Ladies and gentlemen, thank you for standing by, and welcome to OPKO Health Second Quarter 2020 Financial Results Conference. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now hand the conference over to Yvonne Briggs with LHA, Investor Relations. Please go ahead.

Thank you, operator and good afternoon. This is Yvonne Briggs with LHA. Thank you all for joining today’s call to discuss OPKO Health’s financial results for the second quarter of 2020. I’d like to remind you that any statements made during this call by management, other than statements of historical facts, 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 SEC filings, including the annual report on Form 10-K for the year ended December 31, 2019, and in subsequently filed SEC reports. Importantly, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, today, July 30, 2020. 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 CEO, will open the call; then Steve Rubin, OPKO’s Executive Vice President, will provide a business update and pipeline review; and then Dr. Jon Cohen will discuss BioReference Laboratories; after that, Adam Logal, OPKO’s CFO, will review the company’s second quarter financial results, and then we’ll open up the call to questions. Now let me turn the call over to Dr. Frost.

Good afternoon, and thanks for joining the call today. We continue to contend with the COVID-19 pandemic. As our business meets with both challenges and opportunities, I’m proud to say that BioReference Laboratories has further solidified its leadership position with COVID-19 testing for both the public and private sectors. Our management team and employees have done an outstanding job to meet the ever increasing demand for testing to help manage the pandemic and its rapid spread. Given these successful efforts to provide quality results within reasonable turnaround times, BioReference has been chosen to provide testing services by the CDC, various states, cities and large healthcare systems, as well as several high visibility, professional sports organizations. As you would expect, BRL’s based clinical testing business has been impacted by the reduction in the number of physician office visits and the postponement of elective medical procedures. However, with the easing of restrictions, starting in May, we began to see some recovery in our based testing services. Regardless, COVID-19 testing has more than offset this decline and was a strong contributor to our second quarter growth and profitability. As we look to the third quarter with daily case numbers continuing to increase, we foresee strong demand for COVID-19 tests. Notwithstanding the pandemic, we’ve made progress with our pharmaceutical business. We’re on track for Pfizer to submit a BLA for a human growth hormone product to the FDA this fall. In addition, we reported favorable top line results for the somatrogon Phase 3 trial in Japan and children with growth hormone deficiency, showing non-inferiority to the current standard of daily injections. Regarding RAYALDEE, sales growth wasn’t impacted by restrictions put in place to manage the pandemic. Nevertheless, RAYALDEE sales continued to make progress and also the number of prescriptions and number of prescribers. Because of unique action of vitamin D to produce a potent antimicrobial peptide in humans, we believe RAYALDEE may be helpful in treating patients with COVID-19 and are pleased that the FDA recently authorized a Phase 2 trial, which we hope to begin soon. Finally, in recognition of the important contributions to OPKO is role its BioReference Laboratories, Jon Cohen was recently appointed to the OPKO Board of Directors. Welcome, Jon. So with that, I will now turn the call over to Steve Rubin to further discuss our business unit. Steve?

Thank you, Phil. Good afternoon, everyone, and thank you for joining us today. Overall, we are very pleased with the company’s progress across all our business units, especially at BioReference Laboratories, which has seen increased revenues as a result of the ongoing pandemic, still certain aspects of our business continue to be impacted by COVID-19. As discussed on our last call, two abstracts regarding the somatrogon global Phase 3 pediatric trial presented at ENDO Online 2020 by Dr. Cheri Deal, the study’s Principal Investigator. Dr. Deal presented data demonstrating that once weekly somatrogon treatment met its endpoint of non-inferiority when compared to daily GENOTROPIN with regard to height velocity and height standard deviation score or SDS. Importantly, Dr. Deal presented new data demonstrated that 95% of patients had mean IGF-1 SDS levels within the normal range. IGF-1 SDS is used as a biomarker for efficacy and safety of human growth hormone replacement therapy. The extensive IGF-1 data obtained during this Phase 3 study permits physicians to prescribe somatrogon for their patient with confidence. In the U.S., we expect Pfizer to submit the Biologics License Application to the FDA this upcoming fall. In Europe, our open-label study demonstrating benefit and compliance with reduced treatment burden will be completed later this quarter, enabling Pfizer to submit a marketing authorization application with the EMA in Europe early next year. Last month we were pleased to announce positive top line results for the pediatric growth hormone study in Japan. The Japanese Phase 3 clinical study of somatrogon met its primary and secondary objectives. The study demonstrated that the efficacy and safety of somatrogon administered weekly was comparable to GENOTROPIN administered once daily as measured by annual height velocity in treatment-naive Japanese pre-pubertal children with growth hormone deficiency. Both height velocity and height SDS were…

