OPKO Health, Inc. (OPK) Q4 2017 Earnings Report, Transcript and Summary

Welcome to the OPKO Health Incorporated Business Update 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 Thursday, March 1, 2018. I would now like to turn the conference over to Anne Marie Fields. Please go ahead, ma'am.

Thank you, operator. Good afternoon. This is Anne Marie Fields with LHA Investor Relations. Thank you all for joining today's call. I'd like to remind you that any statements made during this call other than statements of historical fact will be considered forward-looking and as such will be subject to risks and uncertainties that could materially affect the Company's expected results. Those forward-looking statements include, without limitation, the various risks described in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 as filed this afternoon. Before we begin, let me review the format for today's call. Dr. Phillip Frost, Chairman and Chief Executive Officer will open the call, followed by Steve Rubin, OPKO's Executive Vice President who will provide an update on the Company's various businesses and clinical programs. After that Adam Logal, OPKO's Chief Financial Officer will review the Company's 2017 fourth quarter and full-year financial performance. Finally, Dr. Frost will provide his closing remarks and then we'll open the call to your questions. Now, let me turn the call over to Dr. Frost. Dr. Frost?

Thank you. Good afternoon. 2017 was a challenging year for OPKO. There were a number of headwinds at BioReference, a slower-than-expected ramp-up in sales of RAYALDEE and some unexpected one-time impacts on our financial performance. The other hand, we've made significant progress. We're in the process of selecting the next President of BioReference from the group of highly qualified candidates that we are hopeful and we are hopeful that early science of improved results there will continue. RAYALDEE sales have been increasing steadily. The recent results appear to indicate a more rapid upward trend. We also recently signed the RAYALDEE licensing agreement with the Torii Pharmaceutical Division of Japan, Tobacco. Given the breadth and potential of OPKO's assets and as positive as ever about our future. And as described in today's filing, I've confirmed that confidence by investing an additional $25 million into the Company, alongside my colleague Dr. Jane Hsiao, and a highly successful Asian businessman already an OPKO investor for a total of $55 million. As you've heard me say before, I can't think of a better investment for my money. We're all working hard on our strategy to build OPKO into the leading diversified healthcare company it was meant to be. And I'll now pass you on to Steve who will provide more details on our commercial and clinical programs as well as our plans for the future.

