Incorporation or Organization)

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~~ Yes ¨ NO

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). ý ~~YES~~ 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) (Check one):~~

¨~~(Do not check if a smaller reporting company)~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ¨☐ YES ý NO

As of ~~October 31, 2017~~,July 20, 2020, the registrant had ~~559,404,941~~669,831,024 shares of Common Stock outstanding.

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.~~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.~~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, ~~2016,~~2019 and this Quarterly Report on Form 10-Q, and described from time to time in our other ~~reports filed~~filings with the Securities and Exchange ~~Commission.~~Commission (the “SEC”). We do not undertake anany obligation to update forward-looking ~~statements.~~statements, except to the extent required by applicable law. We intend that all forward-looking statements be subject to the safe-harbor provisions of the PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

Risks and uncertainties, the occurrence of which could adversely affect our business, include the following:

•our business may be materially adversely affected by the recent coronavirus (COVID-19) outbreak;

•we have a history of losses and may not generate sustained positive cash flow sufficient to fund our operations and research and development programs;

•our need for, and ability to obtain, additional financing when needed on favorable terms, or at all;

•adverse results in material litigation matters or governmental inquiries, including, without limitation, pending class action and derivative lawsuits which followed the now settled lawsuit against the Company and its Chairman and Chief Executive Officer by the SEC;

•the risks inherent in developing, obtaining regulatory approvals for and commercializing new, commercially viable and competitive products and treatments;

•our research and development activities may not result in commercially viable products;

•that earlier clinical results of effectiveness and safety may not be reproducible or indicative of future results;

•the success of our relationship with Pfizer in connection with the development of hGH-CTP (Somatrogon);

•that we may fail to obtain regulatory approval for hGH-CTP or successfully commercialize Rayaldee and hGH-CTP;

•that we may not generate profits or cash flow from our laboratory operations or substantial revenue from Rayaldee and our other pharmaceutical and diagnostic products;

•that currently available over-the-counter and prescription products, as well as products under development by others, may prove to be as or more effective than our products for the indications being studied;

•our ability to build a successful pharmaceutical sales and marketing infrastructure;

•our ability and our distribution and marketing partners’ ability to comply with regulatory requirements regarding the sales, marketing and manufacturing of our products and product candidates and the operation of our laboratories;

•the performance of our third-party distribution partners, licensees and manufacturers over which we have limited control;

•our success is dependent on the involvement and continued efforts of our Chairman and Chief Executive Officer;

•integration challenges for ~~Transition Therapeutics, BioReference, EirGen and other~~ acquired businesses;

•availability of insurance coverage with respect to material litigation matters;

•changes in regulation and policies in the United States (“U.S.”) and other countries, including increasing downward pressure on healthcare reimbursement;

•our ability to manage our growth and our expanded operations;

•increased competition, including price competition;

•changing relationships with ~~payers,~~payors, including the various state and multi-state Blues programs, suppliers and strategic partners;

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

•our ability to maintain reimbursement coverage for our products and services, including the 4Kscore test;

•failure to timely or accurately bill and collect for our services;

~~failure in our~~•the information technology systems ~~including cybersecurity attacks~~that we rely on may be subject to unauthorized tampering, cyberattack or other data security ~~incidents;~~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;

~~our need for, and ability~~•the risk that the carrying value of certain assets may exceed the fair value of the assets causing us to ~~obtain, additional financing;~~impair goodwill or other intangible assets;

~~adverse results in material litigation matters or governmental inquiries;~~

~~our ability to finance and successfully complete construction~~

Table of ~~a research, development and manufacturing center in Waterford, Ireland.~~Contents

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 ~~wholly-owned~~consolidated subsidiaries.

Item 1. Financial Statements

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

Table of Contents

OPKO Health, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)


	June 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	21,612	$	85,452

Accounts receivable, net	214,352		134,617
Inventory, net	72,965		53,434
Other current assets and prepaid expenses	51,125		50,542
Total current assets	360,054		324,045
Property, plant and equipment, net	130,540		127,111
Intangible assets, net	499,125		528,962
In-process research and development	590,200		590,200
Goodwill	671,599		671,940
Investments	26,260		20,746
Operating lease right-of-use assets	38,469		39,380
Other assets	7,487		6,888
Total assets	$	2,323,734	$	2,309,272
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	44,671	$	62,537
Accrued expenses	210,111		164,925
Current maturities of operating leases	10,298		12,038

Current portion of lines of credit and notes payable	14,463		9,619
Total current liabilities	279,543		249,119
Operating lease liabilities	28,759		27,665
Convertible notes	216,457		211,208
Deferred tax liabilities, net	118,979		118,717
Other long-term liabilities, principally contract liabilities, contingent consideration and line of credit	91,653		87,804
Total long-term liabilities	455,848		445,394
Total liabilities	735,391		694,513


Equity:


Common Stock - $0.01 par value, 1,000,000,000 shares authorized; 670,378,701 and 670,378,701 shares issued at June 30, 2020 and December 31, 2019, respectively	6,704		6,704
Treasury Stock - 549,907 shares at June 30, 2020 and December 31, 2019, respectively	(1,791)		(1,791)
Additional paid-in capital	3,147,030		3,142,993
Accumulated other comprehensive loss	(25,752)		(22,070)
Accumulated deficit	(1,537,848)		(1,511,077)


Total shareholders’ equity	1,588,343		1,614,759
Total liabilities and equity	$	2,323,734	$	2,309,272

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

September 30, 2017 December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents $ 100,362
$ 168,733
Accounts receivable, net 233,916
220,284
Inventory, net 46,954
47,228
Other current assets and prepaid expenses 49,324
47,356
Total current assets 430,556
483,601
Property, plant and equipment, net 142,437
122,831
Intangible assets, net 714,552
763,976
In-process research and development 648,377
644,713
Goodwill 715,573
704,603
Investments 32,196
41,139
Other assets 38,299
5,756
Total assets $ 2,721,990
$ 2,766,619
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 66,536
$ 53,360
Accrued expenses 176,300
197,955
Current portion of lines of credit and notes payable 16,112
11,981
Total current liabilities 258,948
263,296
2033 Senior Notes, net of discount 28,590
43,701
Deferred tax liabilities, net 118,799
165,331
Other long-term liabilities, principally deferred revenue, contingent consideration and line of credit 226,617
202,483
Total long-term liabilities 374,006
411,515
Total liabilities 632,954
674,811
Equity:
Common Stock - $0.01 par value, 750,000,000 shares authorized; 559,955,118 and 558,576,051
shares issued at September 30, 2017 and December 31, 2016, respectively 5,600
5,586
Treasury Stock - 549,907 and 586,760 shares at September 30, 2017 and December 31, 2016, respectively (1,791 ) (1,911 )
Additional paid-in capital 2,883,026
2,845,096
Accumulated other comprehensive loss (5,422 ) (27,009 )
Accumulated deficit (792,377 ) (729,954 )
Total shareholders’ equity 2,089,036
2,091,808
Total liabilities and equity $ 2,721,990
$ 2,766,619

Table of Contents

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,
	2020		2019		2020		2019
Revenues:
Revenue from services	$	250,971	$	178,458	$	421,811	$	357,349
Revenue from products	29,356		28,680		60,430		53,981
Revenue from transfer of intellectual property and other	20,880		19,230		30,433		37,490
Total revenues	301,207		226,368		512,674		448,820
Costs and expenses:
Cost of service revenue	144,794		130,078		267,680		259,981
Cost of product revenue	17,857		14,145		35,229		28,300

Selling, general and administrative	77,721		88,475		153,852		183,633
Research and development	17,608		28,286		39,369		64,816

Contingent consideration	1,111		(3,775)		251		1,031
Amortization of intangible assets	14,937		16,419		29,874		32,981
Asset impairment charges	—		—		—		655
Total costs and expenses	274,028		273,628		526,255		571,397
Operating income (loss)	27,179		(47,260)		(13,581)		(122,577)
Other income and (expense), net:
Interest income	5		572		147		1,127
Interest expense	(5,474)		(5,501)		(10,970)		(10,257)
Fair value changes of derivative instruments, net	(13)		(388)		608		27
Other income (expense), net	18,223		(5,874)		5,890		(4,897)
Other income and (expense), net	12,741		(11,191)		(4,325)		(14,000)
Income (loss) before income taxes and investment losses	39,920		(58,451)		(17,906)		(136,577)
Income tax provision	(6,028)		(1,084)		(7,200)		(1,866)
Net income (loss) before investment losses	33,892		(59,535)		(25,106)		(138,443)
Loss from investments in investees	(189)		(271)		(323)		(2,125)
Net Income (loss)	$	33,703	$	(59,806)	$	(25,429)	$	(140,568)






Income (loss) per share, basic and diluted:


Income (loss) per share	$	0.05	$	(0.10)	$	(0.04)	$	(0.24)

Weighted average common shares outstanding, basic and diluted	640,578,794		586,351,045		640,578,794		586,347,645

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

For the three months ended September 30, For the nine months ended September 30,
2017 2016 2017 2016
Revenues:
Revenue from services $ 229,035
$ 259,025
$ 740,992
$ 777,559
Revenue from products 22,795
20,569
73,992
63,275
Revenue from transfer of intellectual property and other 11,665
18,441
58,819
105,338
Total revenues 263,495
298,035
873,803
946,172
Costs and expenses:
Cost of service revenue 135,203
138,554
419,070
417,121
Cost of product revenue 16,107
12,626
44,441
35,033
Selling, general and administrative 131,336
124,845
396,359
370,358
Research and development 32,329
24,424
90,944
83,594
Contingent consideration (11,213 ) 3,093
(4,475 ) 15,604
Amortization of intangible assets 18,023
18,116
53,904
47,337
Total costs and expenses 321,785
321,658
1,000,243
969,047
Operating loss (58,290 ) (23,623 ) (126,440 ) (22,875 )
Other income and (expense), net:
Interest income 249
163
634
341
Interest expense (1,840 ) (2,018 ) (4,771 ) (6,022 )
Fair value changes of derivative instruments, net (7,550 ) (5,701 ) 1,969
(5,889 )
Other income (expense), net 597
(2,972 ) 3,105
3,543
Other income and (expense), net (8,544 ) (10,528 ) 937
(8,027 )
Loss before income taxes and investment losses (66,834 ) (34,151 ) (125,503 ) (30,902 )
Income tax benefit 24,405
19,988
42,309
24,626
Net loss before investment losses (42,429 ) (14,163 ) (83,194 ) (6,276 )
Loss from investments in investees (4,013 ) (814 ) (11,771 ) (5,147 )
Net loss $ (46,442 ) $ (14,977 ) $ (94,965 ) $ (11,423 )
Loss per share, basic and diluted:
Loss per share $ (0.08 ) $ (0.03 ) $ (0.17 ) $ (0.02 )
Weighted average common shares outstanding, basic and diluted 559,405,309
552,229,266
559,065,232
548,550,641

Table of Contents

OPKO Health, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

(Unaudited)

(In thousands)


	For the three months ended June 30,						For the six months ended June 30,
	2020		2019		2020		2019
Net income (loss)	$	33,703	$	(59,806)	$	(25,429)	$	(140,568)
Other comprehensive income (loss), net of tax:
Change in foreign currency translation and other comprehensive income (loss)	4,435		2,878		(3,682)		(220)




Comprehensive income (loss)	$	38,138	$	(56,928)	$	(29,111)	$	(140,788)

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

For the three months ended September 30, For the nine months ended September 30,
2017 2016 2017 2016
Net loss $ (46,442 ) $ (14,977 ) $ (94,965 ) $ (11,423 )
Other comprehensive income (loss), net of tax:
Change in foreign currency translation and other comprehensive income (loss) 8,557
2,796
21,646
5,306
Available for sale investments:
Change in unrealized loss, net of tax (6 ) 449
(749 ) (2,955 )
Less: reclassification adjustments for losses included in net loss, net of tax 96
3,902
690
3,902
Comprehensive loss $ (37,795 ) $ (7,830 ) $ (73,378 ) $ (5,170 )

Table of Contents

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands, except share and per share data)

For the three and six months ended June 30, 2020


	Common Stock					Treasury						Additional Paid-In Capital		Accumulated Other Comprehensive Loss	Accumulated Deficit		Total
	Shares	Dollars		Shares		Dollars
Balance at March 31, 2020	670,378,701	$	6,704	$	(549,907)	$	(1,791)	$	3,145,444	$	(30,187)	$	(1,571,551)		$	1,548,619
Equity-based compensation expense	—	—		—		—		1,586		—		—			1,586



Net income	—	—		—		—		—		—		33,703			33,703
Other comprehensive income	—	—		—		—		—		4,435		—			4,435
Balance at June 30, 2020	670,378,701	$	6,704	$	(549,907)	$	(1,791)	$	3,147,030	$	(25,752)	$	(1,537,848)		$	1,588,343


	Common Stock				Treasury						Additional Paid-In Capital		Accumulated Other Comprehensive Loss	Accumulated Deficit		Total
	Shares	Dollars		Shares	Dollars
Balance at December 31, 2019	670,378,701	$	6,704	(549,907)	$	(1,791)	$	3,142,993	$	(22,070)	$	(1,511,077)		$	1,614,759
Equity-based compensation expense	—	—		—	—		4,037		—		—			4,037

Adoption of ASC 326	—	—		—	—		—		—		(1,342)			(1,342)

Net loss	—	—		—	—		—		—		(25,429)			(25,429)
Other comprehensive loss	—	—		—	—		—		(3,682)		—			(3,682)
Balance at June 30, 2020	670,378,701	$	6,704	(549,907)	$	(1,791)	$	3,147,030	$	(25,752)	$	(1,537,848)		$	1,588,343

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

Table of Contents

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands, except share and per share data)

For the three and six months ended June 30, 2019


	Common Stock				Treasury						Additional Paid-In Capital		Accumulated Other Comprehensive Loss	Accumulated Deficit		Total
	Shares	Dollars		Shares	Dollars
Balance at March 31, 2019	616,150,952	$	6,162	(549,907)	$	(1,791)	$	3,058,509	$	(23,229)	$	(1,276,914)		$	1,762,737
Equity-based compensation expense	—	—		—	—		3,122		—		—			3,122



Net loss	—	—		—	—		—		—		(59,806)			(59,806)
Other comprehensive income	—	—		—	—		—		2,878		—			2,878
Balance at June 30, 2019	616,150,952	$	6,162	(549,907)	$	(1,791)	$	3,061,631	$	(20,351)	$	(1,336,720)		$	1,708,931


	Common Stock				Treasury						Additional Paid-In Capital		Accumulated Other Comprehensive Loss	Accumulated Deficit		Total
	Shares	Dollars		Shares	Dollars
Balance at December 31, 2018	586,881,720	$	5,869	(549,907)	$	(1,791)	$	3,004,422	$	(20,131)	$	(1,197,078)		$	1,791,291
Equity-based compensation expense	—	—		—	—		7,579		—		—			7,579
Exercise of Common Stock options and warrants	19,232	—		—	—		(3)		—		—			(3)
Adoption of ASU 2018-07	—	—		—	—		(926)		—		926			—
2025 convertible notes including share lending arrangement	29,250,000	293		—	—		50,559		—		—			50,852
Net loss	—	—		—	—		—		—		(140,568)			(140,568)
Other comprehensive loss	—	—		—	—		—		(220)		—			(220)
Balance at June 30, 2019	616,150,952	$	6,162	(549,907)	$	(1,791)	$	3,061,631	$	(20,351)	$	(1,336,720)		$	1,708,931

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,
	2020		2019
Cash flows from operating activities:
Net loss	$	(25,429)	$	(140,568)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	44,318		47,477
Non-cash interest	5,022		2,868
Amortization of deferred financing costs	411		308

Losses from investments in investees	323		2,125
Equity-based compensation – employees and non-employees	4,037		7,579



Realized loss on disposal of fixed assets and sales of equity securities	156		220


Change in fair value of equity securities and derivative instruments	(6,515)		5,431

Change in fair value of contingent consideration	251		1,031


Impairment of assets	—		655
Deferred income tax provision	1,028		168
Changes in assets and liabilities:
Accounts receivable, net	(81,539)		(4,398)
Inventory, net	(21,905)		(6,225)
Other current assets and prepaid expenses	(2,619)		2,476
Other assets	(61)		136
Accounts payable	(16,753)		12,887
Foreign currency measurement	(2,077)		131
Contract liabilities	(4,026)		(37,015)
Accrued expenses and other liabilities	47,585		2,095


Net cash used in operating activities	(57,793)		(102,619)
Cash flows from investing activities:
Investments in investees	—		(1,200)




Proceeds from the sale of property, plant and equipment	65		309

Capital expenditures	(17,149)		(6,432)
Net cash used in investing activities	(17,084)		(7,323)
Cash flows from financing activities:
Issuance of convertible notes, including to related parties	—		200,293
Debt issuance costs	—		(7,762)

Proceeds from the exercise of Common Stock options and warrants	—		(3)


Borrowings on lines of credit	393,651		39,695
Repayments of lines of credit	(382,374)		(78,824)


Redemption of 2033 Senior Notes	—		(28,800)
Net cash provided by financing activities	11,277		124,599
Effect of exchange rate changes on cash and cash equivalents	(240)		(15)
Net increase (decrease) in cash and cash equivalents	(63,840)		14,642
Cash and cash equivalents at beginning of period	85,452		96,473
Cash and cash equivalents at end of period	$	21,612	$	111,115
SUPPLEMENTAL INFORMATION:
Interest paid	$	5,578	$	5,411
Income taxes paid (received), net of refunds	$	(208)	$	2,132
Operating lease right-of-use assets due to adoption of ASU No. 2016-02	$	—	$	29,640
Operating lease liabilities due to adoption of ASU No. 2016-02	$	—	$	30,049
Non-cash financing:

Shares issued upon the conversion of:


Common Stock options and warrants, surrendered in net exercise	$	—	$	20

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

Table of Contents

For the nine months ended September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (94,965 ) $ (11,423 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 76,677
72,612
Non-cash interest 1,944
2,063
Amortization of deferred financing costs 168
175
Losses from investments in investees 11,771
5,147
Equity-based compensation – employees and non-employees 22,292
34,939
Realized loss (gain) on equity securities and disposal of fixed assets (2,683 ) 943
Change in fair value of derivative instruments (1,969 ) 5,889
Change in fair value of contingent consideration (4,475 ) 15,604
Deferred income tax benefit (46,366 ) (30,982 )
Changes in assets and liabilities, net of the effects of acquisitions:
Accounts receivable, net (13,594 ) (28,974 )
Inventory, net 1,729
(2,726 )
Other current assets and prepaid expenses (2,857 ) (24,310 )
Other assets (449 ) (402 )
Accounts payable 12,013
(16,141 )
Foreign currency measurement 608
(433 )
Deferred revenue (42,142 ) (56,256 )
Accrued expenses and other liabilities (11,892 ) 36,015
Net cash provided by (used in) operating activities (94,190 ) 1,740
Cash flows from investing activities:
Investments in investees (4,625 ) (9,171 )
Acquisition of businesses, net of cash —
15,878
Purchase of marketable securities (6 ) (15,631 )
Maturities of short-term marketable securities —
15,634
Proceeds from the sale of property, plant and equipment 3,979
1,082
Acquisition of intangible assets —
(5,000 )
Capital expenditures (32,061 ) (17,015 )
Net cash used in investing activities (32,713 ) (14,223 )
Cash flows from financing activities:
Proceeds from the exercise of Common Stock options and warrants 1,916
6,112
Borrowings on lines of credit 75,544
15,816
Repayments of lines of credit (20,643 ) (58,901 )
Net cash provided by (used in) financing activities 56,817
(36,973 )
Effect of exchange rate changes on cash and cash equivalents 1,715
504
Net decrease in cash and cash equivalents (68,371 ) (48,952 )
Cash and cash equivalents at beginning of period 168,733
193,598
Cash and cash equivalents at end of period $ 100,362
$ 144,646
SUPPLEMENTAL INFORMATION:
Interest paid $ 1,409
$ 2,519
Income taxes paid, net $ 5,899
$ 8,045
Non-cash financing:
Shares issued upon the conversion of:
Common Stock options and warrants, surrendered in net exercise $ 1,546
$ 350
Issuance of capital stock for contingent consideration settlement:
Transition Therapeutics, Inc. $ —
$ 58,530
OPKO Health Europe $ 303
$ 313
OPKO Renal $ —
$ 25,986
Issuance of stock for investment in Xenetic $ —
$ 4,856

OPKO Health, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 BUSINESS AND ORGANIZATION

We are a diversified healthcare company that seeks to establish industry-leading positions in large and rapidly growing medical markets. Our diagnostics business includes BioReference Laboratories, Inc. (“BioReference”), one of the nation’s ~~third-largest clinical laboratory~~largest full service laboratories with a core genetic testing business and ~~a 400-person~~an almost 300-person sales and marketing team ~~to drive~~focused on driving growth and ~~leverage~~leveraging new products, including the 4Kscore ~~prostate cancer test and the~~ ~~Claros~~ ~~1 in-office immunoassay platform (in development).~~ test. Our pharmaceutical business features Rayaldee, an FDA-approved treatment for secondary hyperparathyroidism (“SHPT”) in adults with stage 3 or 4 chronic kidney disease (“CKD”) and vitamin D insufficiency ~~and VARUBI™ for chemotherapy-induced nausea and vomiting (oral formulation launched by partner TESARO~~(launched in November ~~2015~~2016); OPK88004, a selective androgen receptor modulator which we are exploring for various potential indications; and ~~IV formulation approved October 2017),~~ OPK88003, a once ~~or twice~~ weekly oxyntomodulin for type 2 diabetes and obesity which is a clinically advanced drug candidate among the new class of GLP-1 glucagon receptor dual agonists ~~(Phase~~(phase 2b)~~, and OPK88004, a selective androgen receptor modulator being developed for benign prostatic hyperplasia and other urologic and metabolic conditions.~~. Our pharmaceutical business also features hGH-CTP, a once-weekly human growth hormone ~~injection (in Phase~~that recently successfully completed a phase 3 trial and for which we have partnered with ~~Pfizer), and a once-daily Factor VIIa drug for hemophilia (Phase 2a)~~Pfizer Inc. (“Pfizer”). We are incorporated in Delaware, and our principal executive offices are located in leased offices in Miami, Florida.

