Welcome to the OPKO Health conference call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded August 8, 2016. I would like to turn the call over to Anne Marie Fields. Please go ahead, ma’am.

Thank you, Victoria. Good afternoon. This is Anne Marie Fields with LHA. Thank you all for joining today's call. Before we begin, I'd like to remind you that any statements made during this call other than statements of historical fact will be considered a forward-looking and as such will be subject to risks and uncertainties which could materially affect the company's expected results, including, without limitation, the various risks described in the company's annual report on Form 10-K for the year ended December 31, 2015 and its subsequent filings with the SEC. Before we begin, let me review the format for today's call. Dr. Phillip Frost, Chairman and Chief Executive Officer of OPKO, will provide brief opening remarks, followed by Steven Rubin, OPKO’s Executive Vice President, who will provide an update on the company's various businesses and clinical programs, followed by Adam Logal, Chief Financial Officer, who will provide an overview of the company's financial performance during the second quarter of 2016. We will then open the call for questions, after which Dr. Frost will conclude the call with his closing remarks. Now, I'd like to turn the call over to Dr. Phillip Frost. Dr. Frost?

Thank you. Today's report represents the continuation of a growth story through acquisitions. product development and improved operation. At about a year ago, we completed the acquisition of our Bio-Reference Laboratories in a stock transaction that resulted in a 14% equity dilution, but added approximately $1 billion in revenue and $100 million in operating income. The results have been improving through revenue expansion and better operating efficiency. But there’s also a strong strategic value to the deal. A 400-person seasoned sales force, some of which could immediately help expand our 4Kscore test sales and later to help sell our Claros point-of-care diagnostics products. Needless to say, we are well satisfied with Bio-Reference and with the great team running it. RAYALDEE has been approved after a little hiccup that seemed big to others. Now, we're assembling a marketing and sales leadership team that is second to none and we’ll start selling the product in the fourth quarter. A great validation of the importance of this product comes from the deal we struck with a joint venture between Vifor International, a multinational Swiss company specializing in renal diseases and Fresenius, a major operator of dialysis centers. The large upfront payments, milestones and eventual royalties from this deal will add to the success of RAYALDEE in the US, where we will commercialize the product ourselves. Rolapitant, now known as VARUBI, has been approved and is being sold by our licensee TESARO, with sales of the orally-administered form increasing nicely. The IV form, with a PDUFA date in January 2017, will be more important commercially and is expected to capture significant market share. On another front, we hope to close on the acquisition of Transition Therapeutics shortly, which had advanced projects to develop medicines with major market potential. We will offer greater detail about these products after the closing. You will hear more about all this from Steve, but I will point out that the value of our assets keeps growing. In fact, we’re beginning to exploit assets that we have owned, but not had the resources to develop. For example, we have previously mentioned another NK-1 inhibitor separate from rolapitant which we also got from Schering prior to their sale to Merck as a possible drug to treat itching, a common and important problem. We plan to shortly file an IND for this product and begin Phase II clinical trials. There are others. Steve Rubin will now provide more detail on our activities.

Thanks, Phil. And thank you all for joining us this afternoon. Throughout the second quarter, we made excellent progress across a number of areas that position us for continued commercial and clinical success. The quarter featured a number of important milestones, such as FDA approval of RAYALDEE, an international co-development agreement with Vifor Fresenius Medical Care Renal Pharmaceuticals for RAYALDEE, an agreement to acquire Transition Therapeutics, growing revenues from our diagnostic business, and continued execution on our ongoing clinical trials. During today's call, I'll provide an overview of our progress in therapeutics, diagnostics, biologics and certain partnered programs before turning the call over to Adam for a detailed discussion of our financial performance. Let me begin with an update on RAYALDEE. We were delighted to announce on June 21 receipt of FDA approval for RAYALDEE. The approved indication is treatment of secondary hyperparathyroidism in adults with stage three or four chronic kidney disease and Vitamin D insufficiency. The FDA defined Vitamin D insufficiency as serum total 25-hydroxyvitamin D levels less than 30 ng/mL. RAYALDEE is the first product to receive FDA approval for this indication. RAYALDEE fills a void in the available treatment options for the approximately 9 million American adults with SHPT, stage 3 or 4 chronic kidney disease and vitamin D insufficiency, a potential market estimate to exceed $12 billion annually. The current standard of care is high dose vitamin D supplementation, which is an approach that is neither FDA approved nor demonstrated to be safe and effective in this population. Survey data indicates that 75% of RAYALDEE’s target market is treated with high-dose vitamin D supplementation. A recently published review of published randomized clinical trials concluded that supplementation with nutritional vitamin D is completely ineffective against SHPT. SHPT is a progressive disease that becomes increasingly debilitating and…