Thanks, Phil, and good afternoon, everyone, and thank you for joining us on today's call. As Dr. Frost just noted, despite facing certain challenges in 2017, we made meaningful progress across a number of key areas critical to OPKO's growth. On today's call, I will discuss our strategies to address some of these challenges as well as our plans to continue to advance our clinical and commercial programs. My discussion will include a review of our diagnostics, pharmaceuticals, and clinical development programs. Let's start with our Diagnostic business, BioReference Laboratories, which is the country's third largest reference lab. Throughout 2017, we shared with you some of the challenges we faced with this business and how they were impacting revenue growth in the short-term. We have worked hard to implement system improvements and cost reductions that over time are expected to positively impact BioReference Labs financial performance. Adam will elaborate more on these efforts in his financial remarks. In addition, we made a number of leadership changes including a new head of commercial operations and we are in the process of recruiting a new President with the skills and industry expertise consistent with our vision for BioReference's role in the rapidly evolving diagnostic market. We are highly impressed by the several outstanding candidates we have already met with and hope to announce our selection in the near future. We remain particularly excited about the potential for BioReference Labs, GeneDx subsidiary, which continues to demonstrate growth and innovation in its high complexity exome and related test with a 49% year-over-year increase in exome based testing volumes. These include new exome base test it open up and further expand other clinical areas for testing such as for patients with neurologic conditions and critically ill patients. Our strategy for GDx is to continue to expand relationships at large and leading healthcare systems to continue to broaden the testing menu in order to provide testing in many additional healthcare settings and to form other strategic alliances which GeneDx can create and add value to these partnerships. An example of a new test offerings, last week's launch pharmacogenomics testing. Pharmacogenomics is the study of how genes affected person's response to drugs. This relatively new field combined pharmacology, which is a science of drugs and genomic which is a study of genes to their functions to develop and prescribe effective safe medications and doses that will be tailored to a person's individual genetic makeup. In January, we were delighted to announce a research collaboration with Radboud University Medical Center in the Netherlands, which is aimed at identifying novel genes and pathways to help diagnose and manage human genetic diseases. This supplements GeneDx's other ongoing large scale collaboration, so just with the internationally based Deciphering Developmental Disorder study that was formally announced last year. At a leader in whole exome and genome sequencing GeneDx's helped discover and contribute to the phenotypic understanding of over 58 novel disease genes in the last three years alone. The shared combination of our data summaries and analytical tools to conduct met analysis of GeneDx and its other datasets will help us better understand the genetic basis of human health and disease and to continue to provide differentiated testing options. Moving on our 4Kscore blood test gives a man with elevated PSA levels, a personalized prediction of his chance of having or developing an aggressive form of prostate cancer. During the fourth quarter, 20,600 4Kscore test were performed, a 15% increase compared with the fourth quarter of 2016. As many of you may have seen we've launched a series of television ads for the 4Kscore in the New York region at the end of last year and in Florida in February. We have also increased our presence in social media outlets, including directed digital advertising. We believe that focused sales and marketing to professionals and expansion of consumer awareness will help increase the utilization of the 4Kscore test. Prostate cancer is the most common cancer in men and is projected to account from 160,000 new cases and over 29,000 deaths in 2018. The 4Kscore test is a simple blood test that has demonstrated strong clinical utility as a follow-up test after an initial screening with PSA or digital rectal exam. In several prospective clinical validity studies, it has been shown that the 4Kscore test did not miss any aggressive Gleason - with the Gleason Score greater than or equal to eight cancers and it reduced unnecessary biopsies in 21% of men who were scheduled for biopsy. New payment schedules implemented on January 1, 2018 provided a 26% increase in 4Kscore reimbursement. Medicare reimbursement is now $760 per test, up from approximately $600 per test previously. In addition, we've expanded our clinical validity studies in subjects who are diagnosed with borderline Gleason 6 prostate cancer. For example, the soon to be published Homburg radical prostatectomy study has demonstrated that the 4Kscore test can effectively differentiate biopsy Gleason 6 cancer from those men likely to harbor adverse pathology. November we filed a pre-market approval application with the FDA for our Claros 1 immunoassay analyzer in total PSA test. The Claros 1 immunoassay is a proprietary diagnostic devise that can provide rapid, quantitative blood test results in 10 minutes right in the physician's office with only a finger stick drop of whole blood and with precision and accuracy comparable to the PSA test performed in the central lab, using a large instrument. The PMA filing included supported data from two multi-center field studies involving a total of 864 men. We have been active and correspondence with FDA on the submission and it had a bioresearch monitoring audit at our [indiscernible] facility and two clinical trial sites with no observations issued on Form 43. We are hopeful for an approval during the third quarter of this year. This new point-of-care diagnostic offers a significant market opportunity as there are more than 25 million PSA test performed annually in the United States. In addition, we continue to advance the development of additional Claros 1 test for indications to interface with our other products and programs such as testosterone and vitamin D. In the coming months, we plan to initiate clinical validation studies for a Claros 1 testosterone test and file a 510(k) application for approval with the FDA. Turning now to our pharmaceutical business, let me start by discussing RAYALDEE, the first and only therapy approved by the FDA that both raises 25-hydroxyvitamin D and lowers parathyroid hormone levels in patients with chronic kidney disease with a safety profile similar to placebo. For 2017, our first full-year of launch IMS reported that nearly 8,000 prescriptions of RAYALDEE were fulfilled. It is a level of acceptance and success that we find very encouraging due to the products ever escalating favorable trends. We believe RAYALDEE's market penetration will slow at first due to a number of factors. The gradual ramp of insurance coverage for RAYALDEE, not alike all newly launched innovative drugs. The need to educate physicians about RAYALDEE's ability to safely treat secondary hyperparathyroidism as well as the importance of lowering parathyroid hormone levels to reduce the risk of vascular calcification, the major cause of mortality in chronic kidney disease. We are continuing to build sales momentum and we have seen steady week-over-week increases in total prescriptions since the start of the year. We have also increased the number of healthcare providers who prescribe RAYALDEE. We had almost 600 active prescribers in Q4, an increase of 38% from Q3, demonstrating increase in adoption by targeted providers. We ended 2017 with access to RAYALDEE being available for 51% of covered lives in the Medicare space and for over 79% of all covered lives. In view of this insurance coverage, we expanded our sales force from 35 to 64 reps last October and expect significant impact on sales in 2018. Currently, in meeting out-of-pocket patient costs RAYALDEE is less than $5 after available financial assistance. We are more confident than ever in the importance of RAYALDEE is resulting in chronic kidney disease patients and our business. Adam will elaborate on RAYALDEE revenue in his financial discussion. In the next few months, our renal team will be active at several important clinical meetings, the Renal Physicians Association Annual Meeting in Orlando, the National Kidney Foundation Spring Clinical Meeting in Austin, and the Annual Meeting of the Endocrinology Society in Chicago. Our teams activities at these meetings enhanced our reach to Renal Healthcare providers and provide a clinical data and support needed to increase adoption and utilization of a new treatment option like RAYALDEE. In addition, we expanded the global market potential for RAYALDEE by entering into an exclusive agreement with the Torii Pharmaceutical unit of Japan, Tobacco for the