Good day and welcome to the OPKO Health Third Quarter 2022 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Yvonne Briggs. 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 third 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. This conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, today November 8, 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 as well as BioReference Laboratories . After that, Adam Logal, OPKO's CFO, will review the company's third quarter financial results. And 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 third quarter financial results and business progress. Serving with OPKO Health's pharmaceutical business, we are pleased with the launches today of NGENLA, or somatrogon, biocommercial partner Pfizer. NGENLA is our once weekly injectable growth hormone product that’s expected to ease a patients burden versus a standard daily injections. Pfizer has launched in Japan and other countries including Germany, Canada, Australia. In Australia, NGENLA is now offered through the pharmaceutical benefit scheme, which is Australia's National Drug subsidy program. Although it's still very early in the launch of just few territories NGENLA is starting to experience significant sequential quarter growth, which Adam will review in a moment. Additionally, there are several pricing approvals pending in other European countries, which should occur soon. In the U.S., I can assure you we're working diligently with Pfizer to resolve the FDA's comments regarding somatrogon's BLA submission. As you know, it's Pfizer's position not to disclose any further information regarding the FDA's comments, and a complete response letter, ongoing discussions with the agency or strategy to advance the regulatory process. Yet, they have publicly stated their commitment to the product in the U.S market. As soon as we are able, we will provide an update with additional information on the regulatory status of somatrogon in the U.S. We're pleased with the progress of our licensing partners for several of our development stage drug candidates. LeaderMed, our joint venture partner in China is expected to initiate a Phase 3 trial of Oxyntomodulin for the treatment of obesity and type 2 diabetes early next year. LeaderMed is also planning a clinical trial of our Factor VII-CTP, a novel long acting coagulation factor to treat hemophilia. We look forward to the results from these clinical studies as we plan to leverage the data for regulatory approval in countries outside of China. The ModeX team is enthusiastic and motivated to advance the pipeline of the combined company and to leverage the ModeX proprietary technology platform focused on multi-specific antibodies. Their unique platform technology represents a significant opportunity to provide better therapy and outcomes for a wide variety of patients. And we continue to advance our discussions with potential partners. We'll keep you updated on our progress. Elias Zerhouni has immersed himself in all aspects of our business, and has spent significant time on site at BioReference Laboratories to provide oversight leadership of the diagnostic operations and strategy. Elias will provide further details on the lab and its performance, following his commentary on the pharmaceutical business. With that brief review, I'll now turn the call over to Elias. Elias?

Well, thank you. Thank you, Phil and good afternoon, everyone. It's been a busy and extremely rewarding 6 months for me and since ModeX, was acquired by OPKO for all the teams that are involved. As Phil mentioned, I've been focusing my time on all aspects of OPKO's business, including our pharmaceutical and diagnostic divisions. Starting with the integration of ModeX, the team is very excited to be part of OPKO and to leverage and benefit from the knowledge, resources and platforms within OPKO as we advance our multi-specific technologies. As I've discussed on past calls, ModeX has two technology platforms. One is focused on developing vaccines, utilizing ferritin particles, which is a necessary protein for all cells, as it brings iron for their metabolism. Our technology attaches specific antigens to the ferritin protein, which then self assembles into nanoparticles in a very scalable and cost effective manner. Our first application of this technology is to target the Epstein-Barr virus, which is responsible for infectious mononucleosis, and its long-term consequences in some patients, such as cancers and multiple sclerosis. We are in the pre-IND stage for that application and in earlier stages for other targets. But as you know, as vaccine trials require significantly larger numbers of subjects to test for efficacy and safety, our development strategy is to pursue collaborations with larger pharma companies to advance drug candidates into the clinic and ultimately bring them to market upon approval. And we're very encouraged with our discussions to date as we seek suitable partners for this promising vaccine technology platform, which as Phil said potentially lends itself to multiple applications in infectious diseases. Now, our novel proprietary platforms called Star and Stealth, enable us to design multi-specific multivalent antibodies beyond the bispecific and tri-specific formats currently used by us and…

Thank you, Elias. Starting with our pharmaceutical segment, Pfizer, our partner for our long acting growth hormone recently launched NGENLA in a number of countries since earlier this year and continue to expand its launch over the next 18 months, a part of its global regulatory and commercial strategy. We're entitled to gross profit share royalties depending on the region in which the product is sold. In Japan, we are in the franchise gross profit stage. And in Europe, we're receiving royalties until pricing is approved. And NGENLA is launched in two additional major markets in Europe. If approved in the U.S., the U.S. region will move to gross profit share. But until then, we will continue to receive royalties on sales in the -- in that regions market. Overall revenues from the pharmaceutical segment for the 3 months ended were $36.9 million, a decrease of $8.8 million reflecting foreign currency pressures in our Chilean and European operations, as well as a decrease in [indiscernible] volumes. In addition, during the 2021 period included nonrecurring upfront payments from CAMP4 in LeaderMed. Total costs and expenses from our pharmaceutical segment in the 2022 period were $65.2 million, including $16.5 million of noncash and tangible amortization. Research and development activities increased $4.7 million, reflecting a full quarter of development expense from our ModeX operations, as well as costs related to our so much drug and development activities, principally around the development of a next generation device. As a result, operating loss from our pharmaceutical segment was $28.3 million from the third quarter of 2022. The comparable period of 2021 includes a $31.5 million gains, which offset expenses of $48.5 million for net expense of $17 million and income from operations of $28.6 million. Moving to our diagnostic segment, we reported revenue of $142.9…

