Welcome to the OPKO Health Conference Call. At this time all lines have been placed on a listen-only mode. Following management’s prepared remarks, we’ll hold a Q&A session. [Operator Instructions] As a reminder, this conference call is being recorded, Tuesday, May 7, 2019. I would now like to turn the call over to Ms. 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, 2018, and subsequent quarterly reports on Form 10-Q. Importantly, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 7, 2019. 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. Dr. Phillip Frost, Chairman and Chief Executive Officer, will open the call; followed by Steve Rubin, OPKO's Executive Vice President; and Dr. Jon Cohen, Executive Chairman of BioReference Laboratories, who will provide an update on the company's various business and clinical programs. After that, Adam Logal, OPKO's Chief Financial Officer, will review the company's 2019 first quarter financial results. And then we'll open the call to questions. Now let me turn the call over to Dr. Frost.

Welcome to OPKO's discussion of its first quarter report. So where are we? RAYALDEE sales have grown but a bit more slowly than hoped. Our 4Kscore tests that help evaluate the possibility of a serious prostate cancer in men with an elevated PSA, which had been experiencing nicely increasing sales, hit a stumbling block when our Medicare contractor issued a negative local coverage determination. Our BioReference Laboratories suffered a bit from lower reimbursements, and we continue to spend on our drug and diagnostics development programs. So what's the good news? Well, let's take RAYALDEE. We have a new and powerful and, I believe, irresistible message for our salespeople to use within nephrologists. In an important paper recently published in the American Journal of Nephrology, the authors explained that in patients with stage 3 and 4 chronic kidney disease with abnormally high levels of parathyroid hormone, vitamin D normally administered in one form or another to lower PTH levels has been ineffective in raising blood vitamin D levels enough to lower PTH significantly. And here's what's important: only RAYALDEE is able to accomplish this. An accompanying editorial emphasized the importance of our data. The recently expanded renal sales force is fired up. Last week's sales were a solid 10% higher than the high for any week before, and of course, we hope the trend will continue. We can't promise, but it's a step in a good direction. We're still selling 4K. Our urology sales team has been expanded to handle 4K as well as our full line of other urology tests. And remember, approximately 50% of men with an elevated PSA are below Medicare age and not affected by the LCD. On the other hand, we have submitted a request for reconsideration of the LCD and are also busy preparing an application for the FDA to approve the 4Kscore test. As for BioReference, Jon Cohen, its new CEO, will tell you why he's feeling good about its future. Now as to our R&D program. As I said, we're spending what for us is a lot of money, but I think it's being well spent. The course of the final phase of our once-a-week growth hormone program have accelerated, and we should complete our multinational Phase III trial in August. We remain optimistic about its outcome. We've now begun to expand our referenced use of our technology that prolongs drug action on another group of rare diseases. We've been at it for some time, but recently, we've seen that although still at early stages, they have the potential, by virtue of being better than currently available products, to be very valuable assets. Their development can move relatively fast and at comparatively low costs. We'll keep you posted. And with that, I pass you on to Steve Rubin.

Thank you, Phil. And good afternoon, everyone, and thank you for joining us today. I'm going to jump right in here, starting with Diagnostics. While increased reimbursement pressures negatively impacted our revenues at BioReference Labs this quarter, our team has implemented some impressive operational improvements and expanded payer access, which bode well for the future. BioReference and GeneDx were selected for inclusion in the UnitedHealthcare Preferred Lab Network beginning July 1, 2019. This was a comprehensive process that evaluated service standards, turnaround time, quality and accreditation. Over 300 laboratories were invited to apply. Only 100 submitted applications due to the complexity of the requirements, and BioReference and GeneDx, along with 5 other laboratories, earned a place in the Preferred Lab Network. In addition, effective April 1, 2019, BioReference and GeneDx are now in-network providers with Humana, which provides access to 11 million additional lives. BioReference was also recently reorganized by Forbes as one of America's Best Large Employers of 2019. This list includes 500 large companies, and BioReference is one of only 15 companies in the health care equipment and services category to be selected for this designation. I think everyone on this call understands the importance of 4Kscore and believes in the need for this test. Since launch, more than 12,000 practicing physicians worldwide have ordered more than 227,000 tests. The test has been extensively studied in more than 25,000 patients, with results presented in 18 peer-reviewed scientific publications. The clinical utility of the 4Kscore test continues to be assessed, validated and reported by independent urologists who incorporate the test in their practice, showing solid value for the 4Kscore test as compared to other diagnostic paradigms for improving the accuracy of detecting aggressive prostate cancer. With all required documentation nearly complete, we plan to submit the 4Kscore to FDA…

Thank you, Steve. I was asked to comment on my first 4 months with some observations and what the plan looks like going forward. I am very optimistic about the strength and future of both BioReference and GeneDx. With a transformation plan in place, we are making remarkable progress on all 6 of the plan's components. First, Geoff Monk and his team have done a terrific job on significantly improving productivity and reducing costs. These operational improvements will continue at a vigorous pace. Second, our payer strategy is working, as you've heard from Steve, with the announcement of becoming part of the Humana network with its 11 million lives and as one of the 7 preferred labs for United. Third, our revenue cycle initiatives continues to move forward aggressively in putting in place better processes around denials, prior authorization and quoting. Reimbursement headwinds, as you'll hear, are our single biggest challenge, and we are focused on successful implementation of these initiatives. Our IT plan is focused on our recently released patient portal, better live technical support for our clients and upgrading our business and laboratory systems. Sixth, our multiple commercial initiatives to grow the top line. So let me be more specific and briefly discuss our commercial initiatives. The business is now structured around 3 pillars: patient engagement, specific physician expertise and strategic partnerships. On the patient pillar, we have launched our patient portal for patients to register, pay their bills, see their results, track trends and get information about their tests. We will also have some more interesting announcements through Q3 and Q4 relative to several other patient-specific initiatives as we aggressively push to improve the overall patient experience. On the physician pillar, we remain committed to the areas where BioReference and GeneDx have been leaders, with specific expertise in women's health, urology, oncology, servicing diverse communities and, of course, genetics, including all of the components of the genetic landscape, such as inherited cancer, somatic cancer and rare diseases. In terms of genetic testing, GeneDx continues to grow at, as Steve stated, 17% year-over-year for Q1. GeneDx has the deepest menu for rare diseases in the world. I would remind you that there are now 7,000 known rare diseases and approximately 8% to 10% of the population have a genetic disorder, which means approximately 30 million Americans have an identifiable genetic variation that could impact on their health. The third pillar is the strategic partnerships where we have put in place a vigorous structure to specifically address this growing part of the market. Within a short time frame, we have developed a very vigorous pipeline of deals in various stages of the proposal process. And in Q1, we have already closed several deals. Overall, I remain incredibly optimistic about the future growth trajectory of both BioReference and GeneDx. Steve, back to you.

Thank you, Jon. Turning now to Claros 1. We were pleased to announce on February 1 that the FDA approved our point-of-care Sangia Total PSA Test using the Claros 1 Analyzer. The test is designed to give quantitative total PSA results in the point-of-care setting, utilizing a finger-stick whole blood sample in 10 to 12 minutes. The accuracy of the Sangia Total PSA Test is compared to an FDA-approved total PSA assay. And it supports that the assay can quantitatively measure total PSA levels from 0.08 nanogram per milliliter to 15 nanogram per milliliter using capillary whole blood samples taken from the finger stick. There are 25 million PSA tests performed in the United States annually, so this approval represents a significant market opportunity. Sangia Total PSA Test is determined by FDA as a moderately complex test which requires CLIA waiver by the FDA. A CLIA waiver requires demonstration of minimal erroneous results when used in the field. We expect to submit our CLIA waiver request to FDA later this year. We believe there are many advantages both to patients and to physicians of offering test results right at the point of care. Further, with the momentum of this approval, we have accelerated the development of additional tests utilizing this technology platform, with testosterone being the most advanced. Turning now to our pharmaceutical business, let me start with RAYALDEE, the first and only therapy approved by the FDA that both raises 25-hydroxy vitamin D and lowers parathyroid hormone, or PTH, levels in patients with chronic kidney disease, with a safety profile similar to placebo. RAYALDEE provides a single-drug solution for SHPT, replacing the use of both nutritional vitamin D and active vitamin D. The Marketing Authorization Applications for RAYALDEE submitted by Vifor Fresenius last month have been accepted for review…

Thank you, Steve. As Jon and Steve highlighted, we have continued to make progress within our business and research and development activities. The underlying financial performance was within our previously issued guidance, and substantially all areas are showing improvement as we build momentum going into the second quarter. Overall, our net loss during the first quarter of 2019 increased to $80.8 million or $0.14 per share compared to a net loss of $43.1 million or $0.08 per share for the comparable period of 2018. Net revenues were $222.5 million for the first quarter of 2019 compared to $254.9 million for the 2018 period. Revenue from services for the 3 months ended March 31, 2019, were $178.9 million compared to $211.3 million for the 2018 period. The decline in net revenue from services reflect the ever-challenging environment within the -- within payers for our laboratory business, specifically the compounding of the PAMA rate decreases along with payers implementing pre-authorization requirements and enhanced denial rates on both our clinical laboratory testing as well as our genomic testing. On the positive side, we believe the overall reimbursement environment is the largest near-term opportunity to show improvement in our financial performance. We are aggressively working to manage these payer procedural changes and are increasing our appeals efforts. Revenue from product sales during the first 3 months of 2019 was $25.3 million, down from $27.9 million in the comparable period of 2018. Revenue from RAYALDEE was $5.8 million during the quarter, with revenue being negatively impacted by a decrease in our net price as a result of increased discounting and utilization of our copay discount program and a change in our mix of utilization by patients covered by Medicare Part D. Based on an assumption that increased utilization of these programs and the mix of…

