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Table of Contents
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission file number 001-33528
 
OPKO Health, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
75-2402409
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
4400 Biscayne Blvd.
Miami
FL
33137
(Address of Principal Executive Offices) (Zip Code)
 
 
 
(305) 
575-4100
(Registrant’s Telephone Number, Including Area Code)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
OPK
NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ý  Yes    ¨  NO

 

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act:
Large accelerated filer
x
Accelerated filer
Non-accelerated filer
¨
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):     YES    ý  NO

As of May 1, 2020, the registrant had 669,828,524 shares of Common Stock outstanding.

 

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TABLE OF CONTENTS
Page
 
 



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies or prospects, including the potential impact of the COVID-19 pandemic on our businesses, operating results, cash flows and/or financial condition. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described below and in “Item 1A-Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 and this Quarterly Report on Form 10-Q, and described from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). We do not undertake any obligation to update forward-looking statements, except to the extent required by applicable law. We intend that all forward-looking statements be subject to the safe-harbor provisions of the PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

Risks and uncertainties, the occurrence of which could adversely affect our business, include the following:
our business may be materially adversely affected by the recent coronavirus (COVID-19) outbreak;
we have a history of losses and may not generate sustained positive cash flow sufficient to fund our operations and research and development programs;
our need for, and ability to obtain, additional financing when needed on favorable terms, or at all;
adverse results in material litigation matters or governmental inquiries, including, without limitation, pending class action and derivative lawsuits which followed the now settled lawsuit against the Company and its Chairman and Chief Executive Officer by the SEC;
the risks inherent in developing, obtaining regulatory approvals for and commercializing new, commercially viable and competitive products and treatments;
our research and development activities may not result in commercially viable products;
that earlier clinical results of effectiveness and safety may not be reproducible or indicative of future results;
the success of our relationship with Pfizer in connection with the development of hGH-CTP (somatrogon);
that we may fail to obtain regulatory approval for hGH-CTP or successfully commercialize Rayaldee and hGH-CTP;
that we may not generate profits or cash flow from our laboratory operations or substantial revenue from Rayaldee and our other pharmaceutical and diagnostic products;
that currently available over-the-counter and prescription products, as well as products under development by others, may prove to be as or more effective than our products for the indications being studied;
our ability to build a successful pharmaceutical sales and marketing infrastructure;
our ability and our distribution and marketing partners’ ability to comply with regulatory requirements regarding the sales, marketing and manufacturing of our products and product candidates and the operation of our laboratories;
the performance of our third-party distribution partners, licensees and manufacturers over which we have limited control;
our success is dependent on the involvement and continued efforts of our Chairman and Chief Executive Officer;
integration challenges for acquired businesses;
availability of insurance coverage with respect to material litigation matters;


4

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changes in regulation and policies in the United States (“U.S.”) and other countries, including increasing downward pressure on healthcare reimbursement;
our ability to manage our growth and our expanded operations;
increased competition, including price competition;
changing relationships with payors, including the various state and multi-state Blues programs, suppliers and strategic partners;
efforts by third-party payors to reduce utilization and reimbursement for clinical testing services;
our ability to maintain reimbursement coverage for our products and services, including the 4Kscore test;
failure to timely or accurately bill and collect for our services;
the information technology systems that we rely on may be subject to unauthorized tampering, cyberattack or other data security or privacy incidents that could impact our billing processes or disrupt our operations;
failure to obtain and retain new clients and business partners, or a reduction in tests ordered or specimens submitted by existing clients;
failure to establish, and perform to, appropriate quality standards to assure that the highest level of quality is observed in the performance of our testing services;
failure to maintain the security of patient-related information;
our ability to obtain and maintain intellectual property protection for our products;
our ability to defend our intellectual property rights with respect to our products;
our ability to operate our business without infringing the intellectual property rights of others;
our ability to attract and retain key scientific and management personnel;
the risk that the carrying value of certain assets may exceed the fair value of the assets causing us to impair goodwill or other intangible assets;
failure to obtain and maintain regulatory approval outside the U.S.; and
legal, economic, political, regulatory, currency exchange, and other risks associated with international operations.



5

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PART I. FINANCIAL INFORMATION
Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to the “Company”, “OPKO”, “we”, “our”, “ours”, and “us” refer to OPKO Health, Inc., a Delaware corporation, including our consolidated subsidiaries.
Item 1. Financial Statements

The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
6

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OPKO Health, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
 
March 31, 2020
 
December 31, 2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
34,530

 
$
85,452

Accounts receivable, net
132,476

 
134,617

Inventory, net
58,697

 
53,434

Other current assets and prepaid expenses
48,754

 
50,542

Total current assets
274,457

 
324,045

Property, plant and equipment, net
127,304

 
127,111

Intangible assets, net
513,511

 
528,962

In-process research and development
590,200

 
590,200

Goodwill
669,582

 
671,940

Investments
10,669

 
20,746

Operating lease right-of-use assets
39,793

 
39,380

Other assets
7,026

 
6,888

Total assets
$
2,232,542

 
$
2,309,272

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
55,866

 
$
62,537

Accrued expenses
164,939

 
164,925

Current maturities of operating leases
11,480

 
12,038

Current portion of lines of credit and notes payable
12,802

 
9,619

Total current liabilities
245,087

 
249,119

Operating lease liabilities
28,669

 
27,665

Convertible notes
213,805

 
211,208

Deferred tax liabilities, net
118,600

 
118,717

Other long-term liabilities, principally contract liabilities, contingent consideration and line of credit
77,762

 
87,804

Total long-term liabilities
438,836

 
445,394

Total liabilities
683,923

 
694,513

Equity:
 
 
 
Common Stock - $0.01 par value, 1,000,000,000 shares authorized; 670,378,701 and 670,378,701 shares issued at March 31, 2020 and December 31, 2019, respectively
6,704

 
6,704

Treasury Stock - 549,907 shares at March 31, 2020 and December 31, 2019, respectively
(1,791
)
 
(1,791
)
Additional paid-in capital
3,145,444

 
3,142,993

Accumulated other comprehensive loss
(30,187
)
 
(22,070
)
Accumulated deficit
(1,571,551
)
 
(1,511,077
)
Total shareholders’ equity
1,548,619

 
1,614,759

Total liabilities and equity
$
2,232,542

 
$
2,309,272


The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
7

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OPKO Health, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
 
For the three months ended March 31,
 
2020
 
2019
Revenues:
 
 
 
Revenue from services
$
170,839

 
$
178,891

Revenue from products
31,074

 
25,301

Revenue from transfer of intellectual property and other
9,553

 
18,259

Total revenues
211,466

 
222,451

Costs and expenses:
 
 
 
Cost of service revenue
122,887

 
129,903

Cost of product revenue
17,371

 
14,156

Selling, general and administrative
76,132

 
95,158

Research and development
21,760

 
36,529

Contingent consideration
(860
)
 
4,806

Amortization of intangible assets
14,938

 
16,562

Asset impairment charges

 
655

Total costs and expenses
252,228

 
297,769

Operating loss
(40,762
)
 
(75,318
)
Other income and (expense), net:
 
 
 
Interest income
142

 
556

Interest expense
(5,496
)
 
(4,755
)
Fair value changes of derivative instruments, net
621

 
415

Other income (expense), net
(12,332
)
 
977

Other income and (expense), net
(17,065
)
 
(2,807
)
Loss before income taxes and investment losses
(57,827
)
 
(78,125
)
Income tax provision
(1,171
)
 
(783
)
Net loss before investment losses
(58,998
)
 
(78,908
)
Loss from investments in investees
(134
)
 
(1,854
)
Net loss
$
(59,132
)
 
$
(80,762
)
Loss per share, basic and diluted:
 
 
 
Loss per share
$
(0.09
)
 
$
(0.14
)
Weighted average common shares outstanding, basic and diluted
640,578,794

 
586,344,207



The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
8

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OPKO Health, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands)
 
For the three months ended March 31,
 
2020
 
2019
Net loss
$
(59,132
)
 
$
(80,762
)
Other comprehensive income (loss), net of tax:
 
 
 
Change in foreign currency translation and other comprehensive income (loss)
(8,117
)
 
(3,098
)
Comprehensive loss
$
(67,249
)
 
$
(83,860
)


The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
9

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CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share and per share data)
For the three months ended March 31, 2020


 
Common Stock
 
Treasury
 
Additional
Paid-In
Capital
 
Accumulated Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
 
Shares
 
Dollars
 
Shares
 
Dollars
 
 
Balance at December 31, 2019
670,378,701

 
$
6,704

 
(549,907
)
 
$
(1,791
)
 
$
3,142,993

 
$
(22,070
)
 
$
(1,511,077
)
 
$
1,614,759

Equity-based compensation expense

 

 

 

 
2,451

 

 

 
2,451

Exercise of Common Stock options and warrants

 

 

 

 

 

 

 

Adoption of ASC 326

 

 

 

 

 

 
(1,342
)
 
(1,342
)
2025 convertible notes including share lending arrangement

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 
(59,132
)
 
(59,132
)
Other comprehensive loss

 

 

 

 

 
(8,117
)
 

 
(8,117
)
Balance at March 31, 2020
670,378,701

 
$
6,704

 
(549,907
)
 
$
(1,791
)
 
$
3,145,444

 
$
(30,187
)
 
$
(1,571,551
)
 
$
1,548,619


























The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
10

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CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share and per share data)
For the three months ended March 31, 2019



 
Common Stock
 
Treasury
 
Additional
Paid-In
Capital
 
Accumulated Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
 
Shares
 
Dollars
 
Shares
 
Dollars
 
 
Balance at December 31, 2018
586,881,720

 
$
5,869

 
(549,907
)
 
$
(1,791
)
 
$
3,004,422

 
$
(20,131
)
 
$
(1,197,078
)
 
$
1,791,291

Equity-based compensation expense

 

 

 

 
4,457

 

 

 
4,457

Exercise of Common Stock options and warrants
19,232

 

 

 

 
(3
)
 

 

 
(3
)
Adoption of ASU 2018-07

 

 

 

 
(926
)
 

 
926

 

2025 convertible notes including share lending arrangement

29,250,000

 
293

 

 

 
50,559

 

 

 
50,852

Net loss

 

 

 

 

 

 
(80,762
)
 
(80,762
)
Other comprehensive loss

 

 

 

 

 
(3,098
)
 

 
(3,098
)
Balance at March 31, 2019
616,150,952

 
$
6,162

 
(549,907
)
 
$
(1,791
)
 
$
3,058,509

 
$
(23,229
)
 
$
(1,276,914
)
 
$
1,762,737



The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
11

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OPKO Health, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

 
For the three months ended March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net loss
$
(59,132
)
 
$
(80,762
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
22,052

 
23,816

Non-cash interest
2,483

 
3,010

Amortization of deferred financing costs
203

 
405

Losses from investments in investees
134

 
1,854

Equity-based compensation – employees and non-employees
2,451

 
4,457

Realized loss on disposal of fixed assets and sales of equity securities
102

 
284

Change in fair value of equity securities and derivative instruments
9,259

 
(1,825
)
Change in fair value of contingent consideration
(860
)
 
4,806

Impairment of assets

 
655

Deferred income tax (benefit) provision
613

 
(352
)
Changes in assets and liabilities, net of the effects of acquisitions:
 
 
 
Accounts receivable, net
(763
)
 
(439
)
Inventory, net
(8,831
)
 
(2,475
)
Other current assets and prepaid expenses
(729
)
 
(46
)
Other assets
60

 
(243
)
Accounts payable
(4,865
)
 
3,713

Foreign currency measurement
56

 
(23
)
Contract liabilities
(9,451
)
 
(18,073
)
Accrued expenses and other liabilities
3,848

 
12,250

Net cash used in operating activities
(43,370
)
 
(48,988
)
Cash flows from investing activities:
 
 
 
Investments in investees

 
(1,200
)
Proceeds from the sale of property, plant and equipment
7

 

Capital expenditures
(5,626
)
 
(2,932
)
Net cash used in investing activities
(5,619
)
 
(4,132
)
Cash flows from financing activities:
 
 
 
Issuance of convertible notes, including to related parties

 
200,293

Debt issuance costs

 
(7,762
)
Proceeds from the exercise of Common Stock options and warrants

 
(3
)
Borrowings on lines of credit
186,398

 
35,460

Repayments of lines of credit
(188,009
)
 
(35,313
)
Redemption of 2033 Senior Notes

 
(28,800
)
Net cash (used in) provided by financing activities
(1,611
)
 
163,875

Effect of exchange rate changes on cash and cash equivalents
(322
)
 
22

Net increase (decrease) in cash and cash equivalents
(50,922
)
 
110,777

Cash and cash equivalents at beginning of period
85,452

 
96,473

Cash and cash equivalents at end of period
$
34,530

 
$
207,250

SUPPLEMENTAL INFORMATION:
 
 
 
Interest paid
$
5,012

 
$
511

Income taxes paid, net of refunds
$
799

 
$
1,022

Operating lease right-of-use assets due to adoption of ASU No. 2016-02
$

 
$
33,277

Operating lease liabilities due to adoption of ASU No. 2016-02
$

 
$
33,744

Non-cash financing:
 
 
 
Shares issued upon the conversion of:
 
 
 