Thank you, Steve. And good afternoon, everyone. The progress Steve outlined has resulted in a number of important improvements to our financial results. During the second quarter of 2016, we strengthened our balance sheet through the reduction of our line of credit by over $38 million, resulting in the outstanding balance on our facility to approximately $34 million, down from $72 million at December 31, 2015. The reduction in our credit facility is the result of the cash flow generated by Bio-Reference. In addition, we received an upfront payment of $50 million from the Vifor Fresenius as part of our RAYALDEE license agreement, which resulted in our ending cash, cash equivalents and marketable securities of $171 million. In addition, during the second quarter of 2016, we received approval for a method change with Internal Revenue Service which will result in our receiving approximately $38 million of cash as a tax refund late in 2016, as well as an additional $10 million of net operating loss carry-forward to be used to offset future taxable income in the United States. Turning to the results of operations, during the quarter ended June 30, 2016, revenue increased by over $310 million to $357 million from $42 million for the comparable period of 2015. This increase is the result of revenue generated by our diagnostics business and the $50 million upfront payment from the Vifor Fresenius license agreement. On a sequential basis, revenue from our diagnostics business increased to $266 million from $252 million for the first quarter of 2016 as a result of continued growth in patient count as well as slight improvements in our overall collection rates. We continue to invest in our research and development programs and had just over $31 million of R&D expense during the quarter compared to $29 million of the 2015 period. Income from operations were $28 million and net income for the quarter was $15.6 million, which is principally the result of the license arrangement for RAYALDEE. For the comparable period of 2015, we had an operating loss of $25 million and a net loss of $82 million. I’d like to turn the call back to Phil.

Thank you. We will entertain questions if there are any.

[Operator Instructions] Our first question is from Dana Flanders with JPMorgan.

Hi. Thank you for the questions. Just the first one on RAYALDEE, can you just discuss in more details some of the prelaunch activity underway between now and Q4, just what exactly you have going on at the company? And in terms of the launch trajectory, how should we think about the initial uptake over the course of – the end of 2017 and 2018 just as we think about the sales force and managed care and just, I guess, what should we keep in mind as we think about how quickly you can get this out and how receptive the physician base will be?

Charlie Bishop is on the phone standing by. Charlie, if you’re available, please respond.

Thanks, Phil. Dana, thanks for the question. We have quite a lot of activities, as you might imagine, in getting ready to launch RAYALDEE probably in November, as Steve pointed out. As we mentioned, we restarted our hiring process for the sales force. We’ve put in place five regional business managers. We are in the process of concluding hiring a total of 45 reps by the middle of September. We’re hiring an MSL team as well with the completion date for that as of October 1. We have brought on-board a significant market access and marketing team, which will be interfacing with the payers. Activities that we’re undertaking to prepare for launch are submitting our applications to the various compendia to get consistent and favorable listings for RAYALDEE. We're requesting licenses from all of the states. Until we get licenses, we will be selling under a title direct model with our third-party logistics provider. Our third-party logistics provider is already in place. We’re doing research on our product messaging and our pricing. We are developing our unbranded and branded campaigns and we're also working on patient assistance programs and putting in place a hub. So you can imagine that we’re fairly busy, but we will be ready by the time of launch. With regard to forecast, OPKO is not providing guidance at this time as to what we're anticipating for sales, but we will provide guidance on an ongoing basis after we launch.

Okay, that's really helpful. And just on the pricing side of things, can you just update us on what you're thinking there? I know you can’t give us a specific price point, but maybe just some of the factors that you're weighing given that there are cheaper, but maybe less effective alternatives on the market?

I’ll be happy to, Dana. First, we will not be loading price into the compendia until about two weeks before we launch. This is so that we can continue to get our listings with the compendia in place. Our pricing research is underway right now. We have not settled on what the price will be for RAYALDEE on a monthly basis. But we have provided some working numbers in the past that give you some idea as to how to estimate the size of this opportunity and I'd refer you back to our previous comments regarding the range in which we think the price will land.

Okay, great. And maybe just one final one from me. On Lagova and the pediatric Phase III study, I know you said that it would start later this year, but are there any gating factors to getting that study underway? And just assuming all goes well with that and your timelines, can you just remind us when you would plan to launch that indication? Thank you.

