Good day and welcome to the OPKO Health's Second Quarter 2022 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note this event is being recorded. And now I’d like to turn the conference over to Yvonne Briggs. Please go ahead.

Thank you, Operator. 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 2022. 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. These 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, 2021, and in subsequently filed SEC reports. The conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 4, 2022. 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. Dr. Elias Zerhouni, Vice Chairman and President of OPKO will then provide an overview of OPKO’s pharmaceutical business. Dr. Jon Cohen will discuss BioReference Laboratories. After that, Adam Logal, OPKO's CFO, will review the company's second quarter financial results, then we’ll open up the call to questions. Now I'd like to turn the call over to Dr. Frost.

Good afternoon and thank you for joining today's call to discuss our second quarter financial results and business progress. Last quarter we announced the acquisitions of ModeX Therapeutics, a biotechnology company focused on developing unique, advanced, multi-specific immunotherapies for cancer and infectious diseases. I’m really pleased to say that the integration of ModeX into OPKO Health is proceeding smoothly. We continue to be very enthusiastic about their transformative platform technology which we believe has the potential to provide better outcomes for patients. These multi-specific antibody technologies and vaccine programs are differentiated from the competition and have garnered significant interest from potential big pharma partners for various applications. We look forward to keeping you apprised of our progress. As I mentioned on our last call, Dr. Elias Zerhouni, the Co-Founder and Chairman of ModeX was appointed president of OPKO and has joined the company's Board of Directors as Vice Chairman. Dr. Zerhounib is a former Director of the National Institutes of Health and has significant experience in industry as the Head of Global Research and Development for Sanofi for nine years. Along with Elias the ModeX team of outstanding scientists bring significant expertise to advance both ModeX and OPKO proprietary pipelines through the clinic. Elias will provide further details on the pharmaceutical business momentarily. Pfizer, our commercial partner for NGENLA or somatrogon, has launched a weekly injectable growth hormone product in Japan and other countries, including Germany, Canada, and Australia. Pfizer believes clinicians and patients will welcome a once weekly injection therapy versus daily injections, the standard of care for more than 30 years. In the U.S., we continue to work with Pfizer in resolving the FDA's comments regarding the BLA submission. Pfizer remains fully committed to bringing NGENLA to patients globally as soon as possible. In May Sema4 Holdings announced the closing of their acquisition of GeneDx for $150 million before adjustments, plus 80 million shares of Sema4 common stock. Subject to revenue milestones OPKO may receive an additional $150 million over the next two years payable in either cash or stock. We look forward to the progress of the combined company.

With that brief overview, I'd like to turn the call over to Elias, and then Jon will discuss BioReference’s quarterly results and initiatives. Elias?

With that brief overview, I'd like to turn the call over to Elias, and then Jon will discuss BioReference’s quarterly results and initiatives. Elias?

Thank you, Phil and good afternoon everyone. The ModeX team and I are very excited to be a part of OPKO and to be able to advance our leading edge technology platform while building upon OPKO’s strong foundational work. As Phil said, the transition is going extremely well and the integration of our team with OPKO’s team is going extremely well. By way of background, ModeX Therapeutics, I should say that in 2012, Dr. Gary Nabel and I initiated a breakthrough laboratory within Sanofi with a mission to explore technologies and concepts focusing on various applications, including oncology, infectious diseases and vaccine. But our underlying thesis was that future therapies needed to comprise smarter molecules, designed to attack multiple points in the disease pathway. And over the subsequent years, we advanced several multi-specific drug candidates into the clinic. And in 2020, we founded ModeX and in-licensed the technology from Sanofi that we had developed in our breakthrough lab to further develop our ideas and the next generation of multifunctional therapeutics. And given the important prospects of this technology and the excitement about the potential of this technology, most of the experienced Sanofi team joined us at ModeX and they are continuing their important work here at OPCO. I'm proud to say that we have attracted a top management team with significant experience in academia, government, industry, and we're in the initial stages of integrating the team into OPCO as we make progress with the ModeX pipeline, while understanding and prioritizing OPCO’s technologies and pipeline as well. At this time, I'd like to provide you with a bit more background on ModeX’s two fundamental platforms. First is our proprietary star technology platform. Star was designed to allow us to go beyond three targets and up to a total of six, and that means that we can create multifunctional molecule in the plug and play platform that is much more flexible and functional than previously available. On top of that, we own the intellectual property that supports the technology and our systems optimize functionality and manufacturing simplicity, which is typically a difficult feat for multi-specifics.