In August 2016, we completed the acquisition of Transition Therapeutics, Inc. (“Transition Therapeutics”), a clinical stage biotechnology company developing OPK88003, a once or twice weekly oxyntomodulin for type 2 diabetes and obesity, and OPK88004, a selective androgen receptor modulator for androgen deficiency indications. Holders of Transition Therapeutics common stock received 6,431,899 shares of OPKO Common Stock. The transaction was valued at approximately $58.5 million, based on a closing price per share of our Common Stock of $9.10 as reported by NASDAQ on the closing date.

Through BioReference, we provide laboratory testing services, primarily to customers in the larger metropolitan areas across New York, New Jersey, Florida, Texas, Maryland, California, Pennsylvania, Delaware, Washington, DC, ~~Florida, California, Texas,~~ Illinois and Massachusetts, as well as to customers in a number of other states. We offer a comprehensive test menu of clinical diagnostics for blood, urine and tissue analysis. This includes hematology, clinical chemistry, immunoassay, infectious diseases, serology, hormones, and toxicology assays, as well as Pap smear, anatomic pathology (biopsies) and other types of tissue analysis. We market our laboratory testing services directly to physicians, geneticists, hospitals, clinics, correctional and other health facilities.

We operate established pharmaceutical platforms in Ireland, Chile, Spain, and Mexico, which are generating revenue and from which we expect to generate positive cash flow and facilitate future market entry for our products currently in development. In addition, we have a development and commercial supply pharmaceutical company and a global supply chain operation and holding company in Ireland. We own a specialty active pharmaceutical ingredients (“APIs”) manufacturer in Israel, which we expect will facilitate the development of our pipeline of molecules and compounds for our proprietary molecular diagnostic and therapeutic products.

Our research and development activities are primarily performed at facilities in ~~Miramar, FL,~~ Woburn, MA, Waterford, Ireland, Kiryat Gat, Israel, and Barcelona, Spain.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the ~~United States~~U.S. (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments or adjustments otherwise disclosed herein) considered necessary to present fairly the Company’s results of operations, financial position and cash flows have been made. The results of operations and cash flows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2020 are not necessarily indicative of the results of operations and cash flows that may be reported for the remainder of ~~2017~~2020 or any other future periods. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

Principles of consolidation. The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of OPKO Health, Inc. and of our ~~wholly-owned~~wholly owned subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.

Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from these estimates.

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Impact of COVID-19. As the disease caused by SARS-CoV-2, a novel strain of coronavirus, COVID-19 continues to spread and severely impact the economy of the United States and other countries around the world, we are committed to being a part of the coordinated public and private sector response to this unprecedented challenge. In response to the COVID-19 pandemic, BioReference Laboratories is accepting specimens for two types of COVID-19 testing, diagnostic molecular testing and serology antibody testing, from healthcare providers, clinics and health and hospital systems throughout the U.S., to promote earlier diagnosis of the coronavirus, assess a patient’s immune response to the virus and aid in limiting spread of infection. In addition to its robust nationwide COVID-19 testing offering, BioReference has partnerships with the New York State Department of Health, the New York City Health and Hospital Corporation (NYC Health + Hospitals), the State of New Jersey, the State of Florida and the cities of Detroit and Miami, among others, to provide COVID-19 testing. BioReference performed approximately 331.6 thousand serology antibody tests and 2.2 million diagnostic molecular tests for COVID-19 during the three months ended June 30, 2020, which represented 28.1% of BioReference’s total test volume during the second quarter of 2020. For serologic antibody testing, BioReference has partnered with the State of New York, New York City and a number of employers and government agencies with the capacity to perform up to 400,000 tests per day and for diagnostic molecular tests, BioReference has the capacity to perform more than 50,000 tests per day.

We have put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps to keep colleagues and customers healthy and safe. In line with recommendations to reduce large gatherings and increase social distancing, we have, where practical, transitioned many office-based colleagues to a remote work environment.

Beginning in March 2020, BioReference experienced, and continues to experience, a decline in routine clinical and genomics testing volumes due to the COVID-19 pandemic. Excluding COVID-19 test volumes, for the three months ended June 30, 2020, volumes in our diagnostics segment were down 46.5% as compared to volumes in the second quarter of 2019. Additionally, sales of Rayaldee have not increased in accordance with its expected growth trajectory as a result of challenges in onboarding new patients due to the COVID-19 pandemic. Federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 have resulted in, among other things, a significant reduction in physician office visits, the cancellation of elective medical procedures, customers closing or severely curtailing their operations (voluntarily or in response to government orders), and the adoption of work-from-home or shelter-in-place policies, all of which have had, and may continue to have, an adverse impact on our operating results, cash flows and financial condition, including continued declines in testing volumes. It is also possible that we will experience an adverse impact on cash collections as a result of the impact of the COVID-19 pandemic. As stay at home orders and other restrictions have been lifted, we have seen our routine clinical and genomic testing volumes trending towards normalization with prior periods, however should stay at home orders or other restrictions be reenacted, we could see our routine testing levels decline. We also continue to see a substantial need for COVID-19 testing by our existing clients and expect new clients as infection rates for the virus continue to increase across the country.

In March 2020, in response to the COVID-19 pandemic, the CARES Act was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees.

We have received, or expect to receive a number of benefits under The CARES Act including, but not limited to:

•We received approximately $14 million under The Centers for Medicare & Medicaid Services (CMS) Accelerated and Advance Payment Program, which provides accelerated payments to Medicare providers/suppliers working to provide treatment to patients and combat the COVID-19 pandemic, and the amounts advanced are loans which will be offset against future claims and must be repaid. These loans are initially recorded as contract liabilities included in Accrued expenses and are recognized in Revenue from services when earned;

•We are eligible to defer depositing the employer’s share of Social Security taxes for payments due from March 27, 2020 through December 31, 2020, interest-free and penalty-free;

•We received approximately $6.2 million during the three months ended June 30, 2020 from the initial tranche of funds that was distributed to healthcare providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic. We recognized the $6.2 million grant in other revenues for the three and six months ended June 30, 2020;

•U.S. Department of Health and Human Services (HHS), will provide claims reimbursement to healthcare providers generally at Medicare rates for testing uninsured patients; and

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•Clinical laboratories are provided a one-year reprieve from the reporting requirements under the Protecting Access to Medicare Act (“PAMA”) as well as a one-year delay of reimbursement rate reductions for clinical laboratory services provided under Medicare that were scheduled to take place in 2021.

Since the pandemic began in the U.S., we have invested, and expect to continue to invest, in testing capabilities and infrastructure to meet demand for our molecular and antibody testing for COVID-19.

Cash and cash equivalents. Cash and cash equivalents include short-term, interest-bearing instruments with original maturities of 90 days or less at the date of purchase. We also consider all highly liquid investments with original maturities at the date of purchase of 90 days or less as cash equivalents. These investments include money markets, bank deposits, certificates of deposit and U.S. treasury securities.

Inventories. Inventories are valued at the lower of cost and net realizable value. Cost is determined by the first-in, first-out method. We consider such factors as the amount of inventory on hand, estimated time required to sell such inventories, remaining shelf-life, and current market conditions to determine whether inventories are stated at the lower of cost and net realizable value. Inventories at our diagnostics segment consist primarily of purchased laboratory supplies, which is used in our testing laboratories. Inventory obsolescence expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was ~~$5.0~~$1.7 million and ~~$0.2~~$1.3 million, respectively.

Pre-launch inventories. We may accumulate commercial quantities of certain product candidates prior to the date we anticipate that such products will receive final U.S. FDA approval. The accumulation of such pre-launch inventories involves the risk that such products may not be approved for marketing by the FDA on a timely basis, or ever. This risk notwithstanding, we may accumulate pre-launch inventories of certain products when such action is appropriate in relation to the commercial value of the product launch opportunity. In accordance with our policy, this pre-launch inventory is expensed.

Goodwill and intangible assets. Goodwill represents the difference between the purchase price and the estimated fair value of the net assets acquired accounted for by the acquisition method of ~~accounting and arose from our acquisitions.~~accounting. Refer to Note 4. Goodwill, in-process research and development (“IPR&D”) and other intangible assets acquired in business combinations, licensing and other transactions was $1.8 billion at both ~~September~~at June 30, ~~2017~~2020 and December 31, ~~2016 was $2.1 billion.~~2019.

Assets acquired and liabilities assumed in business combinations, licensing and other transactions are generally recognized at the date of acquisition at their respective fair values. ~~We determined~~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.”

~~Goodwill is~~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, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its~~recoverable.

Goodwill was $671.6 million and $671.9 million respectively, at June 30, 2020 and December 31, 2019. Estimating the fair value ~~exceeds~~of a reporting unit for goodwill impairment is highly sensitive to changes in projections and assumptions and changes in assumptions could potentially lead to impairment. We perform sensitivity analyses around our assumptions in order to assess the reasonableness of the assumptions and the results of our testing. Ultimately, potential changes in these assumptions may impact the estimated fair value of a reporting unit and result in an impairment if the fair value of such reporting unit is less than its carrying value.

Net intangible assets other than goodwill were $1.1 billion, including IPR&D of $590.2 million, at both June 30, 2020 and December 31, 2019. Intangible assets are ~~tested~~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 ~~whenever events or~~charges may occur in future periods. Estimating the fair value of IPR&D for potential impairment is highly sensitive to changes in ~~circumstances indicate that the carrying amount of such assets may not be recoverable, although IPR&D is required~~projections and assumptions and changes in assumptions could potentially lead to ~~be tested at least annually until the project is completed or abandoned.~~ impairment.

Upon obtaining regulatory approval, ~~the~~ IPR&D ~~asset is~~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.

~~We reclassified $187.6 million of IPR&D related to~~ ~~Rayaldee~~ ~~from In-process research and development to Intangible assets, net in our Condensed Consolidated Balance Sheets upon the FDA’s approval of~~ ~~Rayaldee~~ ~~in June 2016. The~~ Finite lived intangible assets are ~~being amortized on~~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 ~~straight-line basis over~~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.

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We believe that our estimates and assumptions are reasonable and otherwise consistent with assumptions that marketplace participants would use in their ~~estimated useful life~~estimates of ~~approximately 12 years.~~fair value. However, if future results are not consistent with our estimates and assumptions, including as a result of the COVID-19 global pandemic, then we may be exposed to an impairment charge, which could be material.

We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from 3 to 20 years. We use the straight-line method of amortization as there is no reliably determinable pattern in which the economic benefits of our intangible assets are consumed or otherwise used up. Amortization expense was ~~$53.9~~$29.9 million and ~~$47.3~~$33.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

Fair value measurements. The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate their fair value due to the short-term maturities of these instruments. Investments that are considered ~~available for sale~~equity securities as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 are predominately carried at fair value. Our debt under the credit agreement with JPMorgan Chase Bank, N.A. approximates fair value due to the variable rate of ~~interest.~~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 8.

Contingent consideration. Each period we revalue the contingent consideration obligations associated with certain prior acquisitions to their fair value and record increases in the fair value as contingent consideration expense and decreases in the fair value as a reduction in contingent consideration expense. Changes in contingent consideration result from changes in the assumptions regarding probabilities of successful achievement of related milestones, the estimated timing in which the milestones are achieved and the discount rate used to estimate the fair value of the liability. Contingent consideration may change significantly as our development programs progress, revenue estimates evolve and additional data is obtained, impacting our assumptions. The assumptions used in estimating fair value require significant judgment. The use of different assumptions and judgments could result in a materially different estimate of fair value which may have a material impact on our results from operations and financial position.

Derivative financial instruments. We record derivative financial instruments on our Condensed Consolidated Balance ~~Sheets~~Sheet at their fair value and recognize the changes in the fair value in our Condensed Consolidated ~~Statements~~Statement of Operations when they occur, the only exception being derivatives that qualify as hedges. For the derivative instrument to qualify as a hedge, we are required to meet strict hedge effectiveness and contemporaneous documentation requirements at the initiation of the hedge and assess the hedge effectiveness on an ongoing basis over the life of the hedge. At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, our foreign currency forward contracts held to economically hedge inventory purchases did not meet the documentation requirements to be designated as hedges. Accordingly, we recognize all changes in the fair values of our derivatives instruments, net, in our Condensed Consolidated ~~Statements~~Statement of Operations. Refer to Note 9.

Property, plant and equipment. Property, plant and equipment are recorded at ~~cost.~~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 ~~capital~~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 ~~and aircraft~~ - ~~3-15~~3-5 years. Expenditures for repairs and maintenance are charged to expense as incurred. Depreciation expense was ~~$22.7~~$14.4 million and ~~$25.3~~$14.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Assets held under ~~capital~~finance leases are included within Property, plant and equipment, net in our Condensed Consolidated Balance ~~Sheets~~Sheet and are amortized over the shorter of their useful lives or the expected term of their related leases.

Impairment of long-lived assets. Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, then an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Income taxes. Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those

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temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. We periodically evaluate the realizability of our

net deferred tax assets. Our tax accruals are analyzed periodically and adjustments are made as events occur to warrant such

adjustment. Valuation allowances on certain U.S. deferred tax assets and non-U.S. deferred tax assets are established, because realization of these tax benefits through future taxable income does not meet the more-likely-than-not threshold.

We operate in various countries and tax jurisdictions globally. For interim reporting purposes, we record income taxes based on the expected ~~annual~~ effective income tax rate, taking into consideration year to date and global forecasted tax results. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, the tax rate differed from the U.S. federal statutory rate of ~~35%~~21% primarily due to the valuation allowance against certain U.S. and non-U.S. deferred tax assets, the relative mix in earnings and losses in the U.S. versus foreign tax jurisdictions, and the impact of certain discrete tax events and operating results in tax jurisdictions which do not result in a tax benefit.

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. On December 29, 2016, the Israeli Parliament reduced the standard corporate income tax rate from 25% to 24%, effective January 1, 2017 and 23% effective January 1, 2018. The new rates have been used in determining Income tax benefit in 2017.

Revenue recognition. Revenue for laboratory services is recognized at the time test results are reported, which approximates when services are provided. Services are provided to patients covered by various third-party payer programs including various managed care organizations, as well as the Medicare and Medicaid programs. Billings for services under third-party payer programs are included in revenue net of allowances for contractual discounts and allowances for differences between the amounts billed and estimated program payment amounts. Adjustments to the estimated payment amounts based on final settlement with the programs are recorded upon settlement as an adjustment to revenue. For the nine months ended September 30, 2017, approximately 31% of our revenues were derived directly from the Medicare and Medicaid programs.

We recognize revenue when a customer obtains control of promised goods or services in accordance with Accounting Standards Codification Topic 606, Revenue from ~~product sales when persuasive evidence~~Contracts with Customers (“Topic 606”). The amount of ~~an arrangement exists, delivery has occurred, collectability~~revenue that is ~~reasonably assured, and~~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 ~~buyer~~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 ~~fixed~~probable that we will collect the consideration we are entitled to in exchange for the goods or ~~determinable, which is generally when goods are shipped and title and risk of loss~~services we transfer to ~~our customers. Our estimates for sales returns~~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 ~~allowances~~which of these performance obligations are ~~based upon~~distinct. We recognize as revenue the ~~historical patterns~~amount of ~~product returns and allowances taken, matched against~~ the ~~sales from which they originated, and our evaluation of specific factors~~transaction price that may increase or decrease the risk of product returns. Product revenues are recorded net of estimated rebates, chargebacks, discounts, co-pay assistance and other deductions (collectively, “Sales Deductions”) as well as estimated product returns. Allowances are recorded as a reduction of revenue at the time product revenues are recognized.

~~We launched~~ ~~Rayaldee~~ ~~in the U.S. through our dedicated renal sales force in November 2016.~~ ~~Rayaldee~~is ~~distributed in the U.S. principally through the retail pharmacy channel, which initiates with the largest wholesalers in the U.S. (collectively, “Rayaldee~~ ~~Customers”). In addition to distribution agreements with~~ ~~Rayaldee~~ ~~Customers, we have entered into arrangements with many healthcare providers and payers that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect~~allocated to the ~~purchase~~respective performance obligation when the performance obligation is satisfied or as it is satisfied. For a complete discussion of ~~Rayaldee~~.

~~We lack the experiential data which would allow us to estimate Sales Deductions~~accounting for Revenues from services, Revenues from products and ~~product returns. Therefore, as of September 30, 2017, we have determined that we do not yet meet the criteria for the recognition of revenue for shipments of~~ ~~Rayaldee~~ ~~at the time of shipment to~~ ~~Rayaldee~~ Customers as allowances for Sales Deductions and product returns are not known or cannot be reasonably estimated. We will not recognize revenue upon shipment until such time as we can reasonably estimate and record provisions for Sales Deductions and product returns utilizing historical information and market research projections.

~~During the nine months ended September 30, 2017, we did not recognize any product revenues related to~~ ~~Rayaldee~~ ~~sales. Payments received from~~ ~~Rayaldee~~ Customers in advance of recognition of revenue are recorded as deferred revenue included in Accrued expenses in our Condensed Consolidated Balance Sheets. The related deferred revenue balance as of September 30, 2017 was $6.5 million. The corresponding costs of product revenues for which we have not recognized product revenue have similarly not yet been reflected in our Condensed Consolidated Statements of Operations.

Revenue from transfer of intellectual property ~~includes revenue related to the sale, license or transfer of intellectual property such as upfront license payments, license fees, milestone~~ and royalty payments received through our license, and collaboration and commercialization agreements. We analyze our multiple-element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting.

Non-refundable license fees for the out-license of our technology are recognized depending on the provisions of each agreement. We recognize non-refundable upfront license payments as revenue upon receipt if the license has standalone value and qualifies for treatment as a separate unit of accounting under multiple-element arrangement guidance. License fees with ongoing involvement or performance obligations that do not have standalone value are recorded as deferred revenue, included in Accrued expenses or Other long-term liabilities, when received and generally are recognized ratably over the period of such performance obligations only after both the license period has commenced and we have delivered the technology.

The assessment of our obligations and related performance periods requires significant management judgment. If an agreement contains research and development obligations, the relevant time period for the research and development phase is based on management estimates and could vary depending on the outcome of clinical trials and the regulatory approval process. ~~Such changes could materially impact the revenue recognized, and as a result, management reviews the estimates related to the~~

relevant time period of research and development on a periodic basis. For the three and nine months ended September 30, 2017, revenue from transfer of intellectual property includes $11.2 million and $46.5 million of revenue, respectively related to the Pfizer Transaction. For the three and nine months ended September 30, 2016, revenue from transfer of intellectual property includes $17.7 million and $53.0 million of revenue, respectively related to the Pfizer Transaction. Referother, refer to Note 12.

Revenue from milestone payments related to arrangements under which we have continuing performance obligations are recognized as Revenue from transfer of intellectual property upon achievement of the milestone only if all of the following conditions are met: the milestone payments are non-refundable; there was substantive uncertainty at the date of entering into the arrangement that the milestone would be achieved; the milestone payment is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item by us; the milestone relates solely to past performance; and the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone. If any of these conditions are not met, the milestone payments are not considered to be substantive and are, therefore, deferred and recognized as Revenue from transfer of intellectual property over the term of the arrangement as we complete our performance obligations.

Total deferred revenue included in Accrued expenses and Other long-term liabilities was $120.4 million and $162.4 million at September 30, 2017 and December 31, 2016, respectively. The deferred revenue balance at September 30, 2017 relates primarily to the Pfizer Transaction. Refer to Note 12.

Concentration of credit risk and allowance for ~~doubtful accounts~~credit losses. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of accounts receivable. Substantially all of our accounts receivable are with either companies in the healthcare industry or patients. However, credit risk is limited due to the number of our clients as well as their dispersion across many different geographic regions.

While we have receivables due from federal and state governmental agencies, we do not believe that such receivables represent a credit risk ~~since~~because the related healthcare programs are funded by federal and state governments, and payment is primarily dependent upon submitting appropriate documentation. At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, receivable balances (net of ~~contractual adjustments)~~explicit and implicit price concessions) from Medicare and Medicaid were ~~22.0%~~11% and ~~22.9%~~6%, respectively, of our consolidated Accounts receivable, net. At June 30, 2020, receivable balances (net of explicit and implicit price concessions) due directly from states, cities and other municipalities, specifically related to our real-time reverse-transcription polymerase chain reaction (real-time RT-PCR) assay to detect the 2019 novel coronavirus disease (COVID-19), were 37.6% of our consolidated Accounts receivable, net.

The portion of our accounts receivable due from individual patients comprises the largest portion of credit risk. At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, receivables due from patients ~~represent~~represented approximately ~~2.4%~~2.0% and ~~4.1%~~2.5%, respectively, of our consolidated Accounts receivable, net.

We assess the collectability of accounts receivable balances by considering factors such as historical collection experience, customer credit worthiness, the age of accounts receivable balances, regulatory changes and current economic conditions and trends that may affect a customer’s ability to pay. Actual results could differ from those estimates. ~~Our reported net income (loss) is directly affected by our estimate of the collectability of accounts receivable.~~ The allowance for ~~doubtful accounts~~credit losses was ~~$57.6~~$1.6 million and ~~$36.3~~$1.9 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~,2019, respectively. The ~~provision for bad debts~~credit loss expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was ~~$78.3~~$0.2 million and ~~$62.5~~$0.2 million, respectively.

Equity-based compensation. We measure the cost of ~~employee~~ 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 ~~Statements~~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. ~~Equity-based compensation arrangements to non-employees are recorded at their fair value on~~For the ~~measurement date. The measurement of equity-based compensation to non-employees is subject to periodic adjustment as the underlying equity instruments vest. During the nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, we recorded ~~$22.3~~$4.0 million and ~~$34.9~~$7.6 million, respectively, of equity-based compensation expense.