Common Stock options and warrants, surrendered in net exercise
$

 
$
20



The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
12

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OPKO Health, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 BUSINESS AND ORGANIZATION
We are a diversified healthcare company that seeks to establish industry-leading positions in large and rapidly growing medical markets. Our diagnostics business includes BioReference Laboratories, Inc. (“BioReference”), one of the nation’s largest full service laboratories with a core genetic testing business and an almost 300-person sales and marketing team focused on driving growth and leveraging new products, including the 4Kscore test. Our pharmaceutical business features Rayaldee, an FDA-approved treatment for secondary hyperparathyroidism (“SHPT”) in adults with stage 3 or 4 chronic kidney disease (“CKD”) and vitamin D insufficiency (launched in November 2016); OPK88004, a selective androgen receptor modulator which we are exploring for various potential indications; and OPK88003, a once weekly oxyntomodulin for type 2 diabetes and obesity which is a clinically advanced drug candidate among the new class of GLP-1 glucagon receptor dual agonists (phase 2b). Our pharmaceutical business also features hGH-CTP, a once-weekly human growth hormone that recently successfully completed a phase 3 trial and for which we have partnered with Pfizer Inc. (“Pfizer”). We are incorporated in Delaware, and our principal executive offices are located in leased offices in Miami, Florida.
Through BioReference, we provide laboratory testing services, primarily to customers in the larger metropolitan areas across New York, New Jersey, Florida, Texas, Maryland, California, Pennsylvania, Delaware, Washington, DC, Illinois and Massachusetts, as well as to customers in a number of other states. We offer a comprehensive test menu of clinical diagnostics for blood, urine and tissue analysis. This includes hematology, clinical chemistry, immunoassay, infectious diseases, serology, hormones, and toxicology assays, as well as Pap smear, anatomic pathology (biopsies) and other types of tissue analysis. We market our laboratory testing services directly to physicians, geneticists, hospitals, clinics, correctional and other health facilities.
We operate established pharmaceutical platforms in Ireland, Chile, Spain, and Mexico, which are generating revenue and from which we expect to generate positive cash flow and facilitate future market entry for our products currently in development. In addition, we have a development and commercial supply pharmaceutical company and a global supply chain operation and holding company in Ireland. We own a specialty active pharmaceutical ingredients (“APIs”) manufacturer in Israel, which we expect will facilitate the development of our pipeline of molecules and compounds for our proprietary molecular diagnostic and therapeutic products.
Our research and development activities are primarily performed at facilities in Miramar, FL, Woburn, MA, Waterford, Ireland, Kiryat Gat, Israel, and Barcelona, Spain.


NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments or adjustments otherwise disclosed herein) considered necessary to present fairly the Company’s results of operations, financial position and cash flows have been made. The results of operations and cash flows for the three months ended March 31, 2020 are not necessarily indicative of the results of operations and cash flows that may be reported for the remainder of 2020 or any other future periods. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.
Principles of consolidation. The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of OPKO Health, Inc. and of our wholly owned subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.
Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from these estimates.


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Cash and cash equivalents. Cash and cash equivalents include short-term, interest-bearing instruments with original maturities of 90 days or less at the date of purchase. We also consider all highly liquid investments with original maturities at the date of purchase of 90 days or less as cash equivalents. These investments include money markets, bank deposits, certificates of deposit and U.S. treasury securities.
Inventories. Inventories are valued at the lower of cost and net realizable value. Cost is determined by the first-in, first-out method. We consider such factors as the amount of inventory on hand, estimated time required to sell such inventories, remaining shelf-life, and current market conditions to determine whether inventories are stated at the lower of cost and net realizable value. Inventories at our diagnostics segment consist primarily of purchased laboratory supplies, which is used in our testing laboratories. Inventory obsolescence expense for the three months ended March 31, 2020 and 2019 was $0.6 million and $0.5 million, respectively.
Pre-launch inventories. We may accumulate commercial quantities of certain product candidates prior to the date we anticipate that such products will receive final U.S. FDA approval. The accumulation of such pre-launch inventories involves the risk that such products may not be approved for marketing by the FDA on a timely basis, or ever. This risk notwithstanding, we may accumulate pre-launch inventories of certain products when such action is appropriate in relation to the commercial value of the product launch opportunity. In accordance with our policy, this pre-launch inventory is expensed.  
Goodwill and intangible assets. Goodwill represents the difference between the purchase price and the estimated fair value of the net assets acquired accounted for by the acquisition method of accounting. Refer to Note 4. Goodwill, in-process research and development (“IPR&D”) and other intangible assets acquired in business combinations, licensing and other transactions was $1.8 billion at both at March 31, 2020 and December 31, 2019 was $1.8 billion.
Assets acquired and liabilities assumed in business combinations, licensing and other transactions are generally recognized at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recognized as goodwill. At acquisition, we generally determine the fair value of intangible assets, including IPR&D, using the “income method.”
Subsequent to their acquisition, goodwill and indefinite lived intangible assets are tested at least annually as of October 1 for impairment, or when events or changes in circumstances indicate it is more likely than not that the carrying amount of such assets may not be recoverable.
Goodwill was $669.6 million and $671.9 million respectively, at March 31, 2020 and December 31, 2019. Estimating the fair value of a reporting unit for goodwill impairment is highly sensitive to changes in projections and assumptions and changes in assumptions could potentially lead to impairment. We perform sensitivity analyses around our assumptions in order to assess the reasonableness of the assumptions and the results of our testing. Ultimately, potential changes in these assumptions may impact the estimated fair value of a reporting unit and result in an impairment if the fair value of such reporting unit is less than its carrying value.
Net intangible assets other than goodwill were $1.1 billion, including IPR&D of $590.2 million, at both March 31, 2020 and December 31, 2019. Intangible assets are highly vulnerable to impairment charges, particularly newly acquired assets for recently launched products and IPR&D. Considering the high risk nature of research and development and the industry’s success rate of bringing developmental compounds to market, IPR&D impairment charges may occur in future periods. Estimating the fair value of IPR&D for potential impairment is highly sensitive to changes in projections and assumptions and changes in assumptions could potentially lead to impairment.
Upon obtaining regulatory approval, IPR&D assets are then accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. If the project is abandoned, the IPR&D asset is charged to expense. Finite lived intangible assets are tested for impairment when events or changes in circumstances indicate it is more likely than not that the carrying amount of such assets may not be recoverable. The testing includes a comparison of the carrying amount of the asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, then an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
We believe that our estimates and assumptions are reasonable and otherwise consistent with assumptions that marketplace participants would use in their estimates of fair value.  However, if future results are not consistent with our estimates and assumptions, including as a result of the COVID-19 global pandemic, then we may be exposed to an impairment charge, which could be material.  For the year ended December 31, 2019, the results of operations of our BioReference reporting unit were below management’s long-term forecast of expected cash flows for the year ending December 31, 2019 due to a temporary change in reimbursement coverage for our 4Kscore test and other market factors.  Our 2019 impairment test of the BioReference reporting unit indicated an excess of estimated fair value over the carrying amount of approximately 11%. If we