In oncology we have two targets focused on hard to treat solid tumors and one target, one molecule focused on liquid tumors. And these programs in oncology are all in the preclinical stage nearing the IND stage and hopefully we’ll be reporting on them as we advance. Our second platform focuses on vaccines and utilizes a ferritin platform. Ferritin is a necessary protein for all cells, as it brings iron for their metabolism. However, it's a protein that can self-assemble in a way that that makes a particle that can be used in fact, to carry antigens on its surface in a scalable and cost effective manner, which can essentially become the base, seize the base of multiple vaccines and that's what we have done. And we know that this platform is safe as it has been through Phase 1 clinical trials with the NIH.

As mentioned by Dr. Frost, we're currently in exploration of interest and discussions with several pharma companies for potential partnerships surrounding this platform. So we look forward to providing further details regarding our multi-specific technology platforms and products in the near future. As I mentioned, we're excited to be part of OPKO. It has gone extremely well and believe the combination of the two companies is really the potential to provide meaningful benefit to patients and significant value to shareholders. So now let me turn it over to Jon Cohen, who will speak about BioReference Laboratories. John?

As mentioned by Dr. Frost, we're currently in exploration of interest and discussions with several pharma companies for potential partnerships surrounding this platform. So we look forward to providing further details regarding our multi-specific technology platforms and products in the near future. As I mentioned, we're excited to be part of OPKO. It has gone extremely well and believe the combination of the two companies is really the potential to provide meaningful benefit to patients and significant value to shareholders. So now let me turn it over to Jon Cohen, who will speak about BioReference Laboratories. John?

Thanks, Elias and good afternoon, everyone. The second quarter was challenging due to rapidly declining COVID business, while our base business rate of recovery was slowing. We have built up resources and capabilities in response to the Omicron spike, and have had to reset our cost structure and strategic focus as the demand for testing fell as rapidly as it had risen. In order to return to our margin profile and increased growth, we are focused on a three-pronged strategy. Number one, we will continue to execute our Reach initiative of cost reduction that we started in January of this year. This initiative has now reduced costs by over $40 million this year. And our intention is to take out an additional 100 million dollars in costs by the end of the year. We now have over 100 work streams that touch every part of the organization to ensure an aggressive program to align costs with our go forward plan. Significant costs related to the infrastructure we have built to deliver on our highly successful COVID testing program over the last three years touched every single part of the organization. As you remember, at the peak of COVID, we had nearly 8,000 employees at BioReference and by the end of the July, this July, our employee count has now been reduced to 3,600 employees, including reductions of approximately 700 associates in June and July.

In addition, we have added three leading academic medical center oncology centers, as a result of our strength in somatic cancer testing. Ventures continues to perform well as we have added several new ACOs, urgent care centers and hospital reference contracts during the quarter. Our relationship with the Westchester Health System continues to grow with added hospitals, reference work, genetic services and outpatient services. Number three, we are changing our organizational structure to be more efficient and aligned with how we move the business forward in a post COVID environment. Along those lines, we have created a new four pinnacle leadership structure, including the Chief Operating Officer, the Chief Commercial Officer, the Chief Strategy Officer and the President of Scarlet and Digital Services. This moves us away from the highly complex structure we had built to deliver COVID testing to literally hundreds of clients. Over the two years, we performed over 23 million lab based PCR COVID tests and several million point-of-care tests and at the peak had the capacity to perform a hundred thousand PCR tests a day. This was accomplished while maintaining a structure for the existing business and specialty verticals. As expected, our COVID volume continued to decrease throughout the quarter. During the second quarter, we performed 1 million COVID-19 tests compared to 2.1 million performed in Q1 of 2022 and 3 million tests performed in Q2 of 2021. Despite the testing environments having moved predominantly to home rapid testing, there is still significant interest in some sectors to continue lab-based PCR surveillance testing Moving on to the payers, our commercial payer strategy continues to be successful with the renewal of our Preferred Lab Network agreement with United Healthcare for the fourth consecutive year. We have access to over 74 million lives through Preferred Status with United Healthcare, Aetna and Oscar Health. In the first six months of 2022, we added 11 million additional lives through local and regional agreements. As of today, we have 85 million lives covered by Scarlet Health, with ongoing discussions with most health plans. In addition, we have launched several gaps in care programs for Hetus [ph] and star ratings with key health plans leveraging Scarlet Health. The heated star ratings are widely used tools to measure, improve, and compare healthcare effectiveness, quality and outcomes. Finally, let me update you on Scarlet Health, our mobile alternative to traditional laboratory specimen collection in which we have been making significant investments. Scarlet is now available to more than 150 million homes across the U.S., has a lifetime net promoter score of 92 and a client retention rate of 100%. These are important metrics as it validates the value of our existing customers and is a great way to drive growth. Optum’s Virtual: And now let me turn it over to our CFO, Adam.

