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OPKO Health's (OPK) CEO Phillip Frost on Q2 2016 Results - Earnings Call Transcript

OPKO Health, Inc. (NASDAQ:OPK)

Q2 2016 Results Earnings Conference Call

August 8, 2016, 04:30 PM ET


Anne Marie Fields - Senior Vice President, NY, LHA, Inc.

Phillip Frost - Chairman and Chief Executive Officer

Steven Rubin - Executive Vice President, Administration

Adam Logal - Senior Vice President and Chief Financial Officer

Jane Hsiao - Vice-Chairman and Chief Technical Officer


Dana Flanders - JPMorgan

Yale Jen - Laidlaw & Company

Kevin DeGeeter - Ladenburg

Sachin Kulkarni - Jefferies


Welcome to the OPKO Health conference call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded August 8, 2016.

I would like to turn the call over to Anne Marie Fields. Please go ahead, ma’am.

Anne Marie Fields

Thank you, Victoria. Good afternoon. This is Anne Marie Fields with LHA. Thank you all for joining today's call.

Before we begin, I'd like to remind you that any statements made during this call other than statements of historical fact will be considered a forward-looking and as such will be subject to risks and uncertainties which could materially affect the company's expected results, including, without limitation, the various risks described in the company's annual report on Form 10-K for the year ended December 31, 2015 and its subsequent filings with the SEC.

Before we begin, let me review the format for today's call. Dr. Phillip Frost, Chairman and Chief Executive Officer of OPKO, will provide brief opening remarks, followed by Steven Rubin, OPKO’s Executive Vice President, who will provide an update on the company's various businesses and clinical programs, followed by Adam Logal, Chief Financial Officer, who will provide an overview of the company's financial performance during the second quarter of 2016. We will then open the call for questions, after which Dr. Frost will conclude the call with his closing remarks.

Now, I'd like to turn the call over to Dr. Phillip Frost. Dr. Frost?

Phillip Frost

Thank you. Today's report represents the continuation of a growth story through acquisitions. product development and improved operation. At about a year ago, we completed the acquisition of our Bio-Reference Laboratories in a stock transaction that resulted in a 14% equity dilution, but added approximately $1 billion in revenue and $100 million in operating income.

The results have been improving through revenue expansion and better operating efficiency. But there’s also a strong strategic value to the deal. A 400-person seasoned sales force, some of which could immediately help expand our 4Kscore test sales and later to help sell our Claros point-of-care diagnostics products. Needless to say, we are well satisfied with Bio-Reference and with the great team running it.

RAYALDEE has been approved after a little hiccup that seemed big to others. Now, we're assembling a marketing and sales leadership team that is second to none and we’ll start selling the product in the fourth quarter.

A great validation of the importance of this product comes from the deal we struck with a joint venture between Vifor International, a multinational Swiss company specializing in renal diseases and Fresenius, a major operator of dialysis centers. The large upfront payments, milestones and eventual royalties from this deal will add to the success of RAYALDEE in the US, where we will commercialize the product ourselves.

Rolapitant, now known as VARUBI, has been approved and is being sold by our licensee TESARO, with sales of the orally-administered form increasing nicely. The IV form, with a PDUFA date in January 2017, will be more important commercially and is expected to capture significant market share.

On another front, we hope to close on the acquisition of Transition Therapeutics shortly, which had advanced projects to develop medicines with major market potential. We will offer greater detail about these products after the closing. You will hear more about all this from Steve, but I will point out that the value of our assets keeps growing. In fact, we’re beginning to exploit assets that we have owned, but not had the resources to develop.

For example, we have previously mentioned another NK-1 inhibitor separate from rolapitant which we also got from Schering prior to their sale to Merck as a possible drug to treat itching, a common and important problem. We plan to shortly file an IND for this product and begin Phase II clinical trials. There are others.

Steve Rubin will now provide more detail on our activities.

Steven Rubin

Thanks, Phil. And thank you all for joining us this afternoon. Throughout the second quarter, we made excellent progress across a number of areas that position us for continued commercial and clinical success. The quarter featured a number of important milestones, such as FDA approval of RAYALDEE, an international co-development agreement with Vifor Fresenius Medical Care Renal Pharmaceuticals for RAYALDEE, an agreement to acquire Transition Therapeutics, growing revenues from our diagnostic business, and continued execution on our ongoing clinical trials.

During today's call, I'll provide an overview of our progress in therapeutics, diagnostics, biologics and certain partnered programs before turning the call over to Adam for a detailed discussion of our financial performance.

Let me begin with an update on RAYALDEE. We were delighted to announce on June 21 receipt of FDA approval for RAYALDEE. The approved indication is treatment of secondary hyperparathyroidism in adults with stage three or four chronic kidney disease and Vitamin D insufficiency. The FDA defined Vitamin D insufficiency as serum total 25-hydroxyvitamin D levels less than 30 ng/mL.

