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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 September 30, 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)
Delaware75-2402409
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
4400 Biscayne Blvd.
MiamiFL33137
(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 classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareOPKNASDAQ 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
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”

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in Rule 12b-2 of the Exchange Act:
Large accelerated filerxAccelerated 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 October 20, 2020, the registrant had 670,000,024 shares of Common Stock outstanding.

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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 coronavirus (COVID-19) pandemic, including impact on our sales and operations from continued or increasing infection rates and potential declines in testing needs should infection rates decline;
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;
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;
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 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;
availability of insurance coverage with respect to material litigation matters;
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;

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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 Rayaldee and 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.


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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.
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OPKO Health, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
September 30, 2020December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents$36,294 $85,452 
Accounts receivable, net241,544 134,617 
Inventory, net111,873 53,434 
Other current assets and prepaid expenses38,398 50,542 
Total current assets428,109 324,045 
Property, plant and equipment, net134,102 127,111 
Intangible assets, net486,418 528,962 
In-process research and development590,200 590,200 
Goodwill675,795 671,940 
Investments14,325 20,746 
Operating lease right-of-use assets36,485 39,380 
Other assets5,857 6,888 
Total assets$2,371,291 $2,309,272 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$65,685 $62,537 
Accrued expenses248,422 164,925 
Current maturities of operating leases9,080 12,038 
Current portion of lines of credit and notes payable12,702 9,619 
Total current liabilities335,889 249,119 
Operating lease liabilities28,225 27,665 
Convertible notes219,194 211,208 
Deferred tax liabilities, net119,182 118,717 
Other long-term liabilities, principally contract liabilities, contingent consideration and line of credit45,031 87,804 
Total long-term liabilities411,632 445,394 
Total liabilities747,521 694,513 
Equity:
Common Stock - $0.01 par value, 1,000,000,000 shares authorized; 670,550,201 and 670,378,701 shares issued at September 30, 2020 and December 31, 2019, respectively
6,706 6,704 
Treasury Stock - 549,907 shares at September 30, 2020 and December 31, 2019, respectively
(1,791)(1,791)
Additional paid-in capital3,150,437 3,142,993 
Accumulated other comprehensive loss(17,451)(22,070)
Accumulated deficit(1,514,131)(1,511,077)
Total shareholders’ equity1,623,770 1,614,759 
Total liabilities and equity$2,371,291 $2,309,272 
The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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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 September 30,For the nine months ended September 30,
 2020201920202019
Revenues:
Revenue from services$382,498 $181,139 $804,309 $538,488 
Revenue from products28,702 26,161 89,133 80,143 
Revenue from transfer of intellectual property and other16,864 21,472 47,297 58,961 
Total revenues428,064 228,772 940,739 677,592 
Costs and expenses:
Cost of service revenue255,292 126,348 522,973 386,329 
Cost of product revenue17,481 15,573 52,710 43,874 
Selling, general and administrative99,897 80,542 253,749 264,175 
Research and development18,493 30,017 57,862 94,832 
Contingent consideration1,083 (1,109)1,334 (78)
Amortization of intangible assets13,879 16,412 43,753 49,393 
Asset impairment charges   655 
Total costs and expenses406,125 267,783 932,381 839,180 
Operating income (loss)21,939 (39,011)8,358 (161,588)
Other income and (expense), net:
Interest income1 350 149 1,477 
Interest expense(5,544)(5,792)(16,514)(16,048)
Fair value changes of derivative instruments, net(496)(21)112 6 
Other income (expense), net4,749 (15,470)10,637 (20,367)
Other income and (expense), net(1,290)(20,933)(5,616)(34,932)
Income (loss) before income taxes and investment losses20,649 (59,944)2,742 (196,520)
Income tax benefit (provision)3,178 (1,769)(4,021)(3,636)
Net income (loss) before investment losses23,827 (61,713)(1,279)(200,156)
Loss from investments in investees(110)(294)(433)(2,419)
Net Income (loss)$23,717 $(62,007)$(1,712)$(202,575)
Income (loss) per share, basic and diluted:
Income (loss) per share$0.04 $(0.11)$0.00 $(0.35)
Weighted average common shares outstanding, basic and diluted640,699,982 586,351,045 640,619,485 586,348,791 

The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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OPKO Health, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
 For the three months ended September 30,For the nine months ended September 30,
 2020201920202019
Net income (loss)$23,717 $(62,007)$(1,712)$(202,575)
Other comprehensive income (loss), net of tax:
Change in foreign currency translation and other comprehensive income (loss)8,301 (8,423)4,619 (8,643)
Comprehensive income (loss)$32,018 $(70,430)$2,907 $(211,218)

The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share and per share data)
For the three and nine months ended September 30, 2020