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are unable to obtain appropriate reimbursement for our services and experience future declines in operating results versus forecast, or we experience other events or circumstances that are not consistent with our estimates and assumptions, including as a result of the COVID-19 global pandemic, then our estimates of the fair value of the BioReference reporting unit may decrease, and the resulting impairment could be significant.
We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from 3 to 20 years. We use the straight-line method of amortization as there is no reliably determinable pattern in which the economic benefits of our intangible assets are consumed or otherwise used up. Amortization expense was $14.9 million and $16.6 million for the three months ended March 31, 2020 and 2019, respectively.
Fair value measurements. The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate their fair value due to the short-term maturities of these instruments. Investments that are considered equity securities as of March 31, 2020 and December 31, 2019 are predominately carried at fair value. Our debt under the credit agreement with JPMorgan Chase Bank, N.A. approximates fair value due to the variable rate of interest.
In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts. Accordingly, the estimates of fair value presented herein may not be indicative of the amounts that could be realized in a current market exchange. Refer to Note 8.
Contingent consideration. Each period we revalue the contingent consideration obligations associated with certain prior acquisitions to their fair value and record increases in the fair value as contingent consideration expense and decreases in the fair value as a reduction in contingent consideration expense. Changes in contingent consideration result from changes in the assumptions regarding probabilities of successful achievement of related milestones, the estimated timing in which the milestones are achieved and the discount rate used to estimate the fair value of the liability. Contingent consideration may change significantly as our development programs progress, revenue estimates evolve and additional data is obtained, impacting our assumptions. The assumptions used in estimating fair value require significant judgment. The use of different assumptions and judgments could result in a materially different estimate of fair value which may have a material impact on our results from operations and financial position.
Derivative financial instruments. We record derivative financial instruments on our Condensed Consolidated Balance Sheet at their fair value and recognize the changes in the fair value in our Condensed Consolidated Statement of Operations when they occur, the only exception being derivatives that qualify as hedges. For the derivative instrument to qualify as a hedge, we are required to meet strict hedge effectiveness and contemporaneous documentation requirements at the initiation of the hedge and assess the hedge effectiveness on an ongoing basis over the life of the hedge. At March 31, 2020 and December 31, 2019, our foreign currency forward contracts held to economically hedge inventory purchases did not meet the documentation requirements to be designated as hedges. Accordingly, we recognize all changes in the fair values of our derivatives instruments, net, in our Condensed Consolidated Statement of Operations. Refer to Note 9.
Property, plant and equipment. Property, plant and equipment are recorded at cost or fair value if acquired in a business combination. Depreciation is provided using the straight-line method over the estimated useful lives of the assets and includes amortization expense for assets capitalized under finance leases. The estimated useful lives by asset class are as follows: software - 3 years, machinery, medical and other equipment - 5-8 years, furniture and fixtures - 5-12 years, leasehold improvements - the lesser of their useful life or the lease term, buildings and improvements - 10-40 years, and automobiles - 3-5 years. Expenditures for repairs and maintenance are charged to expense as incurred. Depreciation expense was $7.1 million and $7.3 million for the three months ended March 31, 2020 and 2019, respectively. Assets held under finance leases are included within Property, plant and equipment, net in our Condensed Consolidated Balance Sheet and are amortized over the shorter of their useful lives or the expected term of their related leases.
Impairment of long-lived assets. Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, then an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Income taxes. Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those


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temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. We periodically evaluate the realizability of our
net deferred tax assets. Our tax accruals are analyzed periodically and adjustments are made as events occur to warrant such
adjustment. Valuation allowances on certain U.S. deferred tax assets and non-U.S. deferred tax assets are established, because realization of these tax benefits through future taxable income does not meet the more-likely-than-not threshold.
We operate in various countries and tax jurisdictions globally.  For interim reporting purposes, we record income taxes based on the expected effective income tax rate, taking into consideration year to date and global forecasted tax results.  For the three months ended March 31, 2020, the tax rate differed from the U.S. federal statutory rate of 21% primarily due to the valuation allowance against certain U.S. and non-U.S. deferred tax assets, the relative mix in earnings and losses in the U.S. versus foreign tax jurisdictions, and the impact of certain discrete tax events and operating results in tax jurisdictions which do not result in a tax benefit.
Revenue recognition. We recognize revenue when a customer obtains control of promised goods or services in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“Topic 606”). The amount of revenue that is recorded reflects the consideration that we expect to receive in exchange for those goods or services. We apply the following five-step model in order to determine this amount: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation.
We apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. For a complete discussion of accounting for Revenues from services, Revenues from products and Revenue from transfer of intellectual property and other, refer to Note 12.
Concentration of credit risk and allowance for credit losses. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of accounts receivable. Substantially all of our accounts receivable are with either companies in the health care industry or patients. However, credit risk is limited due to the number of our clients as well as their dispersion across many different geographic regions.
While we have receivables due from federal and state governmental agencies, we do not believe that such receivables represent a credit risk since the related healthcare programs are funded by federal and state governments, and payment is primarily dependent upon submitting appropriate documentation. At March 31, 2020 and December 31, 2019, receivable balances (net of contractual adjustments) from Medicare and Medicaid were 4% and 6%, respectively, of our consolidated Accounts receivable, net. At March 31, 2020, receivable balances (net of contractual adjustments) due directly from states, cities and other municipalities, specifically related to our real-time reverse-transcription polymerase chain reaction (real-time RT-PCR) assay to detect the 2019 novel coronavirus disease (COVID-19), were 3.6% of our consolidated Accounts receivable, net.
The portion of our accounts receivable due from individual patients comprises the largest portion of credit risk. At March 31, 2020 and December 31, 2019, receivables due from patients represented approximately 1.9% and 2.5%, respectively, of our consolidated Accounts receivable, net.
We assess the collectability of accounts receivable balances by considering factors such as historical collection experience, customer credit worthiness, the age of accounts receivable balances, regulatory changes and current economic conditions and trends that may affect a customer’s ability to pay. Actual results could differ from those estimates. The allowance for credit losses was $1.7 million and $1.9 million at March 31, 2020 and December 31, 2019, respectively. The credit loss expense for the three months ended March 31, 2020 and 2019 was $0.1 million and $0.2 million, respectively.
Equity-based compensation. We measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized in the Condensed Consolidated Statement of Operations over the period during which an employee is required to provide service in exchange for the award. We record excess tax benefits realized from the exercise of stock options as cash flows from operations. During the three months ended March 31, 2020 and 2019, we recorded $2.5 million and $4.5 million, respectively, of equity-based compensation expense.
Research and development expenses. Research and development expenses include external and internal expenses. External expenses include clinical and non-clinical activities performed by contract research organizations, lab services, purchases of drug and diagnostic product materials and manufacturing development costs. Research and development