RAYALDEE is the first product to receive FDA approval for this indication. RAYALDEE fills a void in the available treatment options for the approximately 9 million American adults with SHPT, stage 3 or 4 chronic kidney disease and vitamin D insufficiency, a potential market estimate to exceed $12 billion annually.

The current standard of care is high dose vitamin D supplementation, which is an approach that is neither FDA approved nor demonstrated to be safe and effective in this population. Survey data indicates that 75% of RAYALDEE’s target market is treated with high-dose vitamin D supplementation.

A recently published review of published randomized clinical trials concluded that supplementation with nutritional vitamin D is completely ineffective against SHPT. SHPT is a progressive disease that becomes increasingly debilitating and difficult to treat, thereby necessitating timely and effective treatment. Without effective treatment, SHPT leads to increased healthcare costs and patient morbidity and mortality.

The FDA based its approval of RAYALDEE on the results from two 26-week placebo-controlled, double-blind Phase III trials, which demonstrated that RAYALDEE can reliably and sufficiently raise serum total 25-hydroxyvitamin D in patients with stage 3 or 4 chronic kidney disease to control elevated parathyroid hormone levels without clinically meaningful effect on serum calcium or phosphorus, two key drivers of vascular calcification. Vascular calcification is the primary cause of morbidity and mortality in CKD.

We continue with our pre-commercial plans for RAYALDEE and remain on track for launch in the fourth quarter of this year, probably in November. We’ve been making key additions to our renal division and have already recruited top-level talent for our sales, marketing, market access and medical science liaison teams to support the upcoming launch.

At the time of launch, we expect to have approximately 10 internal and 35 regionally-based sales representative. And over time, perhaps six months later, we plan to continue building our own team to a mature size of around 70 to 80 reps.

Market access, of course, is important to the product’s commercial success. And in this regard, we're working on our pricing strategy, favorable listings in key compendia and formularies, and patient assistance programs. This is a process that will take some months to complete, but we feel we will be in a strong position right out of the gate to provide good access to RAYALDEE for CKD patients.

In addition to the considerable US market opportunity, the global market opportunity for RAYALDEE is substantial and we are working closely with our partner, Vifor Fresenius, to bring RAYALDEE to Europe and other international markets as well as develop RAYALDEE for end-stage or stage 5 renal disease. We are very excited about RAYALDEE both in the US and overseas and look forward to updating you on our continued progress.

Moving on to our diagnostics segment, we see continued revenue growth underscoring the rationale for acquisition of Bio-Reference Laboratories last year. Currently, the bulk of our revenue comes from traditional reference lab testing, but, over time, we expect increasingly significant contributions from GeneDx, our higher-margin genetic testing business, and from the 4Kscore test and Claros 1 point-of-care test.

Let’s turn now to our progress of 4Kscore, our blood test that provides men with a personalized risk score for having aggressive prostate cancer. 4Kscore test is included in the latest recommendations from the US National Comprehensive Cancer Network guidelines for prostate cancer early detection and in the European Association of Urology prostate cancer guidelines panel for 2016. In both cases, the 4Kscore as a blood test with greater specificity over the PSA test is indicated for use prior to a first prostate biopsy or after negative biopsy to assist patients and physicians in further defining the probability of high-grade cancer.

Looking to our progress with reimbursement for the 4Kscore, last November, the American Medical Association granted a CPT 1 code for 4Kscore which will be published later this month and will be effective on January 1, 2017. We already secured a number of favorable coverage decisions.

We received an initial draft positive coverage determination from Novitas Solutions. Novitas is the Medicare administrative contractor or MAC that provides administrative services for Medicare coverage of the 4Kscore. This positive draft determination by Novitas was tentatively retired due to a potential conflict with a contemporaneous initial draft negative coverage determination from another MAC, Palmetto. Notably, we have not submitted complete dossiers to either of these MACs prior to these determinations, but rather they made their determinations on their own.

We have since submitted a rebuttal to Palmetto’s draft determination and are submitting complete data packages to both MACs. These data packages will contain, among other things, background information, physician experience and extensive clinical validation, including data published in the peer-reviewed reviews in urology, demonstrating that the 4Kscore test led to 65% fewer prostate biopsies being performed among participating patients.

We believe there is more than enough scientific and clinical data to justify a local positive coverage determination by any MAC. We expect action next month from Palmetto on our rebuttal to their draft negative determination and we hope Novitas will post a draft positive coverage determination in October.

As we previously reported, the 4Kscore is currently being marketed by approximately 205 Bio-Reference Lab sales reps to both urologists and primary care physicians. We have continued to see double-digit volume growth every month that we expanded our sales force from the original ten people and we remain encouraged by the ramp-up on physician...