UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | |||
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
☐ | |||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to .Commission file number 001-33528
OPKO Health, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 75-2402409 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
4400 Biscayne Blvd. |
Miami FL 33137 |
(Address of Principal Executive Offices) (Zip Code) |
(305) 575-4100 |
( |
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.
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).
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”
Large accelerated filer | x | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
As of
Page | |||
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended.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, 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, 2016,2022, and described from time to time in our other reports filedfilings 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:
• | we have had a history of losses and may not generate sustained positive cash flow sufficient to fund our operations and research and development programs; |
• | our need for, and ability to obtain, additional financing when needed on favorable terms, or at all; |
• | adverse results in material litigation matters or governmental inquiries; |
• | the risks inherent in developing, obtaining regulatory approvals for and commercializing new, commercially viable and competitive products and treatments; |
• | our research and development activities may not result in commercially viable products; |
• | that earlier clinical results of effectiveness and safety may not be reproducible or indicative of future results; |
• | that we may fail to successfully commercialize Somatrogon (hGH-CTP); |
• | that we may not generate or sustain profits or cash flow from our laboratory operations or substantial revenue from Somatrogon (hGH-CTP), Rayaldee and our other pharmaceutical and diagnostic products; |
• | our ability to manage our growth and our expanded operations; |
• | that our acquisition of ModeX Therapeutics, Inc. will be successful and the products in the R&D pipeline will ultimately be commercialized; |
• | that currently available over-the-counter and prescription products, as well as products under development by others, may prove to be as or more effective than our products for the indications being studied; |
• | our ability and our distribution and marketing partners’ ability to comply with regulatory requirements regarding the sales, marketing and manufacturing of our products and product candidates and the operation of our laboratories; |
• | the performance of our third-party distribution partners, licensees and manufacturers over which we have limited control; |
• | changes in regulation and policies in the U.S. and other countries, including increasing downward pressure on healthcare reimbursement; |
• | increased competition, including price competition; |
• | our success is dependent on the involvement and continued efforts of our Chairman and Chief Executive Officer; |
• | integration challenges for acquired business; |
• | changing relationships with payors, including the various state and multi-state programs, suppliers and strategic partners; |
• | efforts by third-party payors to reduce utilization and reimbursement for clinical testing services; |
• | our ability to maintain reimbursement coverage for our products and services, including Rayaldee and the 4Kscore test; |
• | failure to timely or accurately bill and collect for our services; |
• | the information technology systems that we rely on may be subject to unauthorized tampering, cyberattack or other data security or privacy incidents that could impact our billing processes or disrupt our operations; |
• | failure to obtain and retain new clients and business partners, or a reduction in tests ordered or specimens submitted by existing clients; |
• | failure to establish, and perform to, appropriate quality standards to assure that the highest level of quality is observed in the performance of our testing services; |
• | failure to maintain the security of patient-related information; |
• | our ability to obtain and maintain intellectual property protection for our products; |
• | our ability to defend our intellectual property rights with respect to our products; |
• | our ability to operate our business without infringing the intellectual property rights of others; |
• | our ability to attract and retain key scientific and management personnel; |
• | the risk that the carrying value of certain assets may exceed the fair value of the assets causing us to impair goodwill or other intangible assets; |
• | our ability to comply with the terms of our 2022 Corporate Integrity Agreement with the U.S. Office of Inspector General of the Department of Health and Human Services; |
• | failure to obtain and maintain regulatory approval outside the U.S.; and |
• | legal, economic, political, regulatory, currency exchange, and other risks associated with international operations. |
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-ownedconsolidated subsidiaries.
Item 1. Financial Statements
The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
June 30, 2023 | December 31, 2022 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 108,108 | $ | 153,191 | ||||
Accounts receivable, net | 210,982 | 127,312 | ||||||
Inventory, net | 73,749 | 74,060 | ||||||
Other current assets and prepaid expenses | 40,950 | 39,962 | ||||||
Total current assets | 433,789 | 394,525 | ||||||
Property, plant and equipment, net | 78,876 | 82,879 | ||||||
Intangible assets, net | 782,195 | 823,520 | ||||||
In-process research and development | 195,000 | 195,000 | ||||||
Goodwill | 597,375 | 595,851 | ||||||
Investments | 27,783 | 28,080 | ||||||
Operating lease right-of-use assets | 34,938 | 38,725 | ||||||
Other assets | 8,943 | 8,679 | ||||||
Total assets | $ | 2,158,899 | $ | 2,167,259 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 87,877 | $ | 66,993 | ||||
Accrued expenses | 98,604 | 98,269 | ||||||
Current maturities of operating leases | 11,240 | 11,628 | ||||||
Current portion of convertible notes | — | 3,050 | ||||||
Current portion of lines of credit and notes payable | 28,729 | 33,540 | ||||||
Total current liabilities | 226,450 | 213,480 | ||||||
Operating lease liabilities | 24,912 | 27,963 | ||||||
Long term portion of convertible notes | 212,299 | 210,371 | ||||||
Deferred tax liabilities | 133,049 | 126,426 | ||||||
Other long-term liabilities, principally contract liabilities, contingent consideration and lines of credit | 26,841 | 27,371 | ||||||
Total long-term liabilities | 397,101 | 392,131 | ||||||
Total liabilities | 623,551 | 605,611 | ||||||
Equity: | ||||||||
Common Stock - $0.01 par value, 1,000,000,000 shares authorized; 781,693,135 and 781,306,164 shares issued at June 30, 2023 and December 31, 2022, respectively | 7,817 | 7,813 | ||||||
Treasury Stock - 8,655,082 shares at June 30, 2023 and December 31, 2022, respectively | (1,791 | ) | (1,791 | ) | ||||
Additional paid-in capital | 3,427,094 | 3,421,872 | ||||||
Accumulated other comprehensive loss | (36,942 | ) | (43,323 | ) | ||||
Accumulated deficit | (1,860,830 | ) | (1,822,923 | ) | ||||
Total shareholders’ equity | 1,535,348 | 1,561,648 | ||||||
Total liabilities and equity | $ | 2,158,899 | $ | 2,167,259 |
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 |
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, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues: | ||||||||||||||||
Revenue from services | $ | 127,052 | $ | 186,804 | $ | 259,420 | $ | 473,402 | ||||||||
Revenue from products | 43,500 | 35,892 | 83,883 | 72,550 | ||||||||||||
Revenue from transfer of intellectual property and other | 94,866 | 87,197 | 159,692 | 93,159 | ||||||||||||
Total revenues | 265,418 | 309,893 | 502,995 | 639,111 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Cost of service revenue | 113,028 | 171,836 | 227,087 | 393,040 | ||||||||||||
Cost of product revenue | 25,911 | 22,475 | 50,166 | 45,147 | ||||||||||||
Selling, general and administrative | 79,794 | 101,464 | 155,436 | 219,000 | ||||||||||||
Research and development | 18,159 | 17,254 | 50,764 | 35,566 | ||||||||||||
Contingent consideration | (34 | ) | 175 | 102 | 69 | |||||||||||
Amortization of intangible assets | 21,535 | 22,793 | 43,009 | 44,818 | ||||||||||||
Gain on sale of assets | — | (15,365 | ) | — | (15,365 | ) | ||||||||||
Total costs and expenses | 258,393 | 320,632 | 526,564 | 722,275 | ||||||||||||
Operating income (loss) | 7,025 | (10,739 | ) | (23,569 | ) | (83,164 | ) | |||||||||
Other income and (expense), net: | ||||||||||||||||
Interest income | 1,077 | 161 | 2,107 | 171 | ||||||||||||
Interest expense | (3,277 | ) | (3,075 | ) | (6,668 | ) | (5,737 | ) | ||||||||
Fair value changes of derivative instruments, net | 142 | 338 | (917 | ) | 206 | |||||||||||
Other income (expense), net | (21,417 | ) | (72,997 | ) | (4,400 | ) | (74,439 | ) | ||||||||
Other income (expense), net | (23,475 | ) | (75,573 | ) | (9,878 | ) | (79,799 | ) | ||||||||
Loss before income taxes and investment losses | (16,450 | ) | (86,312 | ) | (33,447 | ) | (162,963 | ) | ||||||||
Income tax benefit (provision) | (3,148 | ) | (15,070 | ) | (4,381 | ) | 6,196 | |||||||||
Net loss before investment losses | (19,598 | ) | (101,382 | ) | (37,828 | ) | (156,767 | ) | ||||||||
Loss from investments in investees | (42 | ) | (268 | ) | (79 | ) | (316 | ) | ||||||||
Net loss | $ | (19,640 | ) | $ | (101,650 | ) | $ | (37,907 | ) | $ | (157,083 | ) | ||||
Loss per share, basic and diluted: | ||||||||||||||||
Loss per share | $ | (0.03 | ) | $ | (0.14 | ) | $ | (0.05 | ) | $ | (0.23 | ) | ||||
Weighted average common shares outstanding, basic and diluted | 751,727,383 | 712,548,661 | 751,617,431 | 686,597,899 |
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 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands)
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net loss | $ | (19,640 | ) | $ | (101,650 | ) | $ | (37,907 | ) | $ | (157,083 | ) | ||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Change in foreign currency translation and other comprehensive income (loss) | 670 | (17,756 | ) | 6,381 | (18,676 | ) | ||||||||||
Comprehensive loss | $ | (18,970 | ) | $ | (119,406 | ) | $ | (31,526 | ) | $ | (175,759 | ) |
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 | ) |
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)
For the three and six months ended June 30, 2023
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||
Common Stock | Treasury | Paid-In | Comprehensive | Accumulated | ||||||||||||||||||||||||||||
Shares | Dollars | Shares | Dollars | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||
Balance at March 31, 2023 | 781,306,164 | $ | 7,813 | (8,655,082 | ) | $ | (1,791 | ) | $ | 3,424,589 | $ | (37,611 | ) | $ | (1,841,190 | ) | $ | 1,551,810 | ||||||||||||||
Equity-based compensation expense | — | — | — | — | 2,810 | — | — | 2,810 | ||||||||||||||||||||||||
Exercise of common stock options and warrants | 386,971 | 4 | — | — | (305 | ) | — | — | (301 | ) | ||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (19,640 | ) | (19,640 | ) | ||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 669 | — | 669 | ||||||||||||||||||||||||
Balance at June 30, 2023 | 781,693,135 | $ | 7,817 | (8,655,082 | ) | $ | (1,791 | ) | $ | 3,427,094 | $ | (36,942 | ) | $ | (1,860,830 | ) | $ | 1,535,348 |
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||
Common Stock | Treasury | Paid-In | Comprehensive | Accumulated | ||||||||||||||||||||||||||||
Shares | Dollars | Shares | Dollars | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||
Balance at December 31, 2022 | 781,306,164 | $ | 7,813 | (8,655,082 | ) | $ | (1,791 | ) | $ | 3,421,872 | $ | (43,323 | ) | $ | (1,822,923 | ) | $ | 1,561,648 | ||||||||||||||
Equity-based compensation expense | — | — | — | — | 5,527 | — | — | 5,527 | ||||||||||||||||||||||||
Exercise of common stock options and warrants | 386,971 | 4 | — | — | (305 | ) | — | — | (301 | ) | ||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (37,907 | ) | (37,907 | ) | ||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 6,381 | — | 6,381 | ||||||||||||||||||||||||
Balance at June 30, 2023 | 781,693,135 | $ | 7,817 | (8,655,082 | ) | $ | (1,791 | ) | $ | 3,427,094 | $ | (36,942 | ) | $ | (1,860,830 | ) | $ | 1,535,348 |
The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)
For the three and six months ended June 30, 2022
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||
Common Stock | Treasury | Paid-In | Comprehensive | Accumulated | ||||||||||||||||||||||||||||
Shares | Dollars | Shares | Dollars | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||
Balance at March 31, 2022 | 690,138,033 | $ | 6,901 | (8,655,082 | ) | $ | (1,791 | ) | $ | 3,191,139 | $ | (31,415 | ) | $ | (1,549,951 | ) | $ | 1,614,883 | ||||||||||||||
Equity-based compensation expense | — | — | — | — | 4,308 | — | — | 4,308 | ||||||||||||||||||||||||
Exercise of common stock options and warrants | 546,337 | 6 | — | — | (366 | ) | — | — | (360 | ) | ||||||||||||||||||||||
ModeX Acquisition | 89,907,311 | 899 | — | — | 218,475 | — | — | 219,374 | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (101,650 | ) | (101,650 | ) | ||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (17,756 | ) | — | (17,756 | ) | ||||||||||||||||||||||
Balance at June 30, 2022 | 780,591,681 | $ | 7,806 | (8,655,082 | ) | $ | (1,791 | ) | $ | 3,413,556 | $ | (49,171 | ) | $ | (1,651,601 | ) | $ | 1,718,799 |
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||
Common Stock | Treasury | Paid-In | Comprehensive | Accumulated | ||||||||||||||||||||||||||||
Shares | Dollars | Shares | Dollars | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||
Balance at December 31, 2021 | 690,082,283 | $ | 6,901 | (8,655,082 | ) | $ | (1,791 | ) | $ | 3,222,487 | $ | (30,495 | ) | $ | (1,511,976 | ) | $ | 1,685,126 | ||||||||||||||
Equity-based compensation expense | — | — | — | — | 11,925 | — | — | 11,925 | ||||||||||||||||||||||||
Exercise of common stock options and warrants | 602,087 | 6 | — | — | (231 | ) | — | — | (225 | ) | ||||||||||||||||||||||
Adoption of ASU 2020-06 | — | — | — | — | (39,100 | ) | — | 17,458 | (21,642 | ) | ||||||||||||||||||||||
ModeX Acquisition | 89,907,311 | 899 | — | — | 218,475 | — | — | 219,374 | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (157,083 | ) | (157,083 | ) | ||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (18,676 | ) | — | (18,676 | ) | ||||||||||||||||||||||
Balance at June 30, 2022 | 780,591,681 | $ | 7,806 | (8,655,082 | ) | $ | (1,791 | ) | $ | 3,413,556 | $ | (49,171 | ) | $ | (1,651,601 | ) | $ | 1,718,799 |
The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the six months ended June 30, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (37,907 | ) | $ | (157,083 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 52,993 | 55,809 | ||||||
Non-cash interest | 1,364 | 1,364 | ||||||
Amortization of deferred financing costs | 598 | 569 | ||||||
Losses from investments in investees | 79 | 316 | ||||||
Equity-based compensation – employees and non-employees | 5,527 | 11,925 | ||||||
Realized loss on disposal of fixed assets and sales of equity securities | 2,075 | (477 | ) | |||||
Change in fair value of equity securities and derivative instruments | 6,146 | 73,724 | ||||||
Change in fair value of contingent consideration | 102 | 69 | ||||||
Gain on sale of GeneDx | — | (15,365 | ) | |||||
Deferred income tax benefit | 1,753 | (8,942 | ) | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable, net | (81,822 | ) | 95,864 | |||||
Inventory, net | 2,749 | 2,864 | ||||||
Other current assets and prepaid expenses | 1,279 | (6,502 | ) | |||||
Other assets | (1,915 | ) | (260 | ) | ||||
Accounts payable | 20,210 | (19,508 | ) | |||||
Foreign currency measurement | (1,318 | ) | 4,295 | |||||
Contract liabilities | 2 | (17 | ) | |||||
Accrued expenses and other liabilities | 5,073 | (69,978 | ) | |||||
Net cash used in operating activities | (23,012 | ) | (31,333 | ) | ||||
Cash flows from investing activities: | ||||||||
Investments in investees | (5,000 | ) | — | |||||
Proceeds from sale of GeneDx | — | 115,423 | ||||||
Acquisition of businesses, net of cash | — | (2,071 | ) | |||||
Proceeds from the sale of property, plant and equipment | 842 | 870 | ||||||
Capital expenditures | (9,050 | ) | (10,630 | ) | ||||
Net cash provided by (used in) investing activities | (13,208 | ) | 103,592 | |||||
Cash flows from financing activities: | ||||||||
Issuance of common stock | — | 1 | ||||||
Proceeds from the exercise of common stock options | (301 | ) | (225 | ) | ||||
Borrowings on lines of credit | 341,850 | 684,467 | ||||||
Repayments of lines of credit | (348,206 | ) | (679,860 | ) | ||||
Redemption of 2033 Senior Notes | (3,000 | ) | — | |||||
Net cash provided by (used in) financing activities | (9,657 | ) | 4,383 | |||||
Effect of exchange rate changes on cash and cash equivalents | 794 | (894 | ) | |||||
Net increase (decrease) in cash and cash equivalents | (45,083 | ) | 75,748 | |||||
Cash and cash equivalents at beginning of period | 153,191 | 134,710 | ||||||
Cash and cash equivalents at end of period | $ | 108,108 | $ | 210,458 | ||||
SUPPLEMENTAL INFORMATION: | ||||||||
Interest paid | $ | 4,204 | $ | 3,554 | ||||
Income taxes paid, net of refunds | $ | 685 | $ | 4,647 | ||||
Assets acquired by finance leases | $ | 181 | $ | — | ||||
Non-cash financing: | ||||||||
Shares issued upon the conversion of: | ||||||||
Common stock options and warrants, surrendered in net exercise | $ | 301 | $ | 655 | ||||
Issuance of common stock for acquisition of ModeX | $ | — | $ | 219,374 | ||||
Fair value of shares included in consideration from GeneDx Holdings | $ | 6,689 | $ | 172,000 |
The accompanying unaudited Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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 | |||
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.Health, LLC (“BioReference”), one of the nation’s third-largest clinical laboratorylargest full service laboratories with a core genetic testing business and a 400-person180-person sales and marketing team to drive growth and leverage new products, including the
Through BioReference, we provide laboratory testing services, primarily to customers in the larger metropolitan areas acrossin 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,disease, serology, hormones, and toxicology assays, as well as Pap smear, anatomic pathology (biopsies) and other types of tissue analysis.analysis, as well as testing for COVID-19. We market our laboratory testing services directly to physicians, geneticists, hospitals, clinics, correctional and other health facilities.
We operate established pharmaceutical platforms in Spain, 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, weWe have a development and commercial supply pharmaceutical company andas well as a global supply chain operation and holding company in Ireland.operation. 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.
Our research and development activities are primarily performed at facilities in Miramar, FL, Woburn, MA,Natick, Massachusetts, Waterford, Ireland, Kiryat Gat, Israel, and Barcelona, Spain.
On May 9, 2022 (the “Closing Date”), the Company entered into an Agreement and Plan of Merger (the “ModeX Merger Agreement”), in accordance with which we acquired ModeX pursuant to a merger (the "ModeX Merger") in which ModeX survived as a wholly owned subsidiary of the Company. The Company paid the entirety of the $300.0 million purchase price pursuant to the issuance of an aggregate of 89,907,310 shares (the “Consideration Shares”) of the Company’s common stock, par value $0.01 per share (“Common Stock”), to the former stockholders of ModeX (the “Selling Stockholders”), of which 10% of such shares were deposited in a twelve-month escrow for purposes of satisfying the potential indemnity obligations of the Selling Stockholders under the ModeX Merger Agreement. Additionally, the Company issued equity awards to ModeX employees in an amount equal to $12.4 million, which was deducted from the consideration payable on the Closing Date. If any of such awards are forfeited or otherwise remain unvested on the four-year anniversary of the Closing Date, Common Stock equal to $2.6 million (valued at the same price used for determining the number of Consideration Shares issuable upon consummation of the ModeX Merger) may be distributed pro rata to ModeX’s former stockholders in respect of such forfeited or unvested awards. Shares of Common Stock with respect to such potential distribution have been escrowed and will remain escrowed for such four-year period. For accounting purposes, the shares were valued at $221.7 million, based on the closing price per share of our Common Stock of $2.44 as reported by NASDAQ Global Select Market (“NASDAQ”) on the Closing Date. Included in the total fair value of consideration transferred of $221.7 million were $2.3 million of fully vested equity awards.
On January 14, 2022, the Company entered into an Agreement and Plan of Merger and Reorganization (the “GeneDx Merger Agreement”) with GeneDx Holdings Corp. (f/k/a “Sema4 Holdings Corp.”), a Delaware corporation (“GeneDx Holdings”), pursuant to which GeneDx Holdings acquired the Company’s former subsidiary, GeneDx LLC, (f/k/a GeneDx, Inc. “GeneDx”), in a transaction (the “GeneDx Transaction”) that closed on April 29, 2022.
At closing, GeneDx Holdings paid to the Company aggregate consideration of $150 million in cash (before deduction of transaction expenses and other customary purchase price adjustments), together with 80.0 million shares (the “Closing Shares”) of GeneDx Holdings’ Class A common stock, par value $0.0001 per share (“GeneDx Holdings Common Stock”). Based on the closing stock price of GeneDx Holdings as of April 29, 2022, the total upfront consideration represented approximately $322 million. Additionally, subject to GeneDx achieving certain revenue targets for the fiscal years ending December 31, 2022 and 2023, we are eligible to receive an earnout payment (“Milestone Consideration”) in cash or stock (at GeneDx Holdings’ discretion) equal to a maximum of 30.9 million shares of GeneDx Holdings’ Common Stock if paid in stock. We received 23.1 million shares of Class A Common Stock as a result of GeneDx satisfactorily achieving targets as of December 31, 2022.
In connection with the transactions contemplated by the GeneDx Merger Agreement, on January 14, 2022, the Company entered into a Shareholder Agreement (the “GeneDx Holdings Shareholder Agreement”) with GeneDx Holdings, pursuant to which the Company agreed to, among other things, be subject to a lock-up period with respect to its shares of GeneDx Holdings Common Stock, which expired on April 29, 2023 with respect to the Closing Shares, extends for one year with respect to the shares of Class A Common Stock received as Milestone Consideration for the year ended December 31, 2022, and, if earned and received, would extend for six-months from the date of issuance of the second potential Milestone Consideration payments.
Pursuant to the GeneDx Merger Agreement, the Company designated, and GeneDx Holdings nominated for election an individual to serve on the board of directors of GeneDx Holdings, and such nominee was elected by GeneDx Holdings’ stockholders to serve as a director at least until GeneDx Holdings’ 2024 annual meeting of stockholders. In addition, the Company has further agreed to certain standstill provisions whereby, subject to certain exceptions, it is obligated to refrain from taking certain actions with respect to the GeneDx Holdings Common Stock. The Company has also agreed to vote its shares of GeneDx Holdings Common Stock in accordance with the recommendations of GeneDx Holdings’s board of directors for so long as it continues to hold at least 5% of the outstanding shares of GeneDx Holdings Common Stock. Further, GeneDx Holdings has also granted the Company certain customary shelf, piggyback and demand registration rights that require GeneDx Holdings to register the shares of the Company’s shares of GeneDx Holdings Common Stock for resale under the Securities Act. OPKO intends to have a designee serving on GeneDx Holdings’s board of directors through the lock-up period applicable to the Company’s shares of GeneDx Holdings Common Stock. Such designee may continue to sit on the GeneDx Holdings board if elected by the GeneDx Holdings stockholders.
NOTE 2 FOREIGN EXCHANGE RATES
Foreign Currency Exchange Rates
Approximately 34.4% of revenue for the six months ended June 30, 2023, and approximately 23.6% of revenue for the six months ended June 30, 2022, were denominated in currencies other than the U.S. Dollar (USD). Our financial statements are reported in USD and, accordingly, fluctuations in exchange rates affect the translation of revenues and expenses denominated in foreign currencies into USD for purposes of reporting the consolidated financial results. For the first quarter of 2023 and the year ended December 31, 2022, the most significant currency exchange rate exposures were to the Euro and Chilean Peso. Gross accumulated currency translation adjustments recorded as a separate component of shareholders’ equity were $33.5 million and $39.9 million at June 30, 2023 and December 2022, respectively.
We are subject to foreign currency transaction risk for fluctuations in exchange rates during the period of time between the consummation and cash settlement of transactions. We seek to limit foreign currency transaction risk through hedge transactions with foreign currency forward contracts. 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. At June 30, 2023, we had 67 open foreign exchange forward contracts relating to inventory purchases on letters of credit with various amounts maturing monthly through July 2023 with a notional value totaling approximately $3.5 million. At December 31, 2022, we had 194 open foreign exchange forward contracts relating to inventory purchases on letters of credit with various amounts maturing monthly through January 2023 with a notional value totaling approximately $11.9 million.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in thePrinciples of consolidation
. The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of OPKO Health, Inc. andUse of estimates
. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from these estimates.Cash and cash equivalents
. Cash and cash equivalents include short-term, interest-bearing instruments with original maturities of 90 days or less at the date of purchase. We also consider all highly liquid investments with original maturities at the date of purchase of 90 days or less as cash equivalents. These investments include money markets, bank deposits, certificates of deposit and U.S. treasury securities.Inventories
. Inventories are valued at the lower of cost and net realizable value. Cost is determined by theGoodwill 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 ofAssets 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 determinedAny excess of the purchase price over the estimated fair values of the net assets acquired is recognized as goodwill. At acquisition, we generally determine the fair value of intangible assets, including IPR&D, using the “income method.”
Subsequent to their acquisition, goodwill and indefinite lived intangible assets are tested at least annually as of October 1 for impairment, or when events or changes in circumstances indicate it is more likely than notthat 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 itsrecoverable.
Estimating the fair value exceedsof a reporting unit for goodwill impairment is highly sensitive to changes in projections and assumptions and changes in assumptions could potentially lead to impairment. We perform sensitivity analyses around our assumptions in order to assess the reasonableness of the assumptions and the results of our testing. Ultimately, potential changes in these assumptions may impact the estimated fair value of a reporting unit and result in an impairment if the fair value of such reporting unit is less than its carrying value.
Net intangible assets other than goodwill was $1.0 billion on June 30, 2023, and December 31, 2022, respectively, including IPR&D of $195.0 million on June 30, 2023, and December 31, 2022. Intangible assets are testedhighly 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 orcharges 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 requiredprojections 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 isassets 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.
During the first quarter of 2022, we reclassified $187.6$590.2 million of IPR&D related to
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$21.5 million and $47.3$43.0 million for the ninethree and six months ended SeptemberJune 30, 20172023, respectively. Amortization expense was $22.8 million and 2016,$44.8 million for the three and six months ended June 30, 2022, 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 consideredIn 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 8.9.
Contingent consideration. Each period we revalue the contingent consideration obligations associated with certain priorapplicable acquisitions to their respective fair valuevalues 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 BalanceProperty, plant and equipment
. Property, plant and equipment are recorded atImpairment of long-lived assets.
Long-lived assets, such as property and equipment and assets held for sale, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, then an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.Income taxes.
Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.We operate in various countries and tax jurisdictions globally. For interim reporting purposes, we record income taxes based on the standard corporateexpected effective income tax rate, taking into consideration year to date and global forecasted tax results. For the six months ended June 30, 2023, the tax rate differed 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.
Included in Other long-term liabilities is distributed in the U.S. principally through the retail pharmacy channel, which initiatesan accrual of $6.0 million related to uncertain tax positions involving income recognition. In connection with the largest wholesalers in the U.S. (collectively, “
Revenue recognition. We recognize revenue when a customer obtains control of promised goods or services in accordance with Accounting Standards Codification Topic 606,Revenue from Contracts with Customers (“Topic 606”). The amount of revenue that is recorded reflects the consideration that we expect to receive in exchange for those goods or services. We apply the following five-step model in order to determine this amount: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation.
We apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. For a complete discussion of accounting for Revenues from services, Revenues from products and Revenue from transfer of intellectual property 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.
Concentration of credit risk and allowance for doubtful accounts
While we have receivables due from federal and state governmental agencies, we do not believe that such receivables representare not a credit risk since the related healthcare programs are funded bybecause federal and state governments and paymentfund the related healthcare programs. Payment is primarily dependent upon submitting appropriate documentation. At SeptemberOn June 30, 20172023 and December 31, 2016,2022, receivable balances (net of contractual adjustments)explicit and implicit price concessions) from Medicare and Medicaid were 22.0%7% and 22.9%14%, respectively, of our consolidated Accounts receivable, net.
The portion of our accounts receivable due from individual patients comprises the largest portion of credit risk. At SeptemberJune 30, 20172023 and December 31, 2016,2022, receivables due from patients representrepresented approximately 2.4%1.8% and 4.1%2.9%, 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 accountscredit losses was $57.6$2.0 million and $36.3$4.2 million at Septemberon June 30, 20172023, and
Equity-based compensation
. We measure the cost ofResearch and development expenses.
Research and development expenses include external and internalResearch 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-makerShipping 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 use the local currency as the functional currency. The local currency assets and liabilities are generally translated at the rate of exchange to the U.S. dollar on the balance sheet date. The local currency revenues and expenses are translated at average rates of exchange to the U.S. dollar during the reporting periods. Foreign currency transaction gains (losses) have been reflected as a component of Other income (expense), net within the Condensed Consolidated Statement of Operations and foreign currency translation gains (losses) have been included as a component of the Condensed Consolidated Statement of Comprehensive Income (Loss). During the three and six months ended June 30, 2023, we recorded $0.9 million and $2.0 million, respectively, of transaction gains. During the three and six months ended June 30, 2022, we recorded $0.8 million and $1.8 million, respectively, of transaction losses.
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 NoteInvestments
. We have made strategic investments in development stage and emerging companies. We record these investments as equity method investments orRecently adopted accounting pronouncements
.In May 2014, August 2020, the FASB issued Accounting Standards Update (“ASU”ASU No.2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) No. 2014-09, “Revenue from and Derivatives and Hedging—Contracts with Customers.in Entity's Own Equity (Subtopic 815-40).” 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 and2020-06 simplifies the preparation of financial statementsaccounting for convertible instruments by reducing the number of requirements to which an entity must refer.accounting models for convertible debt instruments and convertible preferred stock. The 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.
Under the modified approach, entities will apply the guidance to all financial instruments that are outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. ASU 2020-06 eliminates the cash conversion and beneficial conversion feature models in ASC 470-20 that require an issuer of certain convertible debt and preferred stock to separately account for embedded conversion features as a component of equity. The adoption of ASU 2015-112020-06 at January 1, 2022 resulted in the first quarter of 2017 did not have a significant impact on our Condensed Consolidated Financial Statements.
NOTE 34 EARNINGS (LOSS) PER SHARE
Basic earningsincome (loss) per share is computed by dividing our net income (loss) by the weighted average number of shares of our Common Stock outstanding during the period. Shares of Common Stock outstanding under the share lending arrangement entered into in conjunction with the 2025 Notes (as defined in Note 7) are excluded from the calculation of basic and diluted earnings per share because the borrower of the shares is required under the share lending arrangement to refund any dividends paid on the shares lent. Refer to Note 7. For diluted earnings per share, the dilutive impact of stock options warrants and for periods in 2016, conversion options of the 2033 Senior Noteswarrants is determined by applying the “treasury stock” method. InThe dilutive impact of the2033 Senior Notes, the 2023 Convertible Notes and the 2025 Notes (each, as defined and discussed in Note 7) has been considered using the “if converted” method. For periods in which their effect would be antidilutive, no effect has beenis given to Common Stock issuable under outstanding options or 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 1,016,09082,817,175 and 1,636,70656,605,791 potential shares of Common Stock have beenwere excluded from the calculation of diluted net loss per share for the three and nine months ended SeptemberJune 30, 2017,2023 and 2022, respectively, because their inclusion would be antidilutive. A total of 82,438,648 and 57,016,847 potential shares of Common Stock were excluded from the calculation of diluted net loss per share for the six months ended June 30, 2023 and 2022, 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 SeptemberJune 30, 2017,2023, no Common Stock options were exercised and Common Stock warrants to purchase549,680 restricted stock units vested, resulting in the issuance of 386,971 shares of our Common Stock were exercised.
During the ninesix months ended SeptemberJune 30, 2017, 1,646,3722023, no options were exercised and 549,680 restricted stock units vested, resulting in the issuance of 386,971 shares of Common StockStock.
During the three months ended June 30, 2022, an aggregate of 789,063 options and Common Stock warrants to purchase shares of our Common Stock were exercised, resulting in the issuance of 1,373,515546,337 shares of Common Stock. Of the 1,646,372 Common Stock789,063 options and Common Stock warrants exercised, 272,857242,726 shares of Common Stock were surrendered in lieu of a cash payment via the net exercise feature of the agreements.
During the threesix months ended SeptemberJune 30, 2016, 660,921 Common Stock2022, an aggregate of 844,813 options and Common Stock warrants to purchase shares of our Common Stock were exercised, resulting in the issuance of 658,357602,087 shares of Common Stock. Of the 660,921 Common Stock844,813 options and Common Stock warrants exercised, 2,564242,726 shares of Common Stock were surrendered in lieu of a cash payment via the net exercise feature of the agreements.such instruments.
NOTE 45 COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
June 30, | December 31, | |||||||
(In thousands) | 2023 | 2022 | ||||||
Accounts receivable, net: | ||||||||
Accounts receivable | $ | 213,021 | $ | 131,474 | ||||
Less: allowance for credit losses | (2,039 | ) | (4,162 | ) | ||||
$ | 210,982 | $ | 127,312 | |||||
Inventories, net: | ||||||||
Consumable supplies | $ | 29,326 | $ | 31,275 | ||||
Finished products | 36,460 | 37,139 | ||||||
Work in-process | 3,667 | 2,449 | ||||||
Raw materials | 7,990 | 6,771 | ||||||
Less: inventory reserve | (3,694 | ) | (3,574 | ) | ||||
$ | 73,749 | $ | 74,060 | |||||
Other current assets and prepaid expenses: | ||||||||
Taxes recoverable | $ | 8,138 | $ | 8,191 | ||||
Prepaid expenses | 10,414 | 7,918 | ||||||
Prepaid insurance | 6,214 | 4,496 | ||||||
Other receivables | 8,973 | 13,105 | ||||||
Other | 7,211 | 6,252 | ||||||
$ | 40,950 | $ | 39,962 | |||||
Intangible assets, net: | ||||||||
Customer relationships | $ | 315,565 | $ | 314,854 | ||||
Technologies | 829,131 | 826,282 | ||||||
Trade names | 49,765 | 49,752 | ||||||
Covenants not to compete | 12,913 | 12,911 | ||||||
Licenses | 6,144 | 5,988 | ||||||
Product registrations | 7,113 | 6,831 | ||||||
Other | 5,937 | 5,861 | ||||||
Less: accumulated amortization | (444,373 | ) | (398,959 | ) | ||||
$ | 782,195 | $ | 823,520 | |||||
Accrued expenses: | ||||||||
Inventory received but not invoiced | $ | 1,964 | $ | 7,830 | ||||
Commitments and contingencies | 3,252 | 4,295 | ||||||
Employee benefits | 36,734 | 33,765 | ||||||
Clinical trials | 11,700 | 4,700 | ||||||
Contingent consideration | 67 | 62 | ||||||
Finance leases short-term | 2,809 | 2,809 | ||||||
Professional fees | 1,943 | 1,820 | ||||||
Other | 40,135 | 42,988 | ||||||
$ | 98,604 | $ | 98,269 | |||||
Other long-term liabilities: | ||||||||
Contingent consideration | $ | 1,072 | $ | 974 | ||||
Mortgages and other debts payable | 8,411 | 9,098 | ||||||
Finance leases long-term | 7,270 | 7,089 | ||||||
Contract liabilities | 140 | 138 | ||||||
Other | 9,948 | 10,072 | ||||||
$ | 26,841 | $ | 27,371 |
(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) | 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 |
Our intangible assets and goodwill acquired relate principally to our completed acquisitions of principally OPKO Renal, OPKO Biologics, EirGen, Pharma Limited (“EirGen”)BioReference and BioReference.ModeX. 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 - 5-20 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.
In thefirst quarter of 2022, we reclassified $590.2 million of IPR&D related to Somatrogon (hGH-CTP) from IPR&D in our Condensed Consolidated Balance Sheet upon the approval of NGENLA (Somatrogon (hGH-CTP)) in Europe and Japan. The assets will be amortized on a straight-line basis over their estimated useful life of approximately 12 years. Other changes in value of the intangible assets and goodwill areduring the six months ended June 30, 2023 and 2022 were primarily due to foreign currency fluctuations between the Chilean Peso, the Euro, and the ShekelChilean Peso against the U.S. dollar.
The following table summarizes the changes in Goodwill by reporting unit during the ninesix months ended SeptemberJune 30, 2017.2023.
2023 | ||||||||||||||||||||
(In thousands) | Gross goodwill at January 1 | Cumulative impairment at January 1 | Acquisitions, dispositions and other | Foreign exchange and other | Balance at June 30 | |||||||||||||||
Pharmaceuticals | ||||||||||||||||||||
CURNA | $ | 4,827 | $ | (4,827 | ) | $ | — | $ | — | $ | — | |||||||||
Rayaldee | 81,786 | — | — | 1,355 | 83,141 | |||||||||||||||
FineTech | 11,698 | (11,698 | ) | — | — | — | ||||||||||||||
ModeX | 80,432 | — | (172 | ) | — | 80,260 | ||||||||||||||
OPKO Biologics | 139,784 | — | — | — | 139,784 | |||||||||||||||
OPKO Chile | 3,767 | — | — | 222 | 3,989 | |||||||||||||||
OPKO Health Europe | 7,057 | — | — | 119 | 7,176 | |||||||||||||||
OPKO Mexico | 100 | (100 | ) | — | — | — | ||||||||||||||
Transition Therapeutics | 3,421 | (3,421 | ) | — | — | — | ||||||||||||||
Diagnostics | ||||||||||||||||||||
BioReference | 283,025 | — | — | — | 283,025 | |||||||||||||||
OPKO Diagnostics | 17,977 | (17,977 | ) | — | — | — | ||||||||||||||
$ | 633,874 | $ | (38,023 | ) | $ | (172 | ) | $ | 1,696 | $ | 597,375 |
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 |
NOTE 56 ACQUISITIONS INVESTMENTS AND LICENSES
ModeX Acquisition
On May 9, 2022, the acquisitionCompany entered into the ModeX Merger Agreement, pursuant to which ModeX became a wholly owned subsidiary of Transition Therapeutics, a clinical stage biotechnology company. Holdersthe Company. The Company paid the entirety of Transition Therapeutics common stock received 6,431,899 sharesthe $300.0 million purchase price pursuant to the issuance of OPKO Common Stock.the Consideration Shares to the former stockholders of ModeX. The transaction wasConsideration Shares were valued at approximately $58.5$219.4 million, based on athe closing price per share of our Common Stock of $9.10$2.44 as reported by NASDAQ on the closing date.Closing Date. Included in the total purchase price of $221.7 million were $2.3 million of fully vested equity awards.
The following table summarizes the final purchase price allocation and the fair value of the net assets acquired and liabilities assumed at the date of acquisition of ModeX 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 |
(in thousands) | ModeX | |||
Cash and cash equivalents | $ | 228 | ||
Other assets | 727 | |||
Property, plant and equipment | 1,046 | |||
IPR&D assets | 195,000 | |||
Goodwill | 80,260 | |||
Accounts payable | (287 | ) | ||
Deferred tax liability | (55,312 | ) | ||
Total purchase price | $ | 221,662 |
Goodwill from the acquisition of Transition TherapeuticsModeX principally relates to intangible assets that do not qualify for separate recognition (for instance, Transition Therapeutics’ModeX's 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 obtainingcompleted and we obtain regulatory approval, theapproval. The IPR&D assets areasset is then accounted for as a finite-lived intangible assetsasset and amortized depending on a straight-line basis over its estimated useful life.
Since the date of acquisition, ModeX has recorded revenue of $50.0 million and accumulated net income of $12.7 million. Net loss in the Condensed Consolidated Statement of Operations for the six months ended June 30, 2023, includes $23.3 million of net income from ModeX.
Investments
The following table reflects the accounting method, carrying value and underlying equity in net assets of our unconsolidated investments as of
(in thousands) | As of June 30, 2023 | As of December 31, 2022 | ||||||||||||||
Investment type | Investment Carrying Value | Underlying Equity in Net Assets | Investment Carrying Value | Underlying Equity in Net Assets | ||||||||||||
Equity method investments | $ | 30 | $ | 2,622 | $ | 103 | $ | 4,120 | ||||||||
Variable interest entity, equity method | 795 | 970 | 800 | 1,370 | ||||||||||||
Equity method investments - FV option | 21,209 | 21,120 | ||||||||||||||
Equity securities | 330 | 648 | ||||||||||||||
Equity securities with no readily determinable fair value | 5,381 | 5,381 | ||||||||||||||
Warrants and options | 38 | 28 | ||||||||||||||
Total carrying value of investments | $ | 27,783 | $ | 28,080 |
(in thousands) | ||||||||
Investment type | Investment Carrying Value | Underlying Equity in Net Assets | ||||||
Equity method investments | $ | 24,101 | $ | 23,910 | ||||
Variable interest entity, equity method | 361 | — | ||||||
Available for sale investments | 3,108 | |||||||
Cost method investment | 2,606 | |||||||
Warrants and options | 2,020 | |||||||
Total carrying value of investments | $ | 32,196 |
Equity method investments
Our equity method investments, other than GeneDx Holdings, as described below, consist of investments in Pharmsynthez (ownership 9%), Cocrystal Pharma, Inc. (“COCP”) (9%), Sevion Therapeutics, Inc. (“Sevion”) (31%(2%), Non-Invasive Monitoring Systems, Inc. (“NIMS”) (1%), Neovasc, (4%), VBI Vaccines Inc. (“VBI”Neovasc”) (15%), InCellDx, Inc. (28%(0.5%), BioCardia, Inc. (“BioCardia”) (5%(1%), and Xenetic Biosciences, Inc. (“Xenetic”) (4%(3%), and LeaderMed Health Group Limited (“LeaderMed”) (47%). Neovasc was acquired by Shockwave Medical, Inc. in April 2023 and each shareholder is entitled to receive $27.25 per share up front with a potential deferred payment in the form of a non-tradeable contingent value right for up to an additional $12.00 per share in cash if certain regulatory milestones are timely achieved. As of June 30, 2023, we have not yet received the merger consideration for Neovasc and still hold the shares. The totalaggregate amount of assets, liabilities, and net losses of these equity method investees as of and for the six months ended June 30, 2023 were $95.2 million, $26.7 million, and $20.0 million, respectively. The aggregate amount of assets, liabilities, and net losses of our equity method investees as of and for the
Equity method investments - Fair value option
On April 29, 2022, the Company sold GeneDx to GeneDx Holdings in accordance with the terms of the GeneDx Merger Agreement, pursuant to which GeneDx Holdings paid to the Company aggregate consideration of $150.0 million in cash (before deduction of transaction expenses and other customary purchase price adjustments), together with the Closing Shares. In January 2023, we purchased 14,285,714 shares of GeneDx Holdings Common Stock for an aggregate of $5.0 million in GeneDx Holdings’ underwritten public offering. Additionally, subject to GeneDx achieving certain revenue targets for the fiscal years ending December 31, 2022 and 2023, we are eligible to receive the Milestone Consideration in cash or stock (at GeneDx Holdings’ discretion) equal to a maximum of 30.9 million shares of GeneDx Holdings’ Common Stock if paid in stock. We received 23.1 million shares of Class A Common Stock as a result of GeneDx satisfactorily achieving targets as of December 31, 2022. In April 2023, GeneDx Holdings announced a 1-for-33 reverse stock split of the GeneDx Holdings Common Stock. The 1-for-33 reverse stock split automatically converts 33 current shares of GeneDx Common Stock into one new share of GeneDx Common Stock. As of June 30, 2023, we held 3,558,602 shares of GeneDx Holdings Common Stock, representing an approximate 13.9% ownership interest in GeneDx Holdings.
Pursuant to the GeneDx Merger Agreement, the Company designated, and GeneDx Holdings nominated for election an individual to serve on the board of directors of GeneDx Holdings, and such nominee was elected by GeneDx Holdings stockholders to serve as a director until GeneDx Holdings 2024 annual meeting of stockholders. As a result, we have determined that the Company or our related parties can exercise significant influence over the investee through our board representation or voting power. However, our influence is $67.4restricted by the GeneDx Holdings Shareholder Agreement, pursuant to which we have agreed to vote our shares of GeneDx Holdings Common Stock in accordance with the recommendation of GeneDx Holdings’s board of directors for so long as we continue to hold at least 5% of the outstanding shares of GeneDx Holdings Common Stock. Other than through our sole board seat, we are unable to influence GeneDx Holdings’s policy-making process. We hold one of seven seats on GeneDx Holdings board of directors, and our designee may continue to serve following the expiration of the lock-up period if the GeneDx Holdings stockholders elect him to continue serving on the board. We elected to account for our investment in GeneDx Holdings under the equity method fair value option and record gains and losses from changes in fair value in other income (expense), net in our Condensed Consolidated Statements of Operations. For the three and six months ended June 30, 2023, we recognized $19.9 million and $11.6 million of expense related to the change in fair value of our GeneDx Holdings investment. As of June 30, 2023, the aggregate value of our GeneDx Holdings investment based on the quoted market price of their respective shares of common stock and the number of shares held by us was $21.2 million.
Investments in Equity Securities
Our available for sale investmentsequity securities consist of investments in RXi Pharmaceuticals Corporation (“RXi”) (ownership 2%VBI Vaccines Inc. (1%), ChromaDex Corporation (“ChromaDex”) (0.10%), Eloxx Pharmaceuticals, Inc. (“Eloxx”) (1%), MabVaxCAMP4 Therapeutics Holdings,Corporation (“CAMP4”) (2%) and HealthSnap, Inc. (“MabVax”) (4%), and ARNO Therapeutics, Inc. (“ARNO”) (5%(7%). 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 salethese 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.
For the six months ended June 30, | ||||||||
(in thousands) | 2023 | 2022 | ||||||
Equity Securities: | ||||||||
Net gains and losses recognized during the period on equity securities | $ | (318 | ) | $ | (2,718 | ) | ||
Unrealized net losses recognized during the period on equity securities still held at the reporting date | $ | (318 | ) | $ | (2,718 | ) |
Sales of investments
Gains (losses) included in earnings from sales of our investments are recorded in Other income (expense), net in our Condensed Consolidated StatementsStatement of Operations. We did not have any such activity in the nine months ended September 30, 2017 and 2016. 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 million47 thousand additional shares of BioCardia, noneall of which arewere vested as of SeptemberJune 30, 2017,2023 and 1.0 million, 0.3 million, 0.2 million,December 31, 2022, and 33 thousand and 0.7 million 0.5 million and 0.2 million of warrants to purchase additional shares of COCP Sevion, MabVax,and InCellDx Inc., Xenetic and RXi, 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 StatementsStatement 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 89 and Note 9.
Investments in variable interest entities
We have determined that we hold variable interests in LeaderMed and Zebra Biologics, Inc. (“Zebra”). We made this determination as a result of our assessment that Zebra does they do not have sufficient resources to carry out itstheir principal activities without additional financial support.
In September 2021, we and LeaderMed, a pharmaceutical development company with operations based in Asia, formed a joint venture to develop, manufacture and commercialize two of OPKO’s clinical stage, long-acting drug products in Greater China and eight other Asian territories. Under the terms of the agreements, we granted the joint venture exclusive rights to develop, manufacture and commercialize (a) OPK88003, an oxyntomodulin analog being developed for the treatment of obesity and diabetes, and (b) Factor VIIa-CTP, a novel long acting coagulation factor being developed to treat hemophilia, in exchange for 4,703 shares 47% ownership interest in the joint venture. In addition, we received an upfront payment of $1.0 million and will be reimbursed for clinical trial material and technical support we provide the joint venture.
In order to determine the primary beneficiary of the joint venture, we evaluated our investment and our related parties’ investment, as well as our investment combined with the related parties’ investment to identify if we had the power to direct the activities that most significantly impact the economic performance of the joint venture. Based on the capital structure, governing documents and overall business operations of the joint venture, we determined that, while a VIE, we do not have the power to direct the activities that most significantly impact the joint venture’s economic performance and do not have an obligation to fund expected losses. We did determine that we can significantly influence control of the joint venture through our board representation and voting power. Therefore, we have the ability to exercise significant influence over the joint venture’s operations and account for our investment in the joint venture under the equity method.
We own 1,260,000 shares of ZebraZebra’s Series A-2A-2 Preferred Stock and 900,000 shares of Zebra restricted common stock (ownership 29% at SeptemberJune 30, 2017)2023 and December 31, 2022). 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 former member of our Board of Directors, iswas a founder of Zebra and, along withZebra. 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’sparties’ 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
NOTE 7 DEBT
As of June 30, 2023 and December 31, 2022, our debt consisted of the following:
June 30, | December 31, | |||||||
(In thousands) | 2023 | 2022 | ||||||
2025 Notes | $ | 142,660 | $ | 142,096 | ||||
2023 Convertible Notes | 69,639 | 68,275 | ||||||
2033 Senior Notes | — | 3,050 | ||||||
JP Morgan Chase | 13,329 | 18,080 | ||||||
Chilean and Spanish lines of credit | 12,743 | 13,740 | ||||||
Current portion of notes payable | 2,657 | 1,720 | ||||||
Long term portion of notes payable | 8,501 | 9,290 | ||||||
Total | $ | 249,529 | $ | 256,251 | ||||
Balance sheet captions | ||||||||
Current portion of convertible notes | $ | — | $ | 3,050 | ||||
Long term portion of convertible notes | 212,299 | 210,371 | ||||||
Current portion of lines of credit and notes payable | 28,729 | 33,540 | ||||||
Long Term notes payable included in long-term liabilities | 8,501 | 9,290 | ||||||
Total | $ | 249,529 | $ | 256,251 |
In March 2016, February 2019, we entered into an agreement with Relative Core pursuant to which we delivered $5.0issued $200.0 million cash to Relative Core in exchange for a $5.0 million promissory note (“Relative Note”) which bears interest at 10% and isaggregate principal amount of Convertible Senior Notes due in 2018. The Relative Note is secured by 122,446 shares of common stock of Xenetic and 494,462 shares of OPKO common stock. We recorded the Relative Note within Other current assets and prepaid expenses in our Condensed Consolidated Balance Sheets.
Holders may convert their 2025 Notes into shares of Common Stock at their option at any time prior to the close of business on the business day immediately preceding November 15,2024 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ended March 31,2019 (and only during such calendar quarter), if the last reported sale price of our Common Stock for at least 20 trading days (whether or not consecutive) during a fundamental change as defined inperiod of 30 consecutive trading days ending on the Indenture, dated aslast trading day of January 30, 2013, by and between the Company and Wells Fargo Bank N.A., as trustee, governing the 2033 Senior Notes (the “Indenture”), subject to certain exceptions, the holders may require us to repurchase allimmediately preceding calendar quarter is greater than or any portion of their 2033 Senior Notes for cash at a repurchase price equal to 100%130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the 2033 Seniormeasurement period was less than 98% of the product of the last reported sale price of our Common Stock and the conversion rate on each such trading day; (3) if we call any or all of the 2025 Notes being repurchased, plus any accrued and unpaid interest to but not including the related fundamental change repurchase date.
(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 initial and current conversion rate for the 2033 Senior2025 Notes will be 141.48is 236.7424 shares of Common Stock per $1,000$1,000 principal amount of 2033 Senior2025 Notes (equivalent to an initiala conversion price of approximately $7.07$4.22 per share of Common Stock), and will be. The conversion rate for the 2025 Notes is subject to adjustment upon the occurrence ofin certain events.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 will,deliver a notice of redemption, in certain circumstances the indenture governing the 2025 Notes requires an increase in the conversion rate of the 2025 Notes for holdersa holder who elects to convert their 2033 Senior Notesits notes in connection with such a make-whole fundamental change (as defined incorporate event or notice of redemption, as the Indenture) and holders who convert upon the occurrencecase may be.
We may redeem for cash any or all of the 2033 Senior2025 Notes, may require usat our option, 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 notice of redemption at a redemption price equal to repurchase the 2033 Senior Notes for 100% of theirthe principal amount of the notes to be redeemed, plus accrued and unpaid interest on February 1, 2019, February 1, 2023 and February 1, 2028, or followingto, but excluding, the occurrence ofredemption date. No sinking fund is provided for the 2025 Notes.
If we undergo a fundamental change, as defined in the indenture governing the 2033 Senior Notes.
In May 2021, we entered into exchange agreements with certain holders of the 2025 Notes, at a redemption price of 100% ofpursuant to which the holders exchanged $55.4 million in aggregate principal amount of the 2033 Senioroutstanding 2025 Notes for 19,051,270 shares of our Common Stock (the “Exchange”).
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. Following consummation of the Exchange, the number of outstanding borrowed shares of Common Stock was reduced by approximately 8,105,175 shares. As of both June 30, 2023 and December 31, 2022, a total of 21,144,825 shares remained outstanding 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 4.
The following table sets forth information related to the 2025 Notes which is included in our Condensed Consolidated Balance Sheet as of June 30, 2023:
(In thousands) | 2025 Senior Notes | Debt Issuance Cost | Total | |||||||||
Balance at December 31, 2022 | $ | 144,580 | $ | (2,484 | ) | $ | 142,096 | |||||
Amortization of debt discount and debt issuance costs | — | 564 | 564 | |||||||||
Balance at June 30, 2023 | $ | 144,580 | $ | (1,920 | ) | $ | 142,660 |
In August 2020, the FASB issued ASU No.2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40).” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. The ASU is effective for public entities for fiscal years beginning after December 15,2021, with early adoption permitted. As required, we adopted ASU 2020-06 on January 1, 2022 and used the modified retrospective approach for all convertible debt instruments at the beginning of the period of adoptions. Results for reporting periods beginning January 1, 2022 are presented under ASU 2020-06, while prior period amounts were not adjusted and continue to be redeemed, plusreported in accordance with historic accounting guidance.
Under the modified approach, entities will apply the guidance to all financial instruments that are outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. ASU 2020-06 eliminates the cash conversion and beneficial conversion feature models in ASC 470-20 that require an issuer of certain convertible debt and preferred stock to separately account for embedded conversion features as a component of equity. The adoption of ASU 2020-06 at January 1, 2022 resulted in an increase of the Convertible notes of $21.6 million, a reduction of the Accumulated deficit of $17.5 million and a reduction of Additional paid-in capital of $39.1 million.
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 original maturity of the 2023 Convertible Notes was five years following the date of issuance and each holder of a 2023 Convertible Note originally had 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 up to but not including the redemption date.
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.
In January 2013, we issued an aggregate of $175.0 million of our 3.0% Senior Notes due 2033 (the “2033 Senior Notes”) in a private placement. The 2033 Senior Notes bore interest at the rate of 3.0% per year, payable semiannually on February 1 and August 1 of each year and matured on February 1,2033, unless earlier repurchased, redeemed or converted.
From 2013 to 2016, 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
During the first quarter of such notes. This conversion right was triggered because2023, we paid approximately $3.0 million to purchase 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 remaining 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.
In 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. As amended, 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
On June 29, 2023, the credit facility to up to $275.0 million oncompany entered into a secured basis, subjectWaiver and Amendment No.2 to the satisfaction of specified conditions.Credit Agreement (the "Credit Agreement Amendment"). The Credit Agreement maturesAmendment, among other things, (i) waived specific defaults under the Credit Agreement resulting from the failure to pledge certain intellectual property, (ii) replaced the London interbank offered rate (LIBOR) with the forward-looking term rate based on November 5, 2020the secured overnight financing rate (the "SOFR Rate") as the interest rate benchmark, (iii) reduced the aggregate revolving commitment from $75,000,000 to $50,000,000, (iv) provided a revised commitment fee rate, and (v) extended the maturity date from August 2024 to the earlier of August 2025, and 90 days prior to the maturity date of any indebtedness of the Company in an aggregate principal amount exceeding $7,500,000.
The Credit Agreement is guaranteed by all of BioReference’s domestic subsidiaries. The Credit Agreementsubsidiaries and 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 comprisedcomposed of eligible accounts receivables of BioReference and certain of its subsidiaries, as specified therein. As of June 30, 2023, $13.3 million remained available for borrowing under the Credit Agreement. Principal under the Credit Agreement is due upon maturity on November 5, 2020.
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)(x) the prime rate and (b)(y) the LIBOR rate (adjusted for statutory reserve requirements for Eurocurrency liabilities)SOFR Rate for an interest period of one month plus 2.50% and a benchmark spread adjustment of 0.10%) plus an applicable margin of 0.35% for the first 12 months and 0.50% thereafter1.00%; or (ii) the LIBOR rate (adjusted for statutory reserve requirements for Eurocurrency liabilities)SOFR Rate plus a benchmark spread adjustment of 0.10% and an applicable margin of 1.35% for the first 12 months and 1.50% thereafter.2.00%. 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%0.400% if the average quarterly availability is 50% or more of the lendingrevolving commitment, or 0.275% if the average quarterly availability is less than or equal to 50% of the revolving commitments.
As of June 30, 2023 and certain of its subsidiaries entered into Amendment No. 3 to Credit Agreement, which amendedDecember 31, 2022, $13.3 million and $18.1 million, respectively, was outstanding under the Credit Agreement to permit BioReference and its subsidiaries to dividend cash to the Company 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 to permit BioReference and its subsidiaries to dividend cash to the Company in the form of an additional intercompany loan, in an aggregate amount not to exceed $35,000,000. The other terms of the Credit Agreement remain unchanged.
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, 2023, BioReference and its subsidiaries had net assets as of September 30, 2017 were approximately $1.0 billion,$525.7 million, which includesincluded goodwill of $401.8$283.0 million and intangible assets of $457.0$177.9 million.
In addition to the Credit Agreement, with CB, we havehad line of credit agreements with eleventhirteen other financial institutions as of SeptemberJune 30, 20172023, and ten other financial institutions as of December 31, 20162022, in United States,the U.S., Chile and Spain. These lines of credit are used primarily as a sourcesources 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 | |||||||||||||
Lender | Interest rate on borrowings at September 30, 2017 | Credit line capacity | September 30, 2017 | December 31, 2016 | ||||||||||
JPMorgan Chase | 3.36% | $ | 175,000 | $ | 93,311 | $ | 38,809 | |||||||
Itau Bank | 5.50% | 1,810 | 374 | 419 | ||||||||||
Bank of Chile | 6.60% | 3,800 | 2,687 | 1,619 | ||||||||||
BICE Bank | 5.50% | 2,500 | 1,720 | 1,538 | ||||||||||
BBVA Bank | 5.50% | 3,250 | 2,164 | 1,063 | ||||||||||
Estado Bank | 5.50% | 3,500 | 2,559 | 1,870 | ||||||||||
Santander Bank | 5.50% | 4,500 | 2,133 | 1,196 | ||||||||||
Scotiabank | 5.00% | 1,800 | 986 | 789 | ||||||||||
Corpbanca | 5.00% | — | — | 18 | ||||||||||
Banco Bilbao Vizcaya | 2.90% | 295 | — | — | ||||||||||
Santander Bank | 2.67% | 354 | — | — | ||||||||||
Total | $ | 196,809 | $ | 105,934 | $ | 47,321 |
(Dollars in thousands) | Balance Outstanding | |||||||||||||||
Interest rate on borrowings at | Credit line | June 30, | December 31, | |||||||||||||
Lender | June 30, 2023 | capacity | 2023 | 2022 | ||||||||||||
JPMorgan Chase | 11.85 | % | $ | 50,000 | $ | 13,329 | $ | 18,080 | ||||||||
Itau Bank | 5.50 | % | 1,900 | 1,566 | 2,378 | |||||||||||
Bank of Chile | 6.60 | % | 2,500 | 1,842 | 817 | |||||||||||
BICE Bank | 5.50 | % | 2,640 | 2,640 | 1,661 | |||||||||||
Scotiabank | 5.00 | % | 5,500 | 1,094 | 1,646 | |||||||||||
Santander Bank | 5.50 | % | 5,000 | 1,682 | 1,238 | |||||||||||
Security Bank | 5.50 | % | 1,400 | 571 | 755 | |||||||||||
Estado Bank | 5.50 | % | 4,000 | 550 | 1,621 | |||||||||||
BCI Bank | 5.00 | % | 2,500 | 839 | 2,100 | |||||||||||
Internacional Bank | 5.50 | % | 1,500 | 1,292 | 599 | |||||||||||
Consoorcio Bank | 5.00 | % | 2,000 | 667 | 925 | |||||||||||
Banco De Sabadell | 1.75 | % | 544 | — | — | |||||||||||
Santander Bank | 1.95 | % | 544 | — | — | |||||||||||
Total | $ | 80,028 | $ | 26,072 | $ | 31,820 |
At SeptemberJune 30, 20172023 and December 31, 2016,2022, the weighted average interest rate on our lines of credit was approximately 4.5%8.8% and 4.7%5.4%, respectively.
At SeptemberJune 30, 20172023 and December 31, 2016,2022, 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) | 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 |
June 30, | December 31, | |||||||
(In thousands) | 2023 | 2022 | ||||||
Current portion of notes payable | $ | 2,657 | $ | 1,720 | ||||
Other long-term liabilities | 8,501 | 9,290 | ||||||
Total | $ | 11,158 | $ | 11,010 |
The notes and other debt mature at various dates ranging from
NOTE 78 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
For the
Foreign | ||||
currency | ||||
(In thousands) | translation | |||
Balance at December 31, 2022 | $ | (43,323 | ) | |
Other comprehensive income | 6,381 | |||
Balance at June 30, 2023 | $ | (36,942 | ) |
(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 | ) |
NOTE 89 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-tierthree-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.
As of our investments classified as available for saleJune 30, 2023, we had equity securities and carried atan equity method 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 |
Our financial assets and liabilities measured at fair value on a recurring basis are as follows:
Fair value measurements as of June 30, 2023 | ||||||||||||||||
Quoted | ||||||||||||||||
prices in | ||||||||||||||||
active | Significant | |||||||||||||||
markets for | other | Significant | ||||||||||||||
identical | observable | unobservable | ||||||||||||||
assets | inputs | inputs | ||||||||||||||
(In thousands) | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 57,355 | $ | — | $ | — | $ | 57,355 | ||||||||
Equity securities | 330 | — | — | 330 | ||||||||||||
Equity Method - FV option | 21,209 | — | — | 21,209 | ||||||||||||
Common stock options/warrants | — | 38 | — | 38 | ||||||||||||
Total assets | $ | 78,894 | $ | 38 | $ | — | $ | 78,932 | ||||||||
Liabilities: | ||||||||||||||||
Forward contracts | — | 134 | — | 134 | ||||||||||||
Contingent consideration | — | — | 1,139 | 1,139 | ||||||||||||
Total liabilities | $ | — | $ | 134 | $ | 1,139 | $ | 1,273 |
Fair value measurements as of September 30, 2017 | |||||||||||||||
(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 | $ | 12,621 | $ | — | $ | — | $ | 12,621 | |||||||
Common stock investments, available for sale | 3,108 | — | — | 3,108 | |||||||||||
Common stock options/warrants | — | 2,020 | — | 2,020 | |||||||||||
Total assets | $ | 15,729 | $ | 2,020 | $ | — | $ | 17,749 | |||||||
Liabilities: | |||||||||||||||
Forward contracts | — | 264 | — | 264 | |||||||||||
Contingent consideration | — | — | 40,301 | 40,301 | |||||||||||
Total liabilities | $ | — | $ | 264 | $ | 40,301 | $ | 40,565 |
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 |
Fair value measurements as of December 31, 2022 | ||||||||||||||||
Quoted | ||||||||||||||||
prices in | ||||||||||||||||
active | Significant | |||||||||||||||
markets for | other | Significant | ||||||||||||||
identical | observable | unobservable | ||||||||||||||
assets | inputs | inputs | ||||||||||||||
(In thousands) | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 102,773 | $ | — | $ | — | $ | 102,773 | ||||||||
Equity securities | 648 | — | — | $ | 648 | |||||||||||
Equity Method - fair value option | 21,120 | — | — | 21,120 | ||||||||||||
Common stock options/warrants | — | 28 | — | 28 | ||||||||||||
Total assets | $ | 124,541 | $ | 28 | $ | — | $ | 124,569 | ||||||||
Liabilities: | ||||||||||||||||
Forward contracts | — | 1,123 | — | 1,123 | ||||||||||||
Contingent consideration | — | — | 1,036 | 1,036 | ||||||||||||
Total liabilities | $ | — | $ | 1,123 | $ | 1,036 | $ | 2,159 |
The carrying amount and estimated fair value of our 2033 Senior2025 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 Senior2025 Notes is determined using a binomial lattice approachinputs other than quoted prices 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 |
June 30, 2023 | ||||||||||||||||||||
Carrying | Total | |||||||||||||||||||
(In thousands) | Value | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
2025 Notes | $ | 142,660 | $ | 138,797 | $ | — | $ | 138,797 | $ | — |
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 SeptemberJune 30, 20172023 and December 31, 2016,2022, 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 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, 2023 | ||||
Contingent | ||||
(In thousands) | consideration | |||
Balance at December 31, 2022 | $ | 1,036 | ||
Change in fair value: | ||||
Included in results of operations | 102 | |||
Foreign currency impact | 1 | |||
Balance at June 30, 2023 | $ | 1,139 |
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,NOTE 910 DERIVATIVE CONTRACTS
The following table summarizes the fair values and the presentation of our derivative financial instruments in the Condensed Consolidated Balance Sheets:
(In thousands) | Balance Sheet Component | September 30, 2017 | December 31, 2016 | ||||||
Derivative financial instruments: | |||||||||
Common Stock options/warrants | Investments, net | $ | 2,020 | $ | 4,017 | ||||
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 |
Balance Sheet | June 30, | December 31, | |||||||
(In thousands) | Component | 2023 | 2022 | ||||||
Derivative financial instruments: | |||||||||
Common Stock options/warrants | Investments, net | $ | 38 | $ | 28 | ||||
Forward contracts | Unrealized losses on forward contracts are recorded in Accrued expenses. | $ | (134 | ) | $ | (1,123 | ) |
We enter into foreign currency forward exchange contracts with respect to cover the risk 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
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(In thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Derivative loss: | ||||||||||||||||
Common Stock options/warrants | $ | 12 | $ | (4 | ) | $ | 10 | $ | (5 | ) | ||||||
Forward contracts | 130 | 342 | (927 | ) | 211 | |||||||||||
Total | $ | 142 | $ | 338 | $ | (917 | ) | $ | 206 |
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 | ) |
NOTE 1011 RELATED PARTY TRANSACTIONS
On May 4, 2023, the Company entered into an Assignment and Assumption Agreement (the "Assignment Agreement") with Ruen-Hui Biopharmaceuticals, Inc., a Taiwanese entity ("Ruen-Hui") in which Dr. Hsiao owns more than a 10% interest. Ruen-Hui assumed the Company's obligations under an exclusive license agreement with Academia Sinica in exchange for an upfront payment of $150,000, a number of potential milestone payments up to $1 million, commercial milestones ranging from low to double digit millions, and royalty payments. The Assignment Agreement will be effective upon Academia Sinica's consent to the assignment. Ruen Hui will also be responsible for any outstanding payment obligations under such license agreement, including patent maintenance costs, and any payments due to Academia Sinica.
On April 29, 2022, upon consummation of the GeneDx Transaction, the Company entered into a Transition Services Agreement (the “Transition Services Agreement”) with GeneDx (now a wholly owned subsidiary of GeneDx Holdings), pursuant to which the Company agreed to provide, at cost, certain customary support services in respect of GeneDx’s business through August 31, 2023, including human resources, information technology support, and finance and accounting. As of June 30, 2023, the Company had incurred aggregate expenses of $2.1 million for services rendered under the Transition Services Agreement. For the six months ended June 30, 2023, the company incurred expenses of $0.8 million for services rendered under the Transaction Services Agreement. As of June 30, 2023, the company has a receivable of $0.5 million payable to the Company by GeneDx in accordance with the terms of the Transition Services Agreement.
The Company owns approximately 9% of Pharmsynthez and Pharmsynthez is Xenetic’s largest and controlling stockholder. Dr. Richard Lerner, a director of the Company until his death on December 2, 2021, was 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.
We hold investments in Zebra (ownership 29%), Sevion (31%), Neovasc (4%(0.5%), ChromaDex Corporation (1%), MabVax (4%(0.10%), COCP (9%) ARNO (5%(2%), NIMS (1%), Eloxx (1%), BioCardia (5%(1%) and Eloxx (3%LeaderMed Health Group Limited (47%). Neovasc was recently acquired and we expect to receive merger consideration in exchange for our shares. These investments were considered related party transactions as a result of our executive management’s ownership interests and/or board representation in these entities. We also hold an investment in GeneDx Holdings (Nasdaq: WGS) representing an 13.9% ownership interest as a result of our sale of GeneDx, Inc. and subsequent participation in an underwritten offering by GeneDx Holdings. Richard Pfenniger who sits on our Board also sits on the GeneDx Board as a result of the acquisition. See further discussion of our investments in Note 5.
We lease office space from Frost Real Estate Holdings, LLC (“Frost Holdings”) in Miami, Florida, where our principal executive offices are located. Effective JanuaryAugust 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 thirdfifth year, plus applicable sales tax. The rent is inclusive of operating expenses, property taxes and parking.
Dr. Elias Zerhouni, our Vice Chairman and President, sits on the board of directors of Danaher Corporation (“Danaher”). Our wholly-owned subsidiary, BioReference, routinely procures products and services from several subsidiaries of Danaher, including Beckman Coulter, Integrated DNA Technologies Inc., and Leica Microsystems Inc., to which BioReference has paid $1.7 million, $0.8 million, and $0.2 million, respectively, during the six months ended June 30, 2023 .
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 ninesix months ended SeptemberJune 30, 2017,2023, we recognizedreimbursed approximately $168$0.0 thousand and $309$29.3 thousand, respectively, for Company-related travel by Dr. Frost and other OPKO executives. For the three and ninesix months ended SeptemberJune 30, 2016,2022, we recognizedreimbursed approximately $154$0.0 thousand and $274$30.0 thousand, respectively, for Company-related travel by Dr. Frost and other OPKO executives.
NOTE 1112 COMMITMENTS AND CONTINGENCIES
In February 2023, the Office of the Attorney General for the State of Texas (“TX OAG”) informed BioReference that it believes that, from 2005 to the present, BioReference may have violated the Texas Medicaid Fraud Prevention Act with respect to claims it presented to Texas Medicaid for reimbursement. BioReference has not determined whether there is any merit to the TX OAG claims nor can it determine the extent of any potential liability. While management cannot predict the outcome of these matters at this time, the ultimate outcome could materially and adversely affect our business, financial condition, results of operations, and cash flows.
On December 29, 2022, the Israel Tax Authority (the “ITA”) issued an assessment against our subsidiary, OPKO Biologics in the amount of approximately $246 million (including interest) related to uncertain tax positions involving income recognition in connection with an examination of foreign tax returns for the 2014 through 2020 tax years. We recognize that local tax law is inherently complex and the local taxing authorities may not agree with certain tax positions taken. We are appealing this assessment, as we believe, other than for uncertain tax positions for which we have reserved, the issues are without technical merit. We intend to exhaust all judicial remedies necessary to resolve the matter, as necessary, which could be a lengthy process. There can be no assurance that this matter will be resolved in our favor, and an adverse outcome, or any future tax examinations involving similar assertions, could have a material adverse effect on our financial condition, results of operations and cash flows.
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,Therefore, as of SeptemberJune 30, 2017,2023, we recorded $40.3$1.1 million as contingent consideration, with $2.0$0.1 million recorded withinin Accrued expenses and $38.3$1.1 million recorded within Other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets. Refer to Note 4.
GeneDx, Inc., the Company’s former subsidiary, received a Commitment Letter (the “Commitment Letter”letter dated May 26, 2022 from the Texas Medicaid Office of the Inspector General stating that certain testing provided by GeneDx was not eligible for reimbursement by the Texas Medicaid program, because the testing was considered non-covered by the Texas Medicaid program at the time the tests were performed and/or GeneDx did not hold the requisite CLIA subspecialty classifications for the testing. The Company is working with GeneDx Holdings to investigate these issues. Following recent communication, it appears the CLIA subspecialty classification issue has been addressed to the satisfaction of the Texas Medicaid Office of the Inspector General. The potential non-covered testing issue, however, remains under investigation. The Texas Medicaid Office has expressed in writing a potential repayment liability of approximately $784 thousand. At this time, the Company can express no opinion as to the likelihood of an unfavorable outcome or the range of potential loss in this matter.
On March 1, 2019, the Company received a Civil Investigative Demand (“CID”) with Veterans Accountable Care Group, LLCfrom the U.S. Department of Justice (“VACG”DOJ”), Washington, DC. The CID sets forth document requests and interrogatories in connection with submissionallegations that the Company and certain of a bidits affiliates violated the False Claims Act and/or the Anti-Kickback Statute. On January 13, 2022, the Federal Government notified the U.S.D.C., Middle District Florida, Jacksonville Division, that it is declining to intervene in the matter but retains the right, via the Attorney General, to consent to any proposed dismissal of the action by its affiliate, the Veterans Accountable Care Organization, LLCCourt. On February 9, 2022, the States of Florida, Georgia, and Commonwealth of Massachusetts notified the U.S.D.C., Middle District Florida, Jacksonville Division, that they are declining to intervene in the matter. Notwithstanding the above declinations, on February 17, 2022, the Company was served with the Relator’s Summons and Complaint (“VACO”Complaint”), which had been previously sealed. The Complaint alleges violations of the False Claims Act, the California Fraud Preventions Act, the Florida False Claims Act, the Massachusetts False Claims Act, the Georgia False Medicaid Claims Act, and illegal kickbacks. A motion to dismiss the Complaint was filed on April 25, 2022 and the case was dismissed in responseMarch 2023. However, the Relator filed an amended complaint in April 2023. While management cannot predict the outcome of these matters at this time, the ultimate outcome could be material to a request for proposal (“RFP”)our business, financial condition, results of operations, and cash flows.
From time to time, we may receive inquiries, document requests, CIDs or subpoenas from the Veterans Health Administration (“VA”)Department of Justice, OCR, CMS, various payors and fiscal intermediaries, and other state and federal regulators regarding its Community Care Network. If VACO is successful in its bid, we will acquire a fifteen percent (15%) membership interest in VACO.investigations, audits and reviews. In addition BioReference,to the matters discussed in this note, we are currently responding to CIDs, subpoenas, payor audits, and document requests for various matters relating to our wholly-owned subsidiary, will provide laboratory servicesoperations. 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 Community Care Network,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 region which currently includes approximately 2,133,000 veteransparty to other litigation in the statesordinary course of Massachusetts, Maine, New Hampshire, Vermont, New York, Pennsylvania, New Jersey, Rhode Island, Connecticut, Maryland, Virginia, West Virginia, and North Carolina.
At 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.
NOTE 13 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. Client payors also include cities, states and companies for which BioReference provides COVID-19 testing services.
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. Negative revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods were recognized of $13.9 million and $21.2 million, respectively, for the six months ended June 30, 2023 and 2022. Revenue adjustments for the six months ended June 30, 2023 were mainly due to the composition of patient pay mix and, in 2022, mainly to lower reimbursement estimates for COVID-19 testing.
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 payor 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, 2023 and December 31, 2022, we had liabilities of approximately $2.9 million and $1.8 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 three and six months ended June 30, 2023 and 2022 was as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(In thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Healthcare insurers | $ | 76,954 | $ | 76,442 | $ | 157,365 | $ | 172,269 | ||||||||
Government payers | 20,923 | 25,659 | 41,267 | 53,263 | ||||||||||||
Client payers | 24,899 | 80,931 | 52,443 | 240,021 | ||||||||||||
Patients | 4,276 | 3,772 | 8,345 | 7,849 | ||||||||||||
Total | $ | 127,052 | $ | 186,804 | $ | 259,420 | $ | 473,402 |
Revenue from products
We recognize revenue from product sales when a customer obtains control of promised goods or services. The amount of revenue 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 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, 2023, we recognized $7.7 million and $14.4 million, respectively, in net product revenue from sales of Rayaldee. For the three and six months ended June 30, 2022, we recognized $6.2 million and $11.4 million, respectively, in net product revenue from sales of Rayaldee.
The following table presents an analysis of Rayaldee product sales allowances and accruals for the three and six months ended June 30, 2023 and 2022:
(In thousands) | Chargebacks, discounts, rebates and fees | Governmental | Returns | Total | ||||||||||||
Balance at March 31, 2023 | $ | 1,574 | $ | 5,140 | $ | 1,676 | $ | 8,390 | ||||||||
Provision related to current period sales | 3,950 | 5,561 | 351 | 9,862 | ||||||||||||
Credits or payments made | (3,194 | ) | (4,747 | ) | (393 | ) | (8,334 | ) | ||||||||
Balance at June 30, 2023 | $ | 2,330 | $ | 5,954 | $ | 1,634 | $ | 9,918 | ||||||||
Total gross Rayaldee sales | $ | 17,568 | ||||||||||||||
Provision for Rayaldee sales allowances and accruals as a percentage of gross Rayaldee sales | 56 | % |
(In thousands) | Chargebacks, discounts, rebates and fees | Governmental | Returns | Total | ||||||||||||
Balance at December 31, 2022 | $ | 1,532 | $ | 5,063 | $ | 1,683 | $ | 8,278 | ||||||||
Provision related to current period sales | 7,256 | 9,606 | 637 | 17,499 | ||||||||||||
Credits or payments made | (6,458 | ) | (8,715 | ) | (686 | ) | (15,859 | ) | ||||||||
Balance at June 30, 2023 | $ | 2,330 | $ | 5,954 | $ | 1,634 | $ | 9,918 | ||||||||
Total gross Rayaldee sales | $ | 31,850 | ||||||||||||||
Provision for Rayaldee sales allowances and accruals as a percentage of gross Rayaldee sales | 55 | % |
(In thousands) | Chargebacks, discounts, rebates and fees | Governmental | Returns | Total | ||||||||||||
Balance at March 31, 2022 | $ | 1,588 | $ | 5,282 | $ | 2,333 | $ | 9,203 | ||||||||
Provision related to current period sales | 3,411 | 5,442 | 308 | 9,161 | ||||||||||||
Credits or payments made | (3,330 | ) | (4,235 | ) | (1,023 | ) | (8,588 | ) | ||||||||
Balance at June 30, 2022 | $ | 1,669 | $ | 6,489 | $ | 1,618 | $ | 9,776 | ||||||||
Total gross Rayaldee sales | $ | 15,382 | ||||||||||||||
Provision for Rayaldee sales allowances and accruals as a percentage of gross Rayaldee sales | 60 | % |
(In thousands) | Chargebacks, discounts, rebates and fees | Governmental | Returns | Total | ||||||||||||
Balance at December 31, 2021 | $ | 2,014 | $ | 5,499 | $ | 2,639 | $ | 10,152 | ||||||||
Provision related to current period sales | 6,626 | 10,311 | 577 | 17,514 | ||||||||||||
Credits or payments made | (6,971 | ) | (9,321 | ) | (1,598 | ) | (17,890 | ) | ||||||||
Balance at June 30, 2022 | $ | 1,669 | $ | 6,489 | $ | 1,618 | $ | 9,776 | ||||||||
Total gross Rayaldee sales | $ | 28,861 | ||||||||||||||
Provision for Rayaldee sales allowances and accruals as a percentage of gross Rayaldee sales | 61 | % |
Taxes collected from customers related to revenues from services and revenues from products are excluded from revenues.
Revenue from intellectual property and other
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, 2023, we recorded $94.9 million and $159.7 million of revenue from the transfer of intellectual property and other, respectively. For the six months ended June 30, 2023, revenue from transfer of intellectual property and other principally reflects $90.0 million triggered by the FDA approval of NGENLA (Somatrogon) and during the three months ended June 30, 2022, includes $85.0 million of regulatory milestone payments from Pfizer due from the commencement of sales from NGENLA (Somatrogon) in Europe and Japan. For the six months ended June 30, 2023, revenue from transfer of intellectual property and other reflects a $50.0 million payment from Merck in consideration for the rights granted to Merck under the Merck Agreement (as defined below), a $7.0 million payment from Vifor (as defined below) triggered by the German price approval for Rayaldee and a $2.5 million payment from Nicoya due to Nicoya’s submission of the investigational new drug application to China's Center for Drug Evaluation. For the six months ended June 30, 2022, revenue from transfer of intellectual property and other included $3.0 million related to a sales milestone from Vifor.
Contract liabilities relate to cash consideration that OPKO receives in advance of satisfying the related performance obligations. Changes in the contractual liabilities balance during the six months ended June 30, 2023 were as follows:
(In thousands) | ||||
Balance at December 31, 2022 | $ | 138 | ||
Balance at June 30, 2023 | 140 | |||
Revenue recognized in the period from: | ||||
Amounts included in contracts liability at the beginning of the period | (2 | ) |
NOTE 1214 STRATEGIC ALLIANCES
Merck
On March 8, 2023, ModeX, the Company (with respect to certain sections), and Merck Sharp & Dohme LLC (“Merck”) entered into a License and Research Collaboration Agreement (the “Merck Agreement”) pursuant to which ModeX granted to Merck a license to certain patent rights and know-how in connection with the development of ModeX’s preclinical nanoparticle vaccine candidate targeting the Epstein-Barr Virus.
Under the terms of the Merck Agreement, ModeX granted to Merck an exclusive, sublicensable, royalty-bearing license to certain intellectual property to develop, manufacture, use and commercialize (i) a multivalent or monovalent vaccine assembled using our platform for Epstein-Barr Virus (“Vaccine”), and (ii) any pharmaceutical or biological preparation in final form containing a Vaccine for sale or for administration to human patients in a clinical trial for all uses (“Product”). We received an initial payment of $50.0 million and are eligible to receive up to an additional $872.5 million upon the achievement of certain commercial and development milestones under several indications. We are also eligible to receive tiered royalty payments ranging from high single digits to low double digits upon achievement of certain sales targets of the Product. Certain of the rights subject to the license provided by us under the Merck Agreement were obtained by us from Sanofi pursuant to that certain License Agreement entered into as of July 1, 2021 (“Sanofi In-License Agreement”) between us and Sanofi, a French corporation (“Sanofi”), and a portion of the upfront payment, milestones and royalties received by us under the Merck Agreement may be payable to Sanofi under the terms of the Sanofi In-License Agreement. As a result of such obligations under the Sanofi In-License Agreement, we paid $12.5 million to Sanofi during the second quarter of 2023.
As part of their strategic collaboration, ModeX and Merck have put in place a research plan to developmanage research and other development activities related to the development of a portfolioVaccine or Product including a joint steering committee to facilitate the research program. As part of product candidates throughthe research plan, they will use a combination of internalthird-party contract development and external partnerships.manufacturing organization (“CDMO”) to carry out such activities unless otherwise agreed. Development costs incurred by ModeX in furtherance of these development activities will be reimbursed by Merck. To date, we have spent $8.2 million of development costs related to the Epstein -Barr Virus, for which Merck will provide reimbursement.
The Merck Agreement will remain in effect until one or more Products receive marketing authorization, and, thereafter, until the expiration of all royalty obligations unless earlier terminated as permitted under the Merck Agreement. In May 2016, addition to termination rights for material breach and bankruptcy, Merck is permitted to terminate the Agreement in its entirety without cause after a specified notice period. If Merck terminates the Merck Agreement for convenience or by us for Merck’s uncured material breach, we may elect to receive a reversion license such that we can continue its work with Vaccines and Products which have not been terminated due to a material safety issue.
LeaderMed
On September 14, 2021, we and LeaderMed announced the formation of a joint venture to develop, manufacture and commercialize two of OPKO’s clinical stage, long-acting drug products in Greater China and eight other Asian territories.
Under the terms of the agreements, we have granted the joint venture exclusive rights to develop, manufacture and commercialize (a) OPK88003, an oxyntomodulin analog being developed for the treatment of obesity and diabetes, and (b) Factor VIIa-CTP, a novel long-acting coagulation factor being developed to treat hemophilia, in exchange for a 47% ownership interest in the joint venture. In addition, during 2021 we received an upfront payment of $1 million and will be reimbursed for clinical trial material and technical support we provide the joint venture.
LeaderMed is responsible for funding the joint venture’s operations, development and commercialization efforts and, together with its syndicate partners, initially invested $11 million in exchange for a 53% ownership interest. We retain full rights to oxyntomodulin and Factor VIIa-CTP in all other geographies.
CAMP4 Therapeutics
On July 6, 2021, we entered into an exclusive license agreement (the “CAMP4 Agreement”) with CAMP4, pursuant to which we granted to CAMP4 an exclusive license to develop, manufacture, commercialize or improve therapeutics utilizing the AntagoNAT technology, an oligonucleotide platform developed under OPKO CURNA, which includes the molecule for the treatment of Dravet syndrome, together with any derivative or modification thereof (the “Licensed Compound”) and any pharmaceutical product that comprises or contains the Licensed Compound, alone or in combination with one or more other active ingredients (“Licensed Product”), worldwide. The CAMP4 Agreement grant covers human pharmaceutical, prophylactic, and therapeutic and certain diagnostic uses.
We received an initial upfront payment of $1.5 million and 3,373,008 shares of CAMP4’s Series A Prime Preferred Stock (“Preferred Stock”), which equates to approximately 9% of the outstanding shares of CAMP4, and we are eligible to receive up to $3.5 million in development milestone payments for Dravet syndrome products, and $4 million for non-Dravet syndrome products, as well as sales milestones of up to $90 million for Dravet syndrome products and up to $90 million for non-Dravet syndrome products. We may also receive double digit royalty payments on the net sales of royalty bearing products, subject to adjustment. In addition, upon achievement of certain development milestones, we will be eligible to receive equity consideration of up to 5,782,299 shares of Preferred Stock in connection with Dravet syndrome products and up to 1,082,248 shares of Preferred Stock in connection with non-Dravet syndrome products. In connection with our acquisition of CURNA, we agreed to pay future consideration to the sellers upon the achievement of certain events. As a result of our execution of the CAMP4 Agreement, we will have to pay a percentage of any payments received under the CAMP4 Agreement to the former CURNA stockholders.
Unless earlier terminated, the CAMP4 Agreement will remain in effect on a Licensed Product-by-Licensed Product and country by-country basis until such time as the royalty term expires for a Licensed Product in a country, and expires in its entirety upon the expiration of the royalty term for the last Licensed Product in the last country. CAMP4’s royalty obligations expire on the later of (i) the expiration, invalidation or abandonment date of the last patent right in connection with the royalty bearing product, or (ii) ten (10) years after a royalty bearing product’s first commercial sale in a country. In addition to termination rights for material breach and bankruptcy, CAMP4 is permitted to terminate the CAMP4 Agreement after a specified notice period.
NICOYA Macau Limited
On June 18, 2021, EirGen, our wholly-ownedwholly owned subsidiary, and Vifor Fresenius Medical Care Renal Pharma LtdNICOYA Macau Limited (“VFMCRP”Nicoya”), a Macau corporation and an affiliate of NICOYA Therapeutics, entered into a Development and License Agreement (the “VFMCRP“Nicoya Agreement”) granting Nicoya the exclusive rights for the development and commercialization of extended release calcifediol (the “Nicoya Product”) in Greater China, which includes mainland China, Hong Kong, Macau, and Taiwan (collectively, the “Nicoya Territory”). Extended release calcifediol is marketed in the U.S. by OPKO under the tradename Rayaldee. The license grant to Nicoya covers the therapeutic and preventative use of the Nicoya Product for SHPT in non-dialysis and hemodialysis chronic kidney disease patients (the “Nicoya Field”).
EirGen received an initial upfront payment of $5 million and was eligible to receive an additional $5 million tied to the first anniversary of the effective date of the Nicoya Agreement, as amended, of which EirGen has received $2.5 million plus accrued interest for the delayed payment. Furthermore, EirGen received the additional $2.5 million upon Nicoya’s submission of an investigational new drug (IND) application to the Center for Drug Evaluation of China in March 2023. EirGen is also eligible to receive up to an additional aggregate amount of $115 million upon the achievement of certain development, regulatory and sales-based milestones by Nicoya for the Nicoya Product in the Nicoya Territory. EirGen is eligible to receive tiered, double digit royalty payments at rates in the low double digits on net product sales within the Nicoya Territory and in the Nicoya Field.
Nicoya will, at its sole cost and expense, be responsible for performing all development activities necessary to obtain all regulatory approvals for the Nicoya Product in the Nicoya Territory and for all commercial activities pertaining to the Nicoya Product in the Nicoya Territory.
Unless earlier terminated, the Nicoya Agreement will remain in effect until such time as all royalty payment terms and extended payment terms have expired, and Nicoya shall have no further payment obligations to EirGen under the terms of the Nicoya Agreement. Nicoya’s royalty obligations expire on the later of (i) expiration of the last to expire valid patent claim covering the Nicoya Product sold in the Nicoya Territory, (ii) expiration of all regulatory and data exclusivity applicable to the Nicoya Product in the Nicoya Territory, and (iii) on a product-by-product basis, ten (10) years after such Nicoya Product’s first commercial sale in the Nicoya Territory. In addition to termination rights for material breach and bankruptcy, Nicoya is permitted to terminate the Nicoya Agreement after a specified notice period.
CSL Vifor
In May 2016, EirGen and Vifor Fresenius Medical Care Renal Pharma Ltd. (“Vifor”) entered into a Development and License Agreement (the “Vifor Agreement”) for the development and commercialization of
RayaldeeIn January 2023, the termsprice approval for Rayaldee was granted by the German Association of Statutory Health Insurance funds (GKV-SV), which triggered a milestone payment of $7.0 million for the six months ended June 30, 2023. For the six months ended June 30, 2022 we recognized a milestone payment of $3.0 million in revenue from transfer of intellectual property and other for the first sale of Rayaldee in Europe.
Effective May 23, 2021, we entered into an amendment to the Vifor Agreement pursuant to which the parties thereto agreed to include Japan as part of the VFMCRPVifor Territory.
Effective May 5, 2020, we entered into an amendment to the Vifor Agreement EirGen grantedpursuant to VFMCRP an exclusive license inwhich the VFMCRP Territory inparties agreed to exclude Mexico, South Korea, the VFMCRP FieldMiddle East and all of the countries of Africa from the Vifor Territory. In addition, the parties agreed to use certain EirGen patents and technologyamendments to make, have made, use, sell, offer for sale, and import Productsthe milestone structure and to develop, commercialize, have commercialized, and otherwise exploitreduce minimum royalties payable. As revised, the Product. EirGenCompany has received a non-refundable$3 million payment triggered by the first marketing approval of Rayaldee in Europe, $7.0 million payment triggered by the Germany price approval by the local sick fund association, and non-creditable initial payment of $50 million. EirGen is also eligible to receive up to an additional $37$10 million in regulatory milestones (“Regulatory Milestones”) and $195$207 million in milestone payments tied to launch, pricing and sales-based milestones (“Sales Milestones”)sales of Rayaldee, and will receive tiered, royalties on sales of the product at percentage rates that range from the mid-teensdouble-digit royalties.
We plan 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.
In connection with the VFMCRPVifor Agreement, the parties entered into a letter agreement (the “Letter Agreement”) pursuant to which EirGen granted to VFMCRPVifor 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 StatesU.S. solely for the treatment of secondary hyperparathyroidismSHPT in dialysis patients with chronic kidney diseaseCKD and vitamin D insufficiency (the “Dialysis Indication”). Upon exercise of the Option, VFMCRP willVifor has agreed to reimburse EirGen for all of the development costs incurred by EirGen with respect to the Product for the Dialysis Indication in the United States. VFMCRPU.S. Vifor 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 StatesU.S. for the Dialysis Indication.
Payments received for Regulatory Milestonesregulatory milestones and Sales Milestonessales milestones are non-refundable. The Regulatory Milestonesregulatory milestones are payable if and when VFMCRPVifor 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 Milestonessales milestones as royalties and Sales Milestonessales 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
Pfizer Inc.
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-CTPSomatrogon (hGH-CTP) 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 June 2023, The FDA approved NGENLA (Somatrogon) a once-weekly injection to treat pediatric growth hormone deficiency in the United States. In early 2022, the European Commission and Ministry of Health, Labour and Welfare in Japan approved NGENLA (Somatrogon) in those territories. We have also received pricing approvals in Germany and Japan. NGENLA (Somatrogon) is approved for the treatment of pediatric GHD in more than 40 markets, including Canada, Australia, Japan, and EU Member States. With the achievement of these milestones, during the second quarter of 2023, we recorded revenue of $90 million and $85.0 million in 2022.
In May 2020, we entered into an Amended and Restated Development and Commercialization License Agreement (the “Restated Pfizer Transaction closedAgreement”) with Pfizer, 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 terminationRestated Pfizer Agreement, for developing a licensed product for the three indications included in the Restated Pfizer Agreement.
On October 21, 2019, we and Pfizer announced that the global phase 3 trial evaluating Somatrogon 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-CTPSomatrogon worldwide. In addition, we are eligible to receive initial tiered royalty payments associated with the commercialization of hGH-CTP for Adult GHD with percentage rates ranging from the high teens to mid-twenties. Upon the launch of hGH-CTP for Pediatric GHD in certain major markets, the royalties will transition to regional, tiered gross profit sharing for both hGH-CTPSomatrogon 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.
The Pfizer Transaction includes milestone payments totalingof $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, no$175.0 million of revenue has been recognized related to the achievement of the milestones.
Other current assets and prepaid expenses in our Condensed Consolidated Balance Sheets.
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.
NOTE 1315 SEGMENTS
We manage our operations in
two reportable segments, pharmaceutical and diagnostics. The pharmaceutical segment consists of our pharmaceutical operationsInformation regarding our operations and assets for our operating segments and the unallocated corporate operations as well as geographic information are as follows:
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
(In thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Revenue from services: | ||||||||||||||||
Pharmaceutical | $ | — | $ | — | $ | — | $ | — | ||||||||
Diagnostics | 127,052 | 186,804 | 259,420 | 473,402 | ||||||||||||
Corporate | — | — | — | — | ||||||||||||
$ | 127,052 | $ | 186,804 | $ | 259,420 | $ | 473,402 | |||||||||
Revenue from products: | ||||||||||||||||
Pharmaceutical | $ | 43,500 | $ | 35,892 | $ | 83,883 | $ | 72,550 | ||||||||
Diagnostics | — | — | — | — | ||||||||||||
Corporate | — | — | — | — | ||||||||||||
$ | 43,500 | $ | 35,892 | $ | 83,883 | $ | 72,550 | |||||||||
Revenue from transfer of intellectual property and other: | ||||||||||||||||
Pharmaceutical | $ | 94,866 | $ | 87,197 | $ | 159,692 | $ | 93,159 | ||||||||
Diagnostics | — | — | — | — | ||||||||||||
Corporate | — | — | — | — | ||||||||||||
$ | 94,866 | $ | 87,197 | $ | 159,692 | $ | 93,159 | |||||||||
Operating income (loss): | ||||||||||||||||
Pharmaceutical | $ | 63,631 | $ | 55,435 | $ | 82,585 | $ | 37,327 | ||||||||
Diagnostics | (44,258 | ) | (57,543 | ) | (84,264 | ) | (101,092 | ) | ||||||||
Corporate | (12,348 | ) | (8,631 | ) | (21,890 | ) | (19,399 | ) | ||||||||
$ | 7,025 | $ | (10,739 | ) | $ | (23,569 | ) | $ | (83,164 | ) | ||||||
Depreciation and amortization: | ||||||||||||||||
Pharmaceutical | $ | 17,788 | $ | 17,840 | $ | 35,703 | $ | 33,242 | ||||||||
Diagnostics | 8,603 | 10,155 | 17,290 | 22,567 | ||||||||||||
Corporate | — | — | — | — | ||||||||||||
$ | 26,391 | $ | 27,995 | $ | 52,993 | $ | 55,809 | |||||||||
Loss from investment in investees: | ||||||||||||||||
Pharmaceutical | $ | (42 | ) | $ | (268 | ) | $ | (79 | ) | $ | (316 | ) | ||||
Diagnostics | — | — | — | — | ||||||||||||
Corporate | — | — | — | — | ||||||||||||
$ | (42 | ) | $ | (268 | ) | $ | (79 | ) | $ | (316 | ) | |||||
Revenues: | ||||||||||||||||
United States | $ | 134,859 | $ | 193,105 | $ | 323,943 | $ | 484,913 | ||||||||
Ireland | 96,749 | 89,177 | 112,595 | 97,638 | ||||||||||||
Chile | 19,954 | 15,804 | 35,494 | 32,143 | ||||||||||||
Spain | 5,968 | 5,696 | 12,078 | 12,805 | ||||||||||||
Israel | 1,639 | 1,854 | 6,233 | 3,412 | ||||||||||||
Mexico | 5,724 | 4,055 | 11,551 | 7,805 | ||||||||||||
Other | 525 | 202 | 1,101 | 395 | ||||||||||||
$ | 265,418 | $ | 309,893 | $ | 502,995 | $ | 639,111 |
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Revenue from services: | |||||||||||||||
Pharmaceutical | $ | — | $ | — | $ | — | $ | — | |||||||
Diagnostics | 229,035 | 259,025 | 740,992 | 777,559 | |||||||||||
Corporate | — | — | — | — | |||||||||||
$ | 229,035 | $ | 259,025 | $ | 740,992 | $ | 777,559 | ||||||||
Revenue from products: | |||||||||||||||
Pharmaceutical | $ | 22,795 | $ | 20,569 | $ | 73,992 | $ | 63,275 | |||||||
Diagnostics | — | — | — | — | |||||||||||
Corporate | — | — | — | — | |||||||||||
$ | 22,795 | $ | 20,569 | $ | 73,992 | $ | 63,275 | ||||||||
Revenue from transfer of intellectual property: | |||||||||||||||
Pharmaceutical | $ | 11,665 | $ | 18,441 | $ | 58,819 | $ | 105,338 | |||||||
Diagnostics | — | — | — | — | |||||||||||
Corporate | — | — | — | — | |||||||||||
$ | 11,665 | $ | 18,441 | $ | 58,819 | $ | 105,338 | ||||||||
Operating loss: | |||||||||||||||
Pharmaceutical | $ | (18,452 | ) | $ | (18,593 | ) | $ | (49,709 | ) | $ | 15,422 | ||||
Diagnostics | (27,619 | ) | 3,098 | (35,664 | ) | 11,117 | |||||||||
Corporate | (12,219 | ) | (8,128 | ) | (41,067 | ) | (49,414 | ) | |||||||
$ | (58,290 | ) | $ | (23,623 | ) | $ | (126,440 | ) | $ | (22,875 | ) | ||||
Depreciation and amortization: | |||||||||||||||
Pharmaceutical | $ | 6,935 | $ | 6,994 | $ | 20,404 | $ | 12,841 | |||||||
Diagnostics | 18,430 | 18,818 | 56,183 | 59,711 | |||||||||||
Corporate | 29 | 20 | 90 | 60 | |||||||||||
$ | 25,394 | $ | 25,832 | $ | 76,677 | $ | 72,612 | ||||||||
Income (loss) from investment in investees: | |||||||||||||||
Pharmaceutical | $ | (3,661 | ) | $ | 399 | $ | (10,784 | ) | $ | (5,643 | ) | ||||
Diagnostics | (352 | ) | (1,213 | ) | (987 | ) | 496 | ||||||||
Corporate | — | — | — | — | |||||||||||
$ | (4,013 | ) | $ | (814 | ) | $ | (11,771 | ) | $ | (5,147 | ) | ||||
Revenues: | |||||||||||||||
United States | $ | 229,218 | $ | 259,221 | $ | 751,732 | $ | 777,703 | |||||||
Ireland | 15,182 | 20,594 | 57,812 | 114,526 | |||||||||||
Chile | 11,514 | 9,936 | 33,534 | 26,516 | |||||||||||
Spain | 4,123 | 3,910 | 13,746 | 12,257 | |||||||||||
Israel | 1,935 | 3,699 | 13,807 | 12,862 | |||||||||||
Mexico | 1,483 | 675 | 3,072 | 2,308 | |||||||||||
Other | 40 | — | 100 | — | |||||||||||
$ | 263,495 | $ | 298,035 | $ | 873,803 | $ | 946,172 |
(In thousands) | September 30, 2017 | December 31, 2016 | |||||
Assets: | |||||||
Pharmaceutical | $ | 1,309,650 | $ | 1,294,916 | |||
Diagnostics | 1,339,401 | 1,408,522 | |||||
Corporate | 72,939 | 63,181 | |||||
$ | 2,721,990 | $ | 2,766,619 | ||||
Goodwill: | |||||||
Pharmaceutical | $ | 262,786 | $ | 251,817 | |||
Diagnostics | 452,787 | 452,786 | |||||
Corporate | — | — | |||||
$ | 715,573 | $ | 704,603 |
June 30, | December 31, | |||||||
(In thousands) | 2023 | 2022 | ||||||
Assets: | ||||||||
Pharmaceutical | $ | 1,411,170 | $ | 1,322,531 | ||||
Diagnostics | 655,878 | 690,504 | ||||||
Corporate | 91,851 | 154,224 | ||||||
$ | 2,158,899 | $ | 2,167,259 | |||||
Goodwill: | ||||||||
Pharmaceutical | $ | 314,350 | $ | 312,826 | ||||
Diagnostics | 283,025 | 283,025 | ||||||
$ | 597,375 | $ | 595,851 |
No customer represented more than 10% of our total consolidated revenue duringfor the three and ninesix months ended SeptemberJune 30, 2017.2023 and 2022. As of SeptemberJune 30, 2017, one2023 and December 31, 2022, no customer represented more than 10% of our accounts receivable balance. As
NOTE 16 LEASES
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 December 31, 2016, one customer represented more than 10%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 accounts receivable balance.
We elected the 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 scopepermitted practical expedients of the license subject to the terms of the Agreement (the “JT Additional Indications”, and together with the JT Initial Indications, the “JT Field”).
The following table presents the lease balances within the Condensed Consolidated Balance Sheet as of June 30, 2023 and December 31, 2022:
(in thousands) | Classification on the Balance Sheet | June 30, 2023 | December 31, 2022 | ||||||
Assets | |||||||||
Operating lease assets | Operating lease right-of-use assets | $ | 34,938 | $ | 38,725 | ||||
Finance lease assets | Property, plant and equipment, net | 10,079 | 9,898 | ||||||
Liabilities | |||||||||
Current | |||||||||
Operating lease liabilities | Current maturities of operating leases | 11,240 | 11,628 | ||||||
Accrued expenses | Current maturities of finance leases | 2,809 | 2,809 | ||||||
Long-term | |||||||||
Operating lease liabilities | Operating lease liabilities | 24,912 | 27,963 | ||||||
Other long-term liabilities | Finance lease liabilities | $ | 7,270 | $ | 7,089 | ||||
Weighted average remaining lease term | |||||||||
Operating leases (in years) | 6.0 | 6.0 | |||||||
Finance leases (in years) | 6.8 | 6.5 | |||||||
Weighted average discount rate | |||||||||
Operating leases | 4.6 | % | 4.4 | % | |||||
Finance leases | 4.6 | % | 3.8 | % |
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 Form 10-Q.our Condensed Consolidated Balance Sheet as of June 30, 2023:
(in thousands) | Operating | Finance | ||||||
July 1, 2023 through December 31, 2023 | $ | 6,442 | $ | 1,804 | ||||
2024 | 8,844 | 2,737 | ||||||
2025 | 5,567 | 2,061 | ||||||
2026 | 4,114 | 1,394 | ||||||
2027 | 3,858 | 588 | ||||||
Thereafter | 11,910 | 1,959 | ||||||
Total undiscounted future minimum lease payments | 40,735 | 10,543 | ||||||
Less: Difference between lease payments and discounted lease liabilities | 4,583 | 464 | ||||||
Total lease liabilities | $ | 36,152 | $ | 10,079 |
Expense under operating leases and finance leases was $8.3 million and $1.4 million, respectively, for the six months ended June 30, 2023, which includes $0.6 million of variable lease costs. Expense under operating leases and finance leases was $8.4 million and $1.9 million, respectively, for the six months ended June 30, 2022, which includes $1.3 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:
For the six months ended June 30, | ||||||||
(in thousands) | 2023 | 2022 | ||||||
Operating cash out flows from operating leases | $ | 7,955 | $ | 8,327 | ||||
Operating cash out flows from finance leases | 206 | 52 | ||||||
Financing cash out flows from finance leases | 1,268 | 724 | ||||||
Total | $ | 9,429 | $ | 9,103 |
ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
You should read this discussion together with the unaudited Condensed Consolidated Financial Statements, related Notes,notes, and other financial information included elsewhere in this reportQuarterly 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 December31, 20162022 (the “Form 10-K”“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“Risk Factors,” in Part II,I, Item1A of ourthe Form 10-K for the year ended December 31, 2016, and as described from time to time in our other reports filedfilings 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 LaboratoriesHealth, LLC (“BioReference”), one of the nation’s third-largest clinical laboratorylargest full service laboratories with a core genetic testing business and a 400-person180-person sales and marketing team to drive growth and leverage new products, including the
Through BioReference, we provide laboratory testing services, primarily to customers in the larger metropolitan areas in New York, New Jersey, Florida, Texas, Maryland, California, Pennsylvania, Delaware, Washington, DC, Illinois and Massachusetts, as well as to customers in a number of other states. We offer a comprehensive test menu of clinical diagnostics for hemophilia (Phase 2a).
We operate established pharmaceutical platforms in Spain, Ireland, Chile, Spain, Mexico, and Mexico,the U.S., 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 theIn addition, we have a development and commercial supply of high potency, high barrier to entry pharmaceutical products. In addition, we operatecompany and a specialty active pharmaceutical ingredients (“APIs”)global supply chain operation and holding company in Ireland. We own an APIs manufacturer in Israel, which we expect will facilitate the development of our pipeline of molecules and compounds for our proprietary products.
RESULTS OF OPERATIONS
Foreign Currency Exchange Rates
Approximately 34.4% of revenue for the developmentsix months ended June 30, 2023, and commercializationapproximately 23.6% of
We are subject to foreign currency transaction risk for fluctuations in exchange rates during the termsperiod of time between the Agreement (the “JT Additional Indications”,consummation and togethercash settlement of transactions. We seek to limit foreign currency transaction risk through hedge transactions with foreign currency forward contracts. Under these forward contracts, for any rate above or below the JT Initial Indications,fixed rate, we receive or pay the “JT Field”).
FOR THE THREE MONTHS ENDED SEPTEMBERJune 30, 2017 AND 2016
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 | ) |
Our consolidated income (loss) from services is attributable to decreased pricing at BioReference’s GeneDx division. The increase in Revenue from products principally reflects an increase in revenue from OPKO Chile and EirGen. Revenue from transfer of intellectual propertyoperations for the three months ended SeptemberJune 30, 20172023 and 2016 principally2022 was as follows:
For the three months ended June 30, | ||||||||||||||||
(In thousands) | 2023 | 2022 | Change | % Change | ||||||||||||
Revenues: | ||||||||||||||||
Revenue from services | $ | 127,052 | $ | 186,804 | $ | (59,752 | ) | (32 | )% | |||||||
Revenue from products | 43,500 | 35,892 | 7,608 | 21 | % | |||||||||||
Revenue from transfer of intellectual property and other | 94,866 | 87,197 | 7,669 | 9 | % | |||||||||||
Total revenues | 265,418 | 309,893 | (44,475 | ) | (14 | )% | ||||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenue | 138,939 | 194,311 | (55,372 | ) | (28 | )% | ||||||||||
Selling, general and administrative | 79,794 | 101,464 | (21,670 | ) | (21 | )% | ||||||||||
Research and development | 18,159 | 17,254 | 905 | 5 | % | |||||||||||
Contingent Consideration | (34 | ) | 175 | (209 | ) | (119 | )% | |||||||||
Amortization of intangible assets | 21,535 | 22,793 | (1,258 | ) | (6 | )% | ||||||||||
Gain on sale | — | (15,365 | ) | 15,365 | 100 | % | ||||||||||
Total costs and expenses | 258,393 | 320,632 | (62,239 | ) | (19 | )% | ||||||||||
Income (loss) from operations | 7,025 | (10,739 | ) | 17,764 | 165 | % |
Diagnostics
For the three months ended June 30, | ||||||||||||||||
(In thousands) | 2023 | 2022 | Change | % Change | ||||||||||||
Revenues | ||||||||||||||||
Revenue from services | $ | 127,052 | $ | 186,804 | $ | (59,752 | ) | (32 | )% | |||||||
Total revenues | 127,052 | 186,804 | (59,752 | ) | (32 | )% | ||||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenue | 113,027 | 171,841 | (58,814 | ) | (34 | )% | ||||||||||
Selling, general and administrative | 52,617 | 78,980 | (26,363 | ) | (33 | )% | ||||||||||
Research and development | 617 | 2,780 | (2,163 | ) | (78 | )% | ||||||||||
Amortization of intangible assets | 5,049 | 6,111 | (1,062 | ) | (17 | )% | ||||||||||
Gain of sale of assets | — | (15,365 | ) | 15,365 | 100 | % | ||||||||||
Total costs and expenses | 171,310 | 244,347 | (73,037 | ) | (30 | )% | ||||||||||
Loss from operations | (44,258 | ) | (57,543 | ) | 13,285 | 23 | % |
Revenue. Revenue from services for the three months ended June 30, 2023, decreased by approximately $59.8 million compared to the three months ended June 30, 2022. The decrease in revenue for the three months ended June 30, 2023, reflects $11.2lower demand for COVID-19 testing and lower COVID-19 reimbursement of $48.7 million and $17.7$0.8 million, respectively. BioReference performed 33 thousand molecular tests for COVID-19 during the three months ended June 30, 2023, representing 1.45% of total testing volume for that period. In comparison, the three months ended June 30, 2022, included 874 thousand molecular tests for COVID-19 and 81 thousand serology antibody tests, representing 30.7% of total testing volume for the 2022 period. The reduction in reimbursement reflected an increase in utilization of antigen point of care diagnostic tests and a change in the mix of customers, which have varying contract prices depending on the level of services we provide.
Furthermore, clinical test reimbursement decreased by $5.8 million due to the mix of testing ordered offset by an increase in clinical test volume of $7.7 million. Moreover, revenues decreased by $12.1 million as a result of our sale in April 2022 of GeneDx in the GeneDx Transaction (as defined below).
Estimated collection amounts are subject to the complexities and ambiguities of billing, reimbursement regulations and claims processing, as well as considerations unique to Medicare and Medicaid programs, and require us to consider the potential for retroactive adjustments when estimating variable consideration in the recognition of revenue in the period the related services are rendered. Negative revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods were recognized of $13.9 million and $23.2 million, respectively, for the three months ended June 30, 2023 and 2022. Revenue adjustments for the three months ended June 30, 2023 were mainly due to the composition of patient pay mix and, in 2022, mainly to lower reimbursement estimates for COVID-19 testing.
The composition of revenue related tofrom services by payor for the Pfizer Transaction.
Three months ended June 30, | ||||||||
(In thousands) | 2023 | 2022 | ||||||
Healthcare insurers | $ | 76,954 | $ | 76,442 | ||||
Government payers | 20,923 | 25,659 | ||||||
Client payers | 24,899 | 80,931 | ||||||
Patients | 4,276 | 3,772 | ||||||
Total | $ | 127,052 | $ | 186,804 |
Client payors include cities, states and companies for which BioReference provides COVID-19 testing services.
Cost of revenue
. Cost of revenue for the three months endedCost 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 |
Selling, general and administrative expenses
. Selling, general and administrative expenses for the three months endedResearch and development expenses. The following table summarizes the components of our research and development expenses:
Research and Development Expenses | Three months ended June 30, | |||||||
2023 | 2022 | |||||||
Research and development employee-related expenses | $ | 464 | $ | 2,233 | ||||
Other internal research and development expenses | 153 | 547 | ||||||
Total research and development expenses | $ | 617 | $ | 2,780 |
The decrease in research and development expenses for the three months ended June 30, 2023, was primarily related to the development of more efficient clinical testing services at BioReference and partly as a result of the GeneDx disposition.
Amortization of intangible assets. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Amortization of intangible assets was $5.0 million and $6.1 million, respectively, for the three months ended June 30, 2023 and 2022. Amortization expense declined for the three months ending June 30, 2023 due to the disposition of GeneDx.
Gain on sale of assets. Gain on sale of assets for the three months ended June 30, 2022, was $15.4 million due to the disposition of GeneDx in April 2022.
Pharmaceuticals
For the three months ended June 30, | ||||||||||||||||
(In thousands) | 2023 | 2022 | Change | % Change | ||||||||||||
Revenues: | ||||||||||||||||
Revenue from products | $ | 43,500 | $ | 35,892 | $ | 7,608 | 21 | % | ||||||||
Revenue from transfer of intellectual property and other | 94,866 | 87,197 | 7,669 | 9 | % | |||||||||||
Total revenues | 138,366 | 123,089 | 15,277 | 12 | % | |||||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenue | 25,912 | 22,470 | 3,442 | 15 | % | |||||||||||
Selling, general and administrative | 14,831 | 13,518 | 1,313 | 10 | % | |||||||||||
Research and development | 17,540 | 14,809 | 2,731 | 18 | % | |||||||||||
Contingent Consideration | (34 | ) | 175 | (209 | ) | (119 | )% | |||||||||
Amortization of intangible assets | 16,486 | 16,682 | (196 | ) | (1 | )% | ||||||||||
Total costs and expenses | 74,735 | 67,654 | 7,081 | 10 | % | |||||||||||
Income from operations | 63,631 | 55,435 | 8,196 | 15 | % |
Revenue. Revenue from products for the three months ended June 30, 2023 and 2022 was $43.5 million and $35.9 million, respectively. The increase in revenue from products for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was attributable to an increase in sales from OPKO Chile and OPKO Mexico which were positively impacted by foreign exchange fluctuations of approximately $1.9 million , as well as increased sales of Rayaldee. Revenue from sales of Rayaldee for the three months ended June 30, 2023 and 2022 was $7.7 million and $6.2 million, respectively. For the three months ended June 30, 2023, revenue from transfer of intellectual property and other principally reflects revenue of $90.0 million triggered by the FDA approval of NGENLA (Somatrogon), the 2022 period includes an $85.0 million regulatory milestone payments from Pfizer due from the commencement of sales from NGENLA (Somatrogon) in Europe and Japan (as defined in Note 14 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q). For the three months ended June 30, 2023 and 2022, revenue from transfer of intellectual property and other also includes $0.5 million and $2.3 million, respectively, related to the Pfizer Transaction (as defined in Note 14 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q).
Cost of revenue. Cost of revenue for the three months ended June 30, 2023 increased $3.4 million compared to the three months ended June 30, 2022, which was attributable to an increase in sales as well as changes in product mix during the period at our international operating companies as well as higher inventory costs partially impacted by unfavorable foreign exchange fluctuations of approximately $1.3 million.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended June 30, 2023 and 2022 were $14.8 million and $13.5 million, respectively. The increase in selling, general and administrative expenses was primarily due to costs related to the launch of
Research and development expenses
. Research and development expenses for the three months endedThe following table summarizes the components of our research and development expenses:
Research and Development Expenses | Three months ended June 30, | |||||||
2023 | 2022 | |||||||
External expenses: | ||||||||
Manufacturing expense for biological products | $ | 3,006 | $ | 2,070 | ||||
Phase 3 studies | 1,186 | 2,200 | ||||||
Post-marketing studies | 29 | — | ||||||
Earlier-stage programs | 11,925 | 3,113 | ||||||
Research and development employee-related expenses | 8,955 | 6,774 | ||||||
Other internal research and development expenses | 1,052 | 652 | ||||||
Third-party grants and funding from collaboration agreements | (8,613 | ) | — | |||||
Total research and development expenses | $ | 17,540 | $ | 14,809 |
The increase in research and development expenses for the three months ended June 30, 2023, was primarily due to research expenses at ModeX, partially offset by lower expenses related to Somatrogon (hGH-CTP) due to the closure of the open-label extension studies in countries in which Somatrogon (hGH-CTP) received marketing authorization. Research and development expenses for the pharmaceutical segment for the three months ended June 30, 2023 and 2022 included equity-based compensation expenses of $914.6 thousand and $637.9 thousand, respectively.
Contingent consideration. Contingent consideration for the three months ended June 30, 2023 and 2022 was a $34 thousand reversal of expense and $175 thousand of expense, respectively. Contingent consideration for the three months ended June 30, 2023 and 2022 was primarily attributable to changes in assumptions regarding the timing of achievement of future milestones for OPKO Renal, and potential amounts payable to former stockholders of OPKO Renal in connection therewith, pursuant to our acquisition agreement in March 2013.
Amortization of intangible assets. Amortization of intangible assets was $16.5 million and $16.7 million for the three months ended June 30, 2023 and 2022. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Our indefinite lived IPR&D assets will not be amortized until the underlying development programs are completed. Upon obtaining regulatory approval by the FDA, the IPR&D assets will be accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life.
Corporate
For the three months ended June 30, | ||||||||||||||||
(In thousands) | 2023 | 2022 | Change | % Change | ||||||||||||
Costs and expenses: | ||||||||||||||||
Selling, general and administrative | $ | 12,346 | $ | 8,966 | $ | 3,380 | 38 | % | ||||||||
Research and development | 2 | (335 | ) | 337 | 101 | % | ||||||||||
Total costs and expenses | 12,348 | 8,631 | 3,717 | 43 | % | |||||||||||
Loss from operations | (12,348 | ) | (8,631 | ) | (3,717 | ) | (43 | )% |
Operating loss for our unallocated corporate operations for the three months ended June 30, 2023 and 2022 was $12.3 million and $8.6 million, respectively, and principally reflects general and administrative expenses incurred in connection with our corporate operations. The increase in operating loss for our unallocated corporate operations for the three months ended June 30, 2023, was primarily due to increases in employee expenses and professional fees, partially offset by a decrease in legal fees.
Other
Interest income. Interest income for the three months ended June 30, 2023 and 2022 was $1.1 million and $0.2 million, respectively. The increase is driven by having higher average cash and investment balances as a result of the cash received related to the GeneDx disposition, as well as increased interest rates between the two periods.
Interest expense. Interest expense for the three months ended June 30, 2023 and 2022 was $3.3 million and $3.1 million, respectively. Interest expense was principally related to interest incurred on the 2025 Notes, the 2023 Convertible Notes, and BioReference’s outstanding debt under the Credit Agreement (each as defined in Note 7 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q ) with JPMorgan Chase Bank, N.A. (“CB”).
Fair value changes of derivative instruments, net. Fair value changes of derivative instruments, net for the three months ended June 30, 2023 and 2022, was $0.1 million and a $0.3 million reversal of expense, respectively. Derivative expense for the three months ended June 30, 2023 and 2022 was principally related to the change in fair value on foreign currency forward exchange contracts at OPKO Chile.
Other income (expense), net. Other income (expense), net for the three months ended June 30, 2023 and 2022 was $21.4 million and $73.0 million of expense, respectively. Other income (expense), net for the three months ended June 30, 2023, and 2022, included $19.9 million and $71.2 million of expense as a result of a decrease in the fair value of our investment in GeneDx Holdings (as defined below). Foreign currency gains of $0.9 million and $0.8 million of losses were the majority of other expenses for the three months ended June 30, 2023, and 2022, respectively.
Income tax provision. Our income tax provision for the three months ended June 30, 2023 and 2022 was $3.1 million and $15.1 million, respectively, and reflects quarterly results using our expected effective tax rate. For the three months ended June 30, 2023, the tax rate differed from the U.S. federal statutory rate of 21% primarily due to the relative mix in earnings and losses in the U.S. versus foreign tax jurisdictions, and operating results in tax jurisdictions which do not result in a tax benefit.
Loss from investments in investees. We have invested in certain early stage companies that we perceive to have valuable proprietary technology and significant potential to create value for us as a shareholder or member. We account for these investments under the equity method of accounting, recording of our proportionate share of their losses until our share of their loss exceeds our investment. Until the investees’ technologies are commercialized, if ever, we anticipate they will report net losses. Loss from investments in investees was $42 thousand and $268 thousand for the three months ended June 30, 2023 and 2022, respectively.
FOR THE six months ended June 30, 2023 and 2022
Our consolidated income (loss) from operations for the six months ended June 30, 2023 and 2022 was as follows:
For the six months ended June 30, | ||||||||||||||||
(In thousands) | 2023 | 2022 | Change | % Change | ||||||||||||
Revenues: | ||||||||||||||||
Revenue from services | $ | 259,420 | $ | 473,402 | $ | (213,982 | ) | (45 | )% | |||||||
Revenue from products | 83,883 | 72,550 | 11,333 | 16 | % | |||||||||||
Revenue from transfer of intellectual property and other | 159,692 | 93,159 | 66,533 | 71 | % | |||||||||||
Total revenues | 502,995 | 639,111 | (136,116 | ) | (21 | )% | ||||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenue | 277,253 | 438,187 | (160,934 | ) | (37 | )% | ||||||||||
Selling, general and administrative | 155,436 | 219,000 | (63,564 | ) | (29 | )% | ||||||||||
Research and development | 50,764 | 35,566 | 15,198 | 43 | % | |||||||||||
Contingent Consideration | 102 | 69 | 33 | 48 | % | |||||||||||
Amortization of intangible assets | 43,009 | 44,818 | (1,809 | ) | (4 | )% | ||||||||||
Gain of sale of assets | — | (15,365 | ) | 15,365 | 100 | % | ||||||||||
Total costs and expenses | 526,564 | 722,275 | (195,711 | ) | (27 | )% | ||||||||||
Loss from operations | (23,569 | ) | (83,164 | ) | 59,595 | 72 | % |
Diagnostics
For the six months ended June 30, | ||||||||||||||||
(In thousands) | 2023 | 2022 | Change | % Change | ||||||||||||
Revenues | ||||||||||||||||
Revenue from services | $ | 259,420 | $ | 473,402 | $ | (213,982 | ) | (45 | )% | |||||||
Total revenues | 259,420 | 473,402 | (213,982 | ) | (45 | )% | ||||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenue | 227,088 | 393,048 | (165,960 | ) | (42 | )% | ||||||||||
Selling, general and administrative | 105,193 | 173,936 | (68,743 | ) | (40 | )% | ||||||||||
Research and development | 1,306 | 9,002 | (7,696 | ) | (85 | )% | ||||||||||
Amortization of intangible assets | 10,097 | 13,873 | (3,776 | ) | (27 | )% | ||||||||||
Gain of sale of assets | — | (15,365 | ) | 15,365 | 100 | % | ||||||||||
Total costs and expenses | 343,684 | 574,494 | (230,810 | ) | (40 | )% | ||||||||||
loss from operations | (84,264 | ) | (101,092 | ) | 16,828 | 17 | % |
Revenue. Revenue from services for the six months ended June 30, 2023 decreased by approximately $214.0 million compared to the six months ended June 30, 2022. The decrease in revenue for the six months ended June 30, 2023 reflects lower demand for COVID-19 testing and lower COVID-19 reimbursement of $175.5 million and $2.2 million, respectively. BioReference performed 102 thousand molecular tests for COVID-19 and 73 thousand serology antibody tests during the six months ended June 30, 2023, which represented 3.8% of total testing volume for that period. In comparison, the six months ended June 30, 2022 included 2.9 million molecular tests for COVID-19 and 0.2 million serology antibody tests, which represented 41.7% of total testing volume for the period. The reduction in reimbursement reflects an increase in utilization of antigen point of care diagnostic tests as well as a change in the mix of customers, which have varying contract prices depending on the level of services we provide.
For the six months ended June 30, 2023, clinical test volume increased $24.7 million, while clinical test reimbursement decreased $12.7 million, respectively, as a result of the mix of testing ordered. Furthermore, as a result of our April 2022 sale of GeneDx in the GeneDx Transaction (as defined below), genomic test revenues decreased by $48.3 million.
Estimated collection amounts are subject to the complexities and ambiguities of billing, reimbursement regulations and claims processing, as well as considerations unique to Medicare and Medicaid programs, and require us to consider the potential for retroactive adjustments when estimating variable consideration in the recognition of revenue in the period the related services are rendered. For the six months ended June 30, 2023, negative revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $18.7 million were recognized. Revenue adjustments for the six months ended June 30, 2023 were primarily due to lower COVID-19 test reimbursement estimates. For the six months ended June 30, 2022, negative revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $21.2 million were recognized. Revenue adjustments for the six months ended June 30, 2022 were primarily due to lower COVID-19 test reimbursement estimates.
The composition of revenue from services by payor for the six months ended June 30, 2023 and 2022 was as follows:
Six months ended June 30, | ||||||||
(In thousands) | 2023 | 2022 | ||||||
Healthcare insurers | $ | 157,365 | $ | 172,269 | ||||
Government payers | 41,267 | 53,263 | ||||||
Client payers | 52,443 | 240,021 | ||||||
Patients | 8,345 | 7,849 | ||||||
Total | $ | 259,420 | $ | 473,402 |
Client payors include cities, states and companies for which BioReference provides COVID-19 testing services.
Cost of revenue. Cost of revenue for the six months ended June 30, 2023 decreased $166.0 million compared to the six months ended June 30, 2022. Cost of revenue decreased primarily due to a decline in the volume of COVID-19 tests performed during the six months ended June 30, 2023 compared to 2022. Cost of revenue for the six months ended June 30, 2023 also decreased due to changes in the mix of testing ordered during the period. Cost of revenue also decreased by $34.9 million as a result of the GeneDx Transaction in April 2022.
Selling, general and administrative expenses. Selling, general and administrative expenses for the six months ended June 30, 2023 and 2022 were $105.2 million and $173.9 million, respectively. Selling, general and administrative expenses in our diagnostics segment decreased primarily due to the continued cost-reduction initiatives implemented at Bio Reference as we strive to return to profitability following the buildup and then decline of COVID related testing, as well as decreased expenses due to the GeneDx Transaction.
Research and development expenses. The following table summarizes the components of our research and development expenses:
Research and Development Expenses | Six months ended June 30, | |||||||
2023 | 2022 | |||||||
Research and development employee-related expenses | $ | 826 | $ | 7,159 | ||||
Other internal research and development expenses | 480 | 1,843 | ||||||
Total research and development expenses | $ | 1,306 | $ | 9,002 |
The decrease in research and development expenses for the six months ended June 30, 2023 was primarily related to the development of more efficient clinical testing services at BioReference and partly as a result of the disposition of GeneDx during the second quarter of 2022.
Amortization of intangible assets. Amortization of intangible assets was $10.1 million and $13.9 million, respectively, for the six months ended June 30, 2023 and 2022. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Amortization expense declined during the six months ended June 30, 2023 due to the disposition of GeneDx in April 2022 and to acquired intangible assets becoming fully amortized.
Gain on sale of assets. Gain on sale of assets for the six months ended June 30, 2022, was $15.4 million due to the disposition of GeneDx in April 2022.
Pharmaceuticals
For the six months ended June 30, | ||||||||||||||||
(In thousands) | 2023 | 2022 | Change | % Change | ||||||||||||
Revenues: | ||||||||||||||||
Revenue from products | $ | 83,883 | $ | 72,550 | $ | 11,333 | 16 | % | ||||||||
Revenue from transfer of intellectual property and other | 159,692 | 93,159 | 66,533 | 71 | % | |||||||||||
Total revenues | 243,575 | 165,709 | 77,866 | 47 | % | |||||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenue | 50,165 | 45,139 | 5,026 | 11 | % | |||||||||||
Selling, general and administrative | 28,392 | 25,129 | 3,263 | 13 | % | |||||||||||
Research and development | 49,419 | 27,100 | 22,319 | 82 | % | |||||||||||
Contingent Consideration | 102 | 69 | 33 | 48 | % | |||||||||||
Amortization of intangible assets | 32,912 | 30,945 | 1,967 | 6 | % | |||||||||||
Total costs and expenses | 160,990 | 128,382 | 32,608 | 25 | % | |||||||||||
Income from operations | 82,585 | 37,327 | 45,258 | 121 | % |
Revenue. The increase in revenue from products for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was driven by an increase in sales from OPKO Chile and OPKO Mexico, which were positively impacted by foreign exchange fluctuations of approximately $2.1 million, as well as increased sales of Rayaldee. Revenue from sales of Rayaldee for the six months ended June 30, 2023 and 2022 was $14.4 million and $11.3 million, respectively. Revenue from transfer of intellectual property and other for the six months ended June 30, 2023 reflects revenue of $90.0 million triggered by the FDA approval of NGENLA (Somatrogon) and a $50.0 million payment from Merck in consideration for the rights granted to Merck under the Merck Agreement (as defined in Note 14 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q), a $7.0 million payment from Vifor (as defined in Note 14 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q) triggered by the German price approval for Rayaldee and a $2.5 million payment from Nicoya due to Nicoya’s submission of the investigational new drug application to China's Center for Drug Evaluation. For the six months ended June 30, 2022, revenue from transfer of intellectual property and other reflects a $85.0 million regulatory milestone payments from Pfizer due from the commencement of sales from NGENLA (Somatrogon) in Europe and Japan and $3.0 million related to a sales milestone from Vifor.
Cost of revenue. Cost of revenue for the six months ended June 30, 2023 increased $5.0 million compared to the six months ended June 30, 2022 driven by an increase in sales as well as changes in product mix during the period at our international operating companies, as well as by higher inventory costs compared to the prior period and partially impacted by unfavorable foreign exchange fluctuations of $1.3 million.
Selling, general and administrative expenses. Selling, general and administrative expenses for the six months ended June 30, 2023 and 2022 were $28.4 million and $25.1 million, respectively. The increase in selling, general and administrative expenses was due to an increase in employee-related expenses from our international operations and Rayaldee.
Research and development expenses. Research and development expenses for the six months ended June 30, 2023 and 2022 were $49.4 million and $27.1 million, respectively. Research and development expenses include external and internal expenses, partially offset by third-party grants and funding arising from collaboration agreements. 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. We track external research and development expenses by individual program for phase 3 clinical trials for drug approval and pre-market approvals (“PMAs”)premarket approval for diagnostics tests, if any. Internal expenses include employee-related expenses includingsuch as 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.
The following table summarizes the components of our research and development expenses:
Research and Development Expenses | For the three months ended September 30, | ||||||
2017 | 2016 | ||||||
External expenses: | |||||||
Phase 3 clinical trials | $ | 3,275 | $ | 2,647 | |||
Manufacturing expense for biological products | 10,827 | 6,951 | |||||
PMA studies | 249 | — | |||||
Earlier-stage programs | 1,479 | 1,910 | |||||
Research and development employee-related expenses | 6,177 | 6,718 | |||||
Other internal research and development expenses | 10,500 | 6,797 | |||||
Third-party grants and funding from collaboration agreements | (178 | ) | (599 | ) | |||
Total research and development expenses | $ | 32,329 | $ | 24,424 |
Research and Development Expenses | Six months ended June 30, | |||||||
2023 | 2022 | |||||||
External expenses: | ||||||||
Manufacturing expense for biological products | $ | 5,979 | $ | 3,319 | ||||
Phase III studies | 3,127 | 4,832 | ||||||
Post-marketing studies | 159 | 12 | ||||||
Earlier-stage programs | 30,075 | 5,714 | ||||||
Research and development employee-related expenses | 16,762 | 11,953 | ||||||
Other internal research and development expenses | 2,003 | 1,270 | ||||||
Third-party grants and funding from collaboration agreements | (8,686 | ) | — | |||||
Total research and development expenses | $ | 49,419 | $ | 27,100 |
The increase in research and development expenses isfor the six months ended June 30, 2023 was primarily due to an increaseresearch expenses at ModeX, including a $12.5 million payment to Sanofi under the Sanofi In-License Agreement (each as defined in research and developmentNote 14 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10- Q), partially offset by lower expenses related to hGH-CTP, a long acting human growth hormone which was outlicensed to Pfizer in 2015, andSomatrogon (hGH-CTP) due to the acquisitionclosure of Transition Therapeuticsthe open-label extension studies in August 2016. In addition, during the three months ended September 30, 2017 and 2016, we recorded, as an offset to research and development expenses, $0.2 million and $0.6 million, respectively, related to research and development grantscountries in which Somatrogon (hGH-CTP) received from our collaboration and funding agreements.marketing authorization. Research and development expenses for the threepharmaceutical segment for the six months ended SeptemberJune 30, 20172023 and 2016 include2022 included equity-based compensation expense of $1.3$1.8 million and $2.0$0.8 million, respectively. We expect our research and development expenses to increase as we continue to expand our research and development of potential future products.
Contingent consideration
. Contingent considerationAmortization of intangible assets
. Amortization of intangible assets wasCorporate
For the six months ended June 30, | ||||||||||||||||
(In thousands) | 2023 | 2022 | Change | % Change | ||||||||||||
Costs and expenses: | ||||||||||||||||
Selling, general and administrative | $ | 21,851 | $ | 19,935 | $ | 1,916 | 10 | % | ||||||||
Research and development | 39 | (536 | ) | 575 | 107 | % | ||||||||||
Total costs and expenses | 21,890 | 19,399 | 2,491 | 13 | % | |||||||||||
Loss from operations | (21,890 | ) | (19,399 | ) | (2,491 | ) | (13 | )% |
Operating loss for our unallocated corporate operations for the six months ended June 30, 2023 and 2022 was $21.9 million and $19.4 million, respectively, and principally reflect general and administrative expenses incurred in connection with our corporate operations. The increase in operating loss for our unallocated corporate operations for the six months ended June 30, 2023 was primarily due to increase in employee expenses and professional fees, partially offset by a decrease in legal fees.
Other
Interest income
. Interest income for theInterest expense. Interest expense for the threesix months ended SeptemberJune 30, 20172023 and 20162022 was $1.8$6.6 million and $2.0$5.7 million, respectively. Interest expense iswas principally related to interest incurred on the 2025 Notes, the 2023 Convertible Notes, the 2033 Senior Notes, including amortization of related deferred financing costs and to interest incurred on BioReference’s outstanding debt under its credit facility.
Fair value changes of derivative instruments, net
. Fair value changes of derivative instruments, net for theOther income (expense), net
. Other income (expense), net for theIncome tax benefit
(provision). Our income tax benefit (provision) for theLoss from investments in investees
. We have made investments inRevenues | Nine months ended September 30, | ||||||||||
(In thousands) | 2017 | 2016 | Change | ||||||||
Revenue from services | $ | 740,992 | $ | 777,559 | $ | (36,567 | ) | ||||
Revenue from products | 73,992 | 63,275 | 10,717 | ||||||||
Revenue from transfer of intellectual property and other | 58,819 | 105,338 | (46,519 | ) | |||||||
Total revenues | $ | 873,803 | $ | 946,172 | $ | (72,369 | ) |
Cost of Revenue | Nine months ended September 30, | ||||||||||
(In thousands) | 2017 | 2016 | Change | ||||||||
Cost of service revenue | $ | 419,070 | $ | 417,121 | $ | 1,949 | |||||
Cost of product revenue | 44,441 | 35,033 | 9,408 | ||||||||
Total cost of revenue | $ | 463,511 | $ | 452,154 | $ | 11,357 |
Research and Development Expenses | Nine months ended September 30, | ||||||
2017 | 2016 | ||||||
External expenses: | |||||||
Phase 3 clinical trials | $ | 11,354 | $ | 8,436 | |||
Manufacturing expense for biological products | 31,102 | 30,484 | |||||
PMA studies | 694 | — | |||||
Earlier-stage programs | 4,734 | 4,949 | |||||
Research and development employee-related expenses | 18,915 | 21,266 | |||||
Other internal research and development expenses | 25,394 | 20,525 | |||||
Third-party grants and funding from collaboration agreements | (1,249 | ) | (2,066 | ) | |||
Total research and development expenses | $ | 90,944 | $ | 83,594 |
LIQUIDITY AND CAPITAL RESOURCES
At SeptemberJune 30, 2017,2023, we had cash and cash equivalents of approximately $100.4 million.$108.1 million, which does not include the $90 million milestone payment from Pfizer that is expected to be received in August 2023. Cash used in operations during 2017of $23.0 million for the six months ended June 30, 2023 principally reflects milestone payments of $90.0 million, $7.0 million and $2.5 million from Pfizer, Vifor and Nicoya, respectively, and general and administrative expenses related to general and administrative activities of our corporate operations and research and development activities and our launch activities related to
In June 2023, the Company and Pfizer announced that the FDA approved NGENLA (Somatrogon), a once-weekly injection to treat pediatric growth hormone deficiency in the United States. With the achievement of the FDA approval milestone, during the second quarter of 2023 we recorded $90.0 million of revenue under the Restated Pfizer Agreement.