So there are no particular gating factors other than setting up the centers. We were waiting until we had drug supply in the pen device, as we mentioned before, the actual device that Pfizer would use to commercialize in the same formulation. So it’s, at this point, just logistics to set up the centers. We do expect the trial to start later this year. It is a 12-month trial followed by 12 months of safety. So counting forward, it’s finishing it up – it’s three years, I guess, until launch.

I will mention that it’s a worldwide trial and preparation for registering the product not only in United States and the usual markets, but in what has been one of the more important markets, Japan. So we've been doing a lot of work meeting with the top investigators in places like Japan to get them on-board.

Thanks. That’s all for me.

Your next question comes from line of the Yale Jen with Laidlaw & Company.

Thanks a lot for taking the questions. I know you guys will not comment too much on the detail of the study for Transition acquired product, 401 and 701. But on the top level, to look at it, how these two assets potentially fit into your entire drug development profile and what type of anticipation at this point you may have?

Well, as we said, there are two principal products that have attracted our interest. One is an oxyntomodulin product and, as many of you know, we have had a long interest in that subject, having our own product under development. This is a product that has been studied in more than 400 patients in a Phase II trial. We’ve got very good data about its efficacy and safety and it's in a wonderful position to be developed as we go along to be a major product in the treatment of overweight and type 2 diabetes. And we have our own product there as well which we’re moving forward with, and so it will be very important to compare the two products to see how they might differentiate from each other. But it’s nice to have a more advanced product as well as our early stage product. The other product, the SARM or selective androgen receptor modulator, is one of a family of compounds that have been studied by others. But this one, again, has been a 400-men, in a very interesting trial previously. So we have a lot of information about its safety and the various effects that it can have. And it's clear that it’s a drug that without affecting the prostate in negative way or without raising the PSA can increase muscle mass while at the same time decreasing body fat. So it’s a very, very interesting drug and there are several possible indications that we’re evaluating now for our clinical trials and it can have at least two or three separate indications, each one of which is very important and major. And it could be used conceivably not only in men, but also in women. Does that answer your question?

Yes. That has been very helpful. And we look forward to see more details when you close the deal. And one, just another follow-up question, which is to follow-up the earlier one which is in the pre-launch activity for the RAYALDEE. I think one of the key aspects is to getting into different formularies and different tiers. Given this drug is already approved, a month ago, two months ago, do you guys have any comment in terms of that negotiation at this point? And would you guys provide more details now or later when you get sort of into the formulation and how that will impact on your pricing going forward? And thanks a lot.

Hi. This is Charlie. As I mentioned in answering the question that Dana posed, we have filed applications to nine US compendia, seeking consistent and favorable listings. We will not know the outcome of our applications for favorable listings until we load price. And as I mentioned, we won't load the price for the product until about two weeks before we launch. We will get an earlier read on our application to USP because there’s a public comment period. And on or before October 1, USP will list the provisional classification of RAYALDEE for public comment. So we'll see at that point how USP has viewed our application and where they intend to list this. There will be, of course, an opportunity to change a provisional listing by USP if we think it's inappropriate. But that's the only one we’re going to have significant visibility until we load price. Did that answer your question?

Yes. That has been helpful, I think we like the granularity of this details here. So thanks a lot. I appreciate and congrats on the good quarter.

Going back to the SARM that we’re getting from Transition Therapeutics acquisition, I would point out that out interest there was in helping to develop a franchise in urology. As you know, the 4Kscore test for serious prostate cancer is expected to be a major product for the urology market. The PSA and the testosterone Claros test will also be very important in urology. So the SARM can represent, from a therapeutic point of view, a major product in that urology franchise and it would be safe to assume that we will be looking for other opportunities in that area as well.

Sounds great. And that's definitely more helpful because I think that start to make more sense in the way of specialty areas that you guys will be interested in and explore. Thanks a lot.

I think it's important to think in terms of a model that we’re developing and that is to develop certain products for us to market ourselves and others to out-license, so that as we have done with the growth hormone, licensing it out to Pfizer, we may consider as time goes on the same type of opportunity with the oxyntomodulin that we’re getting from the Transition Therapeutics. But that’s premature now, it’s early. That’s for the future.

Okay, great.

Your next question comes from the line of Kevin DeGeeter with Ladenburg.

Hi. Good afternoon, guys. Thanks for taking my questions. With regard to Factor VII as we look forward to seeing some of the Phase I readout in the next six months, can you just comment on how you anticipate or how we should think about that product potentially differentiating itself from some of the other long-acting Factor VIIs in development? And just any thoughts you have as to how gene therapy down the line may or may not factor into this market?

