvals in Canada and Australia in 2021 and in Japan and the EU in early 2022. The FDA issued a Complete Response Letter in January 2022; OPKO and Pfizer were evaluating the agency’s comments. U.S. approval, launch timing and related milestones remain uncertain.
  • Rayaldee received FDA approval for the 4Kscore test in December 2021, and a Phase 2 Rayaldee trial for mild-to-moderate COVID-19 reported preliminary results suggesting earlier resolution of respiratory symptoms. Further development and commercial outcomes are not assured.
  • BioReference’s DOJ investigation concerns alleged remuneration to healthcare practitioners and related claims. The company reported a verbal agreement on an anticipated settlement of approximately $10 million, excluding attorney fees. A separate relator complaint alleging federal and state false-claims and kickback violations was served in February 2022; the company said it could not determine the merits or potential liability, which could be material.
  • OPKO is contesting a foreign tax assessment of approximately $66 million, including interest, which it considers without technical merit. An adverse outcome could materially affect financial results and cash flows.
  • Goodwill and other intangible assets totaled approximately $1.4 billion. No impairment was recorded in 2021, but management identified sensitivity to operating performance and assumptions; the Biologics reporting unit’s estimated fair value exceeded carrying value by approximately 19% in the 2021 test.
  • Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. The auditors identified goodwill/IPR&D valuation and service-revenue variable consideration as critical audit matters.

Investor facts to verify

  • How much of 2021’s revenue and operating cash flow is repeatable as COVID-19 testing volumes decline, and whether core diagnostic volumes and margins can offset that decline.
  • The drivers of Q4 2021’s $73.8 million net loss and the size and sustainability of the $40.4 million prior-period revenue estimate adjustment.
  • GeneDx transaction closing, realized value of Sema4 shares, achievement of revenue milestones, and any resulting impairment or cash proceeds.
  • The FDA’s Somatrogon follow-up requirements, revised U.S. approval timeline, and effects on expected milestone or profit-share revenue.
  • Final resolution and cash cost of the DOJ matters, other government inquiries, and the contested foreign tax assessment.
  • Rayaldee prescription trends, reimbursement coverage and commercial performance, as well as the impact of debt maturities, purchase commitments and available credit.