May 11, 2015
Executives
Steven Rubin - Executive Vice President, Administration Adam Logal - Senior Vice President and Chief Financial Officer Charles Bishop - Chief Executive Officer, Renal Division David Okrongly - President, Diagnostics Division
Analysts
Rohit Vanjani - Oppenheimer Kevin DeGeeter - Ladenburg Thalmann
Operator
Greetings, and welcome to the OPKO Health's First Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Steve Rubin, Executive Vice President of Administration for OPKO Health. Thank you, Mr.
Rubin. You may now begin.
Steven Rubin
Thank you, and good morning. Before we begin, I'd like to remind you that any statements made during this call, which are historical will be considered forward-looking, and as such will be subject to risk and uncertainties, which could materially affect our expected results, including without limitation the various risks described in our Annual Report on Form 10-K for the year ended December 31, 2014 and our subsequent filings with the SEC.
I'd like to discuss the format for today's call. Adam Logal, our Chief Financial Officer will first talk about our financial and operating results for the quarter.
Charlie Bishop, the CEO of our Renal Division will then provide a brief update on our Rayaldee development program; followed by David Okrongly, President of our Diagnostics Division, who will provide an update of our diagnostics projects; I'll follow-up with a brief wrap up. Dr.
Frost will not be joining the call today, as he is in Italy presenting a lecture at the University of Padua, one of Italy's oldest most prompting universities where both Copernicus and Galileo ones studied. We have the entire team here with us to answer any questions you might have after our remarks.
With that, I'll turn it over to Adam Logal, our CFO. Adam?
Adam Logal
Thank you Steve and good afternoon everyone. We ended March with a cash balance of $348.2 million reflecting the $295 million upfront payments received by Pfizer for the hGH-CTP Global Collaboration Agreements.
We further strengthened our balance sheet during the quarter by exchanging approximately $36 million of our 3% convertible notes for shares of common stock. Both the Pfizer transaction and our convertible notes had a significant impact on our results of operations for the first quarter of 2015.
As a result of the significant increase in our share price since December 31st, the fair value of the embedded derivative associated with our convertible debt increased and as a result we’ve recorded $50 million a non-cash in other income and expenses. Importantly, this non-cash expense is the result of our share price depreciation into the exchange of $36 million of principal notes during the quarter.
Future changes in our share price will have a lesser impact. Further, the remaining $52 million of principal notes are convertible by the holders through June 30th as our share price exceeded the predefined convert agreement under the intend share [ph].
During the quarter, we also recorded a nonrecurring operating expense of $25.9 million related to our hGH-CTP technology. As we license that technology out of Israel triggering a repayment obligation to this Israeli Office of the Chief Scientist.
The OCS have previously funded a portion of the development of our cGH-CTP program. Also in connection with the Pfizer transaction, we recognize $12.5 million of revenue during the period.
We are recording the $295 million upfront payments as revenue on a straight line basis over the anticipated development period. Revenue during the first three months of 2015 increased $7.8 million to $30.1 million principally as a result of the $12.5 million of revenue recognized in connection with Pfizer transaction.
Partially offsetting Pfizer revenue was lower revenue of OPKO Health Europe as we negotiated a long term supply range with one of our customers as well as plant temporary shutdown at our OPKO Mexico manufacturing facility. The arrangement at OPKO Health Europe was completed during the first quarter and a manufacturing facility in Mexico was also brought back online during the quarter.
As a result of the prior items, net loss increased $72 million to $117 million in comparison to the 2014 period. As I mentioned previously, the 2015 period included a $50 million of non-cash derivative expense as well as nonrecurring expense of $25.9 million related to the OCS repayment.
In addition, we continued to invest on our R&D programs and as such R&D expense increased $4.5 million to $25.5 million during the first quarter of 2015.
.
Charles Bishop
Thanks Adam. Good afternoon.
I am pleased to update you on our progress and bringing Rayaldee to the U.S. market.
We are in the final stages of the preparation an electronic publication of our pending New Drug Application for Rayaldee. And we expect to submit the NDA to the FDA by the last week of May.
The NDA drafting and date completing process took a little longer than we expected but the extra time has let us to carefully and powerfully prepare the application for the agencies revenue. In submitting this NDA, OPKO is requesting FDA approval of the first drug indicated for the prevention treatment secondary hyperparathyroidism in patients with stage three or four chronic kidney disease and vitamin D insufficiency.