development and commercialization of RAYALDEE in Japan as a treatment for SHPT and non-dialysis and dialysis chronic kidney disease patients. Turning to the agreement, Torii will be responsible for all regulatory approvals and commercial activities in Japan. Turning to VARUBI, we are disappointed with the TESARO's decision a couple days ago to suspend distribution of the intravenous or IV form of a VARUBI. As TESARO noted they will continue to support the oral formulation of the drug. We believe that the recently reported safety issues arise from the formulation of the IV version of the drug and not the drug itself, and intend to seek more information concerning TESARO commercialization efforts for the drug. No episode of anaphylaxis and anaphylactic shock or other serious hypersensitivity reactions have been reported with respect to oral formulation of VARUBI since its launch in 2015. Let's turn now to our clinical development programs. Our strategy is to build a diversified portfolio addressing a number of indications with significant unmet medical needs, limited treatment options and large markets. We have a robust pipeline of products candidates at varying stages of development, which we believe mitigates the risk inherent in reliant to any one product program or study. This pipeline provides attractive opportunities for creating both near and long-term value for our shareholders. Let me start with the programs in our renal business. Vifor Fresenius and another of our global partners has filed a new drug submission with health candidate is on track and is on track to file in the third quarter of this year in market authorization application with the European Medicines Agency for RAYALDEE as a treatment for SHPT in chronic kidney disease patients. Vifor Fresenius is an ideal partner for RAYALDEE as they are a world-leading renal pharmaceutical company with a strong presence in Europe and other territories. We are also continuing with our plans to initiate a global Phase II clinical trial of a higher strength RAYALDEE in patients with stage five chronic kidney disease and Vitamin D insufficiency who require regular dialysis. We have finalized a regulatory strategy and trial design with our partners Vifor Fresenius and JT Torii and expect to initiate this study in the second quarter of this year. The Phase II study has a randomized dose ranging placebo control designed and will proceed in two successive cohorts, with the first expected to roll approximately 40 patients for six months of treatment, and the second to enroll more than 200 patients for up to 12 months of treatment. OPKO expects to share the costs of this study with its development partners. In addition to this Phase II study, we plan to augment our growing presence in the renal market with synergistic products that address other significant unmet needs. We plan to commence in the coming months a single dose Phase IIa clinical study with our NK-1 antagonist for uremic pruritus or hitching, which is a serious problem for more than half of the patients on dialysis. This study will evaluate the safety and pharmacokinetics of OPK88002 in the dialysis population. Turning now to our clinical pipeline candidates in metabolic and endocrinology diseases, we have a number of late-stage programs underway or nearing the initiation, that should reach important inflection points throughout this year. I'll begin with our long-acting human growth hormone product, hGH-CTP, which is partnered with Pfizer for worldwide commercialization. We have good momentum in patient enrollment in our global pediatric Phase III hGH-CTP study in growth hormone deficient or GHD children, which represents more than 80% of the GHD market. This is a pivotal non-inferiority study comparing a single weekly dose of hGH-CTP with daily injections of Genotropin it currently marketed growth hormone. The study uses pen device and formulation that will be launched commercially upon approval. The pediatric GHD subjects we treated weekly or 12 months. Last summer, we launched a pediatric hGH-CTP registration study in Japan to assess pharmacokinetics and compare efficacy of weekly hGH-CTP to daily Genotropin in 44 pre-pivotal hGH subjects. We expect to complete enrollment in both studies before the end of this year. Our Phase II open-label extension study continues without interruption with some patients now having been exposed to our hGH-CTP from more than three years which provides us with important long-term safety and efficacy data. Turning now to our progress with the adult hGH-CTP Phase III study. As you know, we completed a post-hoc sensitivity analysis to evaluate the influence of statistical outliers on the primary endpoint result using pre-planned analysis protocol. We have recently submitted a request for meeting with the FDA regarding the analysis of the efficacy and a safety data and any additional work required for a potential BLA submission in this indication. Let's turn now to OPK88004, our once-daily oral selective androgen receptor modulator or SARM, which we are developing for patients with benign prostate hypertrophy, also known as BPH or enlarged prostate and other urologic and metabolic condition. BPH affects one half of all men aged 51 to 60 and 90% of men over the age of 80. In November, we commenced our Phase IIb dose ranging study of OPK88004 to treat people with BPH. This trial is expected to enroll approximately 125 patients at the resides in the U.S., to identify appropriate doses given over four month period to reduce prostate size, the primary efficacy end point of the study. The study also assesses additional end points including blood PSA levels, lean body mass and fat mass. We expect to complete enrollment during the second half of this year. Our enthusiasm for this program is supported by pre-clinical data that demonstrated the ability of OPK88004 to reduce prostate size in animals and PSA levels in human trials. In addition, Phase II study of 350 elderly male subjects being studied for another indication utilizing OPK88004 showed a significant increase in lean body mass and muscle strength and significant fat mass reduction. The study also showed an acceptable safety profile to permit clinical development. We are excited to have initiated this Phase IIb study in men suffering from BPH as current treatment options such as alpha blockers and 5-alpha reductase inhibitors at undesired side effects. Surgical procedure to treat BPH are often associated with complications and lengthy recovery times. Let me now update you on our long acting Factor VIIa-CTP, for the treatment of bleeding episodes in hemophilia A or B patients with inhibitors to Factor VIII or Factor IX. The Phase IIa dose escalation study of the IV or intravenous formulation of Factor VIIa-CTP is nearing completion and are dosing in the Phase I dose escalate study of the subcutaneous formulation of Factor VIIa-CTP is completed and no serious safety event has been reported. Given the recent approvals of alternative therapies for hemophilia including Roche's monoclonal antibody ACE-910, we intend to further evaluate the commercial potential for our product including potential partnerships prior to initiating the next round of trials. Let's turn now to OPK88003, our once-weekly GLP1-Glucagon dual agonist for the treatment of type II diabetes and obesity. We are in the final stages for Phase IIb dose escalation study in prostate 110 type II diabetes patients. Enrollment is expected to commence in second quarter of this year and patients will be treated with the dose escalation regimen over three months to optimize the dose levels, to increase body weight loss, and reduce adverse effects such as nausea and vomiting. Patient will be treated for a total of 30 weeks in the study. The key primary endpoint will be HbA1c, a marker for blood glucose levels and secondary endpoint such as weight loss, lipid profile and safety will also be analyzed. Our decision to pursue OPK88003 is supported by data from our Phase II study with 420 diabetic patients that showed greater weight loss compared with the approved extended-release exenatide and placebo. In addition, the data also showed improvements in the lipid profile and similar reduction in HbA1c levels compared with the approved once-weekly product. Moving forward into 2018, we expect our investments in expanded marketing programs and clinical studies will result in continued revenue growth for RAYALDEE and [indiscernible]. We are advancing a robust clinical development program that addresses a number of large markets with great unmet need. Throughout 2018, we expect to make a meaningful progress with these programs and to achieve a number of important milestones. We look forward to appointing the new President for BioReference Lab and expected this new readership along with our ongoing investment in operational efficiency and continue grow the expansion allow us to return our laboratory business back to growth mode. We look forward to keep new price of our progress in all our businesses. With that overview, let me turn the call over to Adam for a discussion of our 2017 financial performance. Adam?