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employee-related expenses include salaries, benefits and equity-based compensation expense. Other internal research and development expenses are incurred to support overall research and development activities and include expenses related to general overhead and facilities. We expense these costs in the period in which they are incurred. We estimate our liabilities for research and development expenses in order to match the recognition of expenses to the period in which the actual services are received. As such, accrued liabilities related to third party research and development activities are recognized based upon our estimate of services received and degree of completion of the services in accordance with the specific third party contract.
Research and development expense includes costs for in-process research and development projects acquired in asset acquisitions which have not reached technological feasibility and which have no alternative future use. For in-process research and development projects acquired in business combinations, the in-process research and development project is capitalized and evaluated for impairment until the development process has been completed. Once the development process has been completed the asset will be amortized over its remaining estimated useful life.
Segment reporting. Our chief operating decision-maker (“CODM”) is Phillip Frost, M.D., our Chairman and Chief Executive Officer. Our CODM reviews our operating results and operating plans and makes resource allocation decisions on a Company-wide or aggregate basis. We manage our operations in two reportable segments, pharmaceutical and diagnostics. The pharmaceutical segment consists of our pharmaceutical operations in Chile, Mexico, Ireland, Israel and Spain, Rayaldee product sales and our pharmaceutical research and development. The diagnostics segment primarily consists of clinical laboratory operations through BioReference and point-of-care operations. There are no significant inter-segment sales. We evaluate the performance of each segment based on operating profit or loss. There is no inter-segment allocation of interest expense or income taxes. Refer to Note 14.
Shipping and handling costs. We do not charge customers for shipping and handling costs. Shipping and handling costs are classified as Cost of revenues in the Condensed Consolidated Statement of Operations.
Foreign currency translation. The financial statements of certain of our foreign operations are measured using the local currency as the functional currency. The local currency assets and liabilities are generally translated at the rate of exchange to the U.S. dollar on the balance sheet date and the local currency revenues and expenses are translated at average rates of exchange to the U.S. dollar during the reporting periods. Foreign currency transaction gains (losses) have been reflected as a component of Other income (expense), net within the Condensed Consolidated Statement of Operations and foreign currency translation gains (losses) have been included as a component of the Condensed Consolidated Statement of Comprehensive Loss.
Variable interest entities. The consolidation of a variable interest entity (“VIE”) is required when an enterprise has a controlling financial interest. A controlling financial interest in a VIE will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE. Refer to Note 5.
Investments. We have made strategic investments in development stage and emerging companies. We record these investments as equity method investments or as equity securities based on our percentage of ownership and whether we have significant influence over the operations of the investees. For investments classified under the equity method of accounting, we record our proportionate share of their losses in Losses from investments in investees in our Condensed Consolidated Statement of Operations. Refer to Note 5. For investments classified as equity securities, we record changes in their fair value as Other income (expense) in our Condensed Consolidated Statement of Operations based on their closing price per share at the end of each reporting period, unless the equity security does not have a readily determinable fair value. Refer to Note 5.
Recently adopted accounting pronouncements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. The ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2016-13 on January 1, 2020, did not have a significant impact on our Condensed Consolidated Financial Statements.



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NOTE 3 EARNINGS (LOSS) PER SHARE
Basic loss per share is computed by dividing our net loss by the weighted average number of shares of our common stock par value $0.01 per share (“Common Stock”) outstanding during the period. Shares of Common Stock outstanding under the share lending arrangement entered into in conjunction with the 2025 Notes (as defined in Note 6) are excluded from the calculation of basic and diluted earnings per share because the borrower of the shares is required under the share lending arrangement to refund any dividends paid on the shares lent. Refer to Note 6. For diluted earnings per share, the dilutive impact of stock options and warrants is determined by applying the “treasury stock” method. The dilutive impact of the 2033 Senior Notes, the 2023 Convertible Notes and the 2025 Notes (each, as defined herein and as discussed in Note 6) has been considered using the “if converted” method. For periods in which their effect would be antidilutive, no effect is given to outstanding options, warrants or the potentially dilutive shares issuable pursuant to the 2033 Senior Notes, the 2023 Convertible Notes and the 2025 Notes in the dilutive computation.
A total of 69,339,603 and 49,702,266 potential shares of Common Stock were excluded from the calculation of diluted net loss per share for the three months ended March 31, 2020 and 2019, respectively, because their inclusion would be antidilutive. A full presentation of diluted earnings per share has not been provided because the required adjustments to the numerator and denominator resulted in diluted earnings per share equivalent to basic earnings per share.
During the three months ended March 31, 2020, no Common Stock options or Common Stock warrants to purchase shares of our Common Stock were exercised, resulting in the issuance of no shares of Common Stock.
During the three months ended March 31, 2019, 24,877 Common Stock options and Common Stock warrants to purchase shares of our Common Stock were exercised, resulting in the issuance of 19,232 shares of Common Stock. Of the 24,877 Common Stock options and Common Stock warrants exercised, 5,645 shares of Common Stock were surrendered in lieu of a cash payment via the net exercise feature of the agreements.


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NOTE 4 COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
(In thousands)
March 31,
2020
 
December 31,
2019
Accounts receivable, net:
 
 
 
Accounts receivable
$
134,223

 
$
136,551

Less: allowance for credit losses
(1,747
)
 
(1,934
)
 
$
132,476

 
$
134,617

Inventories, net:
 
 
 
Consumable supplies
$
28,010

 
$
23,005

Finished products
23,729

 
25,142

Work in-process
4,260

 
3,238

Raw materials
4,591

 
4,586

Less: inventory reserve
(1,893
)
 
(2,537
)
 
$
58,697

 
$
53,434

Other current assets and prepaid expenses:
 
 
 
Taxes recoverable
$
13,577

 
$
19,808

Prepaid expenses
12,602

 
8,147

Prepaid insurance
6,143

 
3,486

Other receivables
646

 
3,262

Other
15,786

 
15,839

 
$
48,754

 
$
50,542

Intangible assets, net:
 
 
 
Customer relationships
$
444,328

 
$
445,408

Technologies
296,169

 
296,246

Trade names
49,760

 
49,786

Covenants not to compete
16,315

 
16,318

Licenses
5,766

 
5,766

Product registrations
6,876

 
7,578

Other
6,007

 
6,094

Less: accumulated amortization
(311,710
)
 
(298,234
)
 
$
513,511

 
$
528,962

Accrued expenses:
 
 
 
Contract liabilities
$
10,455

 
$
19,196

Employee benefits
35,325

 
33,671

Commitments and Contingencies
37,647

 
38,635

Clinical trials
7,540

 
8,122

Contingent consideration
2,375

 
2,375

Finance leases short-term
2,598

 
2,743

Professional fees
903

 
1,333

Other
68,096

 
58,850

 
$
164,939

 
$
164,925

 
 