Research and development expenses. Research and development expenses include external and internal ~~expenses, partially offset by third-party grants and fundings arising from collaboration agreements.~~expenses. External expenses include clinical and non-clinical activities performed by contract research organizations, lab services, purchases of drug and diagnostic product materials and manufacturing development costs. Research and development

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employee-related expenses include salaries, benefits and equity-based compensation expense. Other internal research and development expenses are incurred to support overall research and development activities and include expenses related to general overhead and facilities. We expense these costs in the period in which they are incurred. We estimate our liabilities for research and development expenses in order to match the recognition of expenses to the period in which the actual services are received. As such, accrued liabilities related to third party research and development activities are recognized based upon our estimate of services received and degree of completion of the services in accordance with the specific third party contract.

~~We record~~Research and development expense includes costs for in-process research and development projects acquired in asset acquisitions which have not reached technological feasibility and which have no alternative future use. For in-process research and development projects acquired in business combinations, the in-process research and development project is capitalized and evaluated for impairment until the development process has been completed. Once the development process has been completed the asset will be amortized over its remaining estimated useful life.

Segment reporting. Our chief operating decision-maker (“CODM”) is Phillip Frost, M.D., our Chairman and Chief Executive Officer. Our CODM reviews our operating results and operating plans and makes resource allocation decisions on a Company-wide or aggregate basis. We manage our operations in ~~two~~2 reportable segments, pharmaceutical and diagnostics. The pharmaceutical segment consists of our pharmaceutical operations ~~we acquired~~ 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 ~~we acquired~~ through ~~the acquisition of~~ 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 ~~and~~or income taxes. Refer to Note 14.

Shipping and handling costs. We do not charge customers for shipping and handling costs. Shipping and handling costs are classified as Cost of revenues in the Condensed Consolidated Statement of Operations.

Foreign currency translation. The financial statements of certain of our foreign operations are measured using the local currency as the functional currency. The local currency assets and liabilities are generally translated at the rate of exchange to the U.S. dollar on the balance sheet date and the local currency revenues and expenses are translated at average rates of exchange to the U.S. dollar during the reporting periods. Foreign currency transaction gains (losses) have been reflected as a component of Other income (expense), net within the Condensed Consolidated Statement of Operations and foreign currency translation gains (losses) have been included as a component of the Condensed Consolidated Statement of Comprehensive Income (Loss).

Variable interest entities. The consolidation of a variable interest entity (“VIE”) is required when an enterprise has a controlling financial interest. A controlling financial interest in a VIE will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE. Refer to Note 5.

Investments. We have made strategic investments in development stage and emerging companies. We record these investments as equity method investments or ~~investments available for sale~~as equity securities based on our percentage of ownership and whether we have significant influence over the operations of the investees. ~~Investments for which it is not practical to estimate fair value and which we do not have significant influence are accounted for as cost method investments.~~ 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 ~~Statements~~Statement of Operations. Refer to Note 5. For investments classified as ~~available for sale,~~equity securities, we record changes in their fair value as ~~unrealized gain or loss~~Other income (expense) in ~~Other comprehensive income (loss)~~our Condensed Consolidated Statement of Operations based on their closing price per share at the end of each reporting ~~period.~~period, unless the equity security does not have a readily determinable fair value. Refer to Note 5.

~~Recent~~Recently adopted accounting pronouncements. In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09, as amended, clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP that removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Companies can choose to apply the ASU using either the full retrospective approach or a modified retrospective approach.

We have commenced our implementation analysis, including identification of revenue streams and reviews of customer contracts under ASU 2014-09’s framework. Our analysis includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under this new standard. The Company has reviewed certain contracts with its customers that the Company believes are representative of its revenue streams and continues to review additional contracts across its global business units. ASU 2014-09 requires increased disclosure which in turn is expected to require certain new processes. The determination of the impact of adoption of ASU 2014-09 on our financial condition, results of operations, cash flows and disclosures, is ongoing, and, as such, we have not yet concluded on a transition method and are not able to reasonably estimate the effect that the adoption of the new standard will have on our financial statements. Based on our preliminary assessment of this ASU, however, the majority of the amounts that were historically classified as provision for bad debts, primarily related to patient responsibility, will be considered an implicit price concession in determining net revenues. Accordingly, we will report uncollectible balances associated with individual patients as a reduction of the transaction price and therefore as a reduction in net revenues when historically these amounts were classified as provision for bad debts within Selling, general and administrative expenses.

In ~~July 2015,~~June 2016, the FASB issued ASU No. ~~2015-11, “Inventory~~2016-13, “Financial Instruments - Credit Losses (Topic ~~330)~~326): ~~Simplifying the~~ Measurement of ~~Inventory,~~Credit Losses on Financial Instruments,” which ~~changes~~amends the ~~measurement principle~~impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for ~~entities that do not measure inventory using the last-in, first-out (“LIFO”) or retail inventory method from the lower of cost or market to lower of cost and net realizable value.~~losses. The ASU ~~2015-11~~ is effective for public entities for fiscal years beginning after December 15, ~~2016, including interim periods within those fiscal years,~~2019, with early adoption permitted. The adoption of ASU ~~2015-11 in the first quarter of 2017~~2016-13 on January 1, 2020, did not have a significant impact on our Condensed Consolidated Financial Statements.

~~In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification~~

Table of Deferred Taxes,” which requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. The adoption of this ASU simplifies the presentation of deferred income taxes and reduces complexity without decreasing the usefulness of information provided to users of financial statements. We early adopted the provisions of this ASU prospectively in the fourth quarter of 2015, and did not retrospectively adjust the prior periods. The adoption of ASU 2015-17 did not have a significant impact on our Condensed Consolidated Financial Statements.Contents

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10),” which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The ASU requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of this new guidance on our Condensed Consolidated Financial Statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which will require organizations that lease assets with lease terms of more than 12 months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of this new guidance on our Condensed Consolidated Financial Statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718),” which simplifies several aspects of the accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and accounting for forfeitures. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. We adopted this standard in the first quarter of 2017. As required by ASU 2016-09, excess tax benefits are classified as an operating activity in our Condensed Consolidated Statement of Cash Flows and we have applied this provision prospectively. In addition, we have elected to estimate forfeitures over the course of a vesting period, rather than account for forfeitures as they occur. We adjust our forfeiture estimates based on the number of share-based awards that ultimately vest on at least an annual basis. Upon the adoption of ASU 2016-09 in 2017, we recorded a cumulative-effect adjustment to increase our deferred tax assets and reduce our accumulated deficit by $32.5 million with respect to excess tax benefits recognized in our Condensed Consolidated Balance Sheets.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230),” which addresses the classification of eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of this new guidance on our Condensed Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350),” which simplifies how an entity is required to test for goodwill impairment. ASU 2017-04 will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted after January 1, 2017. We are currently evaluating the impact of this new guidance on our Condensed Consolidated Financial Statements.

NOTE 3 EARNINGS (LOSS) PER SHARE

Basic ~~earnings~~income (loss) per share is computed by dividing our net income (loss) by the weighted average number of shares of our common stock par value $0.01 per share (“Common Stock”) outstanding during the period. Shares of Common Stock outstanding under the share lending arrangement entered into in conjunction with the 2025 Notes (as defined in Note 6) are excluded from the calculation of basic and diluted earnings per share because the borrower of the shares is required under the share lending arrangement to refund any dividends paid on the shares lent. Refer to Note 6. For diluted earnings per share, the dilutive impact of stock options ~~warrants~~ and ~~for periods in 2016, conversion options of the 2033 Senior Notes~~warrants is determined by applying the “treasury stock” method. InThe dilutive impact of the 2033 Senior Notes, the 2023 Convertible Notes and the 2025 Notes (each, as defined herein and as discussed in Note 6) has been considered using the “if converted” method. For periods in which their effect would be antidilutive, no effect ~~has been~~is given to outstanding options, warrants or the potentially dilutive shares issuable pursuant to the 2033 Senior Notes, ~~(defined in Note 6)~~the 2023 Convertible Notes and the 2025 Notes in the dilutive computation.

A total of ~~1,016,090~~69,505,513 and ~~1,636,706~~68,933,402 potential shares of Common Stock ~~have been~~were excluded from the calculation of diluted net loss per share for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2020, and 2019, respectively, because their inclusion would be antidilutive. A total of 69,347,867 and 61,760,134 potential shares of Common Stock were excluded from the calculation of diluted net loss per share for the six months ended June 30, 2020, and 2019, respectively, because their inclusion would be antidilutive. A full presentation of diluted earnings per share has not been provided because the required adjustments to the numerator and denominator resulted in diluted earnings per share equivalent to basic earnings per share.

During the three months ended ~~September~~June 30, ~~2017, no~~2020, and 2019, 0 Common Stock options ~~and~~or Common Stock warrants to purchase shares of our Common Stock were ~~exercised.~~exercised, resulting in the issuance of 0 shares of Common Stock.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017, 1,646,372~~2020, 0 Common Stock options or Common Stock warrants to purchase shares of our Common Stock were exercised, resulting in the issuance of 0 shares of Common Stock.

During the six months ended June 30, 2019, 24,877 Common Stock options and Common Stock warrants to purchase shares of our Common Stock were exercised, resulting in the issuance of ~~1,373,515~~19,232 shares of Common Stock. Of the ~~1,646,372~~24,877 Common Stock options and Common Stock warrants exercised, ~~272,857~~5,645 shares of Common Stock were surrendered in lieu of a cash payment via the net exercise feature of the agreements.

~~During the three months ended September 30, 2016, 660,921 Common Stock options and Common Stock warrants to purchase shares~~

Table of our Common Stock were exercised, resulting in the issuance of 658,357 shares of Common Stock. Of the 660,921 Common Stock options and Common Stock warrants exercised, 2,564 shares of Common Stock were surrendered in lieu of a cash payment via the net exercise feature of the agreements.Contents

During the nine months ended September 30, 2016, 2,899,458 Common Stock options and Common Stock warrants to purchase shares of our Common Stock were exercised, resulting in the issuance of 2,771,514 shares of Common Stock. Of the 2,899,458 Common Stock options and Common Stock warrants exercised, 127,944 shares of Common Stock were surrendered in lieu of a cash payment via the net exercise feature of the agreements.

NOTE 4 COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS


(In thousands)	June 30, 2020		December 31, 2019
Accounts receivable, net:
Accounts receivable	$	215,925	$	136,551
Less: allowance for credit losses	(1,573)		(1,934)
	$	214,352	$	134,617
Inventories, net:
Consumable supplies	$	41,298	$	23,005
Finished products	24,259		25,142
Work in-process	4,711		3,238
Raw materials	5,826		4,586
Less: inventory reserve	(3,129)		(2,537)
	$	72,965	$	53,434
Other current assets and prepaid expenses:
Taxes recoverable	$	12,135	$	19,808
Prepaid expenses	12,999		8,147



Prepaid insurance	6,274		3,486
Other receivables	661		3,262
Other	19,056		15,839
	$	51,125	$	50,542
Intangible assets, net:
Customer relationships	$	445,144	$	445,408
Technologies	296,251		296,246
Trade names	49,771		49,786

Covenants not to compete	16,318		16,318
Licenses	5,766		5,766
Product registrations	7,109		7,578
Other	6,100		6,094
Less: accumulated amortization	(327,334)		(298,234)
	$	499,125	$	528,962
Accrued expenses:
Inventory received but not invoiced	$	49,005	$	13,751
Commitments and Contingencies	38,668		38,635
Employee benefits	34,086		33,671
Contract liabilities	16,570		19,196
Clinical trials	6,079		8,122

Contingent consideration	2,375		2,375
Finance leases short-term	2,435		2,743

Professional fees	4,009		1,333


Other	56,884		45,099
	$	210,111	$	164,925

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(In thousands) September 30,
2017 December 31,
2016
Accounts receivable, net:
Accounts receivable $ 291,560
$ 256,552
Less: allowance for doubtful accounts (57,644 ) (36,268 )
$ 233,916
$ 220,284
Inventories, net:
Consumable supplies $ 19,446
$ 23,448
Finished products 22,882
16,143
Work in-process 4,087
3,896
Raw materials 6,984
4,686
Less: inventory reserve (6,445 ) (945 )
$ 46,954
$ 47,228
Other current assets and prepaid expenses:
Taxes recoverable 17,581
16,187
Other receivables 12,318
13,021
Prepaid supplies 12,269
6,952
Prepaid insurance 3,276
3,688
Other 3,880
7,508
$ 49,324
$ 47,356
Intangible assets, net:
Customer relationships $ 447,699
$ 443,560
Technologies 340,861
340,397
Trade names 50,520
50,442
Licenses 23,518
23,506
Covenants not to compete 16,373
16,348
Product registrations 10,857
7,641
Other 5,742
5,289
Less: accumulated amortization (181,018 ) (123,207 )
$ 714,552
$ 763,976
Accrued expenses:
Deferred revenue $ 52,403
$ 73,434
Employee benefits 46,237
43,792
Clinical trials 7,606
5,935
Taxes payable 4,590
4,430
Contingent consideration 2,011
259
Capital leases short-term 3,483
3,025
Milestone payment 9,819
4,865
Professional fees 2,584
4,035
Other 47,567
58,180
$ 176,300
$ 197,955


(In thousands)	June 30, 2020		December 31, 2019

Other long-term liabilities:

Line of credit	$	51,489	$	44,749
Contingent consideration	7,559		7,308

Mortgages and other debts payable	4,201		3,906
Finance leases long-term	2,960		4,046
Contract liabilities	1,170		2,571
Other	24,274		25,224
	$	91,653	$	87,804

(In thousands) September 30,
2017 December 31,
2016
Other long-term liabilities:
Deferred revenue $ 68,011
$ 89,016
Line of credit 93,311
38,809
Contingent consideration 38,290
44,817
Mortgages and other debts payable 1,162
717
Capital leases long-term 8,435
7,216
Other 17,408
21,908
$ 226,617
$ 202,483

~~All of the~~Our intangible assets and goodwill ~~acquired~~ relate principally to our completed acquisitions of ~~principally~~ OPKO Renal, OPKO Biologics, EirGen Pharma Limited (“EirGen”) and BioReference. We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives. The estimated useful lives by asset class are as follows: technologies - 7-17 years, customer relationships - 7-20 years, product registrations - 7-10 years, covenants not to compete - 5 years, trade names - 5-10 years, other 9-13 years. We do not anticipate capitalizing the cost of product registration renewals, rather we expect to expense these costs, as incurred. Our goodwill is not tax deductible for income tax purposes in any jurisdiction in which we ~~operate in.~~operate.

~~At September 30, 2017, the~~The changes in value of the intangible assets and goodwill ~~are~~during the six months ended June 30, 2020 were primarily due to foreign currency fluctuations between the Chilean Peso, the Euro and the Shekel against the U.S. dollar.

The following table summarizes the changes in Goodwill by reporting unit during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020.


	2020
(In thousands)	Balance at January 1		Foreign exchange and other		Balance at June 30th
Pharmaceuticals

Rayaldee	$	85,605	$	100	$	85,705

OPKO Chile	4,348		(450)		3,898
OPKO Biologics	139,784		—		139,784
OPKO Health Europe	7,394		9		7,403




Diagnostics
BioReference	434,809		—		434,809


	$	671,940	$	(341)	$	671,599

2017
(In thousands) Balance at January 1 Foreign exchange and other Balance at September 30th
Pharmaceuticals
CURNA $ 4,827
$ —
$ 4,827
EirGen 78,358
9,639
87,997
FineTech 11,698
—
11,698
OPKO Chile 4,785
217
5,002
OPKO Biologics 139,784
—
139,784
OPKO Health Europe 6,936
853
7,789
OPKO Renal 2,069
—
2,069
Transition Therapeutics 3,360
261
3,621

Diagnostics
BioReference 401,821
—
401,821
OPKO Diagnostics 17,977
—
17,977
OPKO Lab 32,988
—
32,988
$ 704,603
$ 10,970
$ 715,573

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NOTE 5 ~~ACQUISITIONS,~~ INVESTMENTS ~~AND LICENSES~~

~~Transition Therapeutics acquisition~~

In August 2016, we completed the acquisition of Transition Therapeutics, a clinical stage biotechnology company. Holders of Transition Therapeutics common stock received 6,431,899 shares of OPKO Common Stock. The transaction was valued at approximately $58.5 million, based on a closing price per share of our Common Stock of $9.10 as reported by NASDAQ on the closing date.

~~The following table summarizes the purchase price allocation and the fair value of the net assets acquired and liabilities assumed at the date of acquisition:~~

(In thousands) Transition Therapeutics
Cash and cash equivalents $ 15,878
IPR&D assets 41,000
Goodwill 3,453
Other assets 634
Accounts payable and other liabilities (1,035 )
Deferred tax liability (1,400 )
Total purchase price $ 58,530

Goodwill from the acquisition of Transition Therapeutics principally relates to intangible assets that do not qualify for separate recognition (for instance, Transition Therapeutics’ assembled workforce) and the deferred tax liability generated as a result of the transaction. Goodwill is not tax deductible for income tax purposes and was assigned to the pharmaceutical reporting segment.

Our IPR&D assets will not be amortized until the underlying development programs are completed. Upon obtaining regulatory approval, the IPR&D assets are then accounted for as finite-lived intangible assets and amortized on a straight-line basis over its estimated useful life.

Investments

The following table reflects the accounting method, carrying value and underlying equity in net assets of our unconsolidated investments as of ~~September~~June 30, ~~2017~~:2020:


(in thousands)					(in thousands)
Investment type	Investment Carrying Value		Underlying Equity in Net Assets		Investment type	Investment Carrying Value		Underlying Equity in Net Assets
Equity method investments	$	24,101	$	23,910	Equity method investments	$	561	$	2,370
Variable interest entity, equity method	361		—		Variable interest entity, equity method	836		—
Available for sale investments	3,108
Cost method investment	2,606
Equity securities					Equity securities	24,777
Equity securities with no readily determinable fair value					Equity securities with no readily determinable fair value	35
Warrants and options	2,020				Warrants and options	51
Total carrying value of investments	$	32,196			Total carrying value of investments	$	26,260

Equity method investments

Our equity method investments consist of investments in Pharmsynthez (ownership 9%), Cocrystal Pharma, Inc. (“COCP”) ~~(9%), Sevion Therapeutics, Inc. (“Sevion”) (31%~~(5%), Non-Invasive Monitoring Systems, Inc. (“NIMS”) (1%), Neovasc, ~~(4%), VBI Vaccines~~ Inc. (“~~VBI”~~Neovasc”) ~~(15%~~(2%), InCellDx, Inc. ~~(28%~~(“InCellDx”) (29%), BioCardia, Inc. (“BioCardia”) ~~(5%~~(2%), and Xenetic Biosciences, Inc. (“Xenetic”) ~~(4%~~(3%). The aggregate total assets, liabilities, and net losses of our equity method investees as of and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 were ~~$415.4~~$79.7 million, ~~$(203.2)~~$32.4 million, and ~~$(106.1)~~$26.6 million, respectively. We have determined that we and/or our related parties can significantly influence ~~the success~~control of our equity method investments through our board representation and/or voting power. Accordingly, we account for our investment in these entities under the equity method and record our proportionate share of their losses in Loss from investments in investees in our Condensed Consolidated ~~Statements~~Statement of Operations. The aggregate

value of our equity method investments based on the quoted market ~~price~~prices of their respective shares of common stock and the number of shares held by us as of ~~September~~June 30, ~~2017~~ ~~is $67.4~~2020 was $7.9 million.

~~Available for sale investments~~Equity Securities

Our ~~available for sale investments~~equity securities consist of investments in ~~RXi~~Phio Pharmaceuticals ~~Corporation~~ (“~~RXi”~~Phio”) (ownership 2%0.02%), VBI Vaccines Inc. (“VBI”) (3%), ChromaDex Corporation ~~(1%~~(“ChromaDex”) (0.1%), MabVax Therapeutics Holdings, Inc. (“MabVax”) ~~(4%~~(1%), and ~~ARNO Therapeutics,~~Eloxx Pharmaceuticals, Inc. (“~~ARNO”~~Eloxx”) ~~(5%~~(3%). We have determined that our ownership, along with that of our related parties, does not provide us with significant influence over the operations of ~~our available for sale~~these investments. Accordingly, we account for our investment in these entities as ~~available for sale,~~equity securities, and we record changes in ~~these investments as an unrealized gain or loss in Other comprehensive income (loss) each reporting period.~~

~~Based on our evaluation of~~ the ~~value of our investment in Xenetic, including Xenetic’s decreasing stock price during the~~ ~~nine months ended September 30, 2017, we determined that the decline in~~ fair value of ~~our Xenetic common shares was other-than-temporary and recorded an impairment charge of $0.6 million~~these investments in Other income (expense)~~, net in~~ each reporting period when they have readily determinable fair value. Equity securities without a readily determinable fair value are adjusted to fair value when there is an observable price change. Net gains and losses on our ~~Condensed Consolidated Statements of Operations~~equity securities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~ ~~to write our investment in Xenetic down to its fair value~~2020 were as ~~of September 30, 2017.~~follows:

Based on our evaluation of the value of our investments in Xenetic and RXi, including their decreasing stock price during the nine months ended September 30, 2016, we determined that the decline in fair value of our common shares in Xenetic and RXi was other-than-temporary and recorded an impairment charge of $3.9 million in Other income (expense), net in our Condensed Consolidated Statements of Operations for the nine months ended September 30, 2016 to write our investments in Xenetic and RXi down to their respective fair values as of September 30, 2016.

~~Cost method investments~~

Our cost method investments consist primarily of our investment in Eloxx Pharmaceuticals (“Eloxx”) (ownership 3%). Investments for which it is not practical to estimate fair value and with which we do not have significant influence, are accounted for as cost method investments.