Thank you, Steve, and good afternoon, everyone. While we made substantial progress from the business initiatives that Steve discussed, our financial performance in the fourth quarter lagged behind our expectations and we face some unexpected items which I will provide additional color on shortly. I will also provide topline revenue guidance for BioReference and RAYALDEE to provide clarity on our expectations as we start the year. We closed 2017 with just over $91 million in cash, cash equivalents, and marketable securities on our balance sheet with an additional $10 million of availability under our credit facilities. As we reported today, we also raised $55 million from existing shareholders in OPKO as Dr. Frost mentioned. The investment was in the form of convertible note with a five-year term, a conversion price of $5 per share and interest accruing at the rate of 5% per year payable at maturity or conversion. This additional funding provides us with the flexibility to accelerate the timing of our development programs, while cash flow from operations of BioReference improved. We continue to be mindful of our cash balance in investments into both our R&D pipeline and commercial activities to align with the anticipation of our improving cash flow from both BioReference and RAYALDEE, both of which remain important drivers of achieving a near-term breakeven point for cash flow from operations. Moving on to some of the challenges we faced during the fourth quarter of 2017. You will recall that we implemented a new billing system at the clinical lab portion of BioReference. As I mentioned last quarter, their early days of that implementation did not go as smoothly as we had anticipate. We worked aggressively on claims in the billing process. We were not as successful as we anticipated in cash collections. As we completed our review of the year became clear that we would not realize the cash collections on those early claims and as a result changed our estimates, which negatively affected our fourth quarter revenues. Our billing and sales teams have been working tirelessly to improve the collection rates in order to maximize the value of each requisition. We realized an approximate 225 basis point improvement on the amount of - collected on claims process in the fourth quarter of 2017 in comparison to the fourth quarter of 2016, a significant improvement. Our total cash collection and at the speed at which we are getting paid greatly improved during the second half of the year and going forward we anticipate our DSO will be significantly improved compared to prior years. Also significantly and adversely impacting our fourth quarter results, over $73 million related to reimbursement adjustments on claims from commercial and federal payer programs. Turning to our pharmaceutical business, we recognized $9.1 million of revenue related to sales of RAYALDEE. Of the $9.1 million, $2.9 million related to revenue during the fourth - product shipped during the fourth quarter while the remaining $6.2 million related to revenues deferred through September 30, 2017. Moving to operating expenses, during the quarter, we continue to make investments in our pharmaceutical and diagnostics pipeline, which resulted in R&D expense of $34 million. In addition, our investment in the RAYALDEE commercial organization was $7.9 million during the fourth quarter. As Steve mentioned a few days ago, the team at TESARO announced the discontinuation of the IV formulation of VARUBI. As a result of this discontinuation, we recorded a non-cash impairment of $13.2 million reflecting a decline in the anticipated future cash flows from our royalty stream in VARUBI. Finally, income tax provision included a charge of approximately $31 million during the fourth quarter as a result of the recently passed Tax and Jobs Act. In addition, we recorded a valuation allowance against our U.S. deferred tax asset that resulted in the total tax provision during the fourth quarter of $63 million compared to a $31 million income tax benefit for the comparable period of 2016. After considering these items, revenue for the quarter ended December 31, 2017 totaled $193.7 million and our net loss was $213.9 million. The comparable period of 2016 had total revenues of $275 million and a net loss of $13.7 million during that period. Given all of the complexities we saw in 2017, I'm going to provide topline revenue guidance for BioReference and RAYALDEE. Before I do, I want to cover some changes to the accounting rules for revenue recognition, which will impact our overall revenue including our revenue of BioReference. At BioReference, we have historically had bad debt expense of approximately 10% to 11% of revenue recorded within SG&A expense. Under the accounting pronouncements that went into effect January 2018, bad debt for revenue from our services will move to net revenue, effectively reducing revenue and at the same time reducing SG&A expense by the same amount. This does not have an impact on our operating results as a whole, but will result in less net revenue recognized. This new accounting literature will have an impact on our other revenue streams as well, which I'll provide further clarifications on during our first quarter call. Under this new accounting, the first quarter of 2017s revenue from services will be recast in our results to be reflecting approximately $228 million compared to the $255 million recorded under the old accounting pronouncements. I wanted to provide that detail first to set the expectations clearly for BioReference's revenue for the first quarter of 2018 with the proper comparatives. For the first quarter of 2018 we are assuming volume growth of GeneDx, but a volume decline in our core clinical laboratory of approximately 3%. As such we anticipate revenue from services during the three months ended to March 31, 2018 to be in the range of $195 million to $215 million, which include the impact of volume fluctuations, the impact of PAMA and other reimbursement challenges we faced during 2017 as well as the accounting changes I previously mentioned. Moving to RAYALDEE, we anticipate first quarter revenues will be between $3.5 million and $5 million, which reflect a range of estimates to our gross to net calculations as well as our expectations for volume trends. In addition, we expect the first quarter operating expenses for our investments in R&D as well as the RAYALDEE commercial team to be approximately $35 million and $8 million respectively. We provide additional financial guidance as the year progresses. But now I'll turn the call back to Phil. Phil?

