August 4, 2022 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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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 June 30, 2022.


☐			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

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:

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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 July 28, 2022, the registrant had 771,959,579 shares of Common Stock outstanding.

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PART I. FINANCIAL INFORMATION		Page
Item 1.	Financial Statements
Condensed Consolidated Balance Sheets as of June 3 0 , 2022 , and December 31, 2021 (unaudited)		7
Condensed Consolidated Statements of Operations for the three an d six months ended June 3 0 , 2022 , and 2021 (unaudited)		8
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 3 0 , 2022 , and 2021 (unaudited)		9
Condensed Consolidated Statements of Equity for the three and six months ended June 3 0 , 2022 , and 2021 (unaudited)		10
Condensed Consolidated Statements of Cash Flows for the s ix months ended June 3 0 , 2022 , and 2021 (unaudited)		12
Notes to Condensed Consolidated Financial Statements (unaudited)		13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 4.	Controls and Procedures	65
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3.	Defaults Upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	68
Signatures		69

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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, 2021, 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 the impact from potential declines in testing needs as infection rates decline;

•we have had 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 Somatrogon (hGH-CTP) in the United States (“U.S.”) and other territories in which we have applied, or successfully commercialize hGH-CTP Somatrogon (hGH-CTP);

•that we may not generate or sustain 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;

•changes in regulation and policies in the 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 programs, suppliers and strategic partners;

•efforts by third-party payors to reduce utilization and reimbursement for clinical testing services;

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•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;

•our ability to comply with the terms of our Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services;

•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)


	June 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	210,458	$	134,710

Accounts receivable, net	158,425		259,637
Inventory, net	83,306		86,502
Other current assets and prepaid expenses	42,563		27,170
Assets held for sale	—		314,994
Total current assets	494,752		823,013
Property, plant and equipment, net	78,601		79,727
Intangible assets, net	862,409		321,683
In-process research and development	195,000		590,200
Goodwill	578,845		520,601
Investments	108,685		10,729
Operating lease right-of-use assets	42,412		44,228
Other assets	8,898		9,534
Total assets	$	2,369,602	$	2,399,715
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	56,107	$	82,040
Accrued expenses	128,254		193,493
Current maturities of operating leases	12,122		11,624
Liabilities associated with assets held-for-sale	—		28,156
Current portion of lines of credit and notes payable	18,989		14,695
Total current liabilities	215,472		330,008
Operating lease liabilities	30,876		33,097
Convertible notes	211,477		187,935
Deferred tax liabilities	176,741		148,487
Other long-term liabilities, principally contract liabilities, contingent consideration and lines of credit	16,237		15,062
Total long-term liabilities	435,331		384,581
Total liabilities	650,803		714,589


Equity:


Common Stock - $0.01 par value, 1,000,000,000 shares authorized; 780,591,681 and 690,082,283 shares issued at June 30, 2022 and December 31, 2021, respectively	7,806		6,901
Treasury Stock - 8,655,082 shares at June 30, 2022 and December 31, 2021, respectively	(1,791)		(1,791)
Additional paid-in capital	3,413,556		3,222,487
Accumulated other comprehensive loss	(49,171)		(30,495)
Accumulated deficit	(1,651,601)		(1,511,976)


Total shareholders’ equity	1,718,799		1,685,126
Total liabilities and equity	$	2,369,602	$	2,399,715

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 June 30,				For the six months ended June 30,
	2022		2021		2022		2021
Revenues:
Revenue from services	$	186,804	$	397,197	$	473,402	$	904,149
Revenue from products	35,892		35,663		72,550		69,608
Revenue from transfer of intellectual property and other	87,197		9,548		93,159		13,816
Total revenues	309,893		442,408		639,111		987,573
Costs and expenses:
Cost of service revenue	171,836		267,807		393,039		607,235
Cost of product revenue	22,475		25,101		45,147		49,179

Selling, general and administrative	101,464		113,236		219,000		225,522
Research and development	17,254		18,222		35,566		37,537

