10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 7, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
OPKO Health, Inc.
(Exact Name of Registrant as Specified in Its Charter)
| |
|
| (State or Other Jurisdiction of |
(I.R.S. Employer |
| |
|
|
| (Address of Principal Executive Offices) (Zip Code) |
| (
|
| (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 |
||||||
| |
|
|
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. ☒
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
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:
| |
☒ | 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):
As of November 1, 2024, the registrant had
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, 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, 2023, 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:
| • |
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 not generate or sustain profits or cash flow from our laboratory operations or substantial revenue from NGENLA, Rayaldee and our other pharmaceutical and diagnostic products; |
| • |
our ability to manage our growth and our expanded operations; |
| • |
that our acquisition of ModeX Therapeutics, Inc. will be successful and the products in the R&D pipeline will ultimately be commercialized; |
| • |
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; |
| • |
increased competition, including price competition; |
| • |
our success is dependent on the involvement and continued efforts of our Chairman and Chief Executive Officer; |
| • |
integration challenges for acquired businesses; |
| • |
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; |
| • |
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 2022 Corporate Integrity Agreement with the U.S. Office of Inspector General of the Department of Health and Human Services; |
| • |
failure to obtain and maintain regulatory approval for our products and services outside the U.S.; |
| • |
legal, economic, political, regulatory, currency exchange, and other risks associated with international operations; and |
|
| • |
disruptions to operations, including impact on employees, and business continuity, including physical damage or impaired access to company facilities, office of technology from the current conflicts in the Middle East |
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.
OPKO Health, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands, except share and per share data)
| September 30, 2024 |
December 31, 2023 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash, cash equivalents and current restricted cash |
$ | $ | ||||||
| Accounts receivable, net |
||||||||
| Inventory, net |
||||||||
| Other current assets and prepaid expenses |
||||||||
| Total current assets |
||||||||
| Property, plant and equipment, net |
||||||||
| Intangible assets, net |
||||||||
| In-process research and development |
||||||||
| Goodwill |
||||||||
| Investments |
||||||||
| Operating lease right-of-use assets |
||||||||
| Other assets |
||||||||
| Total assets |
$ | $ | ||||||
| LIABILITIES AND EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | $ | ||||||
| Accrued expenses |
||||||||
| Current maturities of operating leases |
||||||||
| Current portion of convertible notes |
||||||||
| Current portion of lines of credit and notes payable |
||||||||
| Total current liabilities |
||||||||
| Operating lease liabilities |
||||||||
| Long term portion of convertible notes |
||||||||
| Senior secured notes |
||||||||
| Deferred tax liabilities |
||||||||
| Other long-term liabilities, principally contract liabilities, contingent consideration and lines of credit |
||||||||
| Total long-term liabilities |
||||||||
| Total liabilities |
||||||||
| Equity: |
||||||||
| Common Stock - $ par value, shares authorized; and shares issued at September 30, 2024 and December 31, 2023, respectively |
||||||||
| Treasury Stock - , and shares at September 30, 2024 and December 31, 2023, respectively |
( |
) | ( |
) | ||||
| Additional paid-in capital |
||||||||
| Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
| Accumulated deficit |
( |
) | ( |
) | ||||
| Total shareholders’ equity |
||||||||
| Total liabilities and equity |
$ | $ | ||||||
The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Revenue from services |
$ | $ | $ | $ | ||||||||||||
| Revenue from products |
||||||||||||||||
| Revenue from transfer of intellectual property and other |
||||||||||||||||
| Total revenues |
||||||||||||||||
| Costs and expenses: |
||||||||||||||||
| Cost of service revenue |
||||||||||||||||
| Cost of product revenue |
||||||||||||||||
| Selling, general and administrative |