Thanks, Steve, and good afternoon, everybody. Let me begin by discussing the broader BioReference clinical business. As physicians and hospitals began to get back to business, we have seen a return of our base business to about 80% of our pre-COVID volumes. We’ve had a strong uptick in our hospital reference business from new client relationships we established as a result of providing COVID testing. The Westchester hospital deal is making excellent progress as we continue to fully operationalize that relationship. We have also developed some new women’s health relationships and are seeing increased new business as a result of our focus in the oncology space. As urology offices began to open, we have seen a return of our 4K business. As you know, Medicare coverage for 4Kscore resumed on January 1 of this year with the new local coverage determination by Novitas. Earlier this month, we were pleased that Medicare granted a favorable decision on our appeal for reimbursement of nearly all of our 14,000 tests performed for Medicare beneficiaries in 2019, before the LCD went into effect. Adam will discuss this later. We have seen the same return in business with GeneDx. In addition, we are currently utilizing the GeneDx laboratory to give us increased capacity for COVID testing. Since the beginning of the pandemic, BioReference Laboratories has been committed to offering high quality testing services with efficient turnaround times. As I mentioned in our last call, we were able to pivot our laboratory operations to scale up PCR molecular testing on several different platforms to diagnose COVID-19. Shortly thereafter, we started offering serology testing for COVID-19 antibodies to indicate prior exposure to the disease. We continue to see a huge demand for COVID testing across all segments of the economy. We have provided COVID-19 testing to the…

Thank you, Jon. Phil, Steve and Jon covered many of the highlights that have resulted in a strong financial quarter for us. The rapid and lasting response to the COVID pandemic, the BioReference team has mounted has resulted in consolidated operating and net profit for the quarter. As Jon mentioned in his remarks, to-date we have performed over 3.2 million COVID-19 PCR tests, including 2.2 million tests performed during the second quarter. Average reimbursement for this testing was in the low-to-mid $60 per test. Each month during the quarter and through July, we have seen increasing demand and have increased our capacity for testing. As Jon mentioned, we have capacity to perform over 50,000 tests per day and continue to expand that capacity. Our daily testing volumes have been limited by availability of reagents and consumables used with the various testing machines that run these tests. We are using emerging technologies, such as pooling of samples to help expand our testing capacity. Moving to our second quarter financial performance, I’ll start with our Diagnostics segment. We reported revenues from services of $251 million compared to $178.5 million for the 2019 period. The increase in net revenue was driven by the execution of our COVID-19 testing strategy. Combining our routine testing business and our COVID testing business volumes overall increased over 46% compared to historical levels. As stay-at-home orders were issued, we saw a significant decline in our routine and genetic testing businesses beginning in early March, continuing throughout the quarter resulting in overall decline of our routine and clinical and genetic testing of 46%. We continue to see week-over-week return of our routine and clinical, and genetic testing volumes, and through July have seen those volumes return to more than 80% of historical levels for our routine clinical business and…

Maury Raycroft, Jefferies.

Hi, everyone.

Hi.

Hi. Thanks for taking my question and congrats on the update today. To start off, so you mentioned you anticipate 45,000 to 55,000 COVID test per day, and that’s a mix of PCR and antibody tests. I’m just wondering if you think that that’s going to be for 3Q or potentially for the rest of the year, or what’s the – what are your thoughts on the longer term perspective for this?

Hey, Maury. So I’ll start and then let Jon kind of chime in here. So we’ve looked at where July has come in, which as I mentioned, demand continues to build day over day or week over week, but again, the supply chain constraints that we’ve been faced with have limited our ability to really expand our testing capacity. So I think as that supply chain opens up and we’re able to obtain more and more reagents and consumables, I think that opportunity will expand. As well as, as infection rates allow for us to pool samples, the lower the infection rate, the higher the ability it is and benefit there is for us to pool our samples. We could expand our testing capacity as well. So I think as we looked at it, as we saw that, the 45,000 to 55,000 in Q3 with the potential for that number to increase significantly. Jon, I don’t know if you have any additional comments to that.

Yes. I just think the demand, as you can imagine, has been continues to be enormous at every single sector across the economy, so it’s mostly like Adam referred as how much of that, and we continue to increase. I do think that some of the technology advancements will certainly improve our capacity. That’s one issue, the demand side being there. The only – I don’t really see any other limitation. The serology side you asked about continues to be level. There is some increasing demand beginning to occur on the serology side relative to certainly because of the CDC when we talked about and some other issues. But I think that the 45,000 to 55,000 is about right for where we see July coming in, but there can be significant uptick on that based on some of these other issues.

I think we should point out that, in fact, we’ve tried to modulate the demand to a certain extent because what we don’t want is to develop a backlog that will result in a delay in delivering results. The fact that we’ve been able to do a pretty good job in this area has stood us in good stead in terms of getting new business and enhancing our reputation in general. So whereas we would like to do lots and lots more, we’re trying to take into consideration what the reasonable capacity is and work in those terms within that framework.

Got it. Yes, that’s all very helpful. And I’m also wondering if you’ve fine tuned your views for, I guess, on a plan for return to work and school, and will the antibody testing – I guess, could you give more of the partnership contracts for the antibody testing and could those types of contracts be announced over the next couple months? And then what are your views on additional PCR partnerships as well? I guess, could we expect more of those partnerships in the next couple of months?

Yes, so absolutely. And as Phil says, we are being incredibly sensitive to our 72-hour turnaround time right now for all of the, I guess, obvious reasons. But if you look at employers, however you want to divide them up into healthcare meaning biotech, food services, professional services, manufacturing, hospitality, and then on the entertainment, the sports franchises, movies, casinos, et cetera. We have been in discussions with most parts of the U.S. economy, but we have, as I mentioned in my comments, we have already signed on several colleges and universities. We are also talking to both public and private schools in addition. So those are – those will be – those are all coming and will be announced. There has been a mix of employ – of contracts with the employers, where some want PCR only and some want antibody and PCR. I would say that there is some other evolving interest in antibodies as I’ve referred to before, which if that occurs, we’ll make announcements around.

Got it. Thank you very much for taking my questions.

Thank you. [Operator Instructions] Our next question is from Dana Flanders with Guggenheim. Please go ahead.

Great. Thank you for the questions. I guess my first is for Jon. And just on, your comments on pooling, can you just elaborate that on that a little bit and just talk about what your kind of current and expected use of pooling is over the next couple of months here and just what that exactly means for capacity expansion? Does the 50,000 test per day capacity you have now, does that include pooling or is pooling kind of an additional upside on the capacity side? And then just my second follow-up question, I know a big goal of yours has been to improve kind of the profitability of the business, and we certainly saw some nice progress before COVID hit and I know testing – the COVID testing has certainly helped on that side as well. Can you just frame how we should think about the profitability of BioReference Labs and this incremental testing revenue? I mean, as testing increases, do you have a fairly fixed cost base or does the cost increase as well with revenues? Thank you.

Hey, Dana, thanks for the questions. And I’ll try to answer a couple of them quickly and then turn it over to Jon. So the overall profitability profile for BioReference, we’ve talked about it for some time where we expect its EBITDA margins overall to continue to improve and overall margins continue to improve with the goals of medium term, excluding COVID, we’ve gotten into the high-single digits to low-double digits. We’ve made good progress leading up to COVID. As we sit here today and looking at 2020’s financial results, it’s going to be very difficult for us to parse the COVID business apart from the base business, given the substantial declines in that routine business and offset, more than offset by the substantial increases related to COVID. So we think the profitability levels that we saw in Q2 are going to be sustainable as long as COVID sticks around with the base business really starting to build and build momentum around, some of the things that Jon mentioned, between the Westchester and other business development opportunities that are coming to light. So I think the profitability profile should continue to improve and could even accelerate as we continue through this year into next year. I’ll just mention on the capacity numbers, the guidance that we gave 45,000 to 55,000, really takes everything into account that we know. But as Jon mentioned, we have line of sight to bring that capacity up to 100,000 tests per day. I think that does include the ability to pool in some assumptions that we built around our ability to pool effectively based on those infection rates. So maybe, Jon, you want to address any of those as well?

So on the pooling, each pooling that you do has to be approved, has to be validated and approved on each separate platform. So as we march through our different platforms, we’re moving towards more pooling on the platforms. And then of course the issues is it has to be in low prevalence areas. And that actually means also you can do it by certain client types, where if you’re doing more of a screening program, you know, that pooling will be highly effective. I think what – too deep, but the capacity numbers are taken into consideration of how we view the platforms running relative to their efficiency numbers and reagent supplies. So yes, we say 45,000 to 55,000, and that’s taking into consideration a bunch of other factors that we’ve learned as we’ve gotten into this business for the last five months. So what I mean by that is, our true capacity which we may have mentioned or have talked about on different interviews is actually higher, but when we consider what we now know is reagent supply, and what we now know is how well these platforms run, I believe that capacity to more of a realistic number than what the actual specific capacity could be. I don’t want to make it any more complicated with that, but so there’s all those factors that we take into account when we report these numbers to you.

Okay. Got it. Very helpful. Thank you.

[Operator Instructions] Our next question is from Yale Jen with Laidlaw & Company, please go ahead.

Good afternoon. And congrats on a very good quarters. Just a quick – several quick ones. First in the Diagnostics side, you mentioned about the constraint – the reagent constraints, in your due diligence do you feel that will be so the alleviate the book on the forward or that still will be a similar situations. Also what’s the average cost for the serology tests you performed?

So I do believe that the reagent – so let me just say that, the supply chain is not just reagent, its multiple different factors, multiple different parts of a test kit that comes to us. So for instance, one of the platforms has actually 17 different parts of a reagent kit that we get, which includes the reagents. So it’s, plates, it’s plastic pipette tips, there’s all sorts of other parts of the equipment that we get in when we run this. And then we’re running four different platforms as you’ve heard me talk about. So the supply chain on all of the platforms are different. So it’s not just one versus the other, so that’s first thing. The second is our understanding and our discussions with the platform manufacturers is we do believe by the third quarter limitations, that we’re seeing up till now will begin to lift that’s what we’re being told. So I do think that there will be some loosening of the supply chain side starting somewhere around September maybe until October.

Okay, great.

In terms of the serology, it’s probably be, the Medicare serology reimbursement now is there’s a little over $40 and that’s what Medicare will be paying and that’s what we assume the payer – the rest of the payers will be paying.

Okay. That’s very helpful. And maybe just two brief questions. First one is in terms of Pfizer’ is going to file later this year and do you anticipate for instance approval may be in the second half of next year and if that’s the scenario, would that be the co-profit sharing program would start roughly in that time? And maybe just last question here is that, you’ve got earning this quarter do you anticipate this financial performance will continue for remaining of the year or is too difficult to tell at this moment? And thanks.

Well, two points, I’ll let Adam take the later part financial, but as he mentioned in his remarks, he did forecast a continuing growth throughout the year. But for growth hormone, yes, so we basically assume 12 months from submission and that puts us in the second half of next year as you stated. And yes, the profit share begins upon approval of pediatric.

So Yale, I’ll just kind of supplement what Steve said on the guidance. I guided an operating profit on a consolidated basis for the third quarter of $20 million to $30 million. We see that continuing as long as the COVID testing remains as robust as it has been and I think as Jon mentioned, it seems like it will continue. On the profit share, as Steve mentioned we’ll have a significant milestone that we receive upon the approval in the U.S. And then in the U.S. region, we’ll start to have that gross profit share commence with Pfizer at that time.

Okay, great. Thanks a lot. I really appreciate it. And congrats.

Thanks.

Thank you. And our next question is from Ted Tenthoff with Piper Sandler. Please go ahead.

Great. Thank you very much for taking the question and congrats on just a fantastic quarter, really amazing how everything’s coming together. Kind of a personal interest question. First, in terms of the pooling, it’s a really interesting concept to me and I hadn’t even considered that, but what is the kind of localized infection rate, is it that how you sort of trigger when you can pull or how does that actually – how does pooling sort of go into affect early testing.

It has to – it should be less than 5% in the overall infection rate, because whether we’re pulling one-two-three; one-two-four or whatever that number is, you have to – if your infection rate is higher than, one and 20, then you begin to bump up against that you’re pooling will be ineffective, because too many people – too many people in that pool will become positive, it means you have to rerun them. So it’s essentially very good for low incidents large screenings.

Yes. It makes a lot of sense. Great. And I actually think you guys did a great job just walking through everything and I’m appreciate all the detail that you provided. So thanks and congrats on a great quarter.

Thanks Ted.

Thank you. And this concludes our Q&A session for today. I will turn the call back to Dr. Phillips Frost for his final remarks.

Well, thank you all for participating. And we look forward to meeting with you at the end of the next quarter. In the meantime, stay safe and stay far away as possible from other people. Thank you.

Thank you.

Thank you.

Thank you, ladies and gentlemen for participating in today’s program. You may now disconnect. Have a wonderful day.