When I last spoke to after the third quarter report, I said we were determined to strengthen all elements of our Company. As to RAYALDEE sales are off to a slow start, but we've exerted great effort and although it's a bit early to be sure, sales seem to have begun a more rapid growth phase. We increase the size of our sales force from 35 to 64 as Steve mentioned, but more important, we find our message to physicians and trained our people to deliver it and a compelling way. As we speak we have a reality national sales meeting under way which we've introduced our new Sales Manager, Kurt Miller a terrific guy will play an active role an accelerating sales of RAYALDEE. The best-in-class medicine for secondary hyperparathyroidism associated with chronic kidney disease. Before case court let us remains the most reliable predictor of serious prostate cancer in men with an elevated PSA and we expect and used to continue to expand hopefully in an accelerated pace. Our clinical development program is in high gear. Of course we can predict outcomes of trials, but the need for the products we're developing is great. They all have important market potential. Our BioReference unit is a valuable asset. 2017 was a year and which we invested an infrastructure made management changes. After the departure of his President as we said we began an active search process for his successor and we've already met with several candidates more than capable of taking BioReference to us next level of better performance. We hope to make a selection soon but in the meantime the business is being managed in a very positive way by a highly capable team of the department we are is working together with us it OPKO. OPKO is a unique company. Our management team has a history that extends back nearly two decades. A history that includes many successes, we're really proud of this history and we believe it's a firm foundation for building OPKO. With a gulf a diversified product platform with myriad possibilities, it's an exciting time in diagnostics, genomics and therapeutic medicine. It's an exciting time to be at OPKO. We've began 2018 on a strong flooding and we look forward to achieving value creating milestones that will position OPKO for continue growth in 2018 and beyond. With that, let's open the call to questions.

[Operator Instructions] Our first question is from Louise Chen with Cantor. Please go ahead with your question.

Hi. Thanks for taking my question here. I had a few. So first question I had is, what is your strategic vision for OPKO and what do you think the market is missing about your story? Second thing is just on the gross margin in the fourth quarter, how should we think about that and how should we think about margins in 2018 based on what we saw in fourth quarter? And then you talk about you gave a guidance of $195 million to $215 million for BioReference Labs, but just curious if you could provide a bridge on how we get from the fourth quarter number to the first quarter 2018 number? Thanks.

I will take the vision part and I'll let my colleagues do the rest. Basically what we try to do is assemble valuable assets. These assets are in the form of products few of which are on the market and others that are underdeveloped. The thing they all have in common is that they have big potential. We can't be sure that they'll all be successful, but we don't need them all to be successful for us to have great results. Although there's no reason that those underdevelopment now won't be. BioReference is a great asset. We had envisioned that as a source of cash to help pay for the development program and we still believe that it will work out that way. In fact, we've taken quite a bit of cash out of BioReference over the time we've had it. So strategically it really was a pretty good move and the actual value that it has to this space, we believe as far an excess of what we paid for. I think this is what the investment community is missing. We are a company that's in the investment mode. And our results reflect that. RAYALDEE true was off to a slow start, but we have every confidence that it's going to pick up steam and move forward more rapidly. 4Kscore still has the potential for being one of the most important tests in the history of the diagnostics industry. We believe that. I think eventually the market will begin to understand this. Now for the specific questions…

Yes. So on margins I think the way to think about is that most of this is going to be impacting net revenue, so the gross margins will come down as a result. Obviously, operating margins will remain consistent, but overall gross margin for BioReference is going to come down as we bring the topline net revenue number down because of those accounting changes. So I think if you just take that 10% of revenue you just knock that off of the gross margin figure. The bridge from our fourth quarter revenue to the range that I provided, we recorded about $148 million of revenue from services and we had $73 million impact on related to these payer adjustments. So that would give you an adjusted $221 million in that as we talked about that the reallocation of bad debt up to net revenue brings you into that that range that I had mentioned.