There are no other drugs currently on the market or under development that simultaneously control secondary hyperparathyroidism pre-dialysis patients and correct the most frequent underlying cause of the disease which is vitamin D insufficiency. Current vitamin D hormone and calcium therapies are effective in controlling elevated plasma parathyroid hormone but they leave vitamin D insufficiency uncorrected and in some cased they make it worse.
Vitamin D supplements are usually ineffective despite the widespread use of high dose vitamin D supplementation. Vitamin D insufficiency is nearly big [ph] among pre-dialysis patients.
Harmoniously vitamin D insufficiency is increasingly associated with faster progression of chronic kidney disease and earlier onset of dialysis. Further both secondary hyperparathyroidism of vitamin D insufficiency have been linked to increase mobility and mortality in kidney disease.
We, OPKO is enthusiastic about Rayaldee’s upcoming launch in success in the U.S. market.
Rayaldee has been clearly shown in four clinical efficacy studies to correct vitamin D insufficiency virtually even treated patient. The response rates are essentially maximum.
These studies take in together also shows that effective and long term correction of vitamin D insufficiency causes a gradual but progressive reduction in elevated parathyroid hormone levels with increasing numbers of patients achieving the ultimate outcome which is normal parathyroid hormone levels. Rayaldee’s gentle efficacy is unaccompanied by any significant side effects.
In fact, the adverse event profile for the product is essentially the same is that for parallel administration of placebo. Most surprising, Rayaldee’s efficacy is unaffected by the progressing of kidney disease.
Positive Phase 3 clinical date with Rayaldee were presented March at the Annual Meeting of the Endocrine Society and at the Nation Kidney Foundation Spring Clinical Meetings. Last month, OPKO presented a detailed new population pharmacokinetic and pharmacodynamic modeling date to world’s leading vitamin D experts who gathered together during last month’s Vitamin D Workshop Meeting in The Netherlands.
The expert’s responses to the product have been favorable. We anticipate FDA approval of Rayaldee in about the second quarter of 2016 and commercial launch is seems possible thereafter to OPKO’s own renal sales force targeting nephrologists and endocrinologists.
Before I pass the teleconference over to David Okrongly, I’d like to mention that our ongoing study of Rayaldee in the oncology setting is progressing well. This study is a dose ranging investigation in which Rayaldee is positioned as adjunctive therapy to denosumab and zoledronic acid.
Both of which are leading treatments for metastatic bone cancer and together represent a multibillion dollar market. We anticipate releasing preliminary date toward the end of this year.
David?
David Okrongly
Thank you, Charlie. I’ll continue now with the diagnostic and that will be in two parts.
First, I’ll talk the 4Kscore test, OPKO’s diagnostic test for aggressive prostate cancer from a blood sample. And secondarily, I’ll take about Claros, our whole blood finger stick diagnostic platform that can be used in the physician’s office to analyze a blood sample in just ten minutes.
With the 4Kscore test, or volumes continued to grow at high double digit rates per month. We are seeing a tremendous uptake now in many other setting that have been hesitant to take it on and 800 neurologists have new used the test.
We’re very happy to welcome the Cleveland Clinic as one of the new users and we are delighted to see them actually posting it on the website. We have right now an announcement that we’re going to be ending our out of pocket pay for the test and we’re going to begin billing insurance under our CPT MAAA administrative code.
The 395 out of pocked pay was begun at our launch in first quarter of 2014 because we did not have the code to specifically call out the test. And now that we have that code activated as of July 1st, we will begin billing.
And we’ll be begin billing at our full list price the $1,185. Also we got a very nice update from milestone catering group of researchers when they published in the journal of the Nation Cancer Institute the protect study.
This was a study that looked at outcomes in the UK but also looked at pre-biopsy blood specimens from an unscreened population of over 6,000 men. The conclusion of that study very closely match the accuracy of the test that we saw in the United States U.S.
validation study which was at the year end of the curve was 0.82 for that cohort. This now brings a total of 11 peer-reviewed publications and over 21,000 patients that have been tested with the kallikrein biomarkers used in the 4Kscore test.
We’re very delighted to also be presenting our test at the Annual Meeting of the American Neurological Association. This is coming up later this week.
It will be held in New Orleans and we expect over 10,000 attendees at this meeting, all professionals in neurology area where the 4Kscore test will be featured in multiple podium and poster presentations at the meeting. I’d like to now move on to an update on our Claros platform.
We are continuing to do our PSA beta testing and that proceeding well now at multiple clinical trial sites. Our beta sites are allowing us to get final experience with customers before we began our FDA clinical trials.