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

Hi. This is Kevin Strang on for Maury. Thanks for taking my questions. First question on NGENLA in Europe. Just can you talk about how far away you could be from profit sharing there in terms of the last two launches? Could that be by year-end? And then also, is there anything that you've learned so far from the Ascendis launch on patient and doctor appetite to switching to the long acting growth hormone?

So I'll talk about the profit share. Thanks for the question. So in Europe, we've projected and guided that we expect that switch to happen in the first quarter of next year. Certainly things can happen sooner, but that is where our current expectations are. As far as the Ascendis launch, so the adoption in the U.S seems to be going fairly well for them. It's hard to see anywhere beyond that, but we think the switching is going to happen rapidly and the adoption of the products will happen quickly under the long acting form.

Great, thanks. And just one more follow-up on the cost reduction effort. You mentioned $100 million so far this year. Can you just talk about where you are in the context of your final sort of cost reduction goals? And then given the COVID-19 testing paradigm, what do you expect your capacity there will be going forward

So we talked about the Reach program, it's going to be a multiyear effort. We haven't we haven't finalized our targets for 2023 on what that program is going to go for. But we've said we've set the objective to take out $140 million in costs. And we're well on our way to that already. Elias, I don't know if you wanted to say any words about the Reach program based on your involvement to date?

No, I think you're right. I think we're really aiming to go to 140. And we actually see opportunities to go beyond that related to the flattening of the organization and the ability for us to automate laboratories and therefore, reduce labor expenses. So $140 million is a minimum and I think we can do better than that. But I couldn't tell you until we have the 2023 figured out.

And as it relates to COVID capacity, so we continue to have adequate capacity now. As you remember, we brought up capacity pretty quickly, when it was needed and could flex to it right now. We're staffed to our current volumes, which we've talked about have come down dramatically from where they were earlier this year, but would have the ability to scale back up, should we need.

So far …

I think also, if I may, I think also that we were -- no, no, we were quite aware that this season will be different than the previous ones that COVID will be persistent it's a endemic virus, flu A, flu B [indiscernible], as you know, from the projections of CDC, were predicted to be very high. So we developed a new offering, a four in one test that is actually getting a lot of good reviews and good reception in the medical community. And growing very fast in terms of demand, because this winter and the beginning of next year are predicted to be quite severe in terms of what people call the tridemic of RSV, flu and COVID, just a point.

I was just going to add that with regard to viral reference, it's a two-pronged approach. One, of course, is cutting costs, but not to neglect, of course, the emphasis on increasing revenues. And in that regard, one point was mentioned that I'll highlight and that was new ventures. This is a an area that we're devoting a lot of attention to, with some really good talent, applying themselves. And I'm very hopeful that this will pay off in a serious way.

Great. Thank you very much.

Our next question comes from Jeffrey S. Cohen of Ladenburg Thalmann Company Incorporated. Please go ahead.

Hi, Dr. Frost, Dr. Zerhouni and Adam, how're you?

Doing good, Jeff.

Good. Thanks,

Hi, Jeff.

So just a few questions from our end. I guess, firstly, if we could go back to, in general a little bit. Do you have clarity, or as far as your share the information as far as reimbursement and pricing by some of these territories, which they're launching throughout?

So we don't get any specific pricing guidance other than what's publicly available otherwise.

Okay, got it. That's helpful. Thanks. And I don't know if it's handy, but is it possible to get our cost of service revenue and cost of product revenue at your convenience?

Yes, we'll get that to you. The queue should be on file any minute now, Jeff.

Super. And then, I guess lastly, for us, I wanted to hear a little more about some of the initiatives on the BRL side. I saw that you had an interesting arrangement with Aspira Women's health as far as that test when Dr. Frost, you had talked about new ventures. Could you give us any more color there as far as in licensing of tests or developing your own tests and kind of how you're building that out at your end?

I would say all of the above.

Got it. Okay. And then, lastly, any specific readout or any commentary on 4K from the quarter from Q3 or any outlook going forward on 4K?