||||||||||||||||
| Research and development |
||||||||||||||||
| Contingent consideration |
( |
) | ( |
) | ||||||||||||
| Amortization of intangible assets |
||||||||||||||||
| Gain on sale of assets |
( |
) | ( |
) | ||||||||||||
| Total costs and expenses |
||||||||||||||||
| Operating income (loss) |
( |
) | ( |
) | ( |
) | ||||||||||
| Other income and (expense), net: |
||||||||||||||||
| Interest income |
||||||||||||||||
| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Fair value changes of derivative instruments, net |
( |
) | ( |
) | ( |
) | ||||||||||
| Other income (expense), net |
( |
) | ( |
) | ||||||||||||
| Other income (expense), net |
( |
) | ( |
) | ||||||||||||
| Income (loss) before income taxes and investment losses |
( |
) | ( |
) | ( |
) | ||||||||||
| Income tax provision |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net income (loss) before investment losses |
( |
) | ( |
) | ( |
) | ||||||||||
| Loss from investments in investees |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net income (loss) |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Income (loss) per share: |
||||||||||||||||
| Income (loss) per share, basic |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Income (loss) per share, diluted |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Weighted average common shares outstanding, basic |
||||||||||||||||
| Weighted average common shares outstanding, diluted |
||||||||||||||||
The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
OPKO Health, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands)
| For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Net income (loss) |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Other comprehensive income (loss), net of tax: |
||||||||||||||||
| Change in foreign currency translation and other comprehensive income (loss) |
( |
) | ( |
) | ( |
) | ||||||||||
| Comprehensive income (loss) |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)
For the three and nine months ended September 30, 2024
| Accumulated |
||||||||||||||||||||||||||||||||
| Additional |
Other |
|||||||||||||||||||||||||||||||
| Common Stock |
Treasury |
Paid-In |
Comprehensive |
Accumulated |
||||||||||||||||||||||||||||
| Shares |
Dollars |
Shares |
Dollars |
Capital |
Loss |
Deficit |
Total |
|||||||||||||||||||||||||
| Balance at June 30, 2024 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Equity-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Repurchase of 2029 Convertible Notes |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Share repurchase |
( |
) | ( |
) | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Net income |
— | — | ||||||||||||||||||||||||||||||
| Other comprehensive income |
— | — | ||||||||||||||||||||||||||||||
| Balance at September 30, 2024 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||||||
| Additional |
Other |
|||||||||||||||||||||||||||||||
| Common Stock |
Treasury |
Paid-In |
Comprehensive |
Accumulated |
||||||||||||||||||||||||||||
| Shares |
Dollars |
Shares |
Dollars |
Capital |
Loss |
Deficit |
Total |
|||||||||||||||||||||||||
| Balance at December 31, 2023 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Equity-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Exercise of common stock options and warrants |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| 2025 Notes |
( |
) | ||||||||||||||||||||||||||||||
| 2029 Convertible Notes |
||||||||||||||||||||||||||||||||
| Repurchase of 2029 Convertible Notes |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Share repurchase |
( |
) | ( |
) | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Other comprehensive loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at September 30, 2024 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)
For the three and nine months ended September 30, 2023
| Accumulated |
||||||||||||||||||||||||||||||||
| Additional |
Other |
|||||||||||||||||||||||||||||||
| Common Stock |
Treasury |
Paid-In |
Comprehensive |
Accumulated |
||||||||||||||||||||||||||||
| Shares |
Dollars |
Shares |
Dollars |
Capital |
Loss |
Deficit |
Total |
|||||||||||||||||||||||||
| Balance at June 30, 2023 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Equity-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Exercise of common stock options and warrants |
||||||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Other comprehensive loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at September 30, 2023 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||||||
| Additional |
Other |
|||||||||||||||||||||||||||||||
| Common Stock |
Treasury |
Paid-In |