 Common StockTreasuryAdditional
Paid-In
Capital
Accumulated Other
Comprehensive
Loss
Accumulated
Deficit
Total
 SharesDollarsSharesDollars
Balance at June 30, 2020670,378,701 $6,704 $(549,907)$(1,791)$3,147,030 $(25,752)$(1,537,848)$1,588,343 
Equity-based compensation expense— — — — 2,740 — — 2,740 
Exercise of Common Stock options and warrants171,500 2 — — 667 — — 669 
Net income— — — — — — 23,717 23,717 
Other comprehensive income— — — — — 8,301 — 8,301 
Balance at September 30, 2020670,550,201 $6,706 $(549,907)$(1,791)$3,150,437 $(17,451)$(1,514,131)$1,623,770 



 Common StockTreasuryAdditional
Paid-In
Capital
Accumulated Other
Comprehensive
Loss
Accumulated
Deficit
Total
 SharesDollarsSharesDollars
Balance at December 31, 2019670,378,701 $6,704 (549,907)$(1,791)$3,142,993 $(22,070)$(1,511,077)$1,614,759 
Equity-based compensation expense— — — — 6,777 — — 6,777 
Exercise of Common Stock options and warrants171,500 2 — — 667 — — 669 
Adoption of ASC 326— — — — — — (1,342)(1,342)
Net loss— — — — — — (1,712)(1,712)
Other comprehensive income— — — — — 4,619 — 4,619 
Balance at September 30, 2020670,550,201 $6,706 (549,907)$(1,791)$3,150,437 $(17,451)$(1,514,131)$1,623,770 










The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share and per share data)
For the three and nine months ended September 30, 2019


 Common StockTreasuryAdditional
Paid-In
Capital
Accumulated Other
Comprehensive
Loss
Accumulated
Deficit
Total
 SharesDollarsSharesDollars
Balance at June 30, 2019616,150,952 $6,162 (549,907)$(1,791)$3,061,631 $(20,351)$(1,336,720)$1,708,931 
Equity-based compensation expense— — — — 3,428 — — 3,428 
Net loss— — — — — — (62,007)(62,007)
Other comprehensive loss— — — — — (8,423)— (8,423)
Balance at September 30, 2019616,150,952 $6,162 (549,907)$(1,791)$3,065,059 $(28,774)$(1,398,727)$1,641,929 



 Common StockTreasuryAdditional
Paid-In
Capital
Accumulated Other
Comprehensive
Loss
Accumulated
Deficit
Total
 SharesDollarsSharesDollars
Balance at December 31, 2018586,881,720 $5,869 (549,907)$(1,791)$3,004,422 $(20,131)$(1,197,078)$1,791,291 
Equity-based compensation expense— — — — 11,007 — — 11,007 
Exercise of common stock options and warrants19,232 — — — (3)— — (3)
Adoption of ASU 2018-07— — — — (926)— 926  
2025 convertible notes including share lending arrangement29,250,000 293 — — 50,559 — — 50,852 
Net loss— — — — — — (202,575)(202,575)
Other comprehensive loss— — — — — (8,643)— (8,643)
Balance at September 30, 2019616,150,952 $6,162 (549,907)$(1,791)$3,065,059 $(28,774)$(1,398,727)$1,641,929 

The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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OPKO Health, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the nine months ended September 30,
 20202019
Cash flows from operating activities:
Net loss$(1,712)$(202,575)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization65,295 71,281 
Non-cash interest7,639 4,558 
Amortization of deferred financing costs626 506 
Losses from investments in investees433 2,419 
Equity-based compensation – employees and non-employees6,777 11,007 
Realized loss (gain) on disposal of fixed assets and sales of equity securities(10,172)1,455 
Change in fair value of equity securities and derivative instruments1,253 17,178 
Change in fair value of contingent consideration1,334 (78)
Impairment of assets 655 
Deferred income tax provision1,974 2,065 
Changes in assets and liabilities:
Accounts receivable, net(107,255)3,257 
Inventory, net(60,565)(9,543)
Other current assets and prepaid expenses13,111 (2,556)
Other assets(270)240 
Accounts payable3,261 30,597 
Foreign currency measurement(782)147 
Contract liabilities(4,717)(56,860)
Accrued expenses and other liabilities88,988 (238)
Net cash provided by (used in) operating activities5,218 (126,485)
Cash flows from investing activities:
Investments in investees (1,200)
Proceeds from sale of investments15,110  
Proceeds from the sale of property, plant and equipment192 552 
Capital expenditures(26,885)(8,866)
Net cash used in investing activities(11,583)(9,514)
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 warrants669 (3)
Borrowings on lines of credit699,079 99,353 
Repayments of lines of credit(742,932)(158,477)
Redemption of 2033 Senior Notes (28,800)
Net cash (used in) provided by financing activities(43,184)104,604 
Effect of exchange rate changes on cash and cash equivalents391 (411)
Net decrease in cash and cash equivalents(49,158)(31,806)
Cash and cash equivalents at beginning of period85,452 96,473 
Cash and cash equivalents at end of period$36,294 $64,667 
SUPPLEMENTAL INFORMATION:
Interest paid$10,657 $11,084 
Income taxes paid, net of refunds$148 $3,103 
Operating lease right-of-use assets due to adoption of ASU No. 2016-02$ $35,826 
Operating lease liabilities due to adoption of ASU No. 2016-02$ $36,239 
Non-cash financing:
Shares issued upon the conversion of:
Common stock options and warrants, surrendered in net exercise$ $20 