Contingent consideration	175		(103)		69		(1,059)
Amortization of intangible assets	22,793		12,574		44,818		25,151
Gain on sale of assets	(15,365)		—		(15,365)		—
Total costs and expenses	320,632		436,837		722,275		943,565
Operating income (loss)	(10,739)		5,571		(83,164)		44,008
Other income and (expense), net:
Interest income	161		6		171		12
Interest expense	(3,075)		(4,887)		(5,737)		(10,282)
Fair value changes of derivative instruments, net	338		(272)		206		(711)
Other expense, net	(72,997)		(11,783)		(74,439)		(12,711)
Other expense, net	(75,572)		(16,936)		(79,799)		(23,692)
Income (loss) before income taxes and investment losses	(86,312)		(11,365)		(162,963)		20,316
Income tax benefit (provision)	(15,070)		(4,754)		6,196		(5,314)
Net income (loss) before investment losses	(101,382)		(16,119)		(156,766)		15,002
Loss from investments in investees	(268)		(67)		(316)		(110)
Net income (loss)	$	(101,650)	$	(16,186)	$	(157,083)	$	14,892






Income (loss) per share, basic and diluted:


Income (loss) per share	$	(0.14)	$	(0.03)	$	(0.23)	$	0.02

Weighted average common shares outstanding, basic and diluted	712,548,661		646,996,891		686,597,899		644,001,280

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 June 30,				For the six months ended June 30,
	2022		2021		2022		2021
Net income (loss)	$	(101,650)	$	(16,186)	$	(157,083)	$	14,892
Other comprehensive loss, net of tax:
Change in foreign currency translation and other comprehensive loss	(17,756)		(9,070)		(18,676)		(9,070)




Comprehensive income (loss)	$	(119,406)	$	(25,256)	$	(175,759)	$	5,822

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 data)

For the three and six months ended June 30, 2022


	Common Stock		Treasury			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit					Total
		Shares	Dollars		Shares							Dollars
Balance at March 31, 2022		690,138,033	$	6,901	(8,655,082)	$	(1,791)	$	3,191,139	$	(31,415)		$	(1,549,951)		$	1,614,884
Equity-based compensation expense		—	—		—	—		4,308		—			—			4,308
Exercise of common stock options and warrants		546,337	6		—	—		(366)		—			—			(360)


ModeX Acquisition		89,907,311	899		—	—		218,475		—			—			219,374
Net loss		—	—		—	—		—		—			(101,650)			(101,650)
Other comprehensive loss		—	—		—	—		—		(17,756)			—			(17,756)
Balance at June 30, 2022		780,591,681	$	7,806	(8,655,082)	$	(1,791)	$	3,413,556	$	(49,171)		$	(1,651,601)		$	1,718,799


	Common Stock		Treasury			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit					Total
		Shares	Dollars		Shares							Dollars
Balance at December 31, 2021		690,082,283	$	6,901	(8,655,082)	$	(1,791)	$	3,222,487	$	(30,495)		$	(1,511,976)		$	1,685,126
Equity-based compensation expense		—	—		—	—		11,925		—			—			11,925
Exercise of common stock options and warrants		602,087	6		—	—		(231)		—			—			(225)
Adoption of ASU 2020-06		—	—		—	—		(39,100)		—			17,458			(21,642)

ModeX Acquisition		89,907,311	899		—	—		218,475		—			—			219,374
Net loss		—	—		—	—		—		—			(157,083)			(157,083)
Other comprehensive loss		—	—		—	—		—		(18,676)			—			(18,676)
Balance at June 30, 2022		780,591,681	$	7,806	(8,655,082)	$	(1,791)	$	3,413,556	$	(49,171)		$	(1,651,601)		$	1,718,799

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 data)

For the three and six months ended June 30, 2021


	Common Stock		Treasury			Additional Paid-In Capital		Accumulated Other Comprehensive Income (loss)		Accumulated Deficit					Total
		Shares	Dollars		Shares							Dollars
Balance at March 31, 2021		670,703,076	$	6,707	(549,907)	$	(1,791)	$	3,155,648	$	(13,295)		$	(1,450,755)		$	1,696,514
Equity-based compensation expense		—	—		—	—		3,460		—			—			3,460
Exercise of common stock options and warrants		63,625	1		—	—		158		—			—			159

2025 convertible notes		19,051,270	190		(8,105,175)	—		55,085		—			—			55,275
Net loss		—	—		—	—		—		—			(16,186)			(16,186)
Other comprehensive income		—	—		—	—		—		3,363			—			3,363
Balance at June 30, 2021		689,817,971	$	6,898	(8,655,082)	$	(1,791)	$	3,214,351	$	(9,932)		$	(1,466,941)		$	1,742,585