(in thousands)
Equity Securities	For the six months ended June 30, 2020
Net gains and losses recognized during the period on equity securities	$	5,907
Less: Net gains and losses realized during the period on equity securities	—
Unrealized net gains recognized during the period on equity securities still held at the reporting date	$	5,907

Sales of investments

Gains (losses) included in earnings from sales of our investments are recorded in Other income (expense), net in our Condensed Consolidated ~~Statements~~Statement of Operations. We did not have ~~any such~~significant sales activity induring the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019. The cost of securities sold is based on the specific identification method.

Warrants and options

In addition to our equity method investments and ~~available for sale investments,~~equity securities, we hold options to purchase ~~1.0 million additional shares of Neovasc, which are fully vested as of September 30, 2017, options to purchase 5.0 million~~47 thousand additional shares of BioCardia, ~~none~~33 thousand of which ~~are~~were vested as of ~~September~~June 30, ~~2017,~~2020, and ~~1.0 million, 0.3 million, 0.2 million,~~33 thousand, 0.7 million, ~~0.5 million~~40 thousand and ~~0.2 million~~404

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warrants to purchase ~~additional~~ shares of COCP, ~~Sevion, MabVax,~~ InCellDx, Inc., Xenetic, and ~~RXi,~~Phio, respectively. We recorded the changes in the fair value of the options and warrants in Fair value changes of derivative instruments, net in our Condensed Consolidated ~~Statements~~Statement of Operations. We also recorded the fair value of the options and warrants in Investments, net in our Condensed Consolidated Balance ~~Sheets.~~Sheet. See further discussion of the Company’s options and warrants in Note 8 and Note 9.

Investments in variable interest entities

We have determined that we hold variable interests in Zebra Biologics, Inc. (“Zebra”)~~. We made this determination as a result of~~ based on our assessment that Zebra does not have sufficient resources to carry out its principal activities without additional financial support.

We own 1,260,000 shares of Zebra Series A-2 Preferred Stock and 900,000 shares of Zebra restricted common stock (ownership 29% at ~~September~~June 30, ~~2017)~~2020). Zebra is a privately held biotechnology company focused on the discovery and development of biosuperior antibody therapeutics and complex drugs. Dr. Richard Lerner, M.D., a member of our Board of Directors, is a founder of Zebra and, along with Dr. Frost, serves as a member of Zebra’s Board of Directors.

In order to determine the primary beneficiary of Zebra, we evaluated our investment and our related parties’ investment, as well as our investment combined with the related ~~party group’s~~parties’ investment to identify if we had the power to direct the activities that most significantly impact the economic performance of Zebra. Based on the capital structure, governing documents and overall business operations of Zebra, we determined that, while a VIE, we do not have the power to direct the

activities that most significantly impact Zebra’s economic performance and have no obligation to fund expected losses. We ~~did determine,~~determined, however, that we can significantly influence ~~the success~~control of Zebra through our board representation and voting power. Therefore, we have the ability to exercise significant influence over Zebra’s operations and account for our investment in Zebra under the equity method.

~~Other~~

~~In March 2016,~~NOTE 6 DEBT

On February 25, 2020, we entered into ana credit agreement with ~~Relative Core~~an affiliate of Dr. Frost, pursuant to which ~~we delivered $5.0 million cash~~the lender committed to ~~Relative Core~~provide us with an unsecured line of credit in ~~exchange~~the amount of $100 million. Borrowings under the line of credit will bear interest at a rate of 11% per annum and may be repaid and reborrowed at any time. The credit agreement includes various customary remedies for the lender following an event of default, including the acceleration of repayment of outstanding amounts under line of credit. The line of credit matures on February 25, 2025. The line of credit also calls for a ~~$5.0~~commitment fee equal to 0.25% per annum of the unused portion of the line. As of June 30, 2020, no funds were borrowed under the line of credit.

In February 2019, we issued $200.0 million ~~promissory note (“Relative Note”~~aggregate principal amount of Convertible Senior Notes due 2025 (the “2025 Notes”) ~~which bears~~in an underwritten public offering. The 2025 Notes bear interest at ~~10%~~a rate of 4.50% per year, payable semiannually in arrears on February 15 and ~~is due in 2018.~~August 15 of each year. The ~~Relative Note is secured by 122,446~~notes mature on February 15, 2025, unless earlier repurchased, redeemed or converted.

Holders may convert their 2025 Notes into shares of ~~common stock~~Common Stock at their option at any time prior to the close of ~~Xenetic~~business on the business day immediately preceding November 15, 2024 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ended March 31, 2019 (and only during such calendar quarter), if the last reported sale price of our Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the 5 business day period after any 5 consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our Common Stock and ~~494,462~~the conversion rate on each such trading day; (3) if we call any or all of the 2025 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events set forth in the indenture governing the 2025 Notes. On or after November 15, 2024, until the close of business on the business day immediately preceding the maturity date, holders of the 2025 Notes may convert their notes at any time, regardless of the foregoing conditions. Upon conversion, we will pay or deliver, as the case may be, cash, shares of ~~OPKO common stock.~~ our Common Stock, or a combination of cash and shares of our Common Stock, at our election.

The initial and current conversion rate for the 2025 Notes is 236.7424 shares of Common Stock per $1,000 principal amount of 2025 Notes (equivalent to a conversion price of approximately $4.22 per share of Common Stock). The conversion rate for the 2025 Notes is subject to adjustment in certain events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date of the 2025 Notes or if we deliver a notice of redemption, in certain circumstances the indenture governing the 2025 Notes requires an increase in the conversion rate of the

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2025 Notes for a holder who elects to convert its notes in connection with such a corporate event or notice of redemption, as the case may be.

We may not redeem the 2025 Notes prior to February 15, 2022. We may redeem for cash any or all of the 2025 Notes, at our option, on or after February 15, 2022, if the last reported sale price of our Common Stock has been at least 130% of the then current conversion price for the notes for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide a notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2025 Notes.

If we undergo a fundamental change, as defined in the indenture governing the 2025 Notes, prior to the maturity date of the 2025 Notes, holders may require us to repurchase for cash all or any portion of their notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The 2025 Notes are our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the 2025 Notes; equal in right of payment to any of our existing and future liabilities that are not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our current or future subsidiaries.

In conjunction with the issuance of the 2025 Notes, we agreed to loan up to 30,000,000 shares of our Common Stock to affiliates of the underwriter in order to assist investors in the 2025 Notes to hedge their position. As of June 30, 2020, a total of 29,250,000 shares were issued under the share lending arrangement. We will not receive any of the proceeds from the sale of the borrowed shares, but we received a one-time nominal fee of $0.3 million for the newly issued shares. Shares of our Common Stock outstanding under the share lending arrangement are excluded from the calculation of basic and diluted earnings per share. See Note 3.

As required by ASC 470-20, “Debt with Conversion and Other Options,” we calculated the equity component of the 2025 Notes, taking into account both the fair value of the conversion option and the fair value of the share lending arrangement. The equity component was valued at $52.6 million at issue date and this amount was recorded as Additional paid-in capital, which resulted in a discount on the ~~Relative Note within Other current assets and prepaid expenses~~2025 Notes. The discount is being amortized to Interest expense over the term of the 2025 Notes, which results in an effective interest rate on the 2025 Notes of 11.2%.

The following table sets forth information related to the 2025 Notes which is included in our Condensed Consolidated Balance ~~Sheets.~~Sheet as of June 30, 2020:


(In thousands)	2025 Senior Notes		Discount		Debt Issuance Cost		Total
Balance at December 31, 2019	$	200,000	$	(46,774)	$	(5,086)	$	148,140

Amortization of debt discount and debt issuance costs	—		3,497		381		3,878

Balance at June 30, 2020	$	200,000	$	(43,277)	$	(4,705)	$	152,018

~~NOTE 6 DEBT~~On November 8, 2018, we entered into a credit agreement with an affiliate of Dr. Frost, pursuant to which the lender committed to provide us with an unsecured line of credit in the aggregate principal amount of $60 million. The credit agreement was terminated on or around February 20, 2019 and we repaid the $28.8 million outstanding thereunder from the proceeds of the 2025 Notes offering.

In February 2018, we issued a series of 5% Convertible Promissory Notes (the “2023 Convertible Notes”) in the aggregate principal amount of $55.0 million. The 2023 Convertible Notes mature five years following the date of issuance. Each holder of a 2023 Convertible Note has the option, from time to time, to convert all or any portion of the outstanding principal balance of such 2023 Convertible Note, together with accrued and unpaid interest thereon, into shares of our Common Stock at a conversion price of $5.00 per share. We may redeem all or any part of the then issued and outstanding 2023 Convertible Notes, together with accrued and unpaid interest thereon, pro rata among the holders, upon no fewer than 30 days, and no more than 60 days, notice to the holders. The 2023 Convertible Notes contain customary events of default and representations and warranties of OPKO.

Purchasers of the 2023 Convertible Notes included an affiliate of Dr. Phillip Frost, M.D., our Chairman and Chief Executive Officer, and Dr. Jane H. Hsiao, Ph.D., MBA, our Vice-Chairman and Chief Technical Officer.

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In January 2013, we entered into note purchase agreements with respect to the issuance and sale of our 3.0% Senior Notes due 2033 (the “2033 Senior Notes”~~) with qualified institutional buyers and accredited investors (collectively, the “Purchasers”~~) in a private placement ~~in reliance on exemptions~~exempt from registration under the Securities ~~Act of 1933, as amended (the “Securities Act”). The~~Act. We issued the 2033 Senior Notes ~~were issued~~ on January 30, 2013. The 2033 Senior Notes, which totaled $175.0 million in original principal amount, bear interest at the rate of ~~3.00%~~3.0% per year, payable semiannually on February 1 and August 1 of each year. The 2033 Senior Notes ~~will~~ mature on February 1, 2033, unless earlier repurchased, redeemed or converted. Upon a fundamental change, as defined in the ~~Indenture, dated as of January 30, 2013, by and between the Company and Wells Fargo Bank N.A., as trustee,~~indenture governing the 2033 Senior Notes, ~~(the “Indenture”),~~ subject to certain exceptions, the holders may require us to repurchase all or any portion of their 2033 Senior Notes for cash at a repurchase price equal to 100% of the principal amount of the 2033 Senior Notes being repurchased, plus any accrued and unpaid interest to, but not including, the related fundamental change repurchase date.

~~The following table sets forth information related~~From 2013 to 2016, holders of the 2033 Senior Notes ~~which is included our Condensed Consolidated Balance Sheets as~~converted $143.2 million in aggregate principal amount into an aggregate of ~~September 30, 2017~~:

(In thousands) Embedded conversion option 2033 Senior Notes Discount Debt Issuance Cost Total
Balance at December 31, 2016 $ 16,736
$ 31,850
$ (4,612 ) $ (273 ) $ 43,701
Amortization of debt discount and debt issuance costs —
—
1,514
111
1,625
Change in fair value of embedded derivative (3,185 ) —
—
—
(3,185 )
Reclassification of embedded derivatives to equity (13,551 ) —
—
—
(13,551 )
Balance at September 30, 2017 $ —
$ 31,850
$ (3,098 ) $ (162 ) $ 28,590

The 2033 Senior Notes will be convertible at any time on or after November 1, 2032, through the second scheduled trading day immediately preceding the maturity date, at the option of the holders. Additionally, holders may convert their 2033 Senior Notes prior to the close of business on the scheduled trading day immediately preceding November 1, 2032, under the following circumstances: (1) conversion based upon satisfaction of the trading price condition relating to the 2033 Senior Notes; (2) conversion based on the Common Stock price; (3) conversion based upon the occurrence of specified corporate events; or (4) if we call the 2033 Senior Notes for redemption. The 2033 Senior Notes will be convertible into cash, shares of our Common Stock, or a combination of cash and21,539,873 shares of Common ~~Stock, at our election unless we have made an irrevocable election of net share settlement. The initial conversion rate for the 2033 Senior Notes will be 141.48 shares of Common Stock per $1,000~~Stock. On February 1, 2019, approximately $28.8 million aggregate principal amount of 2033 Senior Notes ~~(equivalent~~were tendered by holders pursuant to ~~an initial conversion price of approximately $7.07 per share of Common Stock), and will be subject~~such holders’ option to ~~adjustment upon~~require us to repurchase the ~~occurrence of certain events. In addition, we will, in certain circumstances, increase the conversion rate for holders who convert their~~ 2033 Senior Notes ~~in connection with a make-whole fundamental change (as defined~~as set forth in the ~~Indenture) and holders who convert upon~~indenture, following which repurchase only $3.0 million aggregate principal amount of the ~~occurrence~~2033 Senior Notes remained outstanding. Holders of ~~certain specific events prior to February 1, 2017 (other than in connection with a make-whole fundamental change). Holders~~the remaining $3.0 million principal amount of the 2033 Senior Notes may require us to repurchase ~~the 2033 Senior Notes~~such notes for 100% of their principal amount, plus accrued and unpaid interest, on February 1, ~~2019, February 1,~~ 2023, ~~and~~on February 1, 2028, or following the occurrence of a fundamental change as ~~defined in the indenture governing the 2033 Senior Notes.~~

On or after February 1, 2017 and before February 1, 2019, we may redeem for cash any or all of the 2033 Senior Notes but only if the last reported sale price of our Common Stock exceeds 130% of the applicable conversion price for at least 20 trading days during the 30 consecutive trading day period ending on the trading day immediately prior to the date on which we deliver the redemption notice. The redemption price will equal 100% of the principal amount of the 2033 Senior Notes to be redeemed, plus any accrued and unpaid interest to but not including the redemption date. On or after February 1, 2019, we may redeem for cash any or all of the 2033 Senior Notes at a redemption price of 100% of the principal amount of the 2033 Senior Notes to be redeemed, plus any accrued and unpaid interest up to but not including the redemption date.described above.

The terms of the 2033 Senior Notes, include, among others: (i) rights to convert the notes into shares of our Common Stock, including upon a fundamental change; and (ii) a coupon make-whole payment in the event of a conversion by the holders of the 2033 Senior Notes on or after February 1, 2017 but prior to February 1, 2019. We determined that these specific terms were ~~considered to be~~ embedded derivatives. Embedded derivatives are required to be separated from the host contract, the 2033 Senior Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. We concluded that the embedded derivatives within the 2033 Senior Notes

~~meet~~ met these criteria ~~for periods prior to February 1, 2017~~ and, as such, were valued separate and apart from the 2033 Senior Notes and recorded at fair value each reporting period.

For accounting and financial reporting purposes, ~~prior to 2017~~ we combined these embedded derivatives and valued them together as one unit of accounting.

~~On February 1,~~ In 2017, certain terms of the embedded derivatives expired pursuant to the original agreement and ~~we determined that~~ the embedded derivatives no longer met the criteria to be separated from the host contract and, as a result, the embedded derivatives ~~are~~were no longer required to be valued separate and apart from the 2033 Senior Notes and ~~are not required to be measured at fair value subsequent to February 1, 2017.~~

The change in derivative income for the period from January 1, 2017 to February 1, 2017 related to the embedded derivatives was $3.2 million and the fair value at that date was $13.6 million. For financial reporting purposes, we had remeasured the embedded derivatives subsequent to February 1, 2017 and recorded derivative income of $4.9 million and $5.1 million for the three months ended March 31, 2017 and June 30, 2017, respectively. In the three and nine months ended September 30, 2017, we reversed aggregate derivative income of $6.8 million to correct the derivative to its value as of February 1, 2017. The adjustment of previously recorded derivative income for the three months ended March 31, 2017 and June 30, 2017 were not significant to those previous periods and increased our basic loss per share by $(0.01) for the three months ended September 30, 2017 in the consolidated statements of operations. In addition, because the embedded derivatives are no longer required to be accounted for separately each period, in September 2017 the embedded derivative fair value of $13.6 million as of February 1, 2017 was reclassified to additional paid in capital.

~~From 2013 to 2016, holders of the 2033 Senior Notes converted 143.2 million in aggregate principal amount into an aggregate of 21,539,873 shares of the Company’s Common Stock.~~

On April 1, 2015, we initially announced that our 2033 Senior Notes were convertible through June 2015 by holders of such notes. This conversion right was triggered because the closing price per share of our Common Stock exceeded $9.19, or 130% of the initial conversion price of $7.07, for at least 20 of 30 consecutive trading days during the applicable measurement period. We have elected to satisfy our conversion obligation under the 2033 Senior Notes in shares of our Common Stock. Our 2033 Senior Notes continued to be convertible by holders of such notes for the remainder of 2015, 2016 and the first quarter of 2017, and may be convertible thereafter, if one or more of the conversion conditions specified in the Indenture is satisfied during future measurement periods. Pursuant to the Indenture, a holder who elects to convert the 2033 Senior Notes will receive 141.4827 shares of our Common Stock plus such number of additional shares as is applicable on the conversion date per $1,000 principal amount of 2033 Senior Notes based on the early conversion provisions in the Indenture.

Through February 1, 2017, we used a binomial lattice model in order to estimate the fair value of the embedded derivative in the 2033 Senior Notes. A binomial lattice model generates two probable outcomes — one up and another down —arising at each point in time, starting from the date of valuation until the maturity date. A lattice model was initially used to determine if the 2033 Senior Notes would be converted, called or held at each decision point. Within the lattice model, the following assumptions are made: (i) the 2033 Senior Notes will be converted early if the conversion value is greater than the holding value; or (ii) the 2033 Senior Notes will be called if the holding value is greater than both (a) the redemption price (as defined in the Indenture) and (b) the conversion value plus the coupon make-whole payment at the time. If the 2033 Senior Notes are called, then the holders will maximize their value by finding the optimal decision between (1) redeeming at the redemption price and (2) converting the 2033 Senior Notes.

Using this lattice model, we had valued the embedded derivatives using the “with-and-without method,” where the value of the 2033 Senior Notes including the embedded derivatives is defined as the “with,” and the value of the 2033 Senior Notes excluding the embedded derivatives is defined as the “without.” This method estimated the value of the embedded derivatives by looking at the difference in the values between the 2033 Senior Notes with the embedded derivatives and the value of the 2033 Senior Notes without the embedded derivatives.

The lattice model requires the following inputs: (i) price of our Common Stock; (ii) Conversion Rate (as defined in the Indenture); (iii) Conversion Price (as defined in the Indenture); (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; and (vii) estimated credit spread for the Company.

~~The following table sets forth the inputs to the lattice model used to value the embedded derivative as of February 1, 2017:~~



	~~February 1, 2017~~
~~Stock price~~	~~$8.63~~
~~Conversion Rate~~	~~141.4827~~
~~Conversion Price~~	~~$7.07~~
~~Maturity date~~	~~February 1, 2033~~
~~Risk-free interest rate~~	~~1.22%~~
~~Estimated stock volatility~~	~~49%~~
~~Estimated credit spread~~	~~761 basis points~~

OnIn November 5, 2015, BioReference and certain of its subsidiaries entered into a credit agreement with JPMorgan Chase Bank, N.A. (“CB”), as lender and administrative agent, as amended (the “Credit Agreement”)~~, which replaced BioReference’s prior credit facility.~~. The Credit Agreement provides for a ~~$175.0~~$75.0 million secured revolving credit facility and includes a $20.0 million sub-facility for swingline loans and a $20.0 million sub-facility for the issuance of letters of credit. ~~BioReference may increase the credit facility to up to $275.0 million on a secured basis, subject to the satisfaction of specified conditions.~~ The Credit Agreement matures on November 5, ~~2020~~2021 and is guaranteed by all of BioReference’s domestic subsidiaries. The Credit Agreement is also secured by substantially all assets of BioReference and its domestic subsidiaries, as well as a non-recourse pledge by us of our equity interest in BioReference. Availability under the Credit Agreement is based on a borrowing base ~~comprised~~composed of eligible accounts receivables of BioReference and certain of its subsidiaries, as specified therein. As of June 30, 2020, $15.3 million remained available for borrowing under the Credit Agreement. Principal under the Credit Agreement is due upon maturity on November 5, ~~2020.~~2021.

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

On ~~March 17, 2017,~~February 25, 2020, BioReference and certain of its subsidiaries entered into Amendment No. 311 to the Credit Agreement, which amended the Credit Agreement to ~~permit BioReference and its subsidiaries to dividend cash to~~provide that the ~~Company~~fixed charge coverage ratio requirement set forth in the form of an intercompany loan, in an aggregate amount not to exceed $55,000,000. On August 7, 2017, BioReference and certain of its subsidiaries entered into Amendment No. 4 to Credit Agreement, which amended the Credit Agreement would not be tested for the quarter ended December 31, 2019, with respect to ~~permit BioReference~~availability calculated on January 29, 2020 and ~~its subsidiaries to dividend cash to the Company~~January 30, 2020, subject, in the ~~form~~case of ~~an additional intercompany loan, in an aggregate amount not~~testing for the quarter ended December 31, 2019, to ~~exceed $35,000,000.~~(i) there having been no event of default occurring and (ii) availability under the revolving facility exceeding 10% of the total revolving commitment, for at least 30 consecutive days for the period ended December 31, 2019, excluding December 18, 2019. The other terms of the Credit Agreement remain unchanged.

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As of June 30, 2020, $51.5 million outstanding under the Credit Agreement was included within Other long-term liabilities.

The Credit Agreement contains customary covenants and restrictions, including, without limitation, covenants that require BioReference and its subsidiaries to maintain a minimum fixed charge coverage ratio if availability under the new credit facility falls below a specified amount and to comply with laws and restrictions on the ability of BioReference and its subsidiaries to incur additional indebtedness or to pay dividends and make certain other distributions to the Company, subject to certain exceptions as specified therein. Failure to comply with these covenants would constitute an event of default under the Credit Agreement, notwithstanding the ability of BioReference to meet its debt service obligations. The Credit Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Credit Agreement and execution upon the collateral securing obligations under the Credit Agreement. Substantially all the assets of BioReference and its subsidiaries are restricted from sale, transfer, lease, disposal or distributions to the Company, subject to certain exceptions. As of June 30, 2020, BioReference and its subsidiaries had net assets as of ~~September 30, 2017 were~~ approximately ~~$1.0 billion,~~$913.2 million, which ~~includes~~included goodwill of ~~$401.8~~$434.8 million and intangible assets of ~~$457.0~~$345.9 million.