The study design for the PAS clinical trial is now set and sites including the Veterans Administration Centers are begin contracted as clinical trial site. Our development program is ramping up and we utilize the same clinical trial sites as we are using for our PSA trials, which will minimize the amount of time for staring up that trial.
And our goal remains to have testosterone filed and PSA filed testosterone in 2015 and PSA in early 2016. With that I’ll turn it back over to Steve Rubin to wrap things up.
Steven Rubin
Thank you, David. So we had a very exciting start of the year here at OPKO.
We had early stage kicking in half cylinders as you know the Pfizer collaboration that we fit at the end of last year turned out to be a terrific collaboration for us. They are great group.
They are wonderful to work with and everything is progressing as well as we can expect it not better for commercial partner. We recently acquired EirGen Pharmaceuticals in Ireland which we’ve recently announced.
It’s a growing and profitable especially pharmaceutical developer which will provide a lot of synergies for us as well as profits and new product introductions in its own right which we hope for roll out in North American counties as soon as we can get products registered. Updates from David and Charlie on Rayaldee and our diagnostic side and continue on the biologic side as you know we have submitted R&D accepted Factor VII product, we expect to stat clinical trials later the first half of this year with first main testing.
Oxyntomodulin, a very exciting project for obesity and diabetes is expected to start second half of this year. With that I’ll open it up for questions.
Operator
Thank you. We will now begin the question-and-answer session.
[Operator Instructions] The first question is from Rohit Vanjani from Oppenheimer. Please go ahead.
Rohit Vanjani
Hi, thanks for taking the questions. Everybody good afternoon.
Dave, for the 4Kscore test, I think you said that you no longer reinvesting or you no longer selling it out of pocket. When would actual government reimbursement begin or when would payer reinvestment begin?
David Okrongly
Yeah, just to be clear, Rohit, we are ending the out of pocket payment period June 30th. So we are continuing that for another couple of weeks here.
And then July 1st, we’re going to be billing both private insurance and Medicare. Now what that means in terms of payment is to be negotiated but what we need to do is actually get the bills put to the payers and then get into that discussion with them.
So our goal in starting the billing on July 1st with our code is to start the accrual of tests inside of their system that are specific to the 4Kscore test. So our CPT code 0010M clearly specifies the 4Kscore panel and that’s how we can now build up enough test that are begin build to have the discussion with the Medical Directors at the insurance companies and with Medicare.
So timeframe and what we’ll actually be getting paid is hard to say but the discussion now begins with the Medical Directors based on the billing events.
Rohit Vanjani
Okay. So have you negotiated with any other big payer at least or that process and its entirety will start after you start billing them?
David Okrongly
Yeah and really we’ll start after we begin billing them. We’ve done a few small contracts but the big events will happen when we start to put all of our testing through billing processes.
Rohit Vanjani
Okay. And what about - I think you are waiting for issuance of the NCCN Guidelines, was there any update on that?
David Okrongly
Well, the guidelines had not been releases yet for 2015, so we - I don’t have any further update other than we were expecting them to be out early this year. So we’ll have to just wait and see when they come out.
Rohit Vanjani
And then have you done anything with the sales force, I think you had a team of nine with seven in the field, how many do you have right now or how many markets on cities they are in?
David Okrongly
We’re actively recruiting now and so that number is above nine now, so we’re growing in.
Rohit Vanjani
Okay. And have you launched in Portugal, France and Italy?
David Okrongly
We have some limited testing going on outside of Spain right now. We’re going to have a review with the AUA with our Spanish team to see where we have the best growth opportunities.
They have been having a lot of discussions with European partners.
Rohit Vanjani
Great and then last question for me is for Steve. So you get royalties on oral rolapitant, is there any deal half of the IV rolapitant as well?
Steven Rubin
It’s all yes, everything that comes out of that, it’s same.
Rohit Vanjani
It’s same, all part of the - sorry, go ahead.
Steven Rubin
Correct, so any use of rolapitant even if it’s beyond indications, we get same royalties on sales. So oral, IV, if they happen someday to another indication on rolapitant we would collect that.
Rohit Vanjani
But it’s capped at 80 - I think it was 30 million in milestone, than 80 million or 85 million in royalties, is that cap between two of them or separate?
Steven Rubin
There is no cap, Adam, any capitals on royalties, right?
Adam Logal
Yeah. So the $110 million is milestone payments, the royalties are own cap.
Rohit Vanjani
Okay but I said that question wrong. The milestone payment or cap in between the two then?