	Common Stock		Treasury			Additional Paid-In Capital		Accumulated Other Comprehensive Income (loss)		Accumulated Deficit					Total
		Shares	Dollars		Shares							Dollars
Balance at December 31, 2020		670,585,576	$	6,706	(549,907)	$	(1,791)	$	3,152,694	$	(4,225)		$	(1,481,833)		$	1,671,551
Equity-based compensation expense		—	—		—	—		6,107		—			—			6,107
Exercise of common stock options and warrants		181,125	2		—	—		465		—			—			467

2025 convertible notes		19,051,270	190		(8,105,175)	—		55,085		—			—			55,275
Net income		—	—		—	—		—		—			14,892			14,892
Other comprehensive loss		—	—		—	—		—		(5,707)			—			(5,707)
Balance at June 30, 2021		689,817,971	$	6,898	(8,655,082)	$	(1,791)	$	3,214,351	$	(9,932)		$	(1,466,941)		$	1,742,585

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 six months ended June 30,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	(157,083)	$	14,892

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	55,809		40,561
Non-cash interest	1,364		4,981
Amortization of deferred financing costs	569		424

Losses from investments in investees	316		110
Equity-based compensation – employees and non-employees	11,925		6,107



Realized loss (gain) on disposal of fixed assets and sales of equity securities	(477)		(3,146)
Loss on conversion of the 2025 Notes	—		11,111

Change in fair value of equity securities and derivative instruments	73,724		873

Change in fair value of contingent consideration	69		(1,059)
Gain on sale of GeneDx	(15,365)		—


Deferred income tax benefit	(8,942)		2,479
Changes in assets and liabilities:
Accounts receivable, net	95,864		20,352
Inventory, net	2,864		(3,817)
Other current assets and prepaid expenses	(6,502)		(13,904)
Other assets	(260)		1,388
Accounts payable	(19,508)		(11,651)
Foreign currency measurement	4,295		(2,532)
Contract liabilities	(17)		(7,425)
Accrued expenses and other liabilities	(69,978)		(49,159)


Net cash (used in) provided by operating activities	(31,333)		10,585
Cash flows from investing activities:

Proceeds from sale of investments	—		8,079
Proceeds from sale of GeneDx	115,423		—
Acquisition of businesses, net of cash	(2,071)		—


Proceeds from the sale of property, plant and equipment	870		165

Capital expenditures	(10,630)		(18,192)
Net cash provided by (used in) investing activities	103,592		(9,948)
Cash flows from financing activities:


Issuance of common stock	1		—
Proceeds from the exercise of common stock options	(225)		465


Borrowings on lines of credit	684,467		982,797
Repayments of lines of credit	(679,860)		(990,190)



Net cash provided by (used in) financing activities	4,383		(6,928)
Effect of exchange rate changes on cash and cash equivalents	(894)		(163)
Net increase (decrease) in cash and cash equivalents	75,748		(6,454)
Cash and cash equivalents at beginning of period	134,710		72,211
Cash and cash equivalents at end of period	$	210,458	$	65,757
SUPPLEMENTAL INFORMATION:
Interest paid	$	3,554	$	4,883
Income taxes paid, net of refunds	$	4,647	$	3,690



Non-cash financing:

Shares issued upon the conversion of:


2025 Convertible Notes	$	—	$	68,775
Common stock options and warrants, surrendered in net exercise	$	655	$	—










Issuance of common stock for acquisition of ModeX	$	219,374	$	—
Fair value of shares included in consideration from Sema4	$	172,000	$	—