[Operator Instructions] Our first question is from the line of Maury Raycroft from Jefferies. Please proceed with your question.

This is Mitchell on for Maury. Thanks for taking the question. The first question is, can you talk about the need to reach an agreement with Pfizer regarding the hGH program and the cost sharing for overruns? What are the likely scenarios for this going forward?

So there's no need to do anything. So the contract that exists pretty much takes care or deals with anything that's over budget.

Okay. So I think what we have seen is that -- your development cap. Is that something that's still a concern? Or is that taken care of?

I'm not 100% sure. So we haven't said what the development cap numbers are specifically, but we have exceeded the original plan. We've got overall cost increases to the program. So again, I'm not 100% sure what the question is that you're trying to come to.

Got it. I think that answers that one. And then could you talk about how large your sales force is and the breakdown between the drug franchise and then the services side?

Sure. Within the BioReference segment, we -- our commercial organization as a whole is about 300 people, with a little over two thirds of that is field force, et cetera. On the RAYALDEE side of the business, we've got about 75 reps in the field today and another 25 or so non-field reps but within the commercial organization.

Okay. Thank you so much.

And our next question is from the line of Yale Jen from Laidlaw & Company. Please go ahead with your question.

Good afternoon. Thanks for taking the question. Two questions here. Number one is that RAYALDEE, you're going to file for the European for RAYALDEE, and you mentioned that it was for individual countries. The question is, why not file for centralized approval? And with that, was there a specific rationale for doing that?

So Vifor decided -- it elected to do a decentralized procedure. They selected countries that have the largest opportunity based upon the size of the market and competitive landscapes and the like. So we -- it was their decision to do go after kind of the largest ones. And it has a lot to do with pricing. As you certainly are probably aware, some countries offer better pricing than others. And I think they prefer at this point not to go into those countries that are going to get pricing that's not favorable.

Okay. That's helpful. And also, in terms of filing for, I guess, approval from -- to FDA for 4Kscore, any specific time line on that? And what do you anticipate the potential benefit if it gets approved in terms of improvement of sales or other reimbursement acceptance?

Well, I'll handle the first one. Obviously, we -- one of the issues raised by Novitas in their LCD or local coverage determination was that it's not FDA-approved product. That's obviously not a requirement, but it's an issue that they have raised. So it also gives at least some imprimatur to customers and physicians that if FDA has reviewed it, it at least adds some additional gravitas to the test. So we believe that will help with some reimbursement on the commercial side, should help with Novitas. And then of course, as an FDA-approved test, it gives you additional flexibility and, I suppose, a laboratory-developed test in the future should you want to move operations and manufacturing to different sites. As to timing, as I mentioned, we're pretty much done with most of the packet or submission, so it should be -- it will be later this year.

Okay. Great. And maybe just sneaking in one more question here, which is that for the long-acting growth hormone, one of the company, Ascendis, has their -- should have positive Phase III readouts this March. Do you see that have any impact on, obviously, your product if you also have a positive outcome and any commercial sort of impact might be on that?

So Yale, as you'd probably remember since you've been with us for a while, when we started this program, there were more competitors, several more competitors going after a long-acting. And many have dropped out and for starters, and it failed the most recent failure. So now we're down to, that I'm aware of, Ascendis, Novo and us. So there's 7 players in the market of a $3.5 billion market today. All those products are identical. So we always expected -- we never expected to be the only player on the market, so there's plenty of room for everyone. And again, you can do the simple math, so there -- with 7 players in the market and down to 2, potentially 3, we feel pretty good about it. We've got a great partner in Pfizer as the number two product -- daily product on the market today. They've got a great team. And the timing with Ascendis, we actually feel that our submission should be right about the same time as theirs. So it's -- we're pretty excited about the potential.

Okay, great. Thanks a lot and appreciate the update.

You’re welcome.

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

We'd just like to conclude by thanking everyone for participating. And if you have any burning questions, feel free to call us at the company, and we'll try to address them.

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