Welcome to the OPKO Health Business Update Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded, today, August 7, 2018. I would now like to turn the conference over to Miriam Miller. Please go ahead, ma’am.

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 by management 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 June 30, 2018. Importantly, this conference call contains time-sensitive information that is accurate only as of the date of the live call, August 7, 2018. Except as required by law, OPKO undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. 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 Steven Rubin, OPKO’s Executive Vice President, who will provide an update on the company’s various businesses and clinical program. After that, Adam Logal, OPKO’s Chief Financial Officer, will review the company’s second quarter financial performance. Dr. Frost will provide closing remarks, and then we’ll open up the call to questions. Now let me turn the call over to Dr. Frost.

Thank you for participating in OPKO’s second quarter call. During my introduction to our first quarter call, I said, if I had to characterize the quarter, I’d say, good progress on all fronts. I’m happy to report that this also applies to the second quarter. Our largest commercial unit, BioReference Laboratories, has been the object of a great deal of our attention. Geoff Monk, now the General Manager of BioReference, is now in full control and has made several operational changes to improve efficiency and overall results. He has moved people around and brought in new talent. Sales are, of course, the lifeblood of the business, and Geoff recently brought in Cindy Jacke to accelerate sales growth. Cindy’s previous experience as Sales Director for the East region of Quest has prepared her well for the challenge. And, of course, Ben Solomon continues to be a star at our GeneDx unit from which we’ve expected great things, which he continues to do deliver. RAYALDEE is beginning to look like the commercial success we had thought it would be. Kirk Miller, our new Director of the Nephrology Sales, working with Tom Nusbickel, our Nephrology Commercial Director, have made great strides. Dr. Charles Bishop, developer of RAYALDEE; Dr. Akhtar Ashfaq, a terrific academic nephrologist working at OPKO, are working together to meet with important nephrology groups around the country to explain how RAYALDEE can be important for them in the management of their stage 3 and 4 chronic disease patients, with considerable success, I might add. Last time, I mentioned that several clinical trials were ongoing with patient enrollment proceeding nicely. Well, the pace has accelerated and we recently announced completed enrollment in our Phase 3 worldwide pediatric human growth hormone trial, as well as our Phase 2b trial for OPK88003, or oxyntomodulin, weekly injectable medicine for Type 2 diabetes and obesity. No sooner than anticipated and both proceeding nicely under the direction of Dr. Jane Hsiao and Dr. Tony Cruz. As you will recall, we’ve expressed considerable enthusiasm for the market potential from our oxyntomodulin product, which has also already been shown in a previous 420-patient trial to be safe and effective with respect to blood HbA1c and lipid control, as well as weight loss. The current trial aims to achieve even greater weight loss by administering the larger doses required for more weight loss, while avoiding or minimizing the limitations of nausea and vomiting that may occur with higher doses. The trial is proceeding as expected. All in all, we’re looking forward to the positive events of the remainder of the year. And I now pass you on to Steve Rubin, who will continue with more detail.

Thanks, Bill, and good afternoon, everyone, and thank you for joining us today. I’ll discuss OPKO’s strategies for continued commercial and clinical advancement in our overall progress towards meeting our long-term growth and business goals. Let’s start with our clinical diagnostic business, BioReference Laboratories, or BRL, which is the country’s third largest reference lab. We are pleased to report sequential quarter gains in revenues. As Phil noted, we are very pleased to see good early momentum for BRL under the leadership of Geoff Monk. From an operations perspective, we remain particularly excited about the potential for BRL GeneDx subsidiary, which continues to demonstrate growth and innovation in this high complexity exome and related tests. For the second quarter, GeneDx achieved a 38% year-over-year increase in exome-based testing volumes. As an impressive milestone in June, GeneDx announced that they had performed clinical exome sequencing on more than 100,000 individuals, representing one of the largest cohort sequence exomes by an independent clinical laboratory in the world. The achievement also greatly expands the database of known clinically relevant genetic variants used as tools to help diagnose rare diseases. GeneDx continues to be a BRL standout as we have helped discover and contribute to phenotypic understanding of more than 62 novel disease genes in the last three years alone. In addition to its exome and genome test, GeneDx continues to post growth in its overall product portfolio with year-over-year volume growth of more than 13%. During Q2, GeneDx finalized a major overhaul of its clinically-driven testing menu and launched 20 new tests and also revised an updated 51 tests. During the remainder of this year, GeneDx plans to launch an additional 36 tests and we’ll revise and update 57 more tests. These tests were selected based on specific clinical needs and reimbursement potential. Moving…