In addition to the Credit Agreement with CB, we ~~have~~had line of credit agreements with ~~eleven~~11 other financial institutions as of ~~September~~both June 30, ~~2017~~2020 and ~~ten other financial institutions as of~~ December 31, ~~2016~~2019 in ~~United States,~~the U.S., Chile and Spain. These lines of credit are used primarily as a source of working capital for inventory purchases.

The following table summarizes the amounts outstanding under the ~~Bio Reference,~~BioReference, Chilean and Spanish lines of credit:


(Dollars in thousands)				Balance Outstanding				(Dollars in thousands)				Balance Outstanding
Lender	Interest rate on borrowings at September 30, 2017	Credit line capacity		September 30, 2017		December 31, 2016		Lender	Interest rate on borrowings at June 30, 2020	Credit line capacity		June 30, 2020		December 31, 2019
JPMorgan Chase	3.36%	$	175,000	$	93,311	$	38,809	JPMorgan Chase	3.67%	$	75,000	$	51,489	$	44,750
Itau Bank	5.50%	1,810		374		419		Itau Bank	5.50%	1,810		530		472
Bank of Chile	6.60%	3,800		2,687		1,619		Bank of Chile	6.60%	3,800		865		851
BICE Bank	5.50%	2,500		1,720		1,538		BICE Bank	5.50%	2,500		1,019		1,429
BBVA Bank	5.50%	3,250		2,164		1,063		BBVA Bank	5.50%	3,250		—		11
Security Bank								Security Bank	5.50%	—		—		588
Estado Bank	5.50%	3,500		2,559		1,870		Estado Bank	5.50%	3,500		1,974		1,365
Santander Bank	5.50%	4,500		2,133		1,196		Santander Bank	5.50%	4,500		2,648		1,943
Scotiabank	5.00%	1,800		986		789		Scotiabank	5.00%	1,800		1,095		668
Corpbanca	5.00%	—		—		18		Corpbanca	5.00%	3,917		3,917		—
Banco De Sabadell								Banco De Sabadell	1.30%	337		—		—
Banco Bilbao Vizcaya	2.90%	295		—		—		Banco Bilbao Vizcaya	1.70%	337		—		—
Santander Bank	2.67%	354		—		—
Banco Santander								Banco Santander	1.82%	561		—		—
Total		$	196,809	$	105,934	$	47,321	Total		$	101,312	$	63,537	$	52,077

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the weighted average interest rate on our lines of credit was approximately ~~4.5%~~4.2% and ~~4.7%~~4.0%, respectively.

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, we had notes payable and other debt (excluding the 2033 Senior Notes, the 2023 Convertible Notes, the 2025 Notes, the Credit Agreement and amounts outstanding under lines of ~~credit)~~credit described above) as follows:


(In thousands)	June 30, 2020		December 31, 2019
Current portion of notes payable	$	2,415	$	2,494
Other long-term liabilities	4,936		4,723
Total	$	7,351	$	7,217

(In thousands) September 30,
2017
December 31,
2016
Current portion of notes payable $ 3,726
$ 3,681
Other long-term liabilities 2,085
2,090
Total $ 5,811
$ 5,771

The notes and other debt mature at various dates ranging from ~~2017~~2020 through 2024, bearing variable interest rates from ~~1.8%~~0.7% up to ~~6.3%~~3.8%. The weighted average interest rate on the notes and other debt at ~~September~~was 2.6% and 2.7% on June 30, ~~2017~~2020 and December 31, ~~2016, was~~ ~~2.9%~~ ~~and~~ ~~3.2%, respectively.~~2019. The notes ~~payable~~ are partially secured by our office space in Barcelona.

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NOTE 7 ACCUMULATED OTHER COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2020, changes in Accumulated other comprehensive ~~income (loss),~~loss, net of tax, were as follows:


(In thousands)	Foreign currency translation
Balance at December 31, 2019	$	(22,070)
Other comprehensive loss	(3,682)


Balance at June 30, 2020	$	(25,752)

(In thousands)
Foreign
currency

Unrealized
gain (loss) in
Accumulated
OCI
Total
Balance at December 31, 2016 $ (28,128 ) $ 1,119
$ (27,009 )
Other comprehensive income (loss) before reclassifications 21,646
(749 ) 20,897
Reclassification adjustments for losses included in net loss, net of tax

690
690
Net other comprehensive income (loss) 21,646
(59 ) 21,587
Balance at September 30, 2017 $ (6,482 ) $ 1,060
$ (5,422 )

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NOTE 8 FAIR VALUE MEASUREMENTS

We record fair values at an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement determined based on assumptions that market participants would use in pricing an asset or liability. We utilize a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers ~~include:~~are: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

~~A summary of our investments classified as available for sale and carried at fair value, is as follows:~~

As of September 30, 2017
(In thousands)
Amortized
Cost

Gross
unrealized
gains in
Accumulated
OCI

Gross
unrealized
losses in
Accumulated
OCI

Fair
value
Common stock investments, available for sale $ 2,048
$ 1,308
$ (248 ) $ 3,108
Total assets $ 2,048
$ 1,308
$ (248 ) $ 3,108

As of December 31, 2016
(In thousands)
Amortized
Cost

Gross
unrealized
gains in
Accumulated
OCI

Gross
unrealized
losses in
Accumulated
OCI

Fair
value
Common stock investments, available for sale $ 3,409
$ 1,313
$ (194 ) $ 4,528
Total assets $ 3,409
$ 1,313
$ (194 ) $ 4,528

Any future fluctuation in fair value related to our available for sale investments that is judged to be temporary, and any recoveries of previous temporary write-downs, will be recorded in Accumulated other comprehensive income (loss). If we determine that any future valuation adjustment was other-than-temporary, we will record a loss during the period such determination is made.

As of ~~September~~June 30, ~~2017,~~2020, we ~~have money market funds that qualify as cash equivalents,~~had equity securities (refer to Note 5), forward foreign currency exchange contracts for inventory purchases (refer to Note 9) and contingent consideration related to the acquisitions of CURNA, OPKO Diagnostics and OPKO Renal that are required to be measured at fair value on a recurring basis. In addition, in connection with our investment and our consulting ~~agreements~~agreement with ~~Neovasc and~~ BioCardia, we record the related ~~Neovasc and~~ BioCardia options at fair value as well as the warrants from COCP, ~~Sevion, MabVax,~~ InCellDx, ~~Inc.,~~ Xenetic and ~~RXi.~~

Phio.

Our financial assets and liabilities measured at fair value on a recurring basis are as follows:


	Fair value measurements as of June 30, 2020
(In thousands)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:


Equity securities	$	24,777	$	—	$	—	$	24,777
Common stock options/warrants	—		51		—		51
Forward contracts	—		215		—		215
Total assets	$	24,777	$	266	$	—	$	25,043
Liabilities:



Contingent consideration	—		—		9,934		9,934
Total liabilities	$	—	$	—	$	9,934	$	9,934


	Fair value measurements as of September 30, 2017									Fair value measurements as of December 31, 2019
(In thousands)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total		(In thousands)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:									Assets:
Money market funds	$	12,621	$	—	$	—	$	12,621
Common stock investments, available for sale	3,108		—		—		3,108

Equity securities									Equity securities	$	18,870	$	—	$	—	$	18,870
Common stock options/warrants	—		2,020		—		2,020		Common stock options/warrants	—		120		—		120
Forward contracts									Forward contracts	—		133		—		133
Total assets	$	15,729	$	2,020	$	—	$	17,749	Total assets	$	18,870	$	253	$	—	$	19,123
Liabilities:									Liabilities:
Forward contracts	—		264		—		264

Contingent consideration	—		—		40,301		40,301		Contingent consideration	—		—		9,683		9,683
Total liabilities	$	—	$	264	$	40,301	$	40,565	Total liabilities	$	—	$	—	$	9,683	$	9,683

Fair value measurements as of December 31, 2016
(In thousands)
Quoted
prices in
active
markets for
identical
assets
(Level 1)

Significant
other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)
Total
Assets:
Money market funds $ 5,314
$ —
$ —
$ 5,314
Common stock investments, available for sale 4,528
—
—
4,528
Common stock options/warrants —
4,017
—
4,017
Forward contracts —
39
—
39
Total assets $ 9,842
$ 4,056
$ —
$ 13,898
Liabilities:
Embedded conversion option $ —
$ —
$ 16,736
$ 16,736
Contingent consideration —
—
45,076
45,076
Total liabilities $ —
$ —
$ 61,812
$ 61,812

The carrying amount and estimated fair value of our 2033 Senior Notes with the embedded conversion option, as well as the applicable fair value hierarchy tiers, are contained in the table below. The fair value of the 2033 Senior Notes is determined using a binomial lattice approach in order to estimate the fair value of the embedded derivative in the 2033 Senior Notes. Refer to Note 6.

September 30, 2017
(In thousands)
Carrying
Value

Total
Fair Value
Level 1 Level 2 Level 3
2033 Senior Notes $ 28,590
$ 37,011
$ —
$ —
$ 37,011

There have been no transfers between Level 1 and Level 2 and no transfers to or from Level 3 of the fair value hierarchy.

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the carrying value of our other financial instrument assets ~~and liabilities~~ approximates their fair value due to their short-term nature or variable rate of interest.

The following table reconciles the beginning and ending balances of our Level 3 assets and liabilities as of ~~September~~June 30, ~~2017~~:

2020:

Table of Contents

September 30, 2017
(In thousands)
Contingent
consideration

Embedded
conversion
option
Balance at December 31, 2016 $ 45,076
$ 16,736
Total losses for the period:
Included in results of operations (4,475 ) (3,185 )
Foreign currency impact 3
—
Payments (303 ) —
Reclassification of embedded derivatives to equity —
(13,551 )
Balance at September 30, 2017 $ 40,301
$ —


	June 30, 2020
(In thousands)	Contingent consideration
Balance at December 31, 2019	$	9,683

Change in fair value:
Included in results of operations	251



Balance at June 30, 2020	$	9,934

The estimated fair values of our financial instruments have been determined by using available market information and what we believe to be appropriate valuation methodologies. We use the following methods and assumptions in estimating fair value:

Contingent consideration – We estimate the fair value of the contingent consideration utilizing a discounted cash flow model for the expected payments based on estimated timing and expected revenues. We use several discount rates depending on each type of contingent consideration related to OPKO Diagnostics, CURNA and OPKO Renal transactions. ~~If estimated future sales were to decrease by~~ ~~10%, the contingent consideration related to OPKO Renal, which represents the majority of our contingent consideration liability, would decrease by~~ ~~$2.4 million~~. As of ~~September~~June 30, ~~2017~~,2020, of the ~~$40.3~~$9.9 million of contingent consideration, ~~$2.0~~$2.4 million is was recorded in Accrued expenses and ~~$38.3~~$7.6 million is was recorded in Other long-term liabilities. As of December 31, ~~2016~~,2019, of the ~~$45.1~~$9.7 million of contingent consideration, ~~$0.3~~$2.4 million is was recorded in Accrued expenses and ~~$44.8~~$7.3 million iswas recorded in Other long-term liabilities.

Table of Contents

NOTE 9 DERIVATIVE CONTRACTS

The following table summarizes the fair values and the presentation of our derivative ~~financial instruments~~assets (liabilities) in the Condensed Consolidated Balance Sheets:


(In thousands)	Balance Sheet Component	September 30, 2017			December 31, 2016			(In thousands)	Balance Sheet Component	June 30, 2020		December 31, 2019
Derivative financial instruments:								Derivative financial instruments:

Common Stock options/warrants	Investments, net	$	2,020		$	4,017		Common Stock options/warrants	Investments, net	$	51	$	120
Embedded conversion option	2033 Senior Notes, net of discount and estimated fair value of embedded derivatives	$	—		$	(16,736	)

Forward contracts	Unrealized gains on forward contracts are recorded in Other current assets and prepaid expenses. Unrealized (losses) on forward contracts are recorded in Accrued expenses.	$	(264	)	$	39		Forward contracts	Unrealized gains on forward contracts are recorded in Other current assets and prepaid expenses. Unrealized (losses) on forward contracts are recorded in Accrued expenses.	$	215	$	133

We enter into foreign currency forward exchange contracts in an effort to ~~cover~~mitigate the ~~risk~~effects of ~~exposure to~~ exchange rate differences arising from inventory purchases on letters of credit. Under these forward contracts, for any rate above or below the fixed rate, we receive or pay the difference between the spot rate and the fixed rate for the given amount at the settlement date.

To qualify the derivative instrument 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~~June 30, ~~2017~~2020 and December 31, ~~2016~~,2019, our derivative financial instruments dodid not meet the documentation requirements to be designated as hedges. Accordingly, we recognize the changes in Fair value of derivative instruments, net in our Condensed Consolidated ~~Statements~~Statement of Operations. The following table summarizes the losses and gains recorded for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:


	Three months ended June 30,						Six months ended June 30,
(In thousands)	2020		2019		2020		2019
Derivative gain (loss):

Common Stock options/warrants	$	(7)	$	(392)	$	(69)	$	(24)

Forward contracts	(6)		4		677		51
Total	$	(13)	$	(388)	$	608	$	27

NOTE 10 RELATED PARTY TRANSACTIONS

On February 25, 2020, we entered into a credit agreement with an affiliate of Dr. Frost, pursuant to which the lender committed to provide us with an unsecured line of credit in the amount of $100 million. Borrowings under the line of credit will bear interest at a rate of 11% per annum and may be repaid and reborrowed at any time. The credit agreement includes various customary remedies for the lender following an event of default, including the acceleration of repayment of outstanding amounts under line of credit. The line of credit matures on February 25, 2025. The line of credit also calls for a commitment fee equal to 0.25% per annum of the unused portion of the line. As of June 30, 2020, no funds were borrowed under the line of credit.

On October 29, 2019, we issued 50 million shares of our Common Stock at a price of $1.50 per share in an underwritten public offering (the “Offering”), resulting in net proceeds to the Company of approximately $70 million, after deducting underwriting commissions and offering expenses. In November 2019, pursuant to an option the Company granted the underwriters, we issued an additional 4,227,749 shares at the public offering price, less underwriting discounts and commissions, resulting in net proceeds to the Company of approximately $6 million. Drs. Frost and Hsiao and Mr. Steven Rubin, members of OPKO’s senior management purchased an aggregate of 2,415,000 shares of Common Stock in the Offering.

On March 1, 2019, OPKO Pharmaceuticals, LLC entered into an assignment agreement with Xenetic Biosciences, Inc., as amended from time to time (the “Assignment Agreement”), pursuant to which Xenetic acquired all of OPKO Pharmaceuticals’ right, title and interest in and to that certain Intellectual Property License Agreement (the “IP License Agreement”), entered into between The Scripps Research Institute and OPKO Pharmaceuticals, regarding certain patents for novel CAR T platform technology and through which the Scripps Research Institute granted an exclusive royalty-bearing license in exchange for royalties, subject to the terms of the IP License Agreement.

Under the Assignment Agreement and the IP License Agreement, Xenetic issued to OPKO Pharmaceuticals 164,062 shares of Xenetic common stock (the “OPKO Transaction Shares”). In connection with the Assignment Agreement, OPKO Pharmaceuticals entered into a voting agreement pursuant to which OPKO Pharmaceuticals agreed, among other things, to vote

its shares in Xenetic in favor of the transactions contemplated by the Assignment Agreement, and a lock-up agreement with Xenetic which restricts OPKO Pharmaceuticals’ sale or transfer of any of the OPKO Transaction Shares as provided therein and as otherwise required by law. The Assignment Agreement and the obligations thereunder took effect on July 19, 2019, after Xenetic satisfied certain closing conditions, including obtaining stockholder approval and securing certain financing.

The Company owns approximately 9% of Pharmsynthez and Pharmsynthez is Xenetic’s largest and controlling stockholder. Dr. Richard Lerner, a director of the Company, is a co-inventor of Xenetic’s technology and received 31,240 shares of Xenetic upon the closing of the Xenetic transactions described above. Adam Logal, our Senior Vice President and Chief Financial Officer, is a director of Xenetic.

In March 2019, we paid the $125,000 filing fee to the Federal Trade Commission (the “FTC”) in connection with filings made by us and Dr. Jane Hsiao, our Vice Chairman and Chief Technical Officer, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) relating to her purchases of Common Stock.

In February 2019, Dr. Phillip Frost, our Chairman and Chief Executive Officer, paid a filing fee of $280,000 to the FTC under the HSR Act in connection with filings made by us and Dr. Frost, relating to his purchases of Common Stock. We reimbursed Dr. Frost for the HSR filing fee.

On November 8, 2018, we entered into a credit agreement with an affiliate of Dr. Frost, pursuant to which the lender committed to provide us with an unsecured line of credit in the amount of $60 million. Borrowings under the line of credit bore interest at a rate of 10% per annum and could have been repaid and reborrowed at any time. The credit agreement included various customary remedies for the lender following an event of default, including the acceleration of repayment of outstanding amounts under line of credit. The line of credit would have matured on November 8, 2023. We repaid approximately $28.8 million that was borrowed in 2019 and terminated the line of credit on or around February 20, 2019.

In February 2018, we issued the 2023 Convertible Notes in the aggregate principal amount of $55.0 million. Refer to Note 6. Purchasers of the 2023 Convertible Notes included Dr. Hsiao and an affiliate of Dr. Frost.

We hold investments in Zebra (ownership 29%), ~~Sevion (31%),~~ Neovasc ~~(4%~~(2%), ChromaDex Corporation ~~(1%~~(0.1%), MabVax ~~(4%~~(1%), COCP ~~(9%) ARNO~~ (5%), NIMS (1%), ~~BioCardia (5%) and~~ Eloxx (3%), and BioCardia (2%). These investments were considered related party transactions as a result of our executive management’s ownership interests and/or board representation in these entities. See further discussion of our investments in Note 5.

In ~~June 2017,~~February 2018, we invested $1.5 million in Eloxx for 99,915 Preferred C Shares and in July 2017, we invested an additional $1.5 million in Sevion for 10,000,000 shares of Sevion common stock. An entity controlled by Dr. Frost also made in investment in Eloxx and committed to investing additional funds in Sevion by December 31, 2017. Sevion and Eloxx entered into an acquisition agreement on May 31, 2017 under which Eloxx will become a wholly owned subsidiary of Sevion. Upon completion of the transaction, Sevion will change its name to Eloxx Pharmaceuticals, Inc. Previously, in November 2016, we made a $0.2 million loan to Sevion, and in February 2017, we entered into an agreement with Sevion pursuant to which we delivered $0.3 million cash to Sevion in exchange for a promissory note. The loan and promissory note were converted into 4.1 million shares of Sevion common stock in August 2017. In September 2017, we converted 66,667 shares of Series C Preferred Stock of Sevion into 1,250,006 shares of common stock. The agreements with Sevion were considered related party transactions as a result of our executive management’s ownership interests and board representation in Sevion.

In July 2017, we invested an additional $0.1 million in MabVax for 152,143 shares of common stock and in May 2017, we invested an additional $0.5 million in MabVax for 285,714 shares of Series G Preferred Stock and 322,820 shares of Series I Preferred Stock. We had also invested an additional $1.0 million in ~~MabVax in August 2016~~COCP for ~~207,900~~a convertible note, which was converted into 538,544 shares of its common stock ~~and warrants to purchase 415,800 shares of its common stock.~~

in May 2018. In April 2017, we invested an additional $1.0 million in COCP for ~~4,166,667 shares of its common stock, and in August 2016, we had invested an additional $2.0 million in COCP for 4,878,050~~138,889 shares of its common stock.

In ~~January 2016,~~November 2017, we invested an additional ~~$0.3~~$3.0 million in ~~ARNO~~Neovasc for ~~714,285~~20,547 shares of its common stock, 20,547 Series A warrants, 20,547 Series B warrants and 8,221 Series C warrants, after adjusting for a 1-for-100 reverse stock split in ~~August 2016,~~2018. In April 2018, we ~~had invested an additional $0.3 million~~exercised the Series B warrants in ~~ARNO for 714,285~~a cashless exercise and received 10,690 shares of ~~its~~Neovasc common ~~stock~~stock. In the first quarter of 2019, we exercised the Series C warrants for $1.2 million and exchanged the Series A warrants ~~to purchase 357,142~~and received a total of 22,660 additional shares of ~~its~~Neovasc common stock.

In October 2016, we entered into a consulting agreement to provide strategic advisory services to BioCardia. In connection with the consulting agreement, BioCardia granted us 5,027,726 common stock options. In December 2016, we purchased 19,230,769 shares of BioCardia from Dr. Frost for $2.5 million. We have also purchased shares of BioCardia in the open market. BioCardia is a related party as a result of our executive management’s ownership interest and board representation in BioCardia and its predecessor, Tiger X Medical, Inc. In October 2016, BioCardia completed its merger with Tiger X Medical, Inc., to which Tiger X Medical, Inc. was the surviving entity and the name of the issuer was changed to BioCardia.

In November 2016, we entered into a Pledge Agreement with the Museum of Science, Inc. and the Museum of Science Endowment Fund, Inc. pursuant to which we ~~will~~agreed to contribute an aggregate of $1.0 million over a four-year period for constructing, equipping and the general operation of the Frost Science Museum. Dr. Frost and Mr. Richard Pfenniger serve on the Board of Trustees of the Frost Science Museum and Mr. Pfenniger is the Vice Chairman of the Board of Trustees.