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 Health, LLC, formerly known as BioReference Laboratories, Inc. (“BioReference”), one of the nation’s largest full service laboratories with an almost 250-person sales and marketing team to drive growth and leverage new products. Our pharmaceutical business features Rayaldee, a U.S. Food and Drug Administration (“FDA”) approved treatment for secondary hyperparathyroidism (“SHPT”) in adults with stage 3 or 4 chronic kidney disease (“CKD”) and vitamin D insufficiency and a pipeline of products in various stages of development. Our leading product in development is Somatrogon (hGH-CTP), a once-weekly human growth hormone for which we have partnered with Pfizer, Inc. (“Pfizer”) and successfully completed a phase 3 study in August 2019. Regulatory applications for Somatrogon (hGH-CTP) have been submitted to the applicable regulatory bodies for review in several countries around the world. In February 2022, the European Commission granted marketing authorization in the European Union for Somatrogon (hGH-CTP) under the brand name NGENLA® to treat children and adolescents from as young as three years of age with growth disturbance due to insufficient secretion of growth hormone, and we recently received pricing approval in Germany. In January 2022, the Ministry of Health, Labour and Welfare in Japan approved NGENLA® (Somatrogon) for the long-term treatment of pediatric patients who have growth failure due to an inadequate secretion of endogenous growth hormone and we recently received pricing approval. In October 2021, Health Canada approved NGENLA® for the long-term treatment of pediatric patients who have growth hormone deficiency, and Australia’s Therapeutic Goods Administration approved NGENLA® for the long-term treatment of pediatric patients with growth disturbance due to insufficient secretion of growth hormone. Pfizer submitted the initial Biologics License Application (“BLA”) with the FDA for approval of Somatrogon (hGH-CTP) in the United States and received a Complete Response Letter in January 2022. Pfizer and OPKO are evaluating the FDA’s comments and will work with the agency to determine the best path forward for Somatrogon (hGH-CTP) in the United States. 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 in 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.

On May 9, 2022 (the “Closing Date”), the Company entered into an Agreement and Plan of Merger (the “ModeX Merger Agreement”) with Orca Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), ModeX Therapeutics, Inc., a Delaware corporation (“ModeX”) and Gary J. Nabel, solely in his capacity as sellers’ representative, pursuant to which Merger Sub merged with and into ModeX (the “ModeX Merger”), with ModeX surviving the ModeX Merger as a wholly owned subsidiary of the Company. The Company paid the entirety of the $300.0 million purchase price pursuant to the issuance of an aggregate of 89,907,310 shares (the “Consideration Shares”) of the Company’s common stock, par value $0.01 per share (“Common Stock”), to the former stockholders of ModeX (the “Selling Stockholders”), of which 10% of such shares were deposited in a twelve-month escrow for purposes of satisfying the potential indemnity obligations of the Selling Stockholders under the ModeX Merger Agreement. Additionally, the Company issued equity awards to ModeX employees in an amount equal to $12.4 million, which was deducted from the consideration payable on the Closing Date. If any of such awards are forfeited or otherwise remain unvested on the four-year anniversary of the Closing Date, up to $2.6 million shares of Common Stock (valued at the same price used for determining the number of Consideration Shares issuable upon consummation of the ModeX Merger) may be distributed pro rata to ModeX’s former stockholders in respect of such forfeited or unvested awards. Shares of Common Stock with respect to such potential distribution have been escrowed and will remain escrowed for such four-year period. For accounting purposes, the shares were valued at $219.4 million, based on

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the closing price per share of our Common Stock of $2.44 as reported by NASDAQ Global Select Market (“NASDAQ”) on the Closing Date.

In connection with the ModeX Merger, the Company appointed Elias A. Zerhouni, M.D., Gary J. Nabel, M.D., PhD., and Alexis Borisy to the Board of Directors of the Company (the “Board”), with Dr. Zerhouni serving as Vice Chair. Elizabeth Nabel, one of the founders of ModeX, was appointed as the Company’s new Chief Medical Officer. Dr. Gary J. Nabel has been named the Chief Executive Officer of ModeX and Chief Innovation Officer of the Company and Dr. Elias A.Zerhouni has been named the President of the Company.

In accordance with the ModeX Merger Agreement, Dr. Phillip Frost, the Company’s Chief Executive Officer and Chairman of the Board, Dr. Jane Hsiao, the Company’s Chief Technical Officer and a Director, and Frost Gamma Investments Trust (“FGIT”), a trust controlled by Dr. Frost, entered into a lockup and voting agreement, together with the Company (the “ModeX Lockup and Voting Agreement”), pursuant to which: (i) FGIT has agreed that, for a period of four years immediately following the Closing Date, it will not sell or otherwise transfer its shares of Common Stock, subject to certain customary exceptions; and (ii) Drs. Frost and Hsiao agreed that, for as long as Dr. Elias A. Zerhouni or Dr. Gary J. Nabel remains an employee of the Company or ModeX, Drs. Frost and Hsiao will vote, or cause to be voted, all of their respective shares of Common Stock in favor of such person’s election to the Board. Additionally, in accordance with the ModeX Merger Agreement, certain recipients of the Consideration Shares, holding in aggregate approximately 88.0% of the Consideration Shares, agreed not to sell or otherwise transfer their respective Consideration Shares for a period of four years immediately following the Closing Date on the same terms as contained in the ModeX Lockup and Voting Agreement.