Thanks, Steve. As we make – as we continue to make significant progress in our R&D and commercial activities, we’ve also made significant improvements in our financial performance. We reported financial results that were in line with the guidance we provided during our call in May. Overall, our net loss decreased to $6.2 million, or $0.01 a share on net revenues of $264 million for the second quarter of 2018, compared to a net loss of $17 million, or $0.03 per share on revenues of $293 million for the comparable period of 2017. While we are still early in our operational overviews under our new leadership at BioReference, we have made significant progress in our efforts to improve our operating efficiency. During the second quarter of 2018, we were able to reduce our cost of revenue, as well as selling, general and administrative expenses by 9%, or almost $26 million compared to the second quarter of 2017. Our investments in R&D were $29 million for the second quarter of 2018, compared to $33 million for the 2017 period. During the second quarter of 2018, operating in net loss benefited from a reduction of contingent consideration expense of $19.7 million related to changes in assumptions related to the timing of milestone payments due in connection with our acquisitions. Moving to diagnostics revenue on a sequential basis, revenue increased by approximately $5 million from the first quarter of 2018, resulting from increased volumes in the current period on consistent reimbursement rates. Revenues in comparison to the prior year second quarter reflect the volume decrease in the clinical lab testing of approximately 1.4%, as well as overall reimbursement pressures, including the impact of PAMA. These decreases were partially offset by volume and reimbursement increases in our genomics testing. As I mentioned on our…

Thank you. I think, we can open the session for questions now.

Okay. [Operator Instructions] One moment please for the first question. And our first question comes from Louise Chen with Cantor.

Hi, thanks for taking my questions here. I had a few. First question I had was on your diagnostics business. As we look into second-half 2018 and beyond, how do you think about growth for that business? What are you doing to reach that growth potential? And what are the factors should we think about here in terms of headwinds or tailwinds in that business? And the second question I have is on RAYALDEE. Where do you think sales can grow from here? I know, you gave some guidance for the third quarter. What kind of pickup do you expect in the fourth quarter and beyond? And what’s going to drive that? And then I had a question on your hGH program, but I’ll ask after the first two. Thanks.

So for – thanks, Louise, for the question. For diagnostics, I think, we’re going to continue to expect to see that business remain in a stable position and that is what we expect for the remainder of this year. And with some growth opportunities coming, I think, where our focus has been what we thought most of that is improving the margins and I think the first – in this first quarter and second quarter of the year, we’ve made some pretty significant progress on that front. So I think, long-term, we should be in – be able to get the operating cash flow and operating margins up into the mid opportunities on a long-term basis. Do you want to take, Tom, on RAYALDEE?

Yes. In regards to RAYALDEE, we continue to be optimistic that if we continue to focus on growing new patients with existing writers and adding new writers that with the improved reimbursement would be improved situation with our access help that we will be able to continue to see a significant growth in Q4 and beyond.

Okay. And then just one last question here on hGH program. Do you have any color on the pre-BLA meeting? And then also what additional studies in adults might looks like? Thank you.

Well, we’ve had feedback from the FDA and it was very positive in providing us a path forward, the decision that we’ve made internally is – sorry?

BE study.

Oh, the bioequivalence study – is we have to do a bioequivalence study, which we’re planning to begin in September of – well, we’re planning to begin towards the end of the year. So that is an additional study that we have to do. Once that’s done, I think that will also coincide with the end of the Phase 3 pediatric study. And at that time, we’ll make, along with our partner, Pfizer, we’ll make a decision on how to best move forward with that BLA.

As Louise, as you may recall that the adult unlike the pediatric was the study which ran with a syringe and a vial, the pediatric which run completely from the get-go in the pen device. So we need that by bioequivalence study that Tony mentioned is basically just to show the equivalent of drugs substance in the pen device for adults as well, because that’s what will be commercialized. And so it’s a pretty simple quick study, but necessary prior to submission.

Okay. Thank you.

Our next question comes from the line of Brandon Couillard with Jefferies. Please go ahead with your question.

Hey, thanks for taking my questions. This is actually Mike Koban on for Brandon. First, on that hGH, when can you expect or when will we expect to see any initial data from that trial? And then do you expect any interim data readouts?

There won’t be anything in terms – it’s a one-year trial, so you can – the simple math and the day we did administration in the last patient one year later. So the trial will complete in the third quarter next year. I’m not sure how long it would take together.

It’ll take a couple – it normally takes about a couple of months to clean the data and then database locks. So I would say, a couple of months half in – after, say, the August, so probably October, November, December.

Gotcha.

It depends on the data cleaning process, but normally, it takes two to three months – two months.

Gotcha. Thanks. And then as far as the Claros PSA test, have you guys, or could you walk us through how you’re thinking about the unit economics of that offering?. And as we try and start to think about commercial launch and have you finalized the instrument ASPs and anything like that you could tell us would be helpful?

So, commercially we were still obviously pending FDA clearance with the device, it’s a pre-market approval process we’re going through. And that is now at a stage where we’ve we filed back in November. We’ve received some feedback from FDA about the PMA and they’ve asked for some other studies. We filed our first amendment with them and we’re now in the process of gathering the second amendment information from the field. Commercially, we’ve got the analyzer really pretty much where we’ve always said it was, it’s – right now it’s a first generation analyzer. It’s about a $2000 unit. But there’s obviously commercial flexibility in how we would have that paid for in the course of testing, where partial payment for the analyzer is reflected in the cost of the cartridges. The cost of goods is something we’re focused on as well. We have plans for automation of the process, again, pending final approval from FDA for that. So we’re gearing up for PSA. But I also want to remind you that there’s a great deal of menu expansion capability and that expansion happens via a very different regulatory process. First off, it’ll be the second and third and fourth, et cetera, filings we will do and these will be done by 510(k) processes, which are quite lower in terms of the bar for clinical trial requirements.

Great. And then thanks very much. And I’ll just squeeze one last one in there. Just on the GeneDx lines, I believe you said that they grew 13% in 2Q. Could you give us any sense of maybe how that – how to think about that in terms of revenue?

Yes. So we don’t necessarily break out GeneDx separate from BioReference. And I think we always report that as the single line item. So it’s – it is blended in there. I think, the volumes do translate in overall just in – into direct dollars. So GeneDx makes up about 17% of our overall revenue, 17% to 20% of our overall revenue from services.

All right, great. Thanks, guys. That’s all I got.

Thank you.

Our next question comes from the line of Kevin DeGeeter with Ladenburg. Please go ahead with your question.

Hey, thanks for taking my questions, guys, and congrats on some really nice performance. As we think about the series of new tests or revised tests being launched at BioReference is really sort of the levers there on profitability skewed towards growing the top line, or should we think about particularly the revised tests are being less impactful in terms of improving margins and potential profitability?

I think there are definitely, as we noted, there are definitely based upon margins in reimbursement. What’s key, as we’ve mentioned before, especially in this area of sequencing is reimbursement. And so you’ll see a lot of the work that’s being done is either whether it’s an unmet need or whether it’s clearly a test with some tinkering modification that we’re confident will have a quicker path to reimbursement. So it’s clearly a focus on – it’s both top line growth and margins, for sure.

To a certain extent, GeneDx and the reference lab that we call BioReference are slightly different business models, whereas in GeneDx, the independent constantly introducing new tests and we’re also depend on reimbursement, of course. The BioReference there goes usually comes almost entirely from expansion of the market and, of course, again depending upon reimbursement. And in both cases, I would say, the teams have been working very hard to develop new approaches to help ensure growth. So we’re pretty optimistic about the business.

.: And then just with regard to the dialysis study, is that going to be the same capsule, just significantly greater number of capsules, or do you complete optimization of different size capsule to accommodate the potential dose for dialysis patients?

Yes, I’ll take the first question first. There will be a single capsule, which will be taken in different doses, which is different than the capsule that’s on the market today for the dialysis study. In regards to the sales force optimization, we will continue to grow the sales force when the opportunity in regards to the physician and the coverage warrants it. And so we’re always looking at how can we continue to drive growth and when we can make a case to do that through expansion, the sales force will be doing that. And so we’ll be continuing to look to do that over time.

Great. Thank you for taking my questions.

Better than it feels that more salespeople we want to hire.

Yes. Great. No, definitely, nice progress in that business.

Our next question comes from the line of Yale Jen with Laidlaw Inc. Please go ahead with your question.

Thanks. Good afternoon and thanks for taking the questions. As you guys have a number of clinical trials that completed patient recruitment, I think, that data release probably will be one of the highlights over the next, maybe few quarters. Could you sort of summarize some of the data release is expect – possibly expected over the next maybe two or three quarters of different programs?

So I mean, I think, the first data that we will have is some data on oxyntomodulin trial, as we said, that, that was fully enrolled and it’s going quite well. So we expect to have data later this year some preliminary top line data. Following that, sure they will have data on the SARM, where that’s going to finish enrollment either end of this year or early part of next year. Growth hormone, of course, as I mentioned, we will have data hopefully towards the end of next year.

Okay, that’s helpful. And just probably for Adam that you have – appreciate the end guidance on the different revenue – revenues of different units. It seems that BioReference Lab at least for the third quarter may not have too much growth versus this quarter. Was there any specific headwinds for that guidance, or just more conservative, or do you see the narrative associated with that?

Yes, I think, as we just look at volumes – volume trends kind of over the years, the first-half of the year typically has slightly higher volumes than the second-half. So it’s going to – we expect volumes to be consistent with last year, but also kind of in line with where we saw volumes in the second quarter. So it’s a consistent business in comparative to last year of $209 million gives us an opportunity there to show some growth.

Maybe – thanks. And maybe just speak to one more question here regarding the growth hormone and you mentioned that you’re going to do another – do bioequivalent study and then contemplate for the future path with adult population – patient populations. I’m just curious, the communication you had with FDA has – what kind of feedback they may have regarding the proposal to take away one outlier and make – and the data looks – actually was more in line with what originally anticipate. Is there any feedback from the agency on that aspect?

So, the year we mentioned in our last call and last quarter that we had the FDA and the feedback certainly gave us a path for submission of the data we have with the modified analysis. And what they’re allowing us to do is to submit the pediatric data along with the adult data to supplement the submission. The discussion and strategy is, however, do we wait for the completion of the four Phase 3 data in pediatric, which is obviously 200 – [and I refer to] [ph] 200 patients, or do we just submit that the smaller number in the Phase 2, which, of course, is three different doses? Given the timing and the size of the market for the pediatric segment versus the adult, it may be prudent to wait. But I mean, it is, as Tony mentioned, we do have to do a quick bioequivalency study anyway in the pen device. That would be a relatively short trial before we could submit anything. And so we haven’t made a final decision, I guess, is a long answer, but that’s – there certainly is – the FDA certainly is willing to look at our data with a modified analysis and without requiring us to repeat a trial.

Okay. Okay, great. And then maybe tag along the – in terms of Japanese study, is that potentially in line – on time or sort of a global filings or you think that probably will come after the you file for the U.S. and the Europe?

No, of we definitely definitely believe it is in line for our global filing.

Okay, great..Thanks a lot. I appreciate it.

Thanks.

We do have time for one last question from Eric Joseph with JPMorgan.

Hi, guys, thanks for fitting me in here, and congrats on the progress this quarter. Just as it relates to diagnostics and the services business, I’m wondering if you could just elaborate a little bit more on what opportunities you are seeing for volume growth longer-term? Is there other opportunities for expansion of regional footprint, or certain or sort of particular opportunities from the current product offering or portfolio offering? And with – it’s sounding like the genomics testing business being important part of the operational review process here. Can you just kind of characterize sort of where you view GeneDx as a longer-term as a – I guess, how it makes up or what it constitutes in services business longer-term? Thanks.

Yes. So this is Adam. I’ll start off. so we certainly think that GeneDx is going to continue to grow at a much faster rate than the larger clinical lab business. We’ve seen double-digit growth throughout this year and last year in overall testing volumes. So that continues and we continue to navigate the reimbursement environment within the genomics space. We’ll continue to expect that business to grow and outpace the growth at the clinical lab. As far a ass opportunities, there’s – we’re not going to go out and necessarily compete head-to-head on acquiring large outreach businesses. But we do think there are sizable pieces of business to be had outside of some of the hospital business, whether it be partnering up with independents physician associations or more regionalized ACOs. And we certainly think there are good growth opportunities for the clinical lab and some of the niche spaces and we’ve had some recent successes in that space as well.

Great. Thanks for taking the question.

Sure.

Okay. That is all the time we have today. Please proceed with your presentation or any closing remarks.

I just want to thank you all for participating, and we look forward to meeting up with you again next quarter.

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