On October 12, 2017, EirGen, our wholly-owned subsidiary,March 8, 2023, ModeX, the Company (with respect to certain sections), and Japan Tobacco Inc. (“JT”)Merck entered into a DevelopmentLicense and LicenseResearch Collaboration Agreement granting JT(the “Merck Agreement under”) pursuant to which Merck obtained a license to certain patent rights and know-how in connection with the exclusive rightsdevelopment of ModeX’s preclinical nanoparticle vaccine candidate targeting the Epstein -Barr Virus. In consideration for the development and commercializationrights granted to Merck under the Merck Agreement, we received an initial one-time, non-refundable upfront payment of Rayaldee$50.0 million in Japan (the “JT Territory”). The license grant to JT covers the therapeutic and preventative useApril 2023. Certain of the Product for (i) SHPT in non-dialysisrights subject to the license provided by us under the Merck Agreement were obtained by us from Sanofi pursuant to the Sanofi In-License Agreement stipulates, and dialysis patients with CKD, (ii) rickets,because a portion of the upfront payment, milestones and (iii) osteomalacia (the “JT Initial Indications”), as well as such additional indications asroyalties received by us under the Merck Agreement may be addedpayable to the scope of the license subject toSanofi under the terms of the Sanofi In-License Agreement, (the “JT Additional Indications”,of which $12.5 million was paid to Sanofi during the second quarter of 2023.
As part of their strategic collaboration, ModeX and together with the JT Initial Indications, the “JT Field”).
On May 9, 2022, the Company entered into a Commitment Letteran Agreement and Plan of Merger (the “Commitment Letter”“ModeX Merger Agreement”) with Veterans Accountable Care Group, LLC (“VACG”), pursuant to which we acquired ModeX. The Company paid the entirety of the $300.0 million purchase price in connection with submissionshares of a bid by its affiliate, the Veterans Accountable Care Organization, LLC (“VACO”Common Stock (the “Consideration Shares”) in response to a request for proposal (“RFP”) from 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, 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.
On April 29, 2022, the Company completed the disposition (the “GeneDx Transaction.”) of its former subsidiary, GeneDx LLC (f/k/a GeneDx, Inc. “GeneDx”), to GeneDx Holdings Corp. (f/k/a “Sema4 Holdings Corp.”), a Delaware corporation (“GeneDx Holdings”). GeneDx Holdings paid to the Company aggregate consideration of $150 million in cash (before deduction of transaction expenses and other customary purchase price adjustments), together with the Closing Shares (as defined in Note 1 to our wholly-owned subsidiary, partnered with VFMCRP through a Development and License Agreementcondensed consolidated financial statements contained in this Quarterly Report on Form 10-Q). Based on the closing stock price of GeneDx Holdings as of April 29, 2022, the total upfront consideration represented approximately $322 million. Additionally, subject to GeneDx achieving certain revenue targets for the developmentfiscal years ending December 31, 2022 and commercialization of
In April 2022, Pfizer notified OPKO that NGENLA received pricing approval in Germany and Japan. NGENLA was granted marketing authorization by the United States. VFMCRP would also pay EirGen up to an additional aggregate amountMinistry of $555 million uponHealth, Labour and Welfare in Japan and by the European Commission in January and February of 2022, respectively. With the achievement of certainthese milestones, and would be obligated to pay royalties on sales of the product at percentage rates that range from the mid-teens to the mid-twenties.
In January 2013,February 2019, we issued $175.0$200.0 million of the 2033 Senior Notes. The 2033 Senior Notes were sold in a private placement in reliance on exemptions from registration under the Securities Act. At September 30, 2017, $31.9 millionaggregate principal amount of 2033 Seniorthe 2025 Notes was outstanding.
Holders may convert their 2025 Notes into shares of Common Stock at their option at any time prior to the sellers uponclose of business on the achievement of certain events, including up to an additional $19.1 million in shares of our Common Stock to the former stockholders of OPKO Diagnostics upon andbusiness day immediately preceding November 15, 2024, subject to the achievementsatisfaction of certain milestones; and up to an additional $125.0 million in eitherconditions. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our Common Stock, or a combination of cash and shares of our Common Stock, at our optionelection.
The 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 May 2021, we entered into exchange agreements with certain holders of the achievement2025 Notes pursuant to which the holders exchanged $55.4 million in aggregate principal amount of certain milestones,the outstanding 2025 Notes for 19,051,270 shares of our Common Stock (the “Exchange”).
In February 2018, we issued the 2023 Convertible Notes in the aggregate principal amount of $55.0 million, with an original maturity date in February 2023. 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 upon no fewer than 30 days, and no more than 60 days, notice to the former shareholdersholders. The 2023 Convertible Notes contain customary events of OPKO Renal.
As of SeptemberJune 30, 2017,2023, the total availabilitycommitments under our Credit Agreement with CB and our lines of credit with financial institutions in Chile and Spain was $130.6were $43.4 million, of which $105.9$26.1 million was used and outstandingdrawn as of SeptemberJune 30, 2017. The2023. At June 30, 2023, the weighted average interest rate on these lines of credit iswas approximately 4.5%8.8%. These lines of credit are short-term and are used primarily as a source of working capital. The highest aggregate principal balance at any time outstanding during the
The Credit Agreement provides for a $50.0 million secured revolving credit facility and includes a $20.0 million sub-facility for swingline loans and a $20.0 million sub-facility for the issuance of letters of credit. The Credit Agreement matures on August 30, 2025 and is guaranteed by all of BioReference’s domestic subsidiaries, subject to continuecertain exceptions. The Credit Agreement is also secured by substantially all assets of BioReference and its domestic subsidiaries, subject to incur substantial researchcertain exceptions, as well as a non-recourse pledge by us of our equity interest in BioReference. Availability under the Credit Agreement is based on a borrowing base composed of eligible accounts receivables of BioReference and certain of its subsidiaries, as specified therein. As of June 30, 2023, $13.3 million remained available for borrowing under the Credit Agreement.
In connection with our agreements with Merck, Pfizer, Vifor, Nicoya and CAMP4, we are eligible to receive various milestone payments and royalty considerations. Under the terms of the Merck Agreement, we received an initial payment of $50 million and are also eligible to receive up to an additional $872.5 million upon the achievement of certain commercial and development expenses,milestones under several indications. We are also eligible to receive tiered royalty payments ranging from high single digits to low double digits upon achievement of certain sales targets of the Product (as defined in the Merck Agreement). Under the terms of the Restated Pfizer Agreement, we have received or are eligible to receive up to an additional $275.0 million upon the achievement of certain regulatory milestones, including expenses related$90 million triggered by the FDA approval in the US and $85 million due to the hiringcommencement of personnelsales from NGENLA (Somatrogon) in Europe and Japan, which we received in 2022. In addition, we are eligible to receive regional, tiered gross profit sharing for both Somatrogon (hGH-CTP) and Pfizer’s Genotropin®. Under the terms of the Vifor Agreement, we are entitled to receive up to an additional clinical trials.$10 million in regulatory milestones and $207 million in milestone payments tied to the launch, pricing and sales of Rayaldee, including a $7 million regulatory milestone payment we recorded in the first quarter of 2023 triggered by the German price approval for Rayaldee and $3 million regulatory milestone payment we recognized in 2022 following the first sale of Rayaldee in Europe. In addition, we are eligible to receive tiered, double-digit royalty payments. Under the terms of the Nicoya Agreement, we received an initial upfront payment of $5 million and are eligible to receive an aggregate of $5 million tied to the first anniversary of the effective date of the Nicoya Agreement, of which we have received $2.5 million. Furthermore, we received the additional $2.5 million upon Nicoya’s submission of the investigational new drug application to the Center for Drug Evaluation of China in March 2023. We expect that selling, generalare also eligible to receive up to an additional aggregate amount of $115 million upon the achievement of certain development, regulatory and administrative expensessales-based milestones by Nicoya for the Nicoya Product in the Nicoya Territory. We are also eligible to receive tiered, double digit royalty payments at rates in the low double digits on net product sales within the Nicoya Territory and in the Nicoya Field. Under the terms of the CAMP4 Agreement, we received an initial upfront payment of $1.5 million and we are eligible to receive up to $3.5 million in development milestone payments for Dravet syndrome products and $4.0 million for non-Dravet syndrome products, as well as sales milestones of up to $90 million for Dravet syndrome products and up to $90 million for non-Dravet syndrome products.
In connection with our acquisitions of CURNA and OPKO Renal, we agreed to pay future consideration to the sellers upon the achievement of certain events up to an additional $125.0 million in either shares of our Common Stock or cash, at our option subject to the achievement of certain milestones, to the former shareholders of OPKO Renal. As a result of our execution of the CAMP4 Agreement, we will also increase as we expand our sales, marketing and administrative staff and add infrastructure.
We believe that the cash and cash equivalents on hand at
The following table provides information as of SeptemberJune 30, 2017,2023, with respect to the amounts and timing of our known contractual obligation payments due by period.
Contractual obligations (In thousands) | Remaining three months ending December 31, 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | |||||||||||||||||||||
Open purchase orders | $ | 97,863 | $ | 8,446 | $ | 274 | $ | 34 | $ | — | $ | — | $ | 106,617 | ||||||||||||||
Operating leases | 5,271 | 18,231 | 15,027 | 9,388 | 6,164 | 6,853 | 60,934 | |||||||||||||||||||||
Capital leases | 887 | 3,404 | 3,026 | 2,367 | 1,438 | 800 | 11,922 | |||||||||||||||||||||
2033 Senior Notes | — | — | 31,850 | — | — | — | 31,850 | |||||||||||||||||||||
Deferred payments | 5,000 | 5,000 | 5,000 | — | — | — | 15,000 | |||||||||||||||||||||
Mortgages and other debts payable | 3,412 | 416 | 410 | 409 | 409 | 755 | 5,811 | |||||||||||||||||||||
Lines of credit | 12,623 | — | — | 93,311 | — | — | 105,934 | |||||||||||||||||||||
Severance payments | 5,101 | — | — | — | — | — | 5,101 | |||||||||||||||||||||
Interest commitments | 257 | 1,019 | 291 | 39 | 37 | 23 | 1,666 | |||||||||||||||||||||
Total | $ | 130,414 | $ | 36,516 | $ | 55,878 | $ | 105,548 | $ | 8,048 | $ | 8,431 | $ | 344,835 |
Contractual obligations | Remaining six months ending | |||||||||||||||||||||||||||
(In thousands) | December 31, 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | |||||||||||||||||||||
Open purchase orders | $ | 46,137 | $ | 236 | $ | 5 | $ | — | $ | — | $ | — | $ | 46,378 | ||||||||||||||
Operating leases | 6,309 | 8,367 | 5,072 | 3,596 | 3,266 | 9,542 | 36,152 | |||||||||||||||||||||
Finance leases | 1,547 | 2,592 | 2,003 | 1,390 | 588 | 1,959 | 10,079 | |||||||||||||||||||||
2025 and 2023 Convertible Notes | — | — | 212,299 | — | — | — | 212,299 | |||||||||||||||||||||
Mortgages and other debts payable | 2,061 | 1,914 | 1,568 | 1,347 | 1,090 | 4,728 | 12,708 | |||||||||||||||||||||
Lines of credit | 26,072 | — | — | — | — | — | 26,072 | |||||||||||||||||||||
Interest commitments | 3,535 | 6,789 | 5,181 | 207 | 205 | 615 | 16,532 | |||||||||||||||||||||
Total | $ | 85,661 | $ | 19,898 | $ | 226,128 | $ | 6,540 | $ | 5,149 | $ | 16,844 | $ | 360,220 |
The preceding table does not include information where the amounts of the obligations are not currently determinable, including the following:
• | Contractual obligations in connection with clinical trials, which span over two years, and that depend on patient enrollment. The total amount of expenditures is dependent on the actual number of patients enrolled and as such, the contracts do not specify the maximum amount we may owe. |
• | Product license agreements effective during the lesser of 15 years or patent expiration whereby payments and amounts are determined by applying a royalty rate on uncapped future sales. |
• | Contingent consideration that includes payments upon achievement of certain milestones including meeting development milestones such as the completion of successful clinical trials, NDA approvals by the FDA and revenue milestones upon the achievement of certain revenue targets all of which are anticipated to be paid within the next seven years and are payable in either shares of our Common Stock or cash, at our option, and that may aggregate up to $125.0 million. |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There were $1.4 billion, including IPR&D of $648.4 million and $644.7 million, respectively, at September 30, 2017 and December 31, 2016. Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, although IPR&D is required to be tested at least annually until the project is completed or abandoned. Upon obtaining regulatory approval, the IPR&D asset is 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.
RECENT ACCOUNTING PRONOUNCEMENTS
Recently adopted accounting pronouncements.
In May 2014,August 2020, the FASB issued Accounting Standards Update (“ASU”)ASU No. 2014-09, “Revenue from 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts with Customers.in Entity's Own Equity (Subtopic 815-40).” 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 and2020-06 simplifies the preparation of financial statementsaccounting for convertible instruments by reducing the number of requirements to which an entity must refer.accounting models for convertible debt instruments and convertible preferred stock. The 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.
Under the modified approach, entities will apply the guidance to all financial instruments that are outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. ASU 2020-06 eliminates the cash conversion and beneficial conversion feature models in ASC 470-20 that require an issuer of certain convertible debt and preferred stock to separately account for embedded conversion features as a component of equity. The adoption of ASU 2015-112020-06 at January 1, 2022 resulted in the first quarter of 2017 did not have a significant impact on our Condensed Consolidated Financial Statements.
In the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates.
Foreign Currency Exchange Rate Risk – We operate globally and, as such, we are subject to foreign exchange risk in our commercial operations as a significant portionportions of our revenues are exposed to changes in foreign currency exchange rates, primarily the Chilean Peso, the Mexican Peso, the Euro and the New Israeli Shekel.
Although we do not speculate in the foreign exchange market, we may from time to time manage exposures that arise in the normal course of business related to fluctuations in foreign currency exchange rates by entering into offsetting positions through the use of foreign exchange forward contracts. Certain firmly committed transactions may be hedged with foreign exchange forward contracts. As exchange rates change, gains and losses on the exposed transactions are partially offset by gains and losses related to the hedging contracts. Both the exposed transactions and the hedging contracts are translated and fair valued, respectively, at current spot rates, with gains and losses included in earnings.
Our derivative activities, which consist of foreign exchange forward contracts, are initiated to economically hedge forecasted cash flows that are exposed to foreign currency risk. The foreign exchange forward contracts generally require us to exchange local currencies for foreign currencies based on pre-established exchange rates at the contracts’ maturity dates. As exchange rates change, gains and losses on these contracts are generated based on the change in the exchange rates that are recognized in the Condensed Consolidated Statements of Operations and offset the impact of the change in exchange rates on the foreign currency cash flows that are hedged. If the counterparties to the exchange contracts do not fulfill their obligations to deliver the contracted currencies, we could be at risk for currency related fluctuations. Our foreign exchange forward contracts primarily hedge exchange rates on the Chilean pesoPeso to the U.S. dollar. If Chilean pesosPesos were to strengthen or weaken in relation to the U.S. dollar, our loss or gain on hedged foreign currency cash-flows would be offset by the derivative contracts, with a net effect of zero.
Approximately 34.4% of revenue for the six months ended June 30, 2023, and approximately 23.6% of revenue for the six months ended June 30, 2022, were denominated in currencies other than the U.S. Dollar (USD). Our financial statements are reported in USD and, accordingly, fluctuations in exchange rates will affect the translation of revenues and expenses denominated in foreign currencies into USD for purposes of reporting the consolidated financial results. In the first six months of 2023 and during the year ended December 31, 2022, the most significant currency exchange rate exposures were the Euro and Chilean Peso. Gross accumulated currency translation adjustments recorded as a separate component of shareholders’ equity were $33.5 million and $39.9 million at June 30, 2023 and December 2022, respectively. For information on such open foreign exchange forward contracts for the three and six months ended June 30, 2023 and 2022 see “Management’s Discussion and Analysis—Results of Operations— Foreign Currency Exchange Rates.”
We do not engage in trading market risk sensitive instruments or purchasing hedging instruments or “other than trading” instruments that are likely to expose us to significant market risk, whether interest rate, foreign currency exchange, commodity price, or equity price risk.
Interest Rate Risk – Our exposure to interest rate risk relates to our cash and investments and to our borrowings. We generally maintain an investment portfolio of money market funds and marketable securities. The securities in our investment portfolio are not leveraged, and are, due to their very short-term nature, subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that a change in market interest rates would have a significant negative impact on the value of our investment portfolio except for reduced income in a low interest rate environment.
At SeptemberJune 30, 2017,2023, we had cash and cash equivalents of $100.4$108.1 million. The weighted average interest rate related to our cash and cash equivalents for the ninethree months ended SeptemberJune 30, 20172023 was less than 1%. As of SeptemberJune 30, 2017,2023, the principal outstanding balancebalances under ourBioReference’s Credit Agreement with JPMorgan Chase Bank, N.A.CB and our Chilean and Spanish lines of credit was $105.9$26.1 million in the aggregate at a weighted average interest rate of approximately 4.5%8.8%.
Our $31.9$55.0 million aggregate principal amount of our 2033 Senior2023 Convertible Notes has a fixed interest rate of 5%, and our $200.0 million aggregate principal amount of the 2025 Notes has a fixed interest rate of 4.50%, and therefore isare not subject to fluctuations in market interest rates.
The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we may invest our excess cash in debt instruments of the U.S. Government and its agencies, bank obligations, repurchase agreements and high-quality corporate issuers, and money market funds that invest in such debt instruments, and, by policy, restrict our exposure to any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of generally less than three months.
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2017.
Changes to the Company’sCompany’s Internal Control Over Financial Reporting
There have in place appropriate internal control over financial reporting at Transition Therapeutics. We are continuing to integrate the acquired operations of Transition Therapeutics into our overall internal control over financial reporting process.
We are, from time to time, party to various legal proceedings arising out of our business. During the reporting period covered by this Quarterly Report on Form 10-Q, there have been no material changes to the description of legal proceedings set forth in our Annual Report on Form 10-K for the year ended December 31, 2016 and2022.
There have been no material changes to our Quarterly Report on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017.
None.
Not Applicable.
During the quarter ended June 30, 2023, none of its subsidiaries entered into Amendment No. 5our officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of securities that was intended to Credit Agreement, which amendedsatisfy the Credit Agreement to, among other things, ease certain thresholds that require increased reporting by BioReference and reduceaffirmative defense conditions of Rule 10b5-1(c) under the pro forma availability condition for BioReference to make certain cash dividendsExchange Act or any "non-Rule 10b5-1 trading arrangement", as defined in It5em 408 of Regulation S-K.
+ Filed herewith. 65 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
66 |