OPKO Health, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; financial statements are unaudited. OPKO operates pharmaceutical and diagnostics businesses, with BioReference Laboratories providing testing services.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $442.4m | $301.2m | $987.6m | $512.7m |
| Operating income (loss) | $5.6m | $27.2m | $44.0m | $(13.6)m |
| Net income (loss) | $(16.2)m | $33.7m | $14.9m | $(25.4)m |
| Operating cash flow | Not separately presented | Not separately presented | $10.6m | $(57.8)m |
Q2 revenue increased 47% year over year, while six-month revenue increased 93%. Most of the growth came from diagnostic services, including COVID-19 testing. Calculated operating margin was 1.3% in Q2 2021 versus 9.0% in Q2 2020, and 4.5% for the first half of 2021 versus negative 2.6% in the prior-year period. Calculated net margin was negative 3.7% in Q2 and 1.5% for the first half of 2021.
Cash and cash equivalents were $65.8m at June 30, down from $72.2m at December 31, 2020. Current assets were $547.0m and current liabilities $304.0m, a calculated current ratio of approximately 1.8. Total debt was $205.7m, compared with $251.2m at year-end; cash exceeded current debt maturities and lines of credit, but not total debt. The company reported $10.6m of operating cash flow for the first half, supported principally by COVID-19 testing volumes.
Material changes versus comparable periods
- Q2 service revenue rose 58% to $397.2m; six-month service revenue more than doubled to $904.1m. Management attributed the first-half increase of $482.3m to COVID-19 testing volumes and improved COVID-19 reimbursement, among other factors.
- COVID-19 testing represented 56.4% of diagnostic test volume in Q2 and 61.6% for the first half. Excluding COVID-19, first-half genomic and routine clinical test volumes increased 39% and 13.4%, respectively, versus 2020.
- Higher testing-related costs and SG&A offset revenue growth. Q2 operating income fell to $5.6m from $27.2m, and Q2 net results swung to a loss, including an $11.1m non-cash loss related to the 2025 Notes exchange.
- For the first half, diagnostics operating income increased to $97.0m from $22.8m, while the pharmaceutical segment’s operating loss widened to $32.9m from $20.1m.
- Rayaldee revenue declined to $5.0m in Q2 and $8.6m for the first half, from $8.6m and $18.6m, respectively, in 2020. OPKO cited challenges onboarding patients during the pandemic and recorded a $3.0m Rayaldee inventory reserve in the first half.
- In May, holders exchanged $55.4m principal amount of 2025 Notes for approximately 19.1m shares, reducing reported debt and increasing shares outstanding; OPKO recognized the associated $11.1m non-cash loss.
Outlook, risks and unusual items
- Management stated that cash, expected operating cash flow, proceeds from the Waterford facility sale and available credit were expected to cover operating needs and debt service beyond the next 12 months. This is an expectation, not a guarantee; management noted that COVID-19 demand, reimbursement and capital-market conditions make liquidity uncertain.
- The Waterford facility sale to Horizon closed July 19, 2021 for $65m cash, less certain assumed and accrued employee liabilities. The facility was classified as held for sale at June 30; the $32.4m gain was recognized in Q3, not Q2.
- BioReference’s $75m secured revolving credit facility matured November 5, 2021; $64.3m remained available at June 30. The company also reported $16.2m outstanding on Chilean and Spanish credit lines.
- Somatrogon regulatory submissions for pediatric growth hormone deficiency had been accepted in the U.S., Europe and Japan. Potential Pfizer milestone payments and future royalties or profit sharing depend on approvals and commercialization; the filing provides no earnings guidance.
- OPKO received a $5m upfront payment under its Nicoya license for Rayaldee in Greater China, with additional contingent milestone and royalty opportunities. Japan partner JT terminated its Rayaldee agreement; Japan was added to Vifor’s territory.
- Material uncertainties include the sustainability of COVID-19 testing and reimbursement, possible declines in routine testing, the company’s history of losses and reliance on financing, product-development and regulatory risks, and potential impairment of goodwill or intangible assets.
- BioReference is responding to a DOJ investigation concerning alleged remuneration to healthcare practitioners and possible false claims. The parties had begun settlement discussions; the ultimate outcome and financial exposure were not clear in the filing. Other regulatory inquiries and litigation may also result in material costs.
Most important facts for investors to verify
- Whether COVID-19 testing demand, pricing and reimbursement remain sufficient to sustain operating cash flow as pandemic conditions change.
- Post-quarter cash proceeds and the final net proceeds and gain from the Waterford sale, alongside near-term debt and credit-facility maturities.
- Progress and regulatory outcomes for Somatrogon, and whether Rayaldee sales and patient onboarding recover.
- Developments in the DOJ investigation, other payor or regulatory matters, and any resulting settlement, penalties or compliance obligations.
- Whether revenue estimates, particularly COVID-19 reimbursement and prior-period adjustments, are ultimately collected without material reversal.