On January 14, 2022, the Company entered into an Agreement and Plan of Merger and Reorganization (the “GeneDx Merger Agreement”) with Sema4 Holdings Corp., a Delaware corporation (“Sema4”), pursuant to which Sema4 acquired the Company’s former subsidiary, GeneDx LLC, (f/k/a GeneDx, Inc. “GeneDx”), (the “GeneDx Transaction”) in a transaction that closed on April 29, 2022 (the “GeneDx Closing”).

Upon the GeneDx Closing, Sema4 paid to the Company aggregate consideration of $150 million in cash (before deduction of transaction expenses and other customary purchase price adjustments), together with 80.0 million shares (the “Closing Shares”) of Sema4’s Class A common stock, par value $0.0001 per share (“Sema4 Common Stock”). Additionally, Sema4 has agreed to pay the Company up to an additional $150 million, which may be paid in Sema4 Common Stock, cash or a combination thereof in Sema4’s discretion, subject to GeneDx achieving certain revenue targets for the fiscal years ending December 31, 2022 and 2023 (the “Milestone Consideration”). Based on the closing price of Sema4 Common Stock on April 29, 2022, the total upfront consideration was approximately $322 million, and the total aggregate consideration, including the potential Milestone Consideration, was approximately $447 million. We recognized a gain of $15.4 million on the sale of GeneDx during the second quarter of 2022.

In connection with the transactions contemplated by the GeneDx Merger Agreement, on January 14, 2022, the Company entered into a Shareholder Agreement (the “Sema4 Shareholder Agreement”) with Sema4, pursuant to which the Company has agreed to, among other things, be subject to a lock-up period with respect to its shares of Sema4 Common Stock, which expires on April 29, 2024 with respect to the Closing Shares, and, if earned and received, would extend for periods of one-year and six-months following the issuance of shares, cash or a combination thereof, in respect of the first and second potential Milestone Consideration payments, respectively.

Pursuant to the GeneDx Merger Agreement, the Company designated, and Sema4 nominated for election an individual to serve on the board of directors of Sema4, and such nominee was elected by Sema4’s stockholders to serve as a director until Sema4’s 2024 annual meeting of stockholders. In addition, the Company has further agreed to certain standstill provisions whereby, subject to certain exceptions, it is obligated to refrain from taking certain actions with respect to the Sema4 Common Stock. The Company has also agreed to vote its shares of Sema4 Common Stock in accordance with the recommendations of Sema4’s board of directors for so long as it continues to hold at least 5% of the outstanding shares of Sema4 Common Stock. Further, Sema4 has also granted the Company certain customary shelf, piggyback and demand registration rights that require Sema4 to register the Company’s Sema4 Lock-Up Shares for resale under the Securities Act. OPKO’s intention is that we will no longer have a designee serving on Sema4’s board of directors upon the expiration of the Sema4 Lock-Up Period. As such, OPKO is not actively participating in the policy-making process of Sema4.

As of December 31, 2021, GeneDx met the held-for-sale accounting criteria and, its related assets and liabilities are classified as held for sale in the consolidated balance sheet. GeneDx was included in our diagnostics segment as of December 31, 2021.

NOTE 2 IMPACT OF COVID-19

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We continue to be a part of the coordinated public and private sector response to SARS-CoV-2, a novel strain of coronavirus, referred to as COVID-19. There continues to be a high level of uncertainty relating to how the pandemic will evolve, how governments and consumers will react, progress on the distribution of vaccines and whether the pandemic will have a longer-term effect on the healthcare industry and patient habits. BioReference is providing COVID-19 solutions, including diagnostic molecular testing and serology antibody testing, to meet the testing needs of its customers, including physicians, health systems, long-term care facilities, governments, schools, employers, professional sports teams and entertainment venues, as well as the general public through relationships with retail pharmacy chains.