The biggest differentiation, Kevin, is going to its ability to administer it subcu. So there are long-acting – people worked on long-actings in factors in hemophilia A and B. On the inhibitor side, the pipeline is really consistent with some of the new technologies, the micro antibody and kind of the gene therapies which are further down the line, relatively early in trial. So ours is actually – it’s no doubt that Factor VII works, it’s just not the right way to treat a patient with short-acting infusion. So I’m not aware of anybody else where we are that would have a subcutaneous long-acting version of actual Factor VII at this point.

Okay, great. That’s helpful. And then with regard to 4K and the prostate cancer market opportunity in general, there's been a number of small investigator studies and some amount of attention in the lay press as well with regard to increase in men presenting with more advanced prostate cancer. And hypothesis being that that they may be related to a decrease number of PSA tests being performed. Are you seeing any change in the general market dynamics with clinicians in terms of how they just use PSA testing and then how 4K may enable certain clinician to – who may have concerns about overuse of PSA testing, but clearly want to retain some of the full benefits and the role 4K may play in that decision-making?

I think the way we’re thinking about it is that there’s pendulum effect. Initially, there was great enthusiasm for screening with the PSA – and there’s no question about it that the use as a screening test has led to an improvement in the overall therapy of prostate cancer in the sense that it’s reduced the mortality rate in men. On the other hand, this recent advisory indicating that it was being overuse has perhaps pushed the pendulum too far in the other direction and now we’re at a point where, as you indicate, more men are presenting with metastatic disease than ever before, particularly in the African-American populations. And so, I think it's time for a fresh look at the whole question and we’re hoping that the urology community will take the lead in making it clear that there is a great role for PSA testing. And as more of it gets done, naturally, because there will be more positive or elevated PSAs, that will lead to more 4Kscore tests being done. But this is an educational process that will take time and we’re hoping that others such as the urology community and the support groups will pick up the mantle and carry the ball.

Okay, great. That's very helpful. And then maybe one last one from me as well. And that's just a clarification on Lagova and the pediatric study design. I think if I heard you correctly, you're planning a global study with basically one program including Japan, is that correct? So I think that might be a small change, perhaps a favorable change from some of the earlier discussion where we were thinking about perhaps a separate study in Japan.

It is a separate study in Japan. So we have a global for Europe and the US using the same dosage. There will be an…

Asia also, excluding Japan.

That’s right. That’s Dr. Hsiao here. And so, Asia will also be included in a global study excluding Japan. Japan will be a separate study.

Great. No, that's very helpful. That's it for me. Thank you.

Your last question comes from the line of Mike Petusky with Barrington Research.

Good afternoon. I guess first one for Dr. Frost. Just kind of a broad question, but having had the Bio-Reference Lab asset kind of in-house here for about a year now, can you just talk about this first year, what's worked, what hasn't worked, what are the opportunities that you see over the next, say, 12 to 24 months that should be front-burner for you guys as you kind of look at that asset and ways to leverage it? Thanks.

For one thing, the company has been consistent in increasing its revenues over a period of time and that trend is continuing. There have been several important additions to management that have led the effort to improve operating efficiency. So that's reflecting itself in better margins. So whereas we started with an operating profit of approximately $100 million when we acquired the asset, it’s going at a much better rate now and we think that that direction will continue, so that by the time we have this discussion next year, we think that you will see much better numbers coming from Bio-Reference.

Okay. All right, great. Would you guys be willing to share – you, obviously, gave the number of tests that were – 4Kscore tests that were done in June. Would you guys be willing to share what the year-ago June figure was?

I can't remember, but it was a tiny fraction of what it is today.

We wouldn’t mind sharing. We can follow up with you later on that.

Okay. That's all I’ve got. Thanks.

And we do have time for one more question. That question comes from Brandon Couillard with Jefferies.

Hello, good afternoon. This is Sachin in for Brandon. Would you guys quantify how many of the 5,000 4Kscore tests were paid and reimbursed and what was the mix between urologists versus primary care?

This is Adam. We’re not providing the exact revenue numbers, but certainly a substantial portion are now being paid for at varying rates of reimbursement. As far as the split between primary care and urologist, it's about 60/40 split today for urologists versus primary care.

Got it. And would you quantify the number – the amount of Bio-Reference Lab revenues in the period and how much of that growing year-over-year?

So the Bio-Reference Lab revenue for the quarter was about $266 million. So it’s tough to do a year-over-year comparison. But sequentially it was $252 million in the first quarter of this year.

Got it, thanks.

There are no further questions at this time. Dr. Frost, I will turn the call back over to you for closing remarks.

Thank you all for participating and we look forward to talking to you again next year, if not sooner.