Good afternoon, and thank you for standing by, and welcome to the OPKO Health Inc. First Quarter 2021 Financial Results Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Ms. Yvonne Briggs. Thank you. 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 first quarter of 2021. 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 SEC filings, including the annual report on Form 10-K for the year ended December 31, 2020 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, April 28, 2021. 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; and 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 first quarter financial results, and then we'll open up the call for questions. Now I'd like to turn the call over to Dr. Frost.

Good afternoon, and thank you for joining the call today. I'm happy to share our first quarter results with you. Revenues, earnings and cash flow from operations were strong. BioReference Laboratories continues to be recognized as a national leader in COVID testing as demonstrated by recently announced high-profile professional sports and school contracts. COVID-19 PCR testing volume remained strong during the first quarter even with a significant decline in cases nationwide. As the country starts to emerge from the pandemic, we're seeing an overall shift from diagnosis to surveillance, and we are seeing BRL's routine business improving towards historical levels. While we anticipate that COVID-19 test volumes for the general public for diagnostic purposes may decline, there is still strong interest in BRL's COVID-19 capabilities for large-scale screening and ability to provide customized solutions across a broad spectrum of customer requirements. BRL consistently tries to differentiate itself from other laboratories. You will hear Jon Cohen tell you a been a novel program to make it easier for patients to have blood drawn. This is part of a bigger vision to have our laboratory interact more directly with health care providers such as telemedicine and large physician groups to achieve better patient outcomes. Our pharmaceutical business continues to advance nicely. The European regulatory submission was recently announced for somatrogon, our long-acting human growth hormone. This is in addition to previously announced submissions in the U.S. and Japan. To create further awareness of this important drug candidate, earlier in the quarter, we participated in several endocrinology conferences to highlight somatrogon's clinical data profile. RAYALDEE's prescription sales growth continue to be impacted by the pandemic. As COVID-19-related limitations lessen, we expect RAYALDEE to return to pre-pandemic levels and to resume its previous growth trajectory. The COVID-19 trial is ongoing. Too early for optimism, but literature data support the notion that sufficiently elevated vitamin D levels, help prevent more severe forms of infection and RAYALDEE is quite efficient in raising vitamin D levels. This would be important in the general population, but even more so for chronic kidney disease patients who tend to have more unfavorable outcomes. As you may know, OPKO has a small but excellent unit, OPKO Iberoamerica with business units in Chile, Mexico and Spain. Under the leadership of its General Manager, Hans Berner, it continues to grow in revenues and profits. OPKO's pharmaceutical chemical business in Israel, although quite small, also continues to do well. I will now turn the call over to Steve Rubin, who will further -- provide further discussion on our pharmaceutical business. Steve?

Thanks, Phil. Good afternoon, everyone, and thank you for joining us today. As Phil mentioned, we are quite pleased with our strong first quarter financial results and continued profitability. BioReference Laboratories continues to secure COVID-19 testing contracts, and its core testing business is trending back to normal levels. In addition, we are also generally pleased with the advancement of OPKO's pharmaceutical businesses. Global regulatory progress with somatrogon continues to be made by our commercial partner, Pfizer. Somatrogon is our long-acting recombinant human growth hormone that is intended to be administered once weekly in the treatment of pediatric patients with growth hormone deficiency or GHD. In February, the European Medicines Agency validated for review the marketing authorization application. Pfizer expects a decision from the European Commission in 2022. In addition, we previously announced that the U.S. FDA accepted for filing initial biologics license application for somatrogon with a target PDUFA action date in October 2021, and that a new drug application was submitted in Japan. Under our agreement with Pfizer, OPKO is eligible to receive up to $275 million upon the achievement of certain regulatory and pricing milestones. In addition, upon launch, we are entitled to regional, tiered gross profit sharing on sales of both somatrogon and Pfizer's daily GHD drug, Genotropin. During February and March, we participated in 2 endocrinology conferences, including ENDO 2021, the Endocrine Society's 2021 Annual Meeting and at ICE 2021, the 19th International Congress of Endocrinology Annual Meeting. We are pleased to have somatrogon clinical trial data presented to generate further awareness of our drug. Collectively, the various studies presented provided a breadth and depth of data for somatrogon that demonstrate its efficacy and safety for an expansive number of patients over the long term. The presentations, posters and abstracts from these conferences can be viewed…

Thanks, Steve, and good afternoon, everyone. BioReference's core clinical laboratory business continues to make progress to return towards 2019 levels as more physicians' offices reopen, our salespeople are allowed back into the offices and patients feel more comfortable with in-person visits. Many of our existing clinical accounts have rebounded through Q1, while at the same time, we have added new business in women's health in oncology. Although oncology practice patient visits are still at 80% to 90% of pre-COVID levels, our liquid tumor hematology offering continues to thrive and has bounced back to pre-COVID levels, and our solid tumor offering is almost at pre-COVID levels. In addition, our somatic genomics offerings has nearly doubled in Q1 versus Q1 of 2020. Our larger accounts, including large medical groups, FQHCs, ACOs and health systems are also seeing increases in in-patient visits month-over-month. We expect these improving trends to continue throughout the year as vaccines are administered and the number of COVID cases decreases. Our volume exiting Q1 is now down 7% versus prior year. Our payer relations team continues to make remarkable progress, increasing our access across the country as 10 new health plans will be added within the next 30 to 60 days. Our investment in the hospital reference business and in a sales force to deliver on that business is beginning to pay off with several new reference accounts having been added this quarter. In addition, we are expanding our partnerships with several large physician groups in managing their physician office laboratories. At GeneDx, in the first quarter, our genetic testing volume grew over 10%, driven by our industry-leading exome testing offerings. There is a substantial interest in our genome offering across our existing client base, driven by our recently launched rapid genome offering. In January, we also partnered with…

Thank you, Jon. We began 2021 by delivering solid operating performance across all of our operations, resulting in consolidated operating profit for the fourth straight quarter. Our diagnostics segment reported revenue from services of $507 million compared to $170 million for the 2020 period. The increase in net revenue was driven by the continued execution of our COVID-19 testing strategy. Combining our routine testing business and our COVID testing business, volumes overall increased more than 158% compared to historical levels. Our routine clinical testing, however, as Jon mentioned, was 7% lower compared to the 2020 period. While our genetic testing volumes were 10% higher compared to the 2020 period. The diagnostics segment reported operating income of $67 million compared to an operating loss of $18 million, an improvement of $85 million over the 2020 period. Selling, general and administrative expenses, along with research and development expense decreased as a percentage of revenue from 33%, down to 18% of revenue, reflecting operating leverage improvements. Total cost and expenses increased by $251 million compared to 2020, including increased cost of revenue of $216.5 million due to the increase in testing volumes. Moving to our pharmaceuticals segment. We reported revenues of $38.2 million for the first quarter of 2021, compared to $40.6 million for the 2020 period. Revenue from product sales in the first quarter increased slightly to $33.9 million, which included $5.8 million of revenue from RAYALDEE compared to $31.1 million in the first quarter of 2020, inclusive of $9.9 million of revenue from RAYALDEE. RAYALDEE has continued to be negatively impacted by physician office restrictions, keeping product sales representatives for making sales calls. Revenue from the transfer of intellectual property, we reported $4.3 million of revenue for the 2021 period compared $9.6 million from a year ago, reflecting the completion of…

[Operator Instructions]. Your first question comes from the line of Maury Raycroft from Jeffries.

First question I had was just on COVID-19 testing. So there was some discussion around OPKO getting named as 1 of the 4 designation testing centers for the U.S. government. And I think that decision was supposed to be made yesterday. Just checking if there's a status update on that.

Yes. It's Jon. The -- so that decision has been delayed by the government until May 14 or 15. But yes, we are -- we have submitted and we were asked to submit as 1 of the finalist. But the answer is we won't know anything until May -- it looks like May 14 or 15. They've delayed all decisions until then.

Got it. Makes sense. And then now that we've been into COVID for a couple of quarters, probably difficult to predict too much going forward. But just wondering if you have any line of sight into optimizing capacity and cost and expenses that could potentially benefit the bottom line maybe in 3Q or 4Q?

Go ahead.

I was just going to say, Jon, please add. So we're obviously paying pretty close attention to the level of investment that we have. Obviously, the testing demand is declining. So you could imagine that we're starting to scale back some of our operations. However, it is remaining fairly robust. So there's not a significant amount of cuts that we could do to bring those costs in line, but it is absolutely something that we'll continue to manage appropriately. I don't know, Jon, if you had any specifics there.

No, that's right. It's -- no, that's exactly right. We're trying to manage it. Most of the cost, quite honestly, is on the staff side. It's not on the equipment and the -- and some of it is on the supply side on the reagent side. But right now, we're managing it as tight as we can given the fluctuations in what's going on day-to-day, but we are acutely aware and are keeping a very close eye on it.

Got it. That's helpful. And then last question is just on somatrogon. So your PDUFA is scheduled for October 2021, and then the Ascendis PDUFA scheduled for June. I'm just wondering if you've gotten any indication from FDA that the timing on the somatrogon decision could get accelerated based on the Ascendis time line, if there's been any informal feedback on that?

No, we've had no feedback on that point.

Okay. Any thoughts on if that's a possibility, I guess?

Anything is possible. We're continuing with the expectation that the PDUFA date will remain the approval date in October.

Your next question comes from the line of Dana Flanders from Guggenheim.

Great. My first one, I was hoping you could help me understand -- better understand just the services revenue number this quarter. And I ask because it looks like your testing volumes came in at the lower end of guidance, but your reported revenues -- service revenues came in at above the high end of the guidance. And so I'm wondering if that was better reimbursement on the testing side or if there was something else that maybe I'm missing?

Yes. So Dana, what we've seen is, and we've talked about this a little bit before is a lot of the testing volume has shifted away from the state and local government testing that was done and move to some of the higher revenue line items or higher price per test line items with some of our nongovernment business. So it's a shift and an increase in the overall reimbursement that you're seeing come through to have that impact.

Okay. Okay. Got it. And I guess, along those lines, just I appreciate the color on the volume you're getting on the sports channel side. Wondering if there are other kind of nontraditional channels that you are focused on where you see a big future opportunity that maybe you haven't tapped yet?

Yes. So I mentioned a little bit. So if you look at the different verticals, the -- and this is related to what everybody's referring to as screening/surveillance. So the bigger ones are travel and hospitality. There's obviously an enormous amount of funding available for school testing, which we are -- I still believe probably the largest -- has the largest amount of public school testing in the country currently, which were -- I mentioned we're adding on. And then there's the, I'll call them, a large venue. And it's not just the Garden, Barclays, Chase Center, et cetera, but there's also large venue events that are looking for testing, particularly screening testing as they unfold in the fall, and that could be all sorts of different concerts and races, et cetera. So we see a fairly significant demand for those kind of events. And I would say the last of the large verticals is how employers deal with bringing their employees back to work. So a lot of discussions around that because that's also falling in the screening/surveillance category.

Okay. Okay. That's helpful. And maybe just my last one. Just wondering on your broader kind of R&D efforts and pipeline with hGH kind of nearing the finish line, how are you thinking about kind of the internal assets you have? And if there are internal ones that you're excited about and going to start to prioritize? Or if kind of BD in-licensing could also be something you consider as you think about moving the pipeline forward?

Well, there's -- this is Tony Cruz. The focus right now still is in finishing the growth hormone and also initiating a second indication in pediatrics in another indication or a basket of indications with Pfizer. So there is quite a bit of focus still on the growth hormone as it progresses. And also potentially getting the -- ready the data and the analysis if necessary for potential indication application. So there is still an ongoing. In terms of the pipeline, as Steve has indicated, the Factor VII is a molecule that looks promising in the Phase I data that we did and the Phase IIa data. We are looking at starting a synthesis in a development plan for that. And the other one is the GLP-2 where we did an animal tox study where we're looking to optimize this molecule because it looks very potent compared to some of the competitors that are currently in once weekly, as well as compared to [indiscernible]. So those two look promising and moving forward. We do have additional molecules that we could move forward, but these are the 2 that we really are focusing at this time.

Your next question comes from the line of Edward Tenthoff from Piper Sandler.

Congrats on a nice quarter. So a lot of the questions I had were answered, but I wanted to sort of pick up just in terms of prep work, both ahead of the PDUFA date as well as commercial launch. Again, appreciating that a lot of that is in the hands of Pfizer. Is there anything in particular that you guys are involved with? Just any color you can kind of share with respect to preparation for the launch?

No. As per the agreement, Pfizer is responsible for all commercialization activities. I mean we do have regular meetings, discussing what they're doing. But in terms of our actively participating, we don't. Where we're participating is in continuing development and continuing to present data in different meetings to make sure that the awareness has continued. But I think most of it really is still in the development ongoing. As you know, we had large trials that were completed, but the ongoing open-label extensions are ongoing, and we're still gathering data from that. So there's very close activity. The last is obviously associated with these submissions. There's a continuous report between the company and the FDA or other regulatory agencies to answer their questions. And so a lot of the focus with Pfizer is really taking this to approval.

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

Congrats on the quarter. My first question is that going forward, do you anticipate the breakdown for the COVID test between PCR and serological test changes? Or pretty much it stays relatively same sort of ratio?

Yes. It's a good question. And quite honestly, I don't think anybody knows yet what will happen for the antibody testing or quantitative antibodies for both people who have the vaccine or the disease. A little bit of that will be dependent on the government or government's regulatory oversight in either here and international relative to showing proof of vaccine and/or possible antibodies, but that's conjecture right now. Nobody knows which way it's going to happen -- it's going to occur. But it just depends on who will require one on validation. So otherwise, I don't think anybody's got that answer.

Okay. Maybe two quick ones. In terms of -- you just mentioned that it seems that you are getting a higher price test being done that's why your revenue increases. Do you anticipate this trend going forward into next quarter, maybe further into the second half of this year in terms of getting a higher price test then?

Yes. So Yale, I don't think there's going to be another large step-up. The school and some of the surveillance testing that Jon was talking about, those come at a slightly lower price than where our average is coming in today. But I think it really does depend on a lot of the general public demand for testing and how that continues to evolve. I do think that the government sites have mostly shifted from testing to vaccinations. So most of those contracts are going to continue to wind down. But as the broader testing from the general public continues or if we're able to expand some of our sports and leisure franchises, some of those come with higher price points. So it really does depend on the mix, but I think the general public demand is the biggest unknown there.

Okay. Maybe the last question that -- I think this is for Jon, that you mentioned there will be 10 more health plan to be consigned over the next, I guess, 60 days. Just overall, what's the coverage life in total for those plans?

I don't have it in front of me -- if you're asking me for the number of lives, I'd have to get back to you to tell you what the impact will be. So we'd have to circle back to tell you exactly how -- yes. No, I don't know exactly how many lives that represents?

I am showing no further questions at this time. I would now like to turn the conference back to Dr. Frost.

Well, if there are no more questions, I'd like to thank everybody for participating and tell you that we look forward to meeting with you again after the next quarter's results are ready. Thank you.

This does conclude this conference call. Thank you all for joining. You may now disconnect.