Since the pandemic began in the U.S., we have invested in testing capabilities and infrastructure to meet demand for our molecular and antibody testing for COVID-19. Throughout the pandemic, we have managed our company-wide lab operations specimen acquisition, logistics, procurement, customer service, and initiatives to manage our cost structure to match the ever changing COVID-19 testing volumes and to manage efficiency gains in our core clinical lines of business. We anticipate that COVID-19 will continue to impact our business in 2022 and, overall, we expect COVID-19 test demand to continue to decline in 2022 as compared to 2021.

Revenue from services for the six months ended June 30, 2022 decreased by $430.7 million as compared to 2021 due to lower COVID-19 testing volumes. Excluding COVID-19 test volumes, for the six months ended June 30, 2022, routine clinical test volume decreased 26.2% as compared to volumes for the six months ended June 30, 2021.

In March 2022, the U.S. Health Resources and Services Administration ("HRSA") informed providers that, after March 22, 2022, it would stop accepting claims for testing and treatment for uninsured individuals under the HRSA COVID-19 Uninsured Program and that claims submitted prior to that date would be subject to eligibility and availability of funds. For the six months ended June 30, 2022, revenue for testing of uninsured individuals under the HRSA COVID-19 Uninsured Program represented approximately 5.7% of our COVID-19 testing revenue. As of June 30, 2022, less than 2% of our net accounts receivable was associated with claims for reimbursement for COVID-19 testing of uninsured individuals. Although we believe that our estimates for contractual allowances and patient price concessions are appropriate, actual results could differ from those estimates.

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 six months ended June 30, 2022 are not necessarily indicative of the results of operations and cash flows that may be reported for the remainder of 2022 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, 2021.

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 are used in our testing laboratories. Inventory obsolescence expense for the three and six months ended June 30, 2022 was $0.3 million and $1.0 million, respectively. Inventory obsolescence expense for the three and six months ended June 30, 2021 was $0.9 million and $3.9 million, respectively.

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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 $1.6 billion and $1.4 billion, respectively, at June 30, 2022 and December 31, 2021.

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.

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. Goodwill was $578.8 million and $520.6 million, respectively, at June 30, 2022 and December 31, 2021. At December 31, 2021, Assets held for sale include $151.8 million of goodwill related to GeneDx.

Net intangible assets other than goodwill was $1,057.4 million and $911.9 million, including IPR&D of $195.0 million and $590.2 million at June 30, 2022 and December 31, 2021, respectively. 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 in testing goodwill and other intangible assets, including IPR&D, for

impairment 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 additional impairment charges, which could be material. Pfizer submitted the initial BLA with the FDA for approval of Somatrogon (hGH-CTP) in the United States and Pfizer received a Complete Response Letter in January 2022. Pfizer and OPKO are evaluating the FDA’s comments and will work with the agency to determine the best path forward for Somatrogon (hGH-CTP) in the United States.

In the first quarter of 2022, we reclassified $590.0 million of IPR&D related to Somatrogon (hGH-CTP) from IPR&D in our Condensed Consolidated Balance Sheet upon the approval of NGENLA (Somatrogon) in Europe and Japan. The assets will be amortized on a straight-line basis over their estimated useful life of approximately 12 years.

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 $44.8 million and $25.2 million for the six months ended June 30, 2022 and 2021, 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 June 30, 2022 and December 31, 2021 are predominately carried at fair value. Our debt under the Credit Agreement (as defined below) 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

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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 June 30, 2022 and December 31, 2021, our foreign currency forward contracts held to economically hedge inventory purchases did not meet the documentation requirements to be designated as hedges. Accordingly, we recognized 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. Assets held under finance leases are included within Property, plant and equipment, net in our Consolidated Balance Sheets and are amortized over the shorter of their useful lives or the expected term of their related leases. Depreciation expense was $5.2 million and $11.0 million for the three and six months ended June 30, 2022, respectively. Depreciation expense was $8.0 million and $15.4 million for three and six months ended June 30, 2021, respectively.

Impairment of long-lived assets. Long-lived assets, such as property and equipment and assets held for sale, 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

Form: 10-Q

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