The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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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) and a pipeline of products in various stages of development. Our leading product in development is hGH-CTP, a once-weekly human growth hormone that 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 Woburn, MA, Waterford, Ireland, Kiryat Gat, Israel, and Barcelona, Spain.

NOTE 2 IMPACT OF COVID-19
Impact of COVID-19. As the disease caused by SARS-CoV-2, a novel strain of coronavirus, COVID-19 continues to spread and severely impact the economy of the United States and other countries around the world, we are committed to being a part of the coordinated public and private sector response to this unprecedented challenge. In response to the COVID-19 pandemic, BioReference is accepting specimens from U.S healthcare providers, clinics and health and hospital systems for two types of COVID-19 testing, diagnostic molecular testing and serology antibody testing, which is intended to promote earlier diagnosis of the coronavirus, assess a patient’s immune response to the virus and aid in limiting the spread of infection. In addition to its robust nationwide COVID-19 testing offering, BioReference has partnerships with the National Football League (NFL), National Basketball Association (NBA), CVS, Rite-Aid, New York State Department of Health, the New York City Health and Hospital Corporation (NYC Health + Hospitals), the State of New Jersey, the State of Florida and the cities of Detroit and Miami, among others, to provide COVID-19 testing. BioReference performed approximately 0.3 million serology antibody tests and 3.5 million diagnostic molecular tests for COVID-19 during the three months ended September 30, 2020, which represented 63% of BioReference’s total test volume during the third quarter of 2020. Additionally, BioReference has partnered with the State of New York, New York City, the U.S. Center for Disease Control and Prevention (CDC) and a number of employers and government agencies to perform serologic antibody testing, with the capacity to perform up to 400,000 tests per day, and BioReference has additional capacity to perform more than 70,000 diagnostic molecular tests per day.
We have put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps designed to keep colleagues and customers healthy and safe. In line with recommendations to reduce large gatherings and increase social distancing, we have, where practical, transitioned many office-based colleagues to a remote work environment. 

Beginning in March 2020, BioReference experienced, and continues to experience, a decline in routine clinical and genomics testing volumes due to the COVID-19 pandemic. Excluding COVID-19 test volumes, for the three months ended September 30, 2020, volumes in our diagnostics segment declined 9.1% as compared to volumes in the third quarter of 2019. Additionally, sales of Rayaldee have not increased in accordance with its expected growth trajectory as a result of challenges in

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onboarding new patients due to the COVID-19 pandemic. Federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 have resulted in, among other things, a significant reduction in physician office visits, the cancellation of elective medical procedures, customers closing or severely curtailing their operations (voluntarily or in response to government orders), and the adoption of work-from-home or shelter-in-place policies, all of which have had, and may continue to have, an adverse impact on our operating results, cash flows and financial condition, including continued declines in testing volumes. As stay at home orders and other restrictions have been lifted, we have seen our routine clinical and genomic testing volumes trending towards normalization with prior periods; however should stay at home orders or other restrictions be reenacted, we could see our routine testing levels decline. We also continue to see a substantial need for COVID-19 testing by our existing clients and expect new clients as infection rates for the virus continue to increase across the country.
In March 2020, in response to the COVID-19 pandemic, the Coronovirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees.
We have received, or expect to receive a number of benefits under The CARES Act including, but not limited to:
During the second quarter of 2020, we received approximately $14 million under The Centers for Medicare & Medicaid Services (CMS) Accelerated and Advance Payment Program, which provides accelerated payments to Medicare providers/suppliers working to provide treatment to patients and combat the COVID-19 pandemic, and the amounts advanced are loans which will be offset against future claims and must be repaid in 2021. These loans are initially recorded as contract liabilities included in Accrued expenses and are recognized in Revenue from services when earned;
We are eligible to defer depositing the employer’s share of Social Security taxes for payments due from March 27, 2020 through December 31, 2020, interest-free and penalty-free;
We received approximately $10.0 million and $16.2 million during the three and nine months ended September 30, 2020 from the funds that were distributed to healthcare providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic. We recognized the $16.2 million grant in other revenues for the nine months ended September 30, 2020;
U.S. Department of Health and Human Services (HHS), will provide claims reimbursement to healthcare providers generally at Medicare rates for testing uninsured patients; and
Clinical laboratories are provided a one-year reprieve from the reporting requirements under the Protecting Access to Medicare Act (“PAMA”) as well as a one-year delay of reimbursement rate reductions for clinical laboratory services provided under Medicare that were scheduled to take place in 2021.
Since the pandemic began in the U.S., we have invested, and expect to continue to invest, in testing capabilities and infrastructure to meet demand for our molecular and antibody testing for COVID-19.