Okay. Thank you.

Our next question is from Yale Jen with Laidlaw. Please go ahead with your question.

Good afternoon. Thanks for taking the questions. Just follow-up with the earlier questions that the guidance for the first quarter $195 million to $215 million of quarterly revenue from the BioReference Lab. Could we analyze that figure to think that might be the sort of the annual revenue for 2018 or there is other consideration need to be put in?

Yes. Yale, so we only provided first quarter guidance and I think we obviously as we are transitioning the leadership, I think we want to be cautious about looking too far ahead of ourselves, so that's why we provided that first quarter growth number. And I think if you look at the historical trends, you could probably come in with some reasonable estimates as you try to annualize that number.

Okay. Thanks. And just another follow-up question here is that for the growth hormone, you mentioned in the script that the adult that you already completed a study, I mean analysis and you are in the process I guess try to speak with the FDA. Could you give us a little bit more color in terms of what the time line these discussion might take place as well as what the current status of the - taking recruitment for the children study or maybe some expectation in terms of when we will get some topline result from that study? Thanks.

So it's hard to tell, I mean - it's a multi-step process. We first asked FDA based upon that analysis we discussed before in essence to get their response to that form of analysis and their willingness to accept it and then to see what other steps that FDA would deem necessary for us to submit a BLA in the adult. So I can't really predict, give you a timeline on that. So it's in the hands of FDA at this point. We expect the placebo written response and then we will respond to that and ultimately it may results in a meeting, but a little bit up in the air. For pediatric, it's obviously one-year trial and it's blinded. So it depends when we complete enrollment. Enrollment momentum is going strong. We certainly expect to complete enrollment before the year end. How far before that? It just depends on a lot of factors. So you can just - we will announce completion of enrollment in the 12 months, but there will be no last patient administered drug and when we can get top on results will probably be a few months after that.

So just sort of extrapolate from that that could potentially be late 2019 events in terms of topline data, if their recruitment is blinded.

That's correct.

Okay. Great. Thanks a lot. Appreciated.

Our next question is from Eric Joseph with JPMorgan. Please go ahead with your question.

Hey, guys. Thanks for taking the questions. Just looking for some additional color around sort of the one-time of the non-recurring reimbursement adjustment that you noted in fourth quarter. It sounds like these are unexpected, but I'm trying to get a sense of their potential. What gives you confidence in that? I guess making sure going forward and secondly, is it proper to think about some portion of these effects sort of being write-offs in terms of tax receipts? And also looking forward if you could give a little color around tax guidance as a result of tax reform? Thanks.

Sure. I'll take the second one first. So I think, Eric we've got a number of different tax stream I think in a blended rate. It would likely be in the mid-teens in the out years, but certainly in the near-term, the majority of our income is being generated in the U.S. So we would be higher than that in the near-term. Obviously, we have a pretty significant tax asset on our books in the U.S. to offset that. So they get a fairly complicated assumption around there. Going to the $73 million, so yes we look - most of this is related to claims that were processed throughout 2017 and earlier. So we do feel as though that the receivables on our books and revenues that will record in the future will not be negatively impacted in a meaningful way going forward. So that $73 million is related to prior quarter's numbers.

Got it. Thanks for taking the question.

Our next question is from Kevin DeGeeter with Ladenburg. Please go ahead with your question.

Hey, good afternoon. Thanks for take my questions. With regard to marketing around 4Kscore, can you just - company has been active with some direct-to-consumer activities. Can you just provide some metrics to help us appreciate, where you've been getting traction with that marketing spend and how that message maybe evolving through the course of 2018 to further accelerate volume growth?