Comprehensive |
Accumulated |
||||||||||||||||||||||||||||
| Shares |
Dollars |
Shares |
Dollars |
Capital |
Loss |
Deficit |
Total |
|||||||||||||||||||||||||
| Balance at December 31, 2022 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Equity-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Exercise of common stock options and warrants |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Other comprehensive loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at September 30, 2023 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
OPKO Health, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| For the nine months ended September 30, |
||||||||
| 2024 |
2023 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Non-cash interest |
||||||||
| Amortization of deferred financing costs |
||||||||
| Losses from investments in investees |
||||||||
| Equity-based compensation – employees and non-employees |
||||||||
| Realized loss (gain) on disposal of fixed assets and sales of equity securities |
( |
) | ||||||
| Change in fair value of equity securities and derivative instruments |
( |
) | ||||||
| Loss on conversion convertible senior notes |
||||||||
| Change in fair value of contingent consideration |
( |
) | ||||||
| Deferred income tax (benefit) provision |
||||||||
| Gain on sale of assets |
( |
) | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable, net |
||||||||
| Inventory, net |
||||||||
| Other current assets and prepaid expenses |
( |
) | ||||||
| Other assets |
( |
) | ||||||
| Accounts payable |
( |
) | ||||||
| Foreign currency measurement |
( |
) | ||||||
| Accrued expenses and other liabilities |
( |
) | ||||||
| Net cash (used in) provided by operating activities |
( |
) | ||||||
| Cash flows from investing activities: |
||||||||
| Investments in investees |
( |
) | ||||||
| Proceeds from sale of equity securities |
||||||||
| Purchase of marketable securities |
( |
) | ||||||
| Proceeds from the sale of property, plant and equipment |
||||||||
| Capital expenditures |
( |
) | ( |
) | ||||
| Proceeds from LabCorp Sale |
||||||||
| Net cash provided by (used in) investing activities |
( |
) | ||||||
| Cash flows from financing activities: |
||||||||
| Issuance of 3.00% convertible senior notes, net (including related parties) |
||||||||
| Issuance of 2044 Notes |
||||||||
| Debt issuance costs |
( |
) | ||||||
| Share repurchase |
( |
) | ||||||
| Proceeds from the exercise of common stock options |
( |
) | ( |
) | ||||
| Repurchase of 2029 Convertible Notes |
( |
) | ||||||
| Borrowings on lines of credit |
||||||||
| Repayments of lines of credit |
( |
) | ( |
) | ||||
| Redemption of 2025 Notes and 2033 Senior Notes |
( |
) | ( |
) | ||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash |
( |
) | ||||||
| Net decrease in cash, cash equivalents and restricted cash |
( |
) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period |
||||||||
| Cash, cash equivalents and restricted cash at end of period |
$ | $ | ||||||
| SUPPLEMENTAL INFORMATION: |
||||||||
| Interest paid |
$ | $ | ||||||
| Income taxes paid, net of refunds |
$ | $ | ( |
) | ||||
| Assets acquired by finance leases |
$ | $ | ||||||
| Operating lease right-of-use assets in exchange for lease obligations |
$ | $ | ||||||
| Non-cash financing: |
||||||||
| Shares issued upon the conversion of: |
||||||||
| Common stock options, warrants, and restricted stock units surrendered in net exercise |
$ | $ | ||||||
| Fair value of shares received related to milestone achieved from GeneDx Holdings |
$ | $ | ||||||
The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
OPKO Health, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 BUSINESS AND ORGANIZATION
OPKO Health, Inc., a Delaware corporation (“OPKO”, the “Company”, “we”, “us”, or “our”) is a diversified healthcare company that seeks to establish industry leading positions in large and rapidly growing medical markets. 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 Somatrogon (hGH-CTP), a once-weekly human growth hormone injection. We have partnered with Pfizer Inc. (“Pfizer”) for the development and commercialization of Somatrogon (hGH-CTP). Regulatory approvals for Somatrogon (hGH-CTP) for the treatment of growth hormone deficiency in children and adolescents have been secured in more than 50 markets, including the United States, European Union (“EU”) Member States, Japan, Canada, and Australia, where it is marketed under the brand name NGENLA®. Through our 2022 acquisition of ModeX Therapeutics, Inc. (“ModeX”), we have expanded our pharmaceutical pipeline with early-stage immune therapies targeting cancer and infectious diseases.