I think that it's doing very well. It's certainly moving ahead of last year. And again Elias is doing a good job of identifying initiatives drain shell has been working with a team to bring more payers on board. But we're very optimistic that the growth that we're seeing now will continue and perhaps accelerate.

Okay, Super. Thanks for taking our questions.

Thanks, Jeff.

Our next question comes from Edward Tenthoff of Piper Sandler. Please go ahead.

Great. Thank you very much. Appreciate the update. I'm really excited about the new efforts with ModeX. You mentioned with so much going on, maybe you can get into a little bit more detail on partnering opportunities. Are there specific areas like, and I'm sort of making this up, but like oncology, where you would either keep or maybe because of the complexity seek partners? Or is there a focus for internally on infectious disease? How will you sort of prioritize programs and ultimately decide what to keep internally and what to ultimately develop externally? Thank you.

Thank you for the question. Very important question. The first thing is that we have received a lot of incoming interest as we presented our portfolio in various venues. And the interest is leading to a strategic consideration on our part, obviously. We do have a infectious disease portfolio that's composed of two segments is the vaccine segment. Whereas the most advanced vaccine candidate is EBV. And as you know, EBV is quite important and can mononucleosis, but also cancer and now, multiple sclerosis. So that's a huge market that has attracted a lot of interest. At the same time, we have flu and other prototypes that are being tested. And so we think that in vaccines and viral diseases like HIV and COVID, we have quite a bit of near-term potential for large, large collaborations as well as potential trials. In terms of oncology, we are really looking at using the multivalent, multi-specific approach to test out our ability to actually not look at very unknown targets, but known targets in unique novel combinations, based on the knowledge that we have. Our preference would be to keep that in-house, not to partner those because we think that the multi-specific multivalent platform has enormous potential, as Dr. Frost mentioned to you. So we're trying to finance if you will, a little bit through our infectious disease, maybe licensing out and partnering, the ability for us to keep a half of the portfolio internal to OPKO. I don't know if that helps you.

Super helpful color. Thank you.

Our next question comes from [indiscernible]. Please go ahead.

Good afternoon and thanks for taking the questions. The first question is that I remember the last call, you mentioned that you made doing R&D Day to highlight some things in the ModeX. Is that still in the schedule for this year or [indiscernible] next year?

Yes, it is still in the schedule. We're still planning it. We do have a few things that we need to finalize in terms of discussions with others that we need to do. So we're aiming for something either December or JPMorgan or right around JPMorgan. That's where we're trying to do the R&D Day. I think things will be a little more mature. And I think people will enjoy it more because it will be more detailed than what we can do today.

Okay, great. That's helpful. Maybe one more question. In the vaccine, as you mentioned, that most likely to be a partnering opportunity. But in terms of the stage -- development stage to be partnered, are you guys looking for complete maybe the first earlier stage of clinical development before partnering or you even contemplate partnering out in much early, even preclinical or early clinical stage?

We have interest for both. Things we are going to do what’s really practical and it depends on the quality of the partners. And so we are basically pre-IND stage we are going, we’ve the manufacturing we are working on and all of the steps you need to have before you go to IND. And we are willing to do it alone, if we need to, if we find a term -- terms of collaborations that are attractive, we'll do it the other way. So we're not pressed for one choice or the other. We can continue it on our own, we can also partner it.

Okay.

I'm not wedded to one way or the other is what I'm trying to say.

Understood and appreciate that. And maybe the last question is the housekeeping one, that as we look at the total other revenues or incomes, it seems fluctuate a lot between quarters. So how shall we, in general, think about this fit number going forward?

Yes, so it's going to be a bouncing number, because we've got some lumpy milestone payments that come through in some of our partnering deals as well as just the overall milestones that come through. So the consistency is going to be the growth from our reality [ph] in Pfizer, gross profit and royalty streams. But that -- in that we expect to build a good base. And when those individually become material, we'll start to break those out for you guys to work in your model. But otherwise, we'll continue to give guidance on what -- what's included in that number and what's not included, like early this year, we talked about, we didn't have the milestone payments factored in until we got the approvals and then we [indiscernible] guidance related to those.

Okay, great. That's very helpful and congrats on all the progress thus far.

Thanks, [indiscernible].

At this time, the question-and-answer session is concluded. I'll now turn the call back over to Mr. Dr. Frost for closing remarks.

Well, thank you for your participation and excellent questions. As you can see, there's a lot more detailed work going on in the development of new products. What we hope to do sometime in the near future, perhaps in the first quarter, have a research day in which we can go into a little bit more detail about some of these projects and give you a chance to meet some of the scientists so that you can get a better feel for what we're dealing with here. And to understand why we're so enthusiastic. Having said that, I'll end the session and invite you to join us for the end of the year fourth quarter meeting, which will be forthcoming. Thank you.

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