Thank you, Jon. We had a transformative second quarter with the closing of two significant deals and the transitioning of our BioReference business to adapt to an endemic COVID. As you know, we closed on the acquisition of ModeX this quarter and issued approximately 90 million shares of OPKO common stock. The fair value of these shares issued at closing were approximately $219 million. And we have recorded approximately $195 million as non-amortizing in process, research and development, as well as $66 million of coodwill. The details of this transaction could be found in our Form 10-Q. Pfizer, our partner for our long-acting growth hormone recently launched NGENLA in Japan, Germany, and other countries, which triggered $85 million in milestone payments. The commercial launch in Japan commenced our gross profit sharing for the hGH franchise in the Japanese region as defined in our agreement with Pfizer. This gross profit sharing includes sales of NGENLA, as well as Pfizer's Genotropin. Japan is one of the largest markets for hGH in the world and represents a significant commercial opportunity for NGENLA. In addition, we are earning royalties on commercial sales of NGENLA from markets that have been launched by Pfizer, including Germany, which is also one of the largest pharmaceutical markets in Europe. Once pricing is approved and NGENLA is launched in two additional major markets in Europe, we will begin earning a gross profit share in the European region as well. On April 29th, we closed our transaction with Sema4 with their acquiring GeneDx for $150 million in gross cash at closing and 80 million shares of Sema4 stock. After considering transaction expenses, working capital adjustments, and a $13.4 million cash escrow, net proceeds at closing were approximately $116 million. We recorded a $15 million gain on the disposition of GeneDx,…

[Operator Instructions] And our first question comes from Maury Raycroft with Jefferies. Please go ahead.

Hi, this is Kevin Strang on for Maury. Thanks for taking my questions. First question was just on for COVID-19 testing. Could you say what percentage of testing at this point is done within surveillance contracts and how durable you think these contracts are over the next few quarters? And then how this fits into the refocusing strategy that you mentioned in terms of reducing margins?

Yes, so I would say this is Jon. The majority of the COVID testing is now through the surveillance contracts. Once the Omicron came back down, the testing of the general public or people going to their physicians to get testing or health systems has really dramatically gone away. So most people are doing home testing, or we're doing surveillance testing for multiple contracts. As we enter, as we exit this summer into the fall one of the bigger questions is going to be which we're dealing with now is how much school testing we will continue to do. Although I could tell you that there has been some recent uptick in multiple school systems around the country who are desiring a solution for the fall. So because what's happening is, is not all kids are getting vaccinated. So the school systems are trying to figure out how they're going to implement a testing, a testing protocol, that's both safe and reliable, but at the same time addresses the issues about kids not being vaccinated. So that, I think that's the big unknown as we go into the fall.

So yes, hey Kevin it’s Adam, just to touch on that. So we haven't, as you heard in the volumes, in my guidance, we haven't projected any significant contracts to come through. So there is some upside, if, if what Jon just mentioned does actually translate into some overall business, but I think if you were to, if you were to look at the volumes in the first month of the year, we're down around 3%, to 5% of those volumes now, as we exited Q2 and have gone and it's been consistent through July, so pretty significant fall off in overall COVID testing in our business today.

Great. Thank you both. And then just another question on the ModeX pipeline is mentioned that you might look to partner out for EBV. Could you just clarify maybe if that's for the, the whole ferritin platform or just for EBV in particular? And then just maybe if there was one particular oncology asset that you wanted to talk about that you're most excited about and finally whether or not we would get an R&D Day at some point?. Thanks.

Thank you, Kevin. On the ModeX pipeline, actually, we have interest beyond EBV. And so our conversations with the major pharmaceutical companies are really related to the platform because we had advanced EBV quite a bit in our prior work at Sanofi, obviously that's the most mature asset, but there are other targets, which I cannot disclose to you at this point that are interesting and have pharmaceutical companies interested in working with us on a partnership with that. In oncology, basically we have three molecules, two with double targeting of tumors. I can't tell you what the binders are, but the technology is one of T-cell engaging with the engagement arm being CD3, CD28. The other two targets are really focused on specific cancers where the targets are known to be expressed. And that's the quadri-specific format, which is entering IND studies as we speak. And yes, indeed, I love R&D days, if we can find a good time we'll be happy to do that. As I said, initially the fall would be a good period to have time to do that. So we're looking forward to that.

Great. Thank you very much.

We have no further questions, so this concludes our question-and-answer session. I'll turn the conference back over to Dr. Frost for any closing remarks.

Thank you. So in closing, I would like to just say that as I look at OPKO now, I can only observe that this is a new day for the company. And why do I say that? It's because the addition of ModeX to our company brings with it, an additional array of talent that can only be positive and good for the company. I'll mention specifically a few people among the many who are part of the ModeX team. First, Dr. Gary Nabel, he's the Director of the R&D program at ModeX. He's the President and CEO of the operation. He's a founding director of the vaccine research center at the NIH. And then he was a Chief Science Officer at Sanofi, brilliant career in academics, government, industry.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.