 
 



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(In thousands)
March 31,
2020
 
December 31,
2019
Other long-term liabilities:
 
 
 
Line of credit
$
39,311

 
$
44,749

Contingent consideration
6,448

 
7,308

Mortgages and other debts payable
3,538

 
3,906

Finance leases long-term
3,489

 
4,046

Contract liabilities
1,861

 
2,571

Other
23,115

 
25,224

 
$
77,762

 
$
87,804


Our intangible assets and goodwill relate principally to our completed acquisitions of OPKO Renal, OPKO Biologics, EirGen and BioReference. We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives. The estimated useful lives by asset class are as follows: technologies - 7-17 years, customer relationships - 7-20 years, product registrations - 7-10 years, covenants not to compete - 5 years, trade names - 5-10 years, other 9-13 years. We do not anticipate capitalizing the cost of product registration renewals, rather we expect to expense these costs, as incurred. Our goodwill is not tax deductible for income tax purposes in any jurisdiction in which we operate.
The changes in value of the intangible assets and goodwill during the three months ended March 31, 2020 were primarily due to foreign currency fluctuations between the Chilean Peso, the Euro and the Shekel against the U.S. dollar.
The following table summarizes the changes in Goodwill by reporting unit during the three months ended March 31, 2020.
 
2020
(In thousands)
Balance at January 1
 
Foreign exchange and other
 
Balance at March 31st
Pharmaceuticals
 
 
 
 
 
Rayaldee
$
85,605

 
$
(1,602
)
 
$
84,003

OPKO Chile
4,348

 
(614
)
 
3,734

OPKO Biologics
139,784

 

 
139,784

OPKO Health Europe
7,394

 
(142
)
 
7,252

 
 
 
 
 
 
Diagnostics
 
 
 
 
 
BioReference
434,809

 

 
434,809

 
$
671,940

 
$
(2,358
)
 
$
669,582





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NOTE 5 INVESTMENTS
Investments
The following table reflects the accounting method, carrying value and underlying equity in net assets of our unconsolidated investments as of March 31, 2020:
(in thousands)
 
 
 
 
Investment type
 
Investment Carrying Value
 
Underlying Equity in Net Assets
Equity method investments
 
$
711

 
$
1,427

Variable interest entity, equity method
 
875

 

Equity securities
 
8,990

 
 
Equity securities with no readily determinable fair value
 
35

 
 
Warrants and options
 
58

 
 
Total carrying value of investments
 
$
10,669

 
 
Equity method investments
Our equity method investments consist of investments in Pharmsynthez (ownership 9%), Cocrystal Pharma, Inc. (“COCP”) (5%), Non-Invasive Monitoring Systems, Inc. (“NIMS”) (1%), Neovasc, Inc. (“Neovasc”) (3%), InCellDx, Inc. (“InCellDx”) (29%), BioCardia, Inc. (“BioCardia”) (3%), and Xenetic Biosciences, Inc. (“Xenetic”) (3%). The aggregate total assets, liabilities, and net losses of our equity method investees as of and for the three months ended March 31, 2020 were $68.2 million, $38.0 million, and $21.9 million, respectively. We have determined that we and/or our related parties can significantly influence control of our equity method investments through our board representation and/or voting power. Accordingly, we account for our investment in these entities under the equity method and record our proportionate share of their losses in Loss from investments in investees in our Condensed Consolidated Statement of Operations. The aggregate value of our equity method investments based on the quoted market prices of their respective shares of common stock and the number of shares held by us as of March 31, 2020 was $5.4 million.
Equity Securities
Our equity securities consist of investments in Phio Pharmaceuticals (“Phio”) (ownership 0.03%), VBI Vaccines Inc. (“VBI”) (4%), ChromaDex Corporation (“ChromaDex”) (0.1%), MabVax Therapeutics Holdings, Inc. (“MabVax”) (1%), and Eloxx Pharmaceuticals, Inc. (“Eloxx”) (3%). We have determined that our ownership, along with that of our related parties, does not provide us with significant influence over the operations of these investments. Accordingly, we account for our investment in these entities as equity securities, and we record changes in the fair value of these investments in Other income (expense) each reporting period when they have readily determinable fair value. Equity securities without a readily determinable fair value are adjusted to fair value when there is an observable price change. Net gains and losses on our equity securities for the three months ended March 31, 2020 were as follows:
(in thousands)
 
 
Equity Securities
 
For the three months ended March 31, 2020
Net losses recognized during the period on equity securities
 
$
(9,880
)
Less: Net gains and losses realized during the period on equity securities
 

Unrealized net losses recognized during the period on equity securities still held at the reporting date
 
$
(9,880
)

Sales of investments
Gains (losses) included in earnings from sales of our investments are recorded in Other income (expense), net in our Condensed Consolidated Statement of Operations. We did not have significant sales activity during the three months ended March 31, 2020 and 2019. The cost of securities sold is based on the specific identification method.


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Warrants and options
In addition to our equity method investments and equity securities, we hold options to purchase 47 thousand additional shares of BioCardia, 33 thousand of which were vested as of March 31, 2020, and 33 thousand, 0.7 million, 40 thousand and 404 warrants to purchase shares of COCP, InCellDx, Inc., Xenetic, and Phio, respectively. We recorded the changes in the fair value of the options and warrants in Fair value changes of derivative instruments, net in our Condensed Consolidated Statement of Operations. We also recorded the fair value of the options and warrants in Investments, net in our Condensed Consolidated Balance Sheet. See further discussion of the Company’s options and warrants in Note 8 and Note 9.
Investments in variable interest entities