Our diagnostics business, BioReference Health, LLC (“BioReference”), is a highly specialized laboratory in the United States, with a sales and marketing team focused on growth and new product integration, including the 4Kscore® prostate cancer test. BioReference® offers a broad spectrum of diagnostic testing services for oncology, urology (4Kscore), and corrections nationwide, setting new standards with our industry-leading turnaround times. BioReference also provides comprehensive clinical and women’s health testing in New York and New Jersey. Our test offerings are backed by a team of board-certified medical professionals and driven by the latest healthcare guidelines and standards- marketed directly to physicians, geneticists, hospitals, clinics, correctional facilities, and other healthcare providers. On September 16, 2024 we consummated the sale of certain assets of BioReference to Laboratory Corporation of America Holdings ("Labcorp"), as described below.
The Company maintains established, revenue-generating pharmaceutical platforms in Spain, Ireland, Chile, and Mexico, contributing to positive cash flow and facilitating market entry for our development pipeline. In addition to these platforms, we operate a global pharmaceutical development and commercial supply company, a global supply chain operation, and manufacture specialty active pharmaceutical ingredients (API) in Israel through our subsidiary, FineTech.
Our management team possesses extensive industry experience in development, regulatory affairs, and commercialization. Their industry relationships support the identification and pursuit of commercial opportunities. Research and development activities are primarily conducted in facilities located in Weston, Massachusetts, Waterford, Ireland, Kiryat Gat, Israel, and Barcelona, Spain.
On March 27, 2024, the Company and BioReference entered into a definitive agreement with Labcorp (the “Labcorp Asset Purchase Agreement”), pursuant to which Labcorp acquired select assets of BioReference (the “BioReference Transaction”). The BioReference Transaction closed on September 16, 2024, and upon closing, Labcorp paid to the Company aggregate consideration of $
Pursuant to the Labcorp Asset Purchase Agreement, a total of approximately $
We recognized a gain of $
NOTE 2 FOREIGN EXCHANGE RATES
Foreign Currency Exchange Rates
Approximately
We are subject to foreign currency transaction risk due to fluctuations in exchange rates between the time a transaction is initiated and settled. To mitigate this risk, we use foreign currency forward contracts. These contracts fix an exchange rate, allowing us to offset potential losses (or gains) caused by exchange rate changes at the settlement date. As of September 30, 2024, we held
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 nine months ended September 30, 2024 are not necessarily indicative of the results of operations and cash flows that may be reported for the remainder of 2024 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, 2023.
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, cash equivalents and restricted cash. Cash, cash equivalents and restricted cash 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.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheet to the sum of such amounts in the Condensed Consolidated Statements of Cash Flows:
| September 30, 2024 |
December 31, 2023 |
|||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash, current |
||||||||
| Restricted cash, long-term |
||||||||
| Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows |
$ | $ | ||||||
The Company classifies cash deposits related to letters of credit securing insurance and lease obligations as restricted cash, which is included in other assets, non-current, within the Consolidated Balance Sheet.
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 nine months ended September 30, 2024 was $
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 $
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 $
Net intangible assets other than goodwill were $
Upon regulatory approval, IPR&D assets are classified as finite-lived intangible assets. These assets are then amortized on a straight-line basis over their estimated useful lives. If a project is abandoned, the associated IPR&D costs are immediately expensed. We also regularly assess finite-lived intangible assets for impairment. This assessment involves comparing the carrying amount of an asset, which is its cost minus accumulated amortization, to its estimated future undiscounted cash flows. If the carrying amount exceeds the estimated future cash flows, an impairment charge is recognized to reflect the difference between the asset's carrying amount and its fair value.