Kevin, it's still early because as we started the TV ads as kind of a pilot task in the New York region and we obviously have an 800 number to try to track somewhere to calls up that and then we saw enough activity that we've launched them in Florida. We have a corresponding a directed digital advertising and web presence and we will increase some of that spend try to optimize who we are on the web this year, but it's still really committed to obviously I think the more attention and knowledge we get about the product and the more consumers themselves about it. I think it is a plus. It's hard for this early on in there in a process to give metrics on where they are being. Clearly, we think that's going to benefit significantly from the marketing effort but time will tell.

Okay and on a separate note with regard to RAYALDEE, you mentioned the prepared comments, change the general selling message provided by the sales team? Can you just provide your updated thoughts with regard to right position for RAYALDEE in the market and in terms of how much of that was driven by data or incremental sort of kind of data how much of that was driven by feedback from clinicians in the field?

Hi, Kevin, this is Charlie. Thanks for your question. We do listen to the feedback from the field and we adjust their marketing and positioning strategies RAYALDEE accordingly and it is a learning process. We do find that positions greatly are attracted to the effective physiological characteristics of RAYALDEE and this is very consistent with the position that KDIGO guideline has taken that physiological treatment is probably preferred over pharmacological treatment with active vitamin D agents. So we emphasize the KDIGO guidelines and our messaging real so emphasized the data does show that reality very gradually raises 25-hydroxyvitamin D levels in the blood to correct vitamin D insufficiency and a correspondingly gradually lowers parathyroid hormone levels without having any significant clinically significant impact on side effects which are elevation of calcium and phosphorus.

Great. That's very helpful. Thanks for taking my questions.

Our next question is from Mike Petusky with Barrington Research. Please go ahead with your question.

Hi, guys. Adam I guess what are the current thoughts around EBITDA margin in BRL for 2018 or you know whatever think and that would helpful?

Mike, so I think they're going to be in the first quarter, they are going to be compressed from the comparable period of last year and which we're in the 10% range. So I think will likely be below that with some of the volume declines that we've seen and we have put as we mentioned in his remarks we have put a number of cost control measures in place and we were working to reduce those costs, but what the volume decline in the fourth quarter we just didn't take enough cost steadily the organization to make up for that. But I do think once we stabilize the volume and return to growth will obviously be positioned to see that expand and accelerate.

Any kind of rough guidance for full-year?

No, sorry. Not that I don't want to get ahead of myself in the spirit in this call.

I guess on the - and I understand it's really going, but you obviously processing something in New York, DTC that cause you say hey let's spend a little bit of money in Florida? Can you talk at all about incremental pick up that you saw in New York or what essentially made you decide we're going to go spend more money on this in and other like?

It's really I mean to be frank with the sales of it and use of the product that has been growing already on a steady pace as you've probably seen in the positive quarter to quarter basis. But it's really the number of calls and clicks to our website that let us know that it was function. So I can't put a number that translates into additional sales but the amount of activity and interest around our product and the nature subject matter of the calls let us know that people are paying attention and trying to learn and you can't help but think that that's going to ultimately translate into further growth, that's what triggered it.

So I think you would said on that but you thought you spend in New York three months would be under $1 billion that's not how it came in roughly?

Yes, it's actually TV right now it is quite inexpensively but I was actually a little more expense to optimize your praises on the Internet than it is to advertise on TV.

So came in under and what do you expecting with them DTC on 4Kscore or any kind of guidance around that if it continues to seem to produce results?

We don't expect to get and that's it'll be proportional to sales. So sales bump up will spend more but we won't - we're going to be prudent so far and again the TV ads are quite inexpensive. So we'll start with smaller steps and see where grows and as growth justify that increase to spend I can't - right now I wouldn't depends when a higher number than we could get to last year.

All right. The last question on that are you continuing to run at the New York and shifted resource in Florida?

So the ones in New York cab ended so and the ones right now one in Florida then will revisit growing our perhaps even on a broader platform.

It's really as Steve said a pilot operation to get our systems for responding critically the back end to make sure that we realize that most revenue from the effort.

Okay. All right. And then I guess just last question that went from 35 or 64 rep I actually had it know from last quarter that was up 71 did I get that wrong few months ago or just you guys let's some reps go?

Yes, so it's the 71 is inclusive of the regional business managers as well so they entire sales organization is that 71 versus before field reps.

Okay. All right, terrific. Thanks.

There are no further questions at this time. Dr. Frost, please proceed with your closing remarks at this time.

I think that it ends our session and we want to thank everybody for participating.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.