We have determined that we hold variable interests in Zebra Biologics, Inc. (“Zebra”) based on our assessment that Zebra does not have sufficient resources to carry out its principal activities without additional financial support.
We own 1,260,000 shares of Zebra Series A-2 Preferred Stock and 900,000 shares of Zebra restricted common stock (ownership 29% at March 31, 2020). Zebra is a privately held biotechnology company focused on the discovery and development of biosuperior antibody therapeutics and complex drugs. Dr. Richard Lerner, M.D., a member of our Board of Directors, is a founder of Zebra and, along with Dr. Frost, serves as a member of Zebra’s Board of Directors.
In order to determine the primary beneficiary of Zebra, we evaluated our investment and our related parties’ investment, as well as our investment combined with the related parties’ investment to identify if we had the power to direct the activities that most significantly impact the economic performance of Zebra. Based on the capital structure, governing documents and overall business operations of Zebra, we determined that, while a VIE, we do not have the power to direct the activities that most significantly impact Zebra’s economic performance and have no obligation to fund expected losses. We determined, however, that we can significantly influence control of Zebra through our board representation and voting power. Therefore, we have the ability to exercise significant influence over Zebra’s operations and account for our investment in Zebra under the equity method.
NOTE 6 DEBT    
On February 25, 2020, we entered into a credit agreement with an affiliate of Dr. Frost, pursuant to which the lender committed to provide us with an unsecured line of credit in the amount of $100 million. Borrowings under the line of credit will bear interest at a rate of 11% per annum and may be repaid and reborrowed at any time. The credit agreement includes various customary remedies for the lender following an event of default, including the acceleration of repayment of outstanding amounts under line of credit. The line of credit matures on February 25, 2025. The line of credit also calls for a commitment fee equal to 0.25% per annum of the unused portion of the line. As of March 31, 2020, no funds were borrowed under the line of credit.
In February 2019, we issued $200.0 million aggregate principal amount of Convertible Senior Notes due 2025 (the “2025 Notes”) in an underwritten public offering. The 2025 Notes bear interest at a rate of 4.50% per year, payable semiannually in arrears on February 15 and August 15 of each year. The notes mature on February 15, 2025, unless earlier repurchased, redeemed or converted.
Holders may convert their 2025 Notes into shares of Common Stock at their option at any time prior to the close of business on the business day immediately preceding November 15, 2024 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ended March 31, 2019 (and only during such calendar quarter), if the last reported sale price of our Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our Common Stock and the conversion rate on each such trading day; (3) if we call any or all of the 2025 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events set forth in the indenture governing the 2025 Notes. On or after November 15, 2024, until the close of business on the business day immediately preceding the maturity date, holders of the 2025 Notes may convert their notes at any time, regardless of the foregoing conditions. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our Common Stock, or a combination of cash and shares of our Common Stock, at our election.
The initial and current conversion rate for the 2025 Notes is 236.7424 shares of Common Stock per $1,000 principal amount of 2025 Notes (equivalent to a conversion price of approximately $4.22 per share of Common Stock). The conversion


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rate for the 2025 Notes is subject to adjustment in certain events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date of the 2025 Notes or if we deliver a notice of redemption, in certain circumstances the indenture governing the 2025 Notes requires an increase in the conversion rate of the 2025 Notes for a holder who elects to convert its notes in connection with such a corporate event or notice of redemption, as the case may be.
We may not redeem the 2025 Notes prior to February 15, 2022. We may redeem for cash any or all of the 2025 Notes, at our option, on or after February 15, 2022, if the last reported sale price of our Common Stock has been at least 130% of the then current conversion price for the notes for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide a notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2025 Notes.
If we undergo a fundamental change, as defined in the indenture governing the 2025 Notes, prior to the maturity date of the 2025 Notes, holders may require us to repurchase for cash all or any portion of their notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The 2025 Notes are our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the 2025 Notes; equal in right of payment to any of our existing and future liabilities that are not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our current or future subsidiaries.
In conjunction with the issuance of the 2025 Notes, we agreed to loan up to 30,000,000 shares of our Common Stock to affiliates of the underwriter in order to assist investors in the 2025 Notes to hedge their position. As of March 31, 2020, a total of 29,250,000 shares were issued under the share lending arrangement. We will not receive any of the proceeds from the sale of the borrowed shares, but we received a one-time nominal fee of $0.3 million for the newly issued shares. Shares of our Common Stock outstanding under the share lending arrangement are excluded from the calculation of basic and diluted earnings per share. See Note 3.
As required by ASC 470-20, “Debt with Conversion and Other Options,” we calculated the equity component of the 2025 Notes, taking into account both the fair value of the conversion option and the fair value of the share lending arrangement. The equity component was valued at $52.6 million at issue date and this amount was recorded as Additional paid-in capital, which resulted in a discount on the 2025 Notes. The discount is being amortized to Interest expense over the term of the 2025 Notes, which results in an effective interest rate on the 2025 Notes of 11.2%.
The following table sets forth information related to the 2025 Notes which is included in our Condensed Consolidated Balance Sheet as of March 31, 2020:
(In thousands)
2025 Senior Notes
 
Discount
 
Debt Issuance Cost
 
Total
Balance at December 31, 2019
$
200,000

 
$
(46,774
)
 
$
(5,086
)
 
$
148,140

Amortization of debt discount and debt issuance costs

 
1,724

 
188

 
1,912

Balance at March 31, 2020
$
200,000

 
$
(45,050
)
 
$
(4,898
)
 
$
150,052


On November 8, 2018, we entered into a credit agreement with an affiliate of Dr. Frost, pursuant to which the lender committed to provide us with an unsecured line of credit in the aggregate principal amount of $60 million. The credit agreement was terminated on or around February 20, 2019 and we repaid the $28.8 million outstanding thereunder from the proceeds of the 2025 Notes offering.
In February 2018, we issued a series of 5% Convertible Promissory Notes (the “2023 Convertible Notes”) in the aggregate principal amount of $55.0 million. The 2023 Convertible Notes mature five years following the date of issuance. Each holder of a 2023 Convertible Note has the option, from time to time, to convert all or any portion of the outstanding principal balance of such 2023 Convertible Note, together with accrued and unpaid interest thereon, into shares of our Common Stock at a conversion price of $5.00 per share. We may redeem all or any part of the then issued and outstanding 2023 Convertible Notes, together with accrued and unpaid interest thereon, pro rata among the holders, upon no fewer than 30 days, and no more than 60 days, notice to the holders. The 2023 Convertible Notes contain customary events of default and representations and warranties of OPKO.