We lease office space from Frost Real Estate Holdings, LLC (“Frost Holdings”) in Miami, Florida, where our principal executive offices are located. Effective ~~January~~August 1, ~~2017,~~2019, we entered into an amendment to our lease agreement with Frost Holdings. The lease, as amended, is for approximately 29,500 square feet of space. The lease provides for payments of approximately ~~$81~~$89 thousand per month in the first year increasing annually to ~~$86~~$101 thousand per month in the ~~third~~fifth year, plus applicable sales tax. The rent is inclusive of operating expenses, property taxes and parking.

~~Our wholly-owned subsidiary,~~ BioReference purchases and uses certain products acquired from InCellDx, ~~Inc.,~~ a company in which we hold a ~~28%~~29% minority interest.

We reimburse Dr. Frost for Company-related use by Dr. Frost and our other executives of an airplane owned by a company that is beneficially owned by Dr. Frost. We reimburse Dr. Frost for out-of-pocket operating costs for the use of the airplane by Dr. Frost or Company executives for Company-related business. We do not reimburse Dr. Frost for personal use of the airplane by Dr. Frost or any other executive. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, we ~~recognized~~reimbursed approximately ~~$168~~$0 thousand and ~~$309~~$94 thousand, respectively, for Company-related travel by Dr. Frost and other OPKO

executives. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019, we ~~recognized~~reimbursed approximately ~~$154~~$122 thousand and ~~$274~~$160 thousand, respectively, for Company-related travel by Dr. Frost and other OPKO executives.

NOTE 11 COMMITMENTS AND CONTINGENCIES

In connection with our acquisitions of CURNA, OPKO Diagnostics and OPKO Renal, we agreed to pay future consideration to the sellers upon the achievement of certain events. As a result, as of ~~September~~June 30, ~~2017,~~2020, we recorded ~~$40.3~~$9.9 million as contingent consideration, with ~~$2.0~~$2.4 million recorded within Accrued expenses and ~~$38.3~~$7.6 million recorded within Other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets. Refer to Note 4.

InOn June 3, 2019, BioReference reported that Retrieval-Masters Creditors Bureau, Inc. d/b/a American Medical Collection Agency (“AMCA”), had notified BioReference about a data security incident involving AMCA (the “AMCA Incident”). AMCA informed BioReference that an unauthorized user had access to AMCA’s system between August ~~2017, we entered into a Commitment Letter (the “Commitment Letter”) with Veterans Accountable Care Group, LLC (“VACG”)~~1, 2018 and March 30, 2019. AMCA advised that AMCA’s affected system may have included patient name, date of birth, address, phone, date of service, provider, and balance information, as well as credit card information, bank account information (but no passwords or security questions) and email addresses that were provided by the consumer to AMCA. AMCA advised BioReference that no Social Security Numbers were compromised, and BioReference provided no laboratory results or diagnostic information to AMCA. BioReference notified patients and provided notice to the Office of Civil Rights of the AMCA Incident. BioReference had been named in at least 2 class action lawsuits against AMCA and other defendants in connection with ~~submission of a bid by its affiliate,~~ the ~~Veterans Accountable Care Organization, LLC (“VACO”) in response to a request for proposal (“RFP”) from~~AMCA Incident. In April 2020, the ~~Veterans Health Administration (“VA”) regarding its Community Care Network. If VACO is successful in its bid, we will acquire a fifteen percent (15%) membership interest in VACO. In addition,~~class action lawsuits against BioReference our wholly-owned subsidiary, will provide laboratory services for the Community Care Network, a region which currently includes approximately 2,133,000 veterans in the states of Massachusetts, Maine, New Hampshire, Vermont, New York, Pennsylvania, New Jersey, Rhode Island, Connecticut, Maryland, Virginia, West Virginia, and North Carolina.

Pursuant to the Commitment Letter, we committed to provide, or to arrange from a third party lender, a line of credit for VACG in the amount of $50.0 million (the “Facility”). Funds drawn under the Facility would be contributed by VACG to VACO in order to satisfy the financial stability requirement of VACO in connection with its submission of the RFP. VACG would not be permitted to draw down on the Facility unless and until the VHA awards a contract to VACO.were dismissed without prejudice. The ~~Facility would have a maturity of five (5) years. Interest on the Facility would be payable at a rate equal to six and one-half percent (6.5%) per annum, payable quarterly in arrears.~~

We currently anticipate that a decision by the VHA with respect to the RFP will occur during the fourth quarter of 2017, although there can be no assurance that a decision will be made by such time or that, if made, such decision will not be challenged by participants in the RFP process or otherwise.

~~The Facility is subject to the negotiation of definitive documentation conditions customary for transactions of such type and otherwise acceptable to VACG and the lender under the Facility.~~

We accrue a liability for legal contingencies when we believe that it is both probable that a liability has been incurred and that we can reasonably estimate the amount of the loss. We review these accruals and adjust them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and our views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in our accrued liabilities would be recorded in the period in which such determination is made. For the matters referenced in the paragraph below, the amount of liability is not probable or the amount cannot be reasonably estimated; and, therefore, accruals have not been made. In addition, in accordance with the relevant authoritative guidance, for matters which the likelihood of material loss is at least reasonably possible, we provide disclosure of the possible loss or range of loss; however, if a reasonable estimate cannot be made, we will provide disclosure to that effect.

~~From time to time, we may receive inquiries, document requests, or subpoenas from the Department of Justice, the~~ Office of Inspector General and Office for Civil Rights (“OCR”) of the Department of Health and Human Services, as well as the attorney generals’ offices from certain states have contacted BioReference to request additional information relating to the AMCA Incident. It is not possible at this time to estimate the amount of loss or range of loss, if any, that might result from adverse judgments, settlements, fines, penalties, or other resolution of these proceedings and investigations based on the stage of these proceedings and investigations, the absence of specific allegations as to alleged damages, the uncertainty as to whether the class action lawsuits or other lawsuits will be filed or refiled, and/or the lack of resolution of significant factual and legal issues.

As previously disclosed, on September 7, 2018, the Securities and Exchange Commission (the “SEC”) filed a lawsuit in the Southern District of New York (the “SEC Complaint”) against a number of individuals and entities (the “Defendants”), including the Company and its CEO and Chairman, Dr. Phillip Frost. The SEC alleged, among other things, that the Company (i) aided and abetted an illegal “pump and dump” scheme perpetrated by a number of the Defendants, and (ii) failed to file required Schedules 13D or 13G with the SEC. On December 27, 2018, the Company announced that the Company and Dr. Frost entered into settlement agreements with the SEC, which upon approval of the court would resolve the SEC Complaint against each of them. The settlement was approved by the court in January 2019. Pursuant to the settlement, and without admitting or denying any of the allegations of the Complaint, the Company is enjoined from violating Section 13(d) of the Exchange Act and paid a $100,000 penalty. Liability under Section 13(d) can be established without any showing of wrongful intent or negligence.

Following the SEC’s announcement of the SEC Complaint, we were named in several class action lawsuits, more than a dozen derivative suits, and other litigation relating to the allegations in the SEC Complaint among other matters. On June 26, 2020, The Amitim Funds, the lead plaintiff in the class action lawsuits filed a Stipulation of Settlement in the Southern District of Florida of behalf of itself and the remainder of the class, which, if approved, will provide for the settlement of and release of the class action claims against the Company and Dr. Frost for $16.5 million. We reached agreement with our insurance carriers with respect to claims made in the class action and derivative lawsuits and we expect insurance coverage for a significant portion of the settlement amounts.The settlement remains subject to certain terms and conditions including court approval. The Company is also in advanced negotiations to settle the derivative suits.

In April 2017, the Civil Division of the United States Attorney’s Office for the Southern District of New York (the “SDNY”) informed BioReference that it believes that, from 2008 to 2012, BioReference had, in violation of the False Claims Act, improperly billed Medicare and TRICARE (both are federal government healthcare programs) for clinical laboratory services provided to hospital inpatient beneficiaries at certain hospitals. In April 2019, the SDNY also informed BioReference that it believes that BioReference provided physicians subsidies for electronic health record systems prior to 2012 that violated regulations adopted by HHS in 2006 which allowed laboratories to provide these donations under certain conditions. BioReference and the SDNY are in negotiations to resolve the matter.

On October 11, 2019, GeneDx received a letter from the Centers for Medicare and Medicaid Services (“CMS”), notifying GeneDx of CMS’ determination to suspend Medicare payments to GeneDx, which suspension became effective on September 27, 2019 (the “CMS Letter”). The CMS Letter specifically stated that the foregoing suspension may last for up to

180 days from the effective date and may be extended under certain circumstances. CMS advised that it suspended payments due to possible overpayments to GeneDx in connection with reimbursement claims for genetic testing services based on a diagnosis of family history of cancer, which testing CMS has alleged is not covered by Medicare under the applicable provisions of the Social Security Act on the basis that such testing is not reasonable and necessary for the diagnosis or treatment of illness or injury. On or around February 3, 2020, we were notified that CMS was lifting the payment suspension. CMS noted, however, that the decision to lift the payment suspension should not be construed as a positive determination regarding GeneDx’s Medicare billing. There can be no assurance that CMS and other governmental payor programs will not seek to recoup payments from us, suspend reimbursement or seek overpayment damages from GeneDx.

From time to time, we may receive inquiries, document requests, Civil Investigative Demands (“CIDs”) or subpoenas from the Department of Justice, OCR, CMS, various payors and fiscal intermediaries, and other state and federal regulators regarding investigations, audits and reviews. In addition to the matters discussed in this note, we are currently responding to CIDs, subpoenas, orpayor audits, and document requests for various matters relating to our laboratory operations. Some pending or threatened proceedings against us may involve potentially substantial amounts as well as the possibility of civil, criminal, or administrative fines, penalties, or other sanctions, which could be material. Settlements of suits involving the types of issues that we routinely confront may require monetary payments as well as corporate integrity agreements. Additionally, qui tam or “whistleblower” actions initiated under the civil False Claims Act may be pending but placed under seal by the court to comply with the False Claims Act’s requirements for filing such suits. Also, from time to time, we may detect issues of non-compliance with federal healthcare laws pertaining to claims submission and reimbursement practices and/or financial relationships with physicians, among other things. We may avail ourselves of various mechanisms to address these issues, including participation in voluntary disclosure protocols. Participating in voluntary disclosure protocols can have the potential for significant settlement obligations or even enforcement action. The Company generally has cooperated, and intends to continue to cooperate, with appropriate regulatory authorities as and when investigations, audits and inquiries arise.

We are a party to other litigation in the ordinary course of business. ~~We do not believe that any such litigation will have a material adverse effect on our business, financial condition, results of operations or cash flows.~~

In April 2017, the Civil Division of the United States Attorney’s Office for the Southern District of New York (the “SDNY”) informed BioReference Laboratories (“BioReference”) that it believes that, from 2006 to the present, BioReference

had, in violation of the False Claims Act, improperly billed Medicare and Tricare (both are federal government healthcare programs) for clinical laboratory services provided to hospital inpatient beneficiaries at certain hospitals. BioReference is reviewing and assessing the allegations made by the SDNY, and, at this point, BioReference has not determined whether there is any merit to the SDNY’s claims nor can it determine the extent of any potential liability. While ~~management~~we cannot predict the ultimate outcome of ~~these~~legal matters, ~~at this time,~~we accrue a liability for legal contingencies when we believe that it is both probable that a liability has been incurred and that we can reasonably estimate the amount of the loss. It’s reasonably possible the ultimate liability could exceed amounts currently estimated and we review established accruals and adjust them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and our views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in our accrued liabilities would be recorded in the period in which such determination is made. Because of the high degree of judgment involved in establishing loss estimates, the ultimate outcome ~~could~~of such matters will differ from our estimates and such differences may be material to our business, financial condition, results of operations, and cash flows.

We expect to continue to incur substantial research and development expenses, including expenses related to the hiring of personnel and additional clinical trials. We expect that selling, general and administrative expenses will also increase as we expand our sales, marketing and administrative staff and add infrastructure, particularly as it relates to the launch of ~~Rayaldee.~~ We do not anticipate that we will generate substantial revenue from the sale of proprietary pharmaceutical products or certain of our diagnostic products for some time and we have generated only limited revenue from our pharmaceutical operations in Chile, Mexico, Israel, Spain, and Ireland, and from sale of the ~~4Kscore~~ test. If we acquire additional assets or companies, accelerate our product development programs or initiate additional clinical trials, we will need additional funds. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials or research and development programs or possible acquisitions.

We have employment agreements with certain executives of BioReference which provide for compensation and certain other benefits and for severance payments under certain circumstances. During the nine months ended SeptemberAt June 30, ~~2017 and 2016, we recognized $3.7 million and $17.9 million, respectively, of severance costs pursuant to these employment agreements as a component of Selling, general and administrative expense.~~

~~At September 30, 2017,~~2020, we were committed to make future purchases for inventory and other items in ~~2017~~2020 that occur in the ordinary course of business under various purchase arrangements with fixed purchase provisions aggregating ~~$106.6~~approximately $154.2 million.

NOTE 12 REVENUE RECOGNITION

We generate revenues from services, products and intellectual property as follows:

Revenue from services

Revenue for laboratory services is recognized at the time test results are reported, which approximates when services are provided and the performance obligations are satisfied. Services are provided to patients covered by various third-party payor programs including various managed care organizations, as well as the Medicare and Medicaid programs. Billings for services are included in revenue net of allowances for contractual discounts, allowances for differences between the amounts billed and estimated program payment amounts, and implicit price concessions provided to uninsured patients which are all elements of variable consideration.

The following are descriptions of our payors for laboratory services:

Healthcare Insurers. Reimbursements from healthcare insurers are based on negotiated fee-for-service schedules. Revenues consist of amounts billed, net of contractual allowances for differences between amounts billed and the estimated consideration we expect to receive from such payors, which considers historical denial and collection experience and the terms of our contractual arrangements. Adjustments to the allowances, based on actual receipts from the third-party payors, are recorded upon settlement.

Government Payors. Reimbursements from government payors are based on fee-for-service schedules set by governmental authorities, including traditional Medicare and Medicaid. Revenues consist of amounts billed, net of contractual

allowances for differences between amounts billed and the estimated consideration we expect to receive from such payors, which considers historical denial and collection experience and the terms of our contractual arrangements. Adjustments to the allowances, based on actual receipts from the government payors, are recorded upon settlement.

Client Payors. Client payors include physicians, hospitals, employers, and other institutions for which services are performed on a wholesale basis, and are billed and recognized as revenue based on negotiated fee schedules.

Patients. Uninsured patients are billed based on established patient fee schedules or fees negotiated with physicians on behalf of their patients. Insured patients (including amounts for coinsurance and deductible responsibilities) are billed based on fees negotiated with healthcare insurers. Collection of billings from patients is subject to credit risk and ability of the patients to pay. Revenues consist of amounts billed net of discounts provided to uninsured patients in accordance with our policies and implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration that we expect to receive from patients, which considers historical collection experience and other factors including current market conditions. Adjustments to the estimated allowances, based on actual receipts from the patients, are recorded upon settlement.

The complexities and ambiguities of billing, reimbursement regulations and claims processing, as well as considerations unique to Medicare and Medicaid programs, require us to estimate the potential for retroactive adjustments as an element of variable consideration in the recognition of revenue in the period the related services are rendered. Actual amounts are adjusted in the period those adjustments become known. For the six months ended June 30, 2020 and 2019, revenue increases (reductions) due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $0.2 million and $(14.3) million, respectively, were recognized.

Third-party payors, including government programs, may decide to deny payment or recoup payments for testing they contend were improperly billed or not medically necessary, against their coverage determinations, or for which they believe they have otherwise overpaid (including as a result of their own error), and we may be required to refund payments already received. Our revenues may be subject to retroactive adjustment as a result of these factors among others, including without limitation, differing interpretations of billing and coding guidance and changes by government agencies and payors in interpretations, requirements, and “conditions of participation” in various programs. We have processed requests for recoupment from third-party payors in the ordinary course of our business, and it is likely that we will continue to do so in the future. If a third-party payer denies payment for testing or recoups money from us in a later period, reimbursement for our testing could decline.

As an integral part of our billing compliance program, we periodically assess our billing and coding practices, respond to payor audits on a routine basis, and investigate reported failures or suspected failures to comply with federal and state healthcare reimbursement requirements, as well as overpayment claims which may arise from time to time without fault on the part of the Company. We may have an obligation to reimburse Medicare, Medicaid, and third-party payors for overpayments regardless of fault. We have periodically identified and reported overpayments, reimbursed payors for overpayments and taken appropriate corrective action.

Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are also considered variable consideration and are included in the determination of the estimated transaction price for providing services. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and our historical settlement activity, including an assessment of the probability a significant reversal of cumulative revenue recognized will occur when the uncertainty is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known (that is, new information becomes available), or as years are settled or are no longer subject to such audits, reviews, and investigations. As of June 30, 2020 and December 31, 2019, we had liabilities of approximately $21.4 million and $27.3 million, respectively, within Accrued expenses and Other long-term liabilities related to reimbursements for payor overpayments.

The composition of Revenue from services by payor for the six months ended June 30, 2020 and 2019 was as follows:


	Three months ended June 30,						Six months ended June 30,
(In thousands)	2020		2019		2020		2019
Healthcare insurers	$	84,082	$	106,278	$	183,232	$	211,207
Government payers	15,886		28,634		42,784		59,037
Client payers	141,090		38,101		180,191		76,559
Patients	9,913		5,445		15,604		10,546
Total	$	250,971	$	178,458	$	421,811	$	357,349

Client payers include cities and states for which BioReference provides COVID-19 testing services.

Revenue from products

We recognize revenue from product sales when a customer obtains control of promised goods or services. The amount of revenue that is recorded reflects the consideration that we expect to receive in exchange for those goods or services. Our estimates for sales returns and allowances are based upon the historical patterns of product returns and allowances taken, matched against the sales from which they originated, and our evaluation of specific factors that may increase or decrease the risk of product returns. Product revenues are recorded net of estimated rebates, chargebacks, discounts, co-pay assistance and other deductions (collectively, “Sales Deductions”) as well as estimated product returns which are all elements of variable consideration. Allowances are recorded as a reduction of revenue at the time product revenues are recognized. The actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect Revenue from products in the period such variances become known.

Rayaldee is distributed in the U.S. principally through the retail pharmacy channel, which initiates with the largest wholesalers in the U.S. (collectively, “Rayaldee Customers”). In addition to distribution agreements with Rayaldee Customers, we have entered into arrangements with many healthcare providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of Rayaldee.

We recognize revenue for shipments of Rayaldee at the time of delivery to customers after estimating Sales Deductions and product returns as elements of variable consideration utilizing historical information and market research projections. For the three and six months ended June 30, 2020, we recognized $8.6 million and $18.6 million, respectively, in net product revenue from sales of Rayaldee. For the three and six months ended June 30, 2019, we recognized $5.7 million and $11.5 million, respectively, in net product revenue from sales of Rayaldee.

The following table presents an analysis of product sales allowances and accruals for the three and six months ended June 30, 2020:


(In thousands)	Chargebacks, discounts, rebates and fees		Governmental		Returns		Total
Balance at March 31, 2020	$	2,863	$	6,199	$	3,332	$	12,394
Provision related to current period sales	4,468		9,073		686		14,227

Credits or payments made	(4,441)		(8,273)		(188)		(12,902)
Balance at June 30, 2020	$	2,890	$	6,999	$	3,830	$	13,719

Total gross Rayaldee sales							$	22,876
Provision for Rayaldee sales allowances and accruals as a percentage of gross Rayaldee sales							62		%


(In thousands)	Chargebacks, discounts, rebates and fees		Governmental		Returns		Total
Balance at December 31, 2019	$	3,194	$	5,841	$	2,751	$	11,786
Provision related to current period sales	9,293		16,281		1,389		26,963

Credits or payments made	(9,597)		(15,123)		(310)		(25,030)
Balance at June 30, 2020	$	2,890	$	6,999	$	3,830	$	13,719

Total gross Rayaldee sales							$	45,559
Provision for Rayaldee sales allowances and accruals as a percentage of gross Rayaldee sales							59		%

Taxes collected from customers related to revenues from services and revenues from products are excluded from revenues.

Revenue from intellectual property

We recognize revenues from the transfer of intellectual property generated through license, development, collaboration and/or commercialization agreements. The terms of these agreements typically include payment to us for one or more of the following: non-refundable, up-front license fees; development and commercialization milestone payments; funding of research and/or development activities; and royalties on sales of licensed products. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the customer.

For research, development and/or commercialization agreements that result in revenues, we identify all material performance obligations, which may include a license to intellectual property and know-how, and research and development activities. In order to determine the transaction price, in addition to any upfront payment, we estimate the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. We constrain (reduce) our estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, we consider whether there are factors outside of our control that could result in a significant reversal of revenue. In making these assessments, we consider the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.

Upfront License Fees: If a license to our intellectual property is determined to be functional intellectual property distinct from the other performance obligations identified in the arrangement, we recognize revenue from nonrefundable, upfront license fees based on the relative value prescribed to the license compared to the total value of the arrangement. The revenue is recognized when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are not distinct from other obligations identified in the arrangement, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, we apply an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Development and Regulatory Milestone Payments: Depending on facts and circumstances, we may conclude that it is appropriate to include the milestone in the estimated transaction price or that it is appropriate to fully constrain the milestone. A milestone payment is included in the transaction price in the reporting period that we conclude that it is probable that recording revenue in the period will not result in a significant reversal in amounts recognized in future periods. We may record revenues from certain milestones in a reporting period before the milestone is achieved if we conclude that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. We record a corresponding contract asset when this conclusion is reached. Milestone payments that have been fully constrained are not included in the transaction price to date. These milestones remain fully constrained until we conclude that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. We re-evaluate the probability of achievement of such development milestones and any related constraint each reporting period. We adjust our estimate of the overall transaction price, including the amount of revenue recorded, if necessary.

Research and Development Activities: If we are entitled to reimbursement from our customers for specified research and development expenses, we account for them as separate performance obligations if distinct. We also determine whether the research and development funding would result in revenues or an offset to research and development expenses in accordance

with provisions of gross or net revenue presentation. The corresponding revenues or offset to research and development expenses are recognized as the related performance obligations are satisfied.

Sales-based Milestone and Royalty Payments: Our customers may be required to pay us sales-based milestone payments or royalties on future sales of commercial products. We recognize revenues related to sales-based milestone and royalty payments upon the later to occur of (i) achievement of the customer’s underlying sales or (ii) satisfaction of any performance obligation(s) related to these sales, in each case assuming the license to our intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate.

Other Potential Products and Services: Arrangements may include an option for license rights, future supply of drug substance or drug product for either clinical development or commercial supply at the licensee’s election. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations at the inception of the contract and revenue is recognized only if the option is exercised and products or services are subsequently delivered or when the rights expire. If the promise is based on market terms and not considered a material right, the option is accounted for if and when exercised. If we are entitled to additional payments when the licensee exercises these options, any additional payments are generally recorded in license or other revenues when the licensee obtains control of the goods, which is upon delivery.

For the three and six months ended June 30, 2020, revenue from transfer of intellectual property principally reflects $13.9 million and $22.7 million of revenue, respectively, related to the Pfizer Transaction (as defined below). In addition, revenue from the transfer of intellectual property and other for the three and six months ended June 30, 2020 includes a $6.2 million grant received by BioReference from the CARES Act. For the three and six months ended June 30, 2019, revenue from the transfer of intellectual property principally reflects $18.2 million and $35.6 million of revenue, respectively, related to the Pfizer Transaction. Refer to Note 13 for discussion of the Pfizer Transaction. Total contract liabilities included in Accrued expenses and Other long-term liabilities was $17.7 million and $21.8 million at June 30, 2020 and December 31, 2019, respectively. The contract liability balance at June 30, 2020 related primarily to accelerated payments received as part of the COVID-19 Aid, Relief, and Economic Security (CARES) Act. Refer to Note 2.

NOTE 1213 STRATEGIC ALLIANCES

On October 12, 2017, EirGen, our wholly owned subsidiary, and Japan Tobacco Inc. (“JT”) entered into a Development and License Agreement (the “JT Agreement”) granting JT the exclusive rights for the development and commercialization of Rayaldee in Japan (the “JT Territory”). The license grant to JT covers the therapeutic and preventative use of the product for (i) SHPT in non-dialysis and dialysis patients with CKD, (ii) rickets, and (iii) osteomalacia (the “JT Initial Indications”), as well as such additional indications as may be added to the scope of the license subject to the terms of the JT Agreement (the JT Additional Indications” and together with the JT Initial Indications, the “JT Field”).

In connection with the license, OPKO received an initial upfront payment of $6 million and received another $6 million upon the initiation of OPKO’s phase 2 study for Rayaldee in dialysis patients in the U.S. in September 2018 (the “Initial Consideration”). OPKO is also eligible to receive up to an additional aggregate amount of $31 million upon the achievement of certain regulatory and development milestones by JT for Rayaldee in the JT Territory, and $75 million upon the achievement of certain sales based milestones by JT in the JT Territory. OPKO is also entitled to receive tiered, double digit royalty payments at percentages ranging from low double digits to mid-teens on net sales of Rayaldee within the JT Territory. JT will, at its sole cost and expense, be responsible for performing all development activities necessary to obtain all regulatory approvals for Rayaldee in Japan and for all commercial activities pertaining to Rayaldee in Japan.

The JT Agreement provides for the following: (1) an exclusive license in the JT Territory in the JT Field for the development and commercialization of Rayaldee; and (2) at JT’s option, EirGen will supply products to support the development, sale and commercialization of the products to JT in the JT Territory.

The Initial Consideration will be recognized over the performance period through 2021, when we anticipate completing the transfer of license materials specified in the JT Agreement and our performance obligation is complete. Payments received for regulatory, development and sales milestones are non-refundable. The milestones are payable if and when the associated milestone is achieved and will be recognized as revenue in the period in which the associated milestone is achieved, assuming all other revenue recognition criteria are met. To date, 0 revenue has been recognized related to these milestones.

Vifor Fresenius Medical Care Renal Pharma Ltd

~~We plan to develop a portfolio of product candidates through a combination of internal development and external partnerships.~~ In May 2016, EirGen ~~our wholly-owned subsidiary,~~ and Vifor Fresenius Medical Care Renal Pharma Ltd (“VFMCRP”), entered into a Development and License Agreement (the “VFMCRP Agreement”) for the development and commercialization of Rayaldee (the “Product”) worldwide, except for (i) the ~~United States,~~U.S., (ii) any country in Central America or South America (excluding Mexico), (iii) Russia, (iv) China, (v) Japan, (vi) Ukraine, (vii) Belorussia, (viii) Azerbaijan, (ix) Kazakhstan, and (x) Taiwan (the “VFMCRP Territory”). The license to VFMCRP potentially covers all therapeutic and prophylactic uses of the Product in human patients (the “VFMCRP Field”), provided that initially the license is for the use of the Product for the treatment or prevention of SHPT related to patients with ~~stage 3 or 4 chronic kidney disease~~CKD and vitamin D insufficiency/deficiency (the “VFMCRP Initial Indication”).

Effective May 5, 2020, we entered into an amendment to the VFMCRP Agreement (the “VFMCRP Amendment”), pursuant to which the parties agreed to exclude Mexico, South Korea, the Middle East and all of the countries of Africa from the VFMCRP Territory. In addition, the parties agreed to certain amendments to the milestone structure and to reduce minimum royalties payable. As revised, EirGen is eligible to receive up to $20 million in Regulatory Milestones and $210 million in Sales Milestones tied to launch, pricing and sales of Rayaldee.

Under the terms of the VFMCRP Agreement, as amended, EirGen granted to VFMCRP an exclusive license in the VFMCRP Territory in the VFMCRP Field to use certain EirGen patents and technology to make, have made, use, sell, offer for sale, and import Products and to develop, commercialize, have commercialized, and otherwise exploit the Product. EirGen received a non-refundable and non-creditable initial payment of $50 ~~million.~~million, which was recognized in Revenue from the transfer of intellectual property and other in our Consolidated Statement of Operations in 2016. EirGen also received a $2.0 million payment triggered by the approval of Rayaldee in Canada for the treatment of SHPT in adults with stage 3 or 4 CKD and vitamin D insufficiency in July 2018. EirGen is also eligible to receive up to an additional ~~$37~~$20 million in regulatory milestones (“Regulatory Milestones”) and ~~$195~~$210 million in Sales Milestones tied to launch, pricing and ~~sales-based milestones~~sales of Rayaldee (“Sales Milestones”), and will receive tiered royalties on sales of the product at percentage rates that range from the mid-teens to the mid-twenties or a minimum royalty, whichever is greater, upon the commencement of sales of the Product within the VFMCRP Territory and in the VFMCRP Field.

~~As part of the arrangement, the companies will~~We plan to share responsibility with VFMCRP for the conduct of trials specified within an agreed-upon development plan, with each company leading certain activities within the plan. EirGen will lead the manufacturing activities within and outside the VFMCRP Territory and the commercialization activities outside the VFMCRP Territory and outside the VFMCRP Field in the VFMCRP Territory and VFMCRP will lead the commercialization activities in the VFMCRP Territory and the VFMCRP Field. For the initial development plan, the companies have agreed to certain cost sharing arrangements. VFMCRP will be responsible for all other development costs that VFMCRP considers necessary to develop the Product for the use of the Product for the VFMCRP Initial Indication in the VFMCRP Territory in the VFMCRP Field except as otherwise provided in the VFMCRP Agreement.

The ~~VFMCRP Agreement will remain in effect with respect to the Product in each country~~first of the VFMCRP Territory, on a country by country basis, until the date on which VFMCRP shall have no further payment obligations to EirGen under the terms of the VFMCRP Agreement, unless earlier terminated pursuant to the VFMCRP Agreement. VFMCRP’s royalty

obligations expire on a country-by-country and product-by-product basis on the later of (i) expiration of the last to expire valid claim covering the Product sold in such country, (ii) expiration of all regulatory and data exclusivity applicable to the Productclinical studies provided for in the ~~country of sale, and (iii) ten (10) years after the Product first commercial sale~~development activities commenced in such country. In addition to termination rights for material breach and bankruptcy, VFMCRP is permitted to terminate the VFMCRP Agreement in its entirety, or with respect to one or more countries in the VFMCRP Territory, after a specified notice period, provided that VFMCRP shall not have the right to terminate the VFMCRP Agreement with respect to certain major countries without terminating the entire VFMCRP Agreement. If the VFMCRP Agreement is terminated by EirGen or VFMCRP, provision has been made for transition of product and product responsibilities to EirGen.September 2018.

In connection with the VFMCRP Agreement, the parties entered into a letter agreement ~~(the “Letter Agreement”)~~ pursuant to which EirGen granted to VFMCRP an exclusive option (the “Option”) to acquire an exclusive license under certain EirGen patents and technology to use, import, offer for sale, sell, distribute and commercialize the Product in the ~~United States~~U.S. solely for the treatment of ~~secondary hyperparathyroidism~~SHPT in dialysis patients with ~~chronic kidney disease~~CKD and vitamin D insufficiency (the “Dialysis Indication”). Upon exercise of the Option, VFMCRP will reimburse EirGen for all of the development costs incurred by EirGen with respect to the Product for the Dialysis Indication in the ~~United States.~~U.S. VFMCRP would also pay EirGen up to an additional aggregate amount of $555 million of sales-based milestones upon the achievement of certain milestones and would be obligated to pay royalties at percentage rates that range from the mid-teens to the mid-twenties on sales of the Product in the ~~United States~~U.S. for the Dialysis Indication. To date, VFMCRP has not exercised its option.

The Option is exercisable until the earlier of (i) the date that EirGen submits a new drug application or supplemental new drug application or their then equivalents to the U.S. Food and Drug Administration for the Product for the Dialysis Indication in the United States, (ii) the parties mutually agree to discontinue development of Product for the Dialysis Indication, or (iii) VFMCRP provides notice to OPKO that it has elected not to exercise the Option.

~~OPKO has guaranteed the performance of certain of EirGen’s obligations under the VFMCRP Agreement and the Letter Agreement.~~

For revenue recognition purposes, we evaluated the various agreements with VFMCRP to determine whether there were multiple deliverables in the arrangement. The VFMCRP Agreement provides for the following: (1) an exclusive license in the VFMCRP Territory in the VFMCRP Field to use certain patents and technology to make, have made, use, sell, offer for sale, and import Products and to develop, commercialize, have commercialized, and otherwise exploit the Product; (2) EirGen will supply Products to support the development, sale and commercialization of the Products to VFMCRP in the VFMCRP Territory (the “Manufacturing Services”); and (3) the Option to acquire an exclusive license under certain EirGen patents and technology to use, import, offer for sale, sell, distribute and commercialize the Product in the United States solely for the Dialysis Indication. Based on our evaluation, the exclusive license is the only deliverable at the outset of the arrangement. We concluded the Manufacturing Services were a contingent deliverable dependent on the future regulatory and commercial action by VFMCRP and the Option was substantive and not considered a deliverable under the license arrangement.

We recognized the $50.0 million upfront license payment in Revenue from transfer of intellectual property in our Condensed Consolidated Statements of Operations in the second quarter of 2016. Revenues related to the Manufacturing Services will be recognized as Product is sold to VFMCRP. No revenue related to the Option will be recognized unless and until VFMCRP exercises its Option under the Letter Agreement.

We determined that the cost sharing arrangement for development of the Dialysis Indication is not a deliverable in the VFMCRP Agreement. Payments for the Dialysis Indication will be recorded as Research and development expense as incurred.

~~EirGen is also eligible to receive up to an additional $37 million in Regulatory Milestones and $195 million in Sales Milestones.~~ Payments received for Regulatory Milestones and Sales Milestones are non-refundable. The Regulatory Milestones are payable if and when VFMCRP obtains approval from certain regulatory authorities and will be recognized as revenue in the period in which the associated milestone is achieved, assuming all other revenue recognition criteria are met. We account for the Sales Milestones as royalties and Sales Milestones payments will be recognized as revenue in ~~full in~~ the period in which the associated milestone is achieved or sales occur, assuming all other revenue recognition criteria are met. ~~To date, no revenue has been recognized related to the achievement of the milestones.~~

In December 2014, we entered into an exclusive worldwide agreement (the “Pfizer Agreement”) with Pfizer ~~Inc. (“Pfizer”)~~ for the development and commercialization of our long-acting hGH-CTP (Somatrogon) for the treatment of growth hormone deficiency (“GHD”) in adults and children, as well as for the treatment of growth failure in children born small for gestational age ~~(“SGA”)~~ (the “Pfizer Transaction”).

In May 2020, we entered into an Amended and Restated Development and Commercialization License Agreement (the “Restated Agreement”) with Pfizer, ~~Transaction closed~~effective January 1, 2020, pursuant to which the parties agreed, among other things, to share all costs for Manufacturing Activities, as defined in ~~January 2015 following~~ the ~~termination~~Restated Agreement, for developing a licensed product for the three indications included in the Agreement.

On October 21, 2019, we and Pfizer announced that the global phase 3 trial evaluating Somatrogon (hGH-CTP) dosed once-weekly in prepubertal children with GHD met its primary endpoint of ~~the waiting period under the Hart-Scott-Rodino Act.~~ non-inferiority to daily Genotropin® (somatropin) for injection, as measured by annual height velocity at 12 months.

Under the terms of the Pfizer Transaction, as restated, we received non-refundable and non-creditable upfront payments of $295.0 million and are eligible to receive up to an additional $275.0 million upon the achievement of certain regulatory milestones. Pfizer received the exclusive license to commercialize hGH-CTP worldwide. In addition, we are eligible to receive initial tiered royalty payments associated with the commercialization of hGH-CTP for ~~Adult~~adult GHD with percentage rates ranging from the high teens to mid-twenties. Upon the launch of hGH-CTP for ~~Pediatric~~pediatric GHD in certain major markets, the royalties will transition to regional, tiered gross profit sharing for both hGH-CTP and Pfizer’s Genotropin®.

The agreement with Pfizer will remain in effect until the last sale of the licensed product, unless earlier terminated as permitted under the ~~agreement.~~Pfizer Agreement. In addition to termination rights for material breach and bankruptcy, Pfizer is permitted to terminate the Pfizer Agreement in its entirety, or with respect to one or more world regions, without cause after a specified notice period. If the Pfizer Agreement is terminated by us for Pfizer’s uncured material breach, or by Pfizer without cause, provision has been made for transition of product and product responsibilities to us for the terminated regions, as well as continued supply of product by Pfizer or transfer of supply to us in order to support the terminated regions.

We will lead the clinical activities and will be responsible for funding the development programs for the key indications, which includes Adult and Pediatric GHD and Pediatric SGA. Pfizer will be responsible for all development costs for additional indications as well as all post-marketing studies. In addition, Pfizer will fund the commercialization activities for all indications and lead the manufacturing activities covered by the global development plan.

For revenue recognition purposes, we viewed the Pfizer Transaction as a multiple-element arrangement. Multiple-element arrangements are analyzed to determine whether the various performance obligations, or elements, can be separated or whether they must be accounted for as a single unit of accounting. We evaluated whether a delivered element under an arrangement has standalone value and qualifies for treatment as a separate unit of accounting. Deliverables that do not meet these criteria are not evaluated separately for the purpose of revenue recognition. For a single unit of accounting, payments received are recognized in a manner consistent with the final deliverable. We determined that the deliverables under the Pfizer Transaction, including the licenses granted to Pfizer, as well as our obligations to provide various research and development services, will be accounted for as a single unit of account. This determination was made because the ongoing research and development services to be provided by us are essential to the overall arrangement as we have significant knowledge and technical know-how that is important to realizing the value of the licenses granted. The performance period over which the revenue will be recognized is expected to continue from the first quarter of 2015 through 2020, when we anticipate completing the various research and development services that are specified in the Pfizer Transaction and our performance obligations are completed. We will continue to review the timing of when our research and development services will be completed in order to assess that the estimated performance period over which the revenue is to be recognized is appropriate. Any significant changes in the timing of the performance period will result in a change in the revenue recognition period. We increased the expected performance period over which the revenue will be recognized in the third quarter of 2017 by approximately one year.

~~We are recognizing~~ the non-refundable $295.0 million upfront payments ~~on a straight-line basis over~~as revenue as the ~~performance period. We recognized $46.5 million~~research and development services were completed and as of ~~revenue~~June 30, 2020, we had no contract liabilities related to the Pfizer Transaction in Revenue from transfer of intellectual property in our Condensed Consolidated Statements of Operations during the nine months ended September 30, 2017, and had deferred revenue related to the Pfizer Transaction of $112.3 million at September 30, 2017. As of September 30, 2017, $44.9 million of deferred revenue related to the Pfizer Transaction was classified in Accrued expenses and $67.4 million was classified in Other long-term liabilities in our Condensed Consolidated Balance Sheets.Transaction.

The Pfizer Transaction includes milestone payments ~~totaling~~of $275.0 million upon the achievement of certain milestones. The milestones range from $20.0 million to $90.0 million each and are based on achievement of regulatory approval in the U.S. and regulatory approval and price approval in other major markets. We evaluated each of these milestone payments and believe that all of the milestones are substantive as (i) there is substantive uncertainty at the close of the Pfizer Transaction that the milestones would be achieved as approval from a regulatory authority must be received to achieve the milestones which would be commensurate with the enhancement of value of the underlying intellectual property, (ii) the milestones relate solely to past performance and (iii) the amount of the milestone is reasonable in relation to the effort expended and the risk associated with the achievement of the milestone. The milestone payments will be recognized as revenue ~~in full~~ in the period in which the associated milestone is achieved, assuming all other revenue recognition criteria are met. To date, no0 revenue has been recognized related to the achievement of the milestones.

In November 2009, we entered into an asset purchase agreement (the “NK-1 Agreement”) under which we acquired VARUBI™ (rolapitant) and other neurokinin-1 (“NK-1”) assets from Merck. In December 2010, we entered into an exclusive license agreement with TESARO, Inc. (“TESARO”), in which we out-licensed the development, manufacture, commercialization and distribution

of our lead NK-1 candidate, VARUBI™ (the “TESARO License”). Under the terms of the license, we received a $6.0 million upfront payment from TESARO and we received $30 million of milestone payments from TESARO upon achievement of certain regulatory and commercial sale milestones and we are eligible to receive additional commercial milestone payments of up to $85 million if specified levels of annual net sales are achieved. ~~During~~The sales based milestone payments will be recognized as revenue in full in the ~~nine~~period in which the associated sales occur. For the six months ended ~~September~~June 30, ~~2017, $10.0 million of~~2020 and 2019, 0 revenue was recognized related to the achievement of the milestones under the TESARO License. ~~During the nine months ended September 30, 2016, no revenue was recognized related to the achievement of the milestones under~~

Under the TESARO ~~License.~~License, TESARO iswas also obligated to pay us tiered royalties on annual net sales achieved in the ~~United States~~U.S. and Europe at percentage rates that range from the low double digits to the low twenties, and outside of the ~~United States~~U.S. and Europe at low double-digit percentage rates. TESARO assumed responsibility for clinical development and commercialization of licensed products at its expense. Under the NK-1 Agreement, we will continue to receive royalties on a country-by-country and product-by-product basisrates until the later of the date that all of the patent rights licensed from us and covering VARUBI™ expire, are invalidated or are not enforceable and 12 years from the first commercial sale of the product.

If TESARO ~~elects~~announced in 2018 that it had elected to ~~develop~~suspend further distribution of Varubi IV. In June 2018, TESARO assigned its rights and obligations under the agreement to TerSera Therapeutics LLC (“TerSera”) pursuant to an asset purchase agreement. Under the asset purchase agreement, TerSera is responsible for VARUBI in the U.S. and Canada and TESARO was permitted to continue to commercialize ~~VARUBI™~~VARUBY® in ~~Japan through~~Europe and the rest of the world though a ~~third-party licensee,~~sublicense with TerSera. In September 2019, TESARO ~~will share equally with~~informed us ~~all amounts~~and TerSera that it ~~receives~~intends to stop selling VARUBY^® in ~~connection with such activities, subject~~the TESARO Territory and that it intends to ~~certain exceptions and deductions.~~withdraw its marketing authorization for VARUBY^® in Europe.

The term of the license with TerSera will remain in force until the expiration of the royalty term in each country, unless we terminate the license earlier for ~~TESARO’s~~ material breach of the license or bankruptcy. ~~TESARO~~TerSera has a right to terminate the license at any time during the term for any reason on three months’ written notice.

In April 2013, we entered into a series of concurrent transactions with Pharmsynthez, a Russian pharmaceutical company traded on the Moscow Stock Exchange, pursuant to which we acquired an equity method investment in Pharmsynthez (ownership 9%). We also granted rights to certain technologies in the Russian Federation, Ukraine, Belarus, Azerbaijan and Kazakhstan (the “Pharmsynthez Territories”) to Pharmsynthez and agreed to perform certain development activities. We will receive from Pharmsynthez royalties on net sales of products incorporating the technologies in the Pharmsynthez Territories, as well as a percentage of any sublicense income from third parties for the technologies in the Pharmsynthez Territories.

In July 2015, we entered into a Note Purchase Agreement with Pharmsynthez pursuant to which we delivered $3.0 million to Pharmsynthez in exchange for a $3.0 million note (the “Pharmsynthez Note Receivable”). The Pharmsynthez Note Receivable will be settled in 2017 and Pharmsynthez may satisfy the note either in cash or shares of its capital stock. We recorded the Pharmsynthez Note Receivable within Other current assets and prepaid expenses in our Condensed Consolidated Balance Sheets.

~~RXi~~Phio Pharmaceuticals ~~Corporation~~Corp.

In March 2013, we completed the sale to RXi Pharmaceuticals Corporation (now known as Phio Pharmaceuticals Corp.) of substantially all of our assets in the field of RNA interference (the “RNAi Assets”) (collectively, the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, ~~RXi~~Phio will be required to pay us up to $50.0 million in milestone payments upon the successful development and commercialization of each drug developed by ~~RXi,~~Phio, certain of its affiliates or any of its or their licensees or sublicensees utilizing patents included within the RNAi Assets (each, a “Qualified Drug”). In addition, ~~RXi~~Phio will also be required to pay us royalties equal to: (a) a mid single-digit percentage of “Net Sales” (as defined in the Asset Purchase Agreement) with respect to each Qualified Drug sold for an ophthalmologic use during the applicable “Royalty Period” (as defined in the Asset Purchase Agreement); and (b) a low single-digit percentage of net sales with respect to each Qualified Drug sold for a non-ophthalmologic use during the applicable Royalty Period.

We have completed strategic deals with numerous institutions and commercial partners. In connection with these agreements, upon the achievement of certain milestones we are obligated to make certain payments and have royalty obligations upon sales of products developed under the license agreements. At this time, we are unable to estimate the timing and amounts of payments as the obligations are based on future development of the licensed products.

We manage our operations in ~~two~~2 reportable segments, pharmaceutical and diagnostics. The pharmaceutical segment consists of our pharmaceutical operations ~~we acquired~~ in Chile, Mexico, Ireland, Israel and Spain,Rayaldee product sales and our pharmaceutical research and development. The diagnostics segment primarily consists of our clinical laboratory operations ~~we acquired~~ through ~~the acquisitions of~~ BioReference ~~and OPKO Lab~~ and our point-of-care operations. There are no0 significant ~~inter-~~

~~segment~~inter-segment sales. We evaluate the performance of each segment based on operating profit or loss. There is no0 inter-segment allocation of interest expense and income taxes.

Information regarding our operations and assets for our operating segments and the unallocated corporate operations as well as geographic information are as follows:

~~Two customers~~No customer represented more than 10% of our total consolidated revenue during the ~~three and nine~~six months ended ~~September~~June 30, ~~2017.~~2020 and 2019. As of ~~September~~June 30, ~~2017, one customer represented more than 10% of our accounts receivable balance. As of~~2020 and December 31, ~~2016, one~~2019, no customer represented more than 10% of our accounts receivable balance.

We have operating leases for office space, laboratory operations, research and development facilities, manufacturing locations, warehouses and certain equipment. We determine if a contract contains a lease at inception or modification of a contract. Our leases generally do not provide an implicit interest rate, and we therefore use our incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease within a particular currency environment. We used the incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date. Many of our leases contain rental escalation, renewal options and/or termination options that are factored into our determination of lease payments as appropriate. Variable lease payment amounts that cannot be determined at the commencement of the lease are not included in the right-to-use assets or liabilities.

The following table presents the lease balances within the Condensed Consolidated Balance Sheet as of June 30, 2020:


(in thousands)	Classification on the Balance Sheet	June 30, 2020			December 31, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	38,469		$	39,380
Finance lease assets	Property, plant and equipment, net	5,395			6,789

Liabilities
Current
Operating lease liabilities	Current maturities of operating leases	10,298			12,038
Accrued expenses	Current maturities of finance leases	2,435			2,743
Long-term
Operating lease liabilities	Operating lease liabilities	28,759			27,665
Other long-term liabilities	Finance lease liabilities	$	2,960		$	4,046

Weighted average remaining lease term
Operating leases		5.7 years			5.6 years
Finance leases		2.5 years			2.6 years
Weighted average discount rate
Operating leases		6.4		%	6.3		%
Finance leases		3.9		%	3.0		%

The following table reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized on our Condensed Consolidated Balance Sheet as of June 30, 2020:


(in thousands)	Operating		Finance
July 1, 2020 through December 31, 2020	$	6,604	$	1,404
2021	7,479		2,186
2022	6,506		1,175
2023	5,845		590
2024	4,671		249
Thereafter	17,374		—
Total undiscounted future minimum lease payments	48,479		5,604
Less: Difference between lease payments and discounted lease liabilities	9,422		209
Total lease liabilities	$	39,057	$	5,395

Expense under operating leases and finance leases was $9.7 million and $1.2 million, respectively, for the six months ended June 30, 2020, which includes $1.6 million of variable lease costs. Expense under operating leases and finance leases was $9.8 million and $2.0 million, respectively, for the six months ended June 30, 2019, which includes $1.7 million of variable lease costs. Operating lease costs and finance lease costs are included within Operating loss in the Condensed Consolidated Statement of Operations. Short-term lease costs were not material.

Supplemental cash flow information is as follows:


(in thousands)	For the six months ended June 30,
	2020		2019
Operating cash out flows from operating leases	$	9,804	$	10,804
Operating cash out flows from finance leases	86		234
Financing cash out flows from finance leases	1,026		1,590
Total	$	10,916	$	12,628

NOTE 1416 SUBSEQUENT EVENTS

~~On October 12, 2017, EirGen, our wholly-owned subsidiary,~~The complexities and ~~Japan Tobacco Inc. (“JT”) entered into a Development~~ambiguities of billing, reimbursement regulations and ~~License Agreement granting JT the exclusive rights for the development and commercialization of~~ ~~Rayaldee~~ in Japan (the “JT Territory”). The license grant to JT covers the therapeutic and preventative use of the Product for (i) SHPT in non-dialysis and dialysis patients with CKD, (ii) rickets, and (iii) osteomalacia (the “JT Initial Indications”),claims processing, as well as ~~such additional indications~~considerations unique to Medicare and Medicaid programs, require us to estimate the potential for retroactive adjustments as ~~may be added to~~an element of variable consideration in the ~~scope~~recognition of revenue in the period the related services are rendered. In July 2020, we received a favorable Medicare appeal decision from Novitas Solutions Inc. (“Novitas”) for previously denied Medicare claims for 4Kscore tests we performed during 2019. As a result of the ~~license subject~~favorable appeal, Medicare will reimburse us for such 4Kscore tests for patients who meet defined criteria. Due to ~~the terms of the Agreement (the “JT Additional Indications”,~~a prior non-coverage determination by Novitas, no revenue was previously recognized for these 4Kscore tests and ~~together with the JT Initial Indications, the “JT Field”).~~

~~OPKO will receive an initial upfront payment of $6 million. OPKO will receive another $6~~therefore we recognized $10.9 million ~~upon the initiation of OPKO’s planned phase 2 study for~~ ~~Rayaldee~~ ~~in dialysis patients in the U.S. OPKO is also eligible to receive up to an additional aggregate amount of $31 million upon the achievement of certain regulatory and development milestones by JT~~ for the ~~Product in~~previously denied 4Kscore tests as a component of Revenue from services for the ~~JT Territory,~~three and $75 million upon the achievement of certain sales based milestones by JT in the JT Territory. OPKO will also receive tiered, double digit royalty payments at rates ranging from low double digits to mid-teens on net Product sales within the JT Territory and in the JT Field. JT will, at its sole cost and expense, be responsible for performing all development activities necessary to obtain all regulatory approvals for ~~Rayaldee~~ ~~in Japan and for all commercial activities pertaining to~~ ~~Rayaldee~~ ~~in Japan, except for certain preclinical expenses which OPKO has agreed to reimburse JT up to a capped amount.~~six months ended June 30, 2020.

We have reviewed all subsequent events and transactions that occurred after the date of our ~~September~~June 30, ~~2017~~2020 Condensed Consolidated Balance Sheet, ~~date,~~ through the time of filing this Quarterly Report on Form 10-Q.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read this discussion together with the unaudited Condensed Consolidated Financial Statements, related ~~Notes,~~notes, and other financial information included elsewhere in this ~~report~~Quarterly Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 (the “Form 10-K”). The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in Part I, Item 1A of the Form 10-K and in Part II, Item 1A of ~~our~~this Quarterly Report on Form ~~10-K for the year ended December 31, 2016,~~10-Q and as described from time to time in our other ~~reports filed~~filings with the Securities and Exchange Commission. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.

We are a diversified healthcare company that seeks to establish industry-leading positions in large and rapidly growing medical markets. Our diagnostics business includes BioReference Laboratories Inc. (“BioReference”), one of the nation’s ~~third-largest clinical laboratory~~largest full service laboratories with a core genetic testing business and ~~a 400-person~~an almost 300-person sales and marketing team to drive growth and leverage new products, including the 4Kscore ~~prostate cancer test and the~~ ~~Claros 1~~ ~~in-office immunoassay platform (in development).~~ test. Our pharmaceutical business features Rayaldee, an FDA-approved treatment for secondary hyperparathyroidism (“SHPT”) in adults with stage 3 or 4 chronic kidney disease (“CKD”) and vitamin D insufficiency (launched in November 2016), ~~and VARUBI™~~OPK88004, a selective androgen receptor modulator which we are exploring for ~~chemotherapy-induced nausea~~various potential indications, and ~~vomiting (oral formulation launched by partner TESARO in November 2015 and IV formulation approved October 2017),~~ OPK88003, a once or twice weekly oxyntomodulin for type 2 diabetes and obesity which is a clinically advanced drug candidate among the new class of GLP-1 glucagon receptor dual agonists ~~(Phase~~(phase 2b)~~, and OPK88004, a selective androgen receptor modulator being developed for benign prostatic hyperplasia and other urologic and metabolic conditions.~~. Our pharmaceutical business also features hGH-CTP, a once-weekly human growth hormone injection ~~(in Phase 3 and~~for which we have partnered with ~~Pfizer),~~Pfizer and successfully completed a ~~once-daily Factor VIIa drug for hemophilia (Phase 2a).~~phase 3 study in August 2019.

We operate established pharmaceutical platforms in Spain, Ireland, Chile 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. ~~EirGen, our specialty pharmaceutical manufacturing and development site in Ireland, is focused on the~~We have a development and commercial supply pharmaceutical company, as well as a global supply chain operation and holding company in Ireland, which we expect will play an important role in the development, manufacturing, distribution and approval of a wide variety of drugs with an emphasis on high potency ~~high barrier to entry pharmaceutical~~ products. ~~In addition, we operate~~We also 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.

In June 2020, we announced that the Japan Phase 3 clinical trial met its primary and secondary objectives, and demonstrated that the efficacy and safety of Somatrogon administered weekly was comparable to GENOTROPIN® for injection administered once-daily as measured by annual height velocity after 12 ~~2017, EirGen,~~months of treatment in treatment-naïve Japanese pre-pubertal children with GHD. The findings were consistent with the results previously reported in the Phase 3 global study.

	~~75-2402409~~
Delaware		75-2402409
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)



Large accelerated filer	x	Accelerated filer	¨☐
Non-accelerated filer	¨~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨☐
		Emerging growth company	¨☐



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	100,362		$	168,733
Accounts receivable, net	233,916			220,284
Inventory, net	46,954			47,228
Other current assets and prepaid expenses	49,324			47,356
Total current assets	430,556			483,601
Property, plant and equipment, net	142,437			122,831
Intangible assets, net	714,552			763,976
In-process research and development	648,377			644,713
Goodwill	715,573			704,603
Investments	32,196			41,139
Other assets	38,299			5,756
Total assets	$	2,721,990		$	2,766,619
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	66,536		$	53,360
Accrued expenses	176,300			197,955
Current portion of lines of credit and notes payable	16,112			11,981
Total current liabilities	258,948			263,296
2033 Senior Notes, net of discount	28,590			43,701
Deferred tax liabilities, net	118,799			165,331
Other long-term liabilities, principally deferred revenue, contingent consideration and line of credit	226,617			202,483
Total long-term liabilities	374,006			411,515
Total liabilities	632,954			674,811
Equity:
Common Stock - $0.01 par value, 750,000,000 shares authorized; 559,955,118 and 558,576,051 shares issued at September 30, 2017 and December 31, 2016, respectively	5,600			5,586
Treasury Stock - 549,907 and 586,760 shares at September 30, 2017 and December 31, 2016, respectively	(1,791		)	(1,911		)
Additional paid-in capital	2,883,026			2,845,096
Accumulated other comprehensive loss	(5,422		)	(27,009		)
Accumulated deficit	(792,377		)	(729,954		)
Total shareholders’ equity	2,089,036			2,091,808
Total liabilities and equity	$	2,721,990		$	2,766,619



	For the three months ended September 30,						For the nine months ended September 30,
	2017			2016			2017			2016
Revenues:
Revenue from services	$	229,035		$	259,025		$	740,992		$	777,559
Revenue from products	22,795			20,569			73,992			63,275
Revenue from transfer of intellectual property and other	11,665			18,441			58,819			105,338
Total revenues	263,495			298,035			873,803			946,172
Costs and expenses:
Cost of service revenue	135,203			138,554			419,070			417,121
Cost of product revenue	16,107			12,626			44,441			35,033
Selling, general and administrative	131,336			124,845			396,359			370,358
Research and development	32,329			24,424			90,944			83,594
Contingent consideration	(11,213		)	3,093			(4,475		)	15,604
Amortization of intangible assets	18,023			18,116			53,904			47,337
Total costs and expenses	321,785			321,658			1,000,243			969,047
Operating loss	(58,290		)	(23,623		)	(126,440		)	(22,875		)
Other income and (expense), net:
Interest income	249			163			634			341
Interest expense	(1,840		)	(2,018		)	(4,771		)	(6,022		)
Fair value changes of derivative instruments, net	(7,550		)	(5,701		)	1,969			(5,889		)
Other income (expense), net	597			(2,972		)	3,105			3,543
Other income and (expense), net	(8,544		)	(10,528		)	937			(8,027		)
Loss before income taxes and investment losses	(66,834		)	(34,151		)	(125,503		)	(30,902		)
Income tax benefit	24,405			19,988			42,309			24,626
Net loss before investment losses	(42,429		)	(14,163		)	(83,194		)	(6,276		)
Loss from investments in investees	(4,013		)	(814		)	(11,771		)	(5,147		)
Net loss	$	(46,442	)	$	(14,977	)	$	(94,965	)	$	(11,423	)
Loss per share, basic and diluted:
Loss per share	$	(0.08	)	$	(0.03	)	$	(0.17	)	$	(0.02	)
Weighted average common shares outstanding, basic and diluted	559,405,309			552,229,266			559,065,232			548,550,641



(In thousands)	Transition Therapeutics
Cash and cash equivalents	$	15,878
IPR&D assets	41,000
Goodwill	3,453
Other assets	634
Accounts payable and other liabilities	(1,035		)
Deferred tax liability	(1,400		)
Total purchase price	$	58,530



(In thousands)	Embedded conversion option			2033 Senior Notes		Discount			Debt Issuance Cost			Total
Balance at December 31, 2016	$	16,736		$	31,850	$	(4,612	)	$	(273	)	$	43,701
Amortization of debt discount and debt issuance costs	—			—		1,514			111			1,625
Change in fair value of embedded derivative	(3,185		)	—		—			—			(3,185		)
Reclassification of embedded derivatives to equity	(13,551		)	—		—			—			(13,551		)
Balance at September 30, 2017	$	—		$	31,850	$	(3,098	)	$	(162	)	$	28,590



(In thousands)	Foreign currency			Unrealized gain (loss) in Accumulated OCI			Total
Balance at December 31, 2016	$	(28,128	)	$	1,119		$	(27,009	)
Other comprehensive income (loss) before reclassifications	21,646			(749		)	20,897
Reclassification adjustments for losses included in net loss, net of tax				690			690
Net other comprehensive income (loss)	21,646			(59		)	21,587
Balance at September 30, 2017	$	(6,482	)	$	1,060		$	(5,422	)



	As of September 30, 2017
(In thousands)	Amortized Cost		Gross unrealized gains in Accumulated OCI		Gross unrealized losses in Accumulated OCI			Fair value
Common stock investments, available for sale	$	2,048	$	1,308	$	(248	)	$	3,108
Total assets	$	2,048	$	1,308	$	(248	)	$	3,108



	As of December 31, 2016
(In thousands)	Amortized Cost		Gross unrealized gains in Accumulated OCI		Gross unrealized losses in Accumulated OCI			Fair value
Common stock investments, available for sale	$	3,409	$	1,313	$	(194	)	$	4,528
Total assets	$	3,409	$	1,313	$	(194	)	$	4,528



	September 30, 2017
(In thousands)	Carrying Value		Total Fair Value		Level 1		Level 2		Level 3
2033 Senior Notes	$	28,590	$	37,011	$	—	$	—	$	37,011



~~Delaware~~



	Three months ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
Derivative gain (loss):
Common Stock options/warrants	$	(342	)	$	(12	)	$	(854	)	$	(4,728	)
2033 Senior Notes	(6,829		)	(5,795		)	3,185			(1,061		)
Forward contracts	(379		)	106			(362		)	(100		)
Total	$	(7,550	)	$	(5,701	)	$	1,969		$	(5,889	)



Revenues	For the three months ended September 30,
(In thousands)	2017		2016		Change
Revenue from services	$	229,035	$	259,025	$	(29,990	)
Revenue from products	22,795		20,569		2,226
Revenue from transfer of intellectual property and other	11,665		18,441		(6,776		)
Total revenues	$	263,495	$	298,035	$	(34,540	)


Research and Development Expenses	For the three months ended June 30,
	2020		2019
External expenses:
PMA studies	$	57	$	110
Research and development employee-related expenses	2,163		2,098
Other internal research and development expenses	1,565		1,250
Total research and development expenses	$	3,785	$	3,458



Cost of Revenue	For the three months ended September 30,
(In thousands)	2017		2016		Change
Cost of service revenue	$	135,203	$	138,554	$	(3,351	)
Cost of product revenue	16,107		12,626		3,481
Total cost of revenue	$	151,310	$	151,180	$	130


Contractual obligations (In thousands)	Remaining three months ending December 31, 2017		2018		2019		2020		2021		Thereafter		Total		Contractual obligations (In thousands)	Remaining six months ending December 31, 2020		2021		2022		2023		2024		Thereafter		Total
Open purchase orders	$	97,863	$	8,446	$	274	$	34	$	—	$	—	$	106,617	Open purchase orders	$	153,623	$	506	$	35	$	—	$	—	$	—	$	154,164
Operating leases	5,271		18,231		15,027		9,388		6,164		6,853		60,934		Operating leases	6,392		7,137		5,938		5,001		3,735		10,856		39,059
Capital leases	887		3,404		3,026		2,367		1,438		800		11,922
2033 Senior Notes	—		—		31,850		—		—		—		31,850
Finance leases															Finance leases	1,298		2,121		1,147		581		247		—		5,394
2033 Senior Notes, 2025 and 2023 Convertible Notes															2033 Senior Notes, 2025 and 2023 Convertible Notes	—		—		—		—		3,050		207,017		210,067
Deferred payments	5,000		5,000		5,000		—		—		—		15,000		Deferred payments	5,625		7,500		2,994		—		—		—		16,119
Mortgages and other debts payable	3,412		416		410		409		409		755		5,811		Mortgages and other debts payable	1,209		944		739		547		458		86		3,983
Lines of credit	12,623		—		—		93,311		—		—		105,934		Lines of credit	12,048		51,489		—		—		—		—		63,537
Severance payments	5,101		—		—		—		—		—		5,101

Interest commitments	257		1,019		291		39		37		23		1,666		Interest commitments	340		300		283		14,016		259		41,389		56,587
Total	$	130,414	$	36,516	$	55,878	$	105,548	$	8,048	$	8,431	$	344,835	Total	$	180,535	$	69,997	$	11,136	$	20,145	$	7,749	$	259,348	$	548,910



Exhibit ~~3.1(1)~~10.1*		Amendment to Development and Lic ense Agreement between EirGen Pharma L td. and Vifor Fresenius Medical Care Renal Pharma Ltd ., dated May 5 , 2020 .
Exhibit 10.2*		Amended and Restated ~~Certificate of Incorporation.~~
~~Exhibit 3.2(2)~~	~~Amended~~Development and ~~Restated By-Laws.~~
~~Exhibit 3.3(3)~~	~~Certificate of Designation of Series D Preferred Stock.~~
~~Exhibit 4.3(4)~~	~~Indenture, dated as of January 30, 2013, between OPKO Health, Inc. and Wells Fargo Bank, National Association.~~
Exhibit 10.1*	~~Amendment No. 4 to Credit~~Commercialization License Agreement by and between ~~Bio-Reference Laboratories,~~Pfizer Inc. and ~~certain of its subsidiaries and JPMorgan Chase Bank, N.A.~~ OPKO Ireland Ltd., dated ~~August 7, 2017~~May 12, 2020.
Exhibit 10.2*		~~Commitment Letter by and between OPKO Health, Inc. and Veterans Accountable Care Group, LLC, dated August 15, 2017~~
Exhibit 31.1	Certification by Phillip Frost, Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended ~~September 30, 2017.~~June 3 0 , 2020.
Exhibit 31.2		Certification by Adam Logal, Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended ~~September 30, 2017.~~June 3 0 , 2020.
Exhibit 32.1**		Certification by Phillip Frost, Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended ~~September 30, 2017.~~June 3 0 , 2020.
Exhibit 32.2**		Certification by Adam Logal, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended ~~September 30, 2017.~~June 3 0 , 2020.
Exhibit 101.INS		Inline XBRL Instance Document
Exhibit 101.SCH		Inline XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB		inline XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


⁽¹⁾	Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2013 for the Company’s three month period ended September 30, 2013, and incorporated herein by reference.


⁽²⁾	~~Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2008, and incorporated herein by reference.~~


⁽³⁾	~~Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 24, 2009, and incorporated herein by reference.~~


⁽⁴⁾	~~Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2013, and incorporated herein by reference.~~


Date: July 31, 2020		OPKO Health, Inc.

~~Date: November 8, 2017~~		~~OPKO Health, Inc.~~

	/s/ Adam Logal
		Adam Logal
		Senior Vice President and Chief Financial ~~Officer,~~
		~~Chief Accounting~~ Officer ~~and Treasurer~~