Welcome to the OPKO Health Inc. Business Update Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded, May 8, 2018. I would now like to turn the conference over to our host, Ms. Miriam Miller. Ma'am, please go ahead.

Thank you, operator. Good afternoon, this is Miriam Miller with LHA. 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, and its quarterly report on Form 10-Q for the quarter ended March 31, 2018. Before we begin, let me review the format for today's call. Dr. Philip Frost, Chairman and Chief Executive Officer, will open the call; followed by Steven Rubin, OPKO's Executive Vice President, who will provide an update on the call the company's various businesses and clinical program. After that, Adam Logal, OPKO's Chief Financial Officer, will review the company's first quarter financial performance. Dr. Frost will provide closing remarks, and then we'll open the call to questions. Now let me turn the call over to Dr. Frost.

Thank you for participating in OPKO's first quarter call. If I had to characterize the quarter, I'd say good progress on all fronts. First, we're, of course, really pleased to have Geoff Monk onboard as the general manager of Bio-Reference, our largest commercial unit. His terrific operational and general business skills reflect his long experience working at large health care companies, most recently Quest, and for OPKO, he's just what the doctor ordered. He'll play an important role in building Bio-Reference. The direct-to-consumer TV ads for 4Kscore that some of you may have seen appear to have had a positive effect, and we're pursuing a highly disciplined approach to expanding this effort as part of a larger program to accelerate the growth of 4K sales. We've created a new men's health urology task force, which will, of course, also sell Bio-Reference's other urology-related tests. The pace of RAYALDEE market penetration appears to be accelerating. Our new Director of sales for RAYALDEE, Kirk Miller, is working hard with huge enthusiasm; and Dr. Charles Bishop, our Director of OPKO renal; and Dr. Akhtar Ashfaq, an OPKO nephrologist with an extensive industry experience have been complementing the efforts of our marketing and sales team by regularly meeting with nephrology units at large medical centers across the country where they have been extremely well received. Not surprising, we have ongoing studies to further document the benefits of RAYALDEE in the management of chronic kidney disease patients. These are designed to demonstrate the unique physiologic advantages of RAYALDEE. During the quarter, we initiated a Phase IIb trial of our oxyntomodulin product, a once-a-week injectable medicine to treat Type 2 diabetes and obesity. You'll recall my enthusiasm during previous calls for this product, which has already been shown to be safe and effective in a 420-patient trial. If all goes as expected, this will prove to be an important OPKO asset. Clinical trials of many of our pipeline medicines are underway. Patient enrollment is proceeding nicely. We'll keep you posted. All in all, we're looking forward to a year of positive events. I'll now pass you on to Steve Rubin.

Thank you, Phil. Good afternoon, everyone, and thank you for joining us today. I'll discuss our strategies for continued commercial and clinical progress and overall progress toward our long-term growth and business goals. Let's start with our laboratory diagnostic business, Bio-Reference Laboratories, which is the country's third largest reference lab. As you may know from our announced results, while it is difficult to make a direct comparison versus Q4 given the various accounting adjustments, we are pleased to report improvements in revenues, revenues from services and net income. And we believe 2018 will continue to reflect improvements across all aspects of our laboratory services. As Phil mentioned, we recently announced an important hire in bringing on Geoff Monk as our new General Manager for Bio-Reference. Mr. Monk breaks to Bio-Reference more than 20 years of executive operational, business strategy and technical experience. Previously, Mr. Monk served as Vice President, Operations East at Quest Diagnostics, where he led a diverse end-to-end service business for one of Quest's largest regions. Prior to that, Mr. Monk was Managing Director for the entire New York/New Jersey business unit at Quest Diagnostics. Earlier in his career, Mr. Monk was Vice President of Operations and Vice President of global engineering services at Schering-Plough, and Head of Engineering for the U.K. site at Glaxo Wellcome. Mr. Monk's enviable track record of operational excellence and deep and highly relevant understanding of operations and business strategy in this industry will be important in allowing us to capitalize fully on the opportunities in this dynamic marketplace. We remain excited about the potential for BRL, including its GeneDx subsidiary, which continues to demonstrate growth and innovation in its high complexity exome and related tests. For the first quarter, GeneDx achieved a 56% year-over-year increase in exome-based testing volumes. GeneDx continues to…

Thank you, Steve. As Steve and Dr. Frost mentioned, our financial results met our expectations and were in line with guidance we provided during our call in March. Recall that effective with the first quarter of 2018, we began reporting revenue from services, net of bad debt expense, under the accounting rules that went into effect on January 1. Total revenue from service was $211.3 million for the quarter. As a comparison, 2017 revenues from services recast under the new accounting standards were $228.5 million for the first quarter of 2017, $233.9 million for the second quarter of 2017, 209 - or $200.9 million for the third quarter of 2017 and $119.4 million for the fourth quarter, including nonrecurring adjustments of 70.3 - $73.3 million. The decrease in revenues for the first quarter of 2018 compared to 2017 reflect volume decrease at the clinical lab of approximately 3% as well as overall reimbursement pressures as a result of PAMA, partially offset by double-digit volume increases in our genomics testing. In addition, overall reimbursement for the 4Kscore test increased by approximately 26%, in line with the approved PAMA pricing. During 2017, we had made significant investments in our revenue cycle management program, including a new billing system as well as our related billing workflows. We began to see the benefits of that work during the second half of 2017, and the first quarter of 2018 clearly show those efforts. Our accounts receivable balances and resulting DSO have decreased and are now in line with the largest clinical labs. The net results of the improvements reflect an improved collection cycle and overall yield on each session has improved significantly compared to the first quarter of 2017 meaning we are collecting more cash on each patient requisition. Regarding pharmaceutical's performance. We recognized $3.7…

Thank you. We'll open the floor to questions, if there are any.

[Operator Instructions]. And your first question comes from the line of Louise Chen of Cantor Fitzgerald.

This is [indiscernible] in for Louise. So my question is regarding the Claros 1 platform. I was wondering how you're thinking about adding additional tests by leveraging other liquid sample compatibilities, such as spinal cord fluid or urine and which infectious diseases or women's health and what other diagnostics are you thinking of going into first and what are you most interested in going forward with that?

So right now, we're focusing on blood and immunoassay diagnostic tests. And so as I've mentioned, the next test out will be testosterone. So the idea there is the two most common diagnostics that a man has when visiting a urologist are both measures of PSA and testosterone, so it makes sense to have those together. And after that, we're still working on a vitamin D, which would really support RAYALDEE prescriptions, and then perhaps a woman's panel generated mostly of hormones. But at this point, we're refocusing on basically blood-based immunoassay tests.

And your next question comes from the line of Brandon Couillard from Jefferies.

Perhaps maybe, Steve, with respect to the new 4Kscore or men's - let's call it men's health team that you referenced, what exactly is different about this group relative to the commercial teams that have been supporting 4Kscore within Bio-Reference, the Bio-Reference sales organization so far?

So the Bio-Reference sales group that had many items in the bag to sell, so we're using - we train a portion of our Bio-Reference team, and they sold among other items, oncology products and the like. And I think our experience is it takes maybe a little more effort, specialized effort and detail to really to maximize penetration 4Kscore. So this will be purely urology focused. So it will be visiting just urologists who'll be focusing on our 4Kscore as well as other suite of urology based products that we do sell. We have a genetic pan that comes out of GeneDx and other products out of Bio-Reference but this will be a purely urology focused team, so they will visit just urologists and sell just urology focused diagnostics.

And then with respect to the DTC advertising pilots that you ran in New York and Florida, any metrics you can share with us as to the incremental demand that you may have seen in those markets from those ads and perhaps parameters as far as how you expect to expand that effort later this year?

So what we can say it is the direct contacts - and looking at Florida now because that one's still running, and hits on our website actually increased by fourfold what they were prior to the TV ad. So we're going to - I think what we've learned is they do have an impact and will probably roll them out in larger scale. We also are going to really have a combined effort with direct to digital advertising as well. And digital is a little easier to trace all the way through because you - obviously, you follow the click-through to our website and obviously referral to physicians. But we're pretty pleased with the response. And really the best way to measure it is either phone calls into the - our 800 line or impact - increased impacts on our website, and we've seen both.