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Purchasers of the 2023 Convertible Notes include an affiliate of Dr. Phillip Frost, M.D., our Chairman and Chief Executive Officer, and Dr. Jane H. Hsiao, Ph.D., MBA, our Vice-Chairman and Chief Technical Officer.
In January 2013, we entered into note purchase agreements with respect to the issuance and sale of our 3.0% Senior Notes due 2033 (the “2033 Senior Notes”) in a private placement exempt from registration under the Securities Act. We issued the 2033 Senior Notes on January 30, 2013. The 2033 Senior Notes, which totaled $175.0 million in original principal amount, bear interest at the rate of 3.0% per year, payable semiannually on February 1 and August 1 of each year. The 2033 Senior Notes mature on February 1, 2033, unless earlier repurchased, redeemed or converted. Upon a fundamental change, as defined in the indenture governing the 2033 Senior Notes, subject to certain exceptions, the holders may require us to repurchase all or any portion of their 2033 Senior Notes for cash at a repurchase price equal to 100% of the principal amount of the 2033 Senior Notes being repurchased, plus any accrued and unpaid interest to, but not including, the related fundamental change repurchase date.
From 2013 to 2016, holders of the 2033 Senior Notes converted $143.2 million in aggregate principal amount into an aggregate of 21,539,873 shares of Common Stock. On February 1, 2019, approximately $28.8 million aggregate principal amount of 2033 Senior Notes were tendered by holders pursuant to such holders’ option to require us to repurchase the 2033 Senior Notes as set forth in the indenture, following which repurchase only $3.0 million aggregate principal amount of the 2033 Senior Notes remained outstanding. Holders of the remaining $3.0 million principal amount of the 2033 Senior Notes may require us to repurchase such notes for 100% of their principal amount, plus accrued and unpaid interest, on February 1, 2023, on February 1, 2028, or following the occurrence of a fundamental change as described above.
The terms of the 2033 Senior Notes, include, among others: (i) rights to convert the notes into shares of our Common Stock, including upon a fundamental change; and (ii) a coupon make-whole payment in the event of a conversion by the holders of the 2033 Senior Notes on or after February 1, 2017 but prior to February 1, 2019. We determined that these specific terms were embedded derivatives. Embedded derivatives are required to be separated from the host contract, the 2033 Senior Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. We concluded that the embedded derivatives within the 2033 Senior Notes met these criteria and, as such, were valued separate and apart from the 2033 Senior Notes and recorded at fair value each reporting period.
For accounting and financial reporting purposes, we combined these embedded derivatives and valued them together as one unit of accounting. In 2017, certain terms of the embedded derivatives expired pursuant to the original agreement and the embedded derivatives no longer met the criteria to be separated from the host contract and, as a result, the embedded derivatives were no longer required to be valued separate and apart from the 2033 Senior Notes and were reclassified to additional paid in capital.

In November 2015, BioReference and certain of its subsidiaries entered into a credit agreement with JPMorgan Chase Bank, N.A. (“CB”), as lender and administrative agent, as amended (the “Credit Agreement”). The Credit Agreement provides for a $75.0 million secured revolving credit facility and includes a $20.0 million sub-facility for swingline loans and a $20.0 million sub-facility for the issuance of letters of credit. The Credit Agreement matures on November 5, 2021 and is guaranteed by all of BioReference’s domestic subsidiaries. The Credit Agreement is also secured by substantially all assets of BioReference and its domestic subsidiaries, as well as a non-recourse pledge by us of our equity interest in BioReference. Availability under the Credit Agreement is based on a borrowing base composed of eligible accounts receivables of BioReference and certain of its subsidiaries, as specified therein. As of March 31, 2020, $10.7 millionremained available for borrowing under the Credit Agreement. Principal under the Credit Agreement is due upon maturity on November 5, 2021.

At BioReference’s option, borrowings under the Credit Agreement (other than swingline loans) will bear interest at (i) the CB floating rate (defined as the higher of (a) the prime rate and (b) the LIBOR rate (adjusted for statutory reserve requirements for Eurocurrency liabilities) for an interest period of one month plus 2.50%) plus an applicable margin of 0.35% for the first 12 months and 0.50% thereafter or (ii) the LIBOR rate (adjusted for statutory reserve requirements for Eurocurrency liabilities) plus an applicable margin of 1.35% for the first 12 months and 1.50% thereafter. Swingline loans will bear interest at the CB floating rate plus the applicable margin. The Credit Agreement also calls for other customary fees and charges, including an unused commitment fee of 0.25% of the lending commitments.

On February 25, 2020, BioReference and certain of its subsidiaries entered into Amendment No. 11 to the Credit Agreement, which amended the Credit Agreement to provide that the fixed charge coverage ratio requirement set forth in the Credit Agreement would not be tested for the quarter ended December 31, 2019, with respect to availability calculated on January 29, 2020 and January 30, 2020, subject, in the case of testing for the quarter ended December 31, 2019, to (i) there having been no event of default occurring and (ii) availability under the revolving facility exceeding 10% of the total revolving


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commitment, for at least 30 consecutive days for the period ended December 31, 2019, excluding December 18, 2019. The other terms of the Credit Agreement remain unchanged.

As of March 31, 2020, $39.3 million outstanding under the Credit Agreement was included within Other long-term liabilities.

The Credit Agreement contains customary covenants and restrictions, including, without limitation, covenants that require BioReference and its subsidiaries to maintain a minimum fixed charge coverage ratio if availability under the new credit facility falls below a specified amount and to comply with laws and restrictions on the ability of BioReference and its subsidiaries to incur additional indebtedness or to pay dividends and make certain other distributions to the Company, subject to certain exceptions as specified therein. Failure to comply with these covenants would constitute an event of default under the Credit Agreement, notwithstanding the ability of BioReference to meet its debt service obligations. The Credit Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Credit Agreement and execution upon the collateral securing obligations under the Credit Agreement. Substantially all the assets of BioReference and its subsidiaries are restricted from sale, transfer, lease, disposal or distributions to the Company, subject to certain exceptions. As of March 31, 2020, BioReference and its subsidiaries had net assets of approximately $869.2 million, which included goodwill of $434.8 million and intangible assets of $355.8 million.
In addition to the Credit Agreement with CB, we had line of credit agreements with eleven other financial institutions as of both March 31, 2020 and December 31, 2019 in the U.S., Chile and Spain. These lines of credit are used primarily as a source of working capital for inventory purchases.
The following table summarizes the amounts outstanding under the BioReference, Chilean and Spanish lines of credit:
(Dollars in thousands)
 
 
 
 
 
 Balance Outstanding
Lender
 
Interest rate on
borrowings at March 31, 2020
 
Credit line
capacity
 
March 31,
2020
 
December 31,
2019
JPMorgan Chase
 
3.55%
 
$
75,000

 
$
39,311

 
$
44,750

Itau Bank
 
5.50%
 
1,810

 
565

 
472

Bank of Chile
 
6.60%
 
3,800

 
950

 
851

BICE Bank
 
5.50%
 
2,500

 
896

 
1,429

BBVA Bank
 
5.50%
 
3,250

 

 
11

Security Bank
 
5.50%
 
489

 
489

 
588

Estado Bank
 
5.50%
 
3,500

 
2,109

 
1,365

Santander Bank
 
5.50%
 
4,500

 
3,186

 
1,943

Scotiabank
 
5.00%
 
1,800

 
1,664

 
668

Corpbanca
 
5.00%
 
1,017

 
1,017

 

Banco De Sabadell
 
1.30%
 
330

 

 

Banco Bilbao Vizcaya
 
1.70%
 
330

 

 

Banco Santander
 
1.40%
 
330

 

 

Total
 
 
 
$
98,656

 
$
50,187

 
$
52,077


At March 31, 2020 and December 31, 2019, the weighted average interest rate on our lines of credit was approximately 4.1% and 4.0%, respectively.
At March 31, 2020 and December 31, 2019, we had notes payable and other debt (excluding the 2033 Senior Notes, the 2023 Convertible Notes, the 2025 Notes, the Credit Agreement and amounts outstanding under lines of credit described above) as follows:
(In thousands)