While we believe our estimates and assumptions used in impairment testing (including for goodwill and IPR&D) are reasonable and reflect those used by market participants, there is a potential risk of material impairment charges. Based on the current financial performance of our diagnostics segment and our Ireland reporting unit (which includes Eirgen and Rayaldee), we could be subject to such charges if their future performance deviates from our current estimates and assumptions. For reference, the combined goodwill of these units totaled $
We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from
Fair value measurements. The carrying amounts of our cash, cash equivalents, restricted cash, 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, 2024 and December 31, 2023 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 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 a 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, 2024 and December 31, 2023, 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. In addition, we have determined the value of the embedded derivative liability within the 2029 Convertible 144A Notes (as defined in Note 7) and recorded it at fair value. Refer to Note 7. The changes in the fair value of the embedded derivatives are recognized in the fair value changes of derivatives instruments, net. Refer to Note 9.
Property, plant and equipment. Property, plant and equipment are recorded at cost or fair value if acquired in a business combination. Depreciation is provided using the straight-line method over the estimated useful lives of the assets and includes amortization expense for assets capitalized under finance leases. The estimated useful lives by asset class are as follows: software -
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 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 nine months ended September 30, 2024, the tax rate differed from the U.S. federal statutory rate of
Included in Other long-term liabilities is an accrual of $
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, such receivables are not a credit risk because federal and state governments fund the related healthcare programs. Payment is primarily dependent upon submitting appropriate documentation. On September 30, 2024 and December 31, 2023, receivable balances (net of explicit and implicit price concessions) from Medicare and Medicaid were
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 $
As of September 30, 2024, accounts receivable included $
Stock Repurchase Program. On July 18, 2024, the Company announced that its Board of Directors authorized the repurchase of up to $
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 three and nine months ended September 30, 2024, we recorded $
Research and development expenses. Research and development expenses include external and internal expenses. External expenses include clinical and nonclinical 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. Dr. Frost reviews our operating results and operating plans and makes resource allocation decisions on a Company-wide or aggregate basis. We manage our operations in 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 our 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. 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). During the three and nine months ended September 30, 2024, we recorded foreign currency transaction income of $
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.
Accounting standards yet to be adopted.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (i) specific categories in the rate reconciliation, (ii) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (iii) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state, and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU No 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 enhances disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. ASC 280 requires a public entity to report for each reportable segment a measure of segment profit or loss that its CODM uses to assess segment performance and to make decisions about resource allocations. The ASU is effective for fiscal years beginning after December 15, 2024 with updates to be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
Recently adopted accounting standards.
In 2021, the Organization for Economic Co-operation and Development (“OECD”) established an inclusive framework on base erosion and profit shifting and agreed on a two-pillar solution (“Pillar Two”) to global taxation, focusing on global profit allocation and a 15% global minimum effective tax rate. On December 15, 2022, the EU member states agreed to implement the OECD’s global minimum tax rate of 15%. The OECD issued Pillar Two model rules and continues to release guidance on these rules. The inclusive framework calls for tax law changes by participating countries to take effect in 2024 and 2025. Various countries have enacted or have announced plans to enact new tax laws to implement the global minimum tax. We considered the applicable tax law changes on Pillar Two implementation in the relevant countries, and there is no material impact to our tax results for the period. We anticipate further legislative activity and administrative guidance in 2024, and will continue to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in.
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 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) have been 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. We terminated the share lending agreement on January 22, 2024. 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 2029 Convertible Notes, 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 have been antidilutive, no effect is given in the dilutive computation to Common Stock issuable under outstanding options or warrants or the potentially dilutive shares issuable pursuant to the 2029 Convertible Notes, 2033 Senior Notes, the 2023 Convertible Notes and the 2025 Notes. The following table sets forth the computation of basic and diluted income (loss) per share:
| For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
| (In thousands, except per share data) |
2024 |
2023 |
2024 |
2023 |
||||||||||||
| Numerator |
||||||||||||||||