You also had a number of new studies out for the 4Kscore tests, expanding the evidence package a little bit here. Are those sufficient, do you think, to go back to Palmetto or Novitas to reconsider coverage? And any update you can share with us as far as your dialogue with commercial payers or any new private payer wins?

So that's a good question, and the answer is clearly yes. Any additional result and studies are certainly useful. We do, obviously, keep Novitas consistently appraised. Both of them want to see the published studies, and we've submitted packages in Novitas, and we are considering a fuller package to Palmetto as well. So to answer your question, in summary, is yes, we think it will be very helpful.

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

First, just a housekeeping question that the first quarter's SG&A number seems to be lower than prior almost four quarters. Is this going to be something annualized going forward? Or this is just a slight abnormality for the expenses?

Yes, so if you're just comparing against historical financial, Yale, you'll see that there was a reduction related to the bad debt expense that moved up to the net revenue line. But we would expect operating expenses overall to be in line with the first quarter and within the range that I gave in my guidance.

Okay, great, that's helpful. And also just again congrats, you have a new president for BR - Bio-Reference. So what might be his objective overall in the new leadership here as well as what need to be implemented and what way is he sort of measuring his milestone or achievements, let's say, for the next 12 months?

So as you probably noticed from his - from Geoff's resume, he's very operational focused. And one of our key metrics here other than obviously growing, continuing to grow the sales, is to improve our operations and certainly lower our cost in the diagnostics and laboratory environment. As everyone knows, there's consistent pricing pressure and - which demands increased efficiency. So I think Geoff's first focus is - will be helping us kind of increase that efficiency and lower our cost for performing services. But his overall - what we'll be testing overall, because he's in charge of overall operations, is, of course, performance of an overall basis. So it's a combination of continuing growth on the commercial side and, at the same time, increasing our efficiency and margins.

Okay, great. Maybe throwing in the last question here, which is for the both the BPH as well as the diabetes, the pipeline drugs. What might be the time for releasing the Phase II data? Do you guys have any sort of rough estimate at this point?

It's a little bit too early because we're in the middle of enrollment now. I think enrollment is going well but it's a little too early for me to speculate when we'll have those results out, Yale.

[Operator Instructions]. Your next question comes from the line of Kevin DeGeeter from Ladenburg.

Maybe a few on RAYALDEE. Can you just comment with regard to your thought process on the ramp-up of the additional sales reps for RAYALDEE or whether or not you think your incremental ads will be appropriate given the current uptake of revenue adoption for the product?

Yes, we're continuing to look at opportunity in territories and we'll opportunistically bring on board people who we think we can make an impact in the territory. So right now, I think we're at a good place fully penetrating the addressable market that we have today. But as we move forward, we'll be looking to increase.

Okay. And then going back to Bio-Reference. In terms of consolidation within the industry, we have continued to see some incremental consolidation, particularly with regard to the ability to provide support services for pharma. Is that an area that you think there's an opportunity to grow the Bio-Reference footprint, whether it be through internal initiatives or in bolt-on acquisitions?

This is Phil. The industry, as has been indicated, is evolving to the point where it's less and less interesting to get new business by converting individual physicians from one laboratory to yours. And more important, to deal with whole new approaches to getting business, and ideally, that would be with larger groups of either IPAs or ACOs, so that you can accomplish a lot more with, in fact, a smaller sales force. So what does it take to achieve that? It takes having something novel that your competition doesn't necessarily have. And what we've been working with just beginning now is to work with an affiliated software group that has developed a way of helping the physician and physician groups practice better medicine, on the one hand, by managing their patients better, having better outcomes for the patients and, at the same time, reducing cost, which is extremely important to the payers, of course. We've had, so far, very good luck with acquiring new business. And I think that, as time goes on, the results - we're hopeful at least that the results of Bio-Reference will reflect that type of approach.

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

I just want to thank everybody for participating in the call. We look forward to next time.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect. Thank you for your participation.