Steven Rubin
There is milestones that are based upon regulatory achievements and not - there is no distinguish be in between the two, so they are very - and then obviously to the extent, sale are up, we achieve those milestones, they would be aggregated.
Rohit Vanjani
Sure, yeah, I understand that. Okay, thanks for taking the questions, I appreciate it.
Operator
[Operator Instructions] The next question is from Kevin DeGeeter with Ladenburg Thalmann. Please go ahead.
Kevin DeGeeter
Hey, good afternoon. Thanks for taking my questions.
Charlie, can you comment on any premarket preparation you are making in terms of building out sales force, while with K well as to refine marketing message particularly given the interesting finding that stage three and stage four seem to have kind of similar response. Just generally comment on how we should think the commercial you will built out sort of prelaunch here?
Charles Bishop
Yeah, Kevin, thank you very much for the question. Our business plan calls for triggering certain events as soon as the NDA submitted and that puts us roughly depending on how the FDA review goes about a year from approval can come.
Obviously later than that if there are issues that arise but generally it will be about that time frame. So our expectation is that before the end of the year, we will start to put in place the key management pieces of our marketing and sales team.
And then as we get into the beginning of the New Year, we will hire sales rep, begin hiring our sales reps and training them. As you know our intention is to sell Rayaldee with our own dedicated sales force that will be targeting nephrologists and endocrinologists.
In parallel with that effort, we have a lot to do to prepare for marketing of Rayaldee. Those preparations line areas of assembling the right message together to nephrologists and endocrinologists, so that uptick of the product is accelerated.
We also have significant work to do with the payers in order to make sure that we can have Rayaldee on the formulary as quickly as possible. And we are also contemplating beginning more development efforts to expand the approved indications for Rayaldee and one of those is already going as I mentioned in the oncology area.
Kevin DeGeeter
Great and very helpful. And David, when we think of reimbursement here for the 4Kscore, is there any particular dataset that you are waiting for publication on these things can be impactful for the discussions with payers as you view that the majority of date that you are going to use to go to payer is already out and published one.
David Okrongly
I think we have all that we need. The [indiscernible] is rich with 11 peer-reviewed publications over 21,000 patients tested.
I would fair to say that this is the most well studied diagnostic test that’s even come to market. We are obviously anticipating NCCN Guidelines which would be kind of the cherry on top for us because that would definitely take away a barrier around investigational rather than standard of care for the test.
So but we have more evidence I think than anybody certainly in the area of prostate cancers ever brought to the table for a new test.
Kevin DeGeeter
Great and then can you just remind us with regard to the Phase 1 study for Factor VIIA program. Just a general study design and really I guess what I am interested is, do you anticipate being able to capture some pharmacodynamics data in that study that he is going to sort of inside on helping appreciate how the products differentiated or is that really going to be study - Phase 2 study that would need to wait here to see that kind of date.
Unidentified Company Representative
This Jane Hsiao [ph], now I’ll address your question. So as Steve mentioned, the study has where the setup progress and we do anticipated the first patient will be injected later next month actually.
The study will consist of five doses and you can find the outline of the study in the clinical trials that go. But in general, we do expect to collect pharmacokinetic and pharmacodynamic data as well as some expletory end points like generating and tromble [ph] listography which will imply potentially on the declaring capability and the long acting properties of our long acting Factor VIIA and will provide us some initial understanding about this product capability to maintain and that is in preparation to the next study which will potentially be pivotal Phase 2, Phase 3 in hemophilic patients.
Kevin DeGeeter
Okay, that’s very helpful. So you anticipate potentially moving into a pivotal study sort of how quickly potentially I guess sound of the question of the total duration of the Phase 1 study.
Unidentified Company Representative
Yeah, it’s true.
Kevin DeGeeter
So when do you hope to be moving to a pivotal on VIIIA?
Unidentified Company Representative
So we do anticipate to complete the Phase 2a study year and thereafter after discussion with the FDA and authorities to initiate the pivotal Phase 2, 3 study. You do need to remember that we are taking about of orphan indication and it might take longer to recruit those patients, obviously we’ll do as best we can to accelerate this program.
Kevin DeGeeter
Great, thanks so much, I’ll get back into queue.
Operator
This concludes the time allocated for questions. I’d like to turn the floor back to Mr.
Steven Rubin for closing comments.
Steven Rubin
Well thank you again for participating and let’s reiterate we’re exciting time for [indiscernible] stage and we should have terrific rest of the year with some great news and some great pivotal event. Thank you again.
Operator
This concludes today’s conference call. You may disconnect your lines.
Thank you for participating and have a good day.