NOTE 3 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 and nine months ended September 30, 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.

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Principles of consolidation. The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of OPKO Health, Inc. and 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.
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 nine months ended September 30, 2020 and 2019 was $3.4 million and $1.4 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 5. 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 September 30, 2020 and December 31, 2019.
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 $675.8 million and $671.9 million respectively, at September 30, 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 was $1.1 billion, including IPR&D of $590.2 million, at both September 30, 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

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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. 
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 $43.8 million and $49.4 million for the nine months ended September 30, 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 September 30, 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 applicable to such debt.
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 9.
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 September 30, 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 10.
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 $21.5 million and $21.9 million for the nine months ended September 30, 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.

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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 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 and nine months ended September 30, 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 13.
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 healthcare 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 because the related healthcare programs are funded by federal and state governments, and payment is primarily dependent upon submitting appropriate documentation. At September 30, 2020 and December 31, 2019, receivable balances (net of explicit and implicit price concessions) from Medicare and Medicaid were 7% and 6%, respectively, of our consolidated Accounts receivable, net. At September 30, 2020, receivable balances (net of explicit and implicit price concessions) 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 COVID-19, were 8.1% of our consolidated accounts receivable, net.
The portion of our accounts receivable due from individual patients comprises the largest portion of credit risk. At September 30, 2020 and December 31, 2019, receivables due from patients represented approximately 1.0% 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 $2.0 million and $1.9 million at September 30, 2020 and December 31, 2019, respectively. The credit loss expense for the nine months ended September 30, 2020 and 2019 was $0.3 million and $0.3 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. For the nine months ended September 30, 2020 and 2019, we recorded $6.8 million and $11.0 million, respectively, of equity-based compensation expense.

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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 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 15.
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 Income (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 6.
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 6. 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 6.
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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Pending accounting pronouncements.
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40).” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. The ASU is effective for public entities for fiscal years beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the impact of this new guidance on our Condensed Consolidated Financial Statements.

NOTE 4 EARNINGS (LOSS) PER SHARE
Basic income (loss) per share is computed by dividing our net income (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 7) 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 7. 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 and discussed in Note 7) 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 73,412,800 and 69,072,430 potential shares of Common Stock were excluded from the calculation of diluted net loss per share for the three months ended September 30, 2020, and 2019, respectively, because their inclusion would be antidilutive. A total of 69,661,016 and 65,778,754 potential shares of Common Stock were excluded from the calculation of diluted net loss per share for the nine months ended September 30, 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 and nine months ended September 30, 2020, 171,500 Common Stock options and Common Stock warrants to purchase shares of our Common Stock were exercised, resulting in the issuance of 171,500 shares of Common Stock. Of the 171,500 Common Stock options and Common Stock warrants exercised, no shares of Common Stock were surrendered in lieu of a cash payment via the net exercise feature of the agreements.
During the three months ended September 30, 2019, 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 nine months ended September 30, 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 5 COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
(In thousands)September 30,
2020
December 31,
2019
Accounts receivable, net:
Accounts receivable$243,540 $136,551 
Less: allowance for credit losses(1,996)(1,934)
$241,544 $134,617 
Inventories, net:
Consumable supplies$72,518 $23,005 
Finished products30,268 25,142 
Work in-process6,425 3,238 
Raw materials6,343 4,586 
Less: inventory reserve(3,681)(2,537)
$111,873 $53,434 
Other current assets and prepaid expenses:
Taxes recoverable$14,072 $19,808 
Prepaid expenses9,435 8,147 
Prepaid insurance6,635 3,486 
Other receivables714 3,262 
Other7,542 15,839 
$38,398 $50,542 
Intangible assets, net:
Customer relationships$446,794 $445,408 
Technologies296,429 296,246 
Trade names49,791 49,786 
Covenants not to compete16,326 16,318 
Licenses5,766 5,766 
Product registrations7,430 7,578 
Other6,296 6,094 
Less: accumulated amortization(342,414)(298,234)
$486,418 $528,962 
Accrued expenses: