OVERVIEW
You should read this discussion together with the unaudited Condensed Consolidated Financial Statements, related notes, and other financial information included elsewhere in this Quarterly Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K for the year endedDecember 31, 2020 (the "Form 10-K"). The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under "Risk Factors," in Part I, Item 1A of the Form 10-K and as described from time to time in our other filings with theSecurities 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 includesBioReference Laboratories, Inc. ("BioReference"), one of the nation's largest full service laboratories with a core genetic testing business and an almost 300-person sales and marketing team to drive growth and leverage new products, including the 4Kscore test. Our pharmaceutical business features Rayaldee, aU.S. Food and Drug Administration ("FDA") approved treatment for secondary hyperparathyroidism ("SHPT") in adults with stage 3 or 4 chronic kidney disease ("CKD") and vitamin D insufficiency (launched inNovember 2016 ) and a pipeline of products in various stages of development. Our leading product in development is Somatrogon (hGH-CTP), a once-weekly human growth hormone for which we have partnered with Pfizer, Inc. ("Pfizer") and successfully completed a phase 3 study inAugust 2019 , and for which the FDA has accepted the initial Biologics License Application ("BLA") for filing. We have also submitted a New Drug Application (an "NDA") with theMinistry of Health, Labour and Welfare inJapan and a Marketing Authorization Application with theEuropean Medicines Agency .We are incorporated inDelaware , and our principal executive offices are located in leased offices inMiami, Florida . Through BioReference, we provide laboratory testing services, primarily to customers in the larger metropolitan areas inNew York ,New Jersey ,Florida ,Texas ,Maryland ,California, Pennsylvania ,Delaware ,Washington, DC ,Illinois andMassachusetts , as well as to customers in a number of other states. We offer a comprehensive test menu of clinical diagnostics for blood, urine and tissue analysis. This includes hematology, clinical chemistry, immunoassay, infectious diseases, serology, hormones, and toxicology assays, as well as Pap smear, anatomic pathology (biopsies) and other types of tissue analysis. We market our laboratory testing services directly to physicians, geneticists, hospitals, clinics, correctional and other health facilities. We operate established pharmaceutical platforms inIreland ,Chile ,Spain , andMexico , which are generating revenue and from which we expect to generate positive cash flow and facilitate future market entry for our products currently in development. In addition, we have a development and commercial supply pharmaceutical company and a global supply chain operation and holding company inIreland . We own a specialty active pharmaceutical ingredients manufacturer inIsrael , which we expect will facilitate the development of our pipeline of molecules and compounds for our proprietary molecular diagnostic and therapeutic products. RECENT DEVELOPMENTS OnJuly 6, 2021 , we entered into 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 a Licensed Compound, alone or in combination with one or more other active ingredients ("Licensed Product"), worldwide. The License 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 5% of the outstanding shares of CAMP4, and 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. 44 -------------------------------------------------------------------------------- Table of Contents 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 Agreement after a specified notice period. OnJune 18, 2021 , EirGen and Nicoya entered into the Nicoya Agreement granting Nicoya the exclusive rights for the development and commercialization of the Nicoya Product inGreater China the Nicoya Territory. Extended release calcifediol is marketed in theU.S. under the tradename Rayaldee by OPKO. EirGen received an initial upfront payment of$5 million and is eligible to receive an additional$5 million upon the first to occur of (A) a certain predetermined milestone, or (B) the first anniversary of the effective date. 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 will also 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. InJune 2021 , we announced that EirGen entered into a definitive agreement to sell one of its facilities inWaterford, Ireland to Horizon Therapeutics plc for$65 million in cash less certain assumed and accrued liabilities relating to transferred employees. The facility houses EirGen's sterile-fill-finish business and is no longer a core component of our ongoing operations and business strategy. The transaction closed in the third quarter of 2021. InJune 2021 , we terminated the credit agreement with an affiliate ofDr. Frost , pursuant to which the lender committed to provide us with an unsecured line of credit in the amount of$100 million was terminated and as ofJune 30, 2021 , no amount was outstanding thereunder. EffectiveMay 23, 2021 , we entered into an amendment to our agreement with VFMCRP for the development and commercialization of Rayaldee, pursuant to which the parties agreed to includeJapan as part of the VFMCRP Territory. OnMay 17, 2021 , JT delivered to the Company a notice of termination of the JT Agreement pursuant to Section 16.1(a) thereof, which permits termination by JT for any reason, indicating its decision to discontinue development of Rayaldee for the Japanese market based on a comprehensive review of its development pipeline. InMay 2021 , we entered into exchange agreements with certain holders of the 2025 Notes pursuant to which the holders exchanged$55.4 million of the outstanding 2025 Notes for 19,051,270 shares of our Common Stock. We recorded an$11.1 million non-cash loss related to the Exchange. 45 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Impact of COVID-19 As the disease caused by SARS-CoV-2, a novel strain of coronavirus, COVID-19 continues to spread and severely impact theU.S. economy and economies of other countries around the world, we are committed to being a part of the coordinated public and private sector response to this unprecedented challenge. In response to the COVID-19 pandemic, BioReference is providing COVID-19 solutions, including diagnostic molecular testing and serology antibody testing, to meet the testing needs of its numerous customer verticals, including physicians, health systems, long-term care facilities, governments, schools, employers, professional sports teams and entertainment venues, as wells as the general public through relationships with retail pharmacy chains. Revenue from services for the six months endedJune 30, 2021 increased by$482.3 million as compared to 2020 due to COVID-19 testing volumes; however we are unable to predict how long the demand will continue for our COVID-19 related testing, or whether pricing and reimbursement policies for testing will sustain, and accordingly, the sustainability of our COVID-19 testing volumes is uncertain. Additionally, beginning inMarch 2020 , BioReference experienced a decline in testing volumes due to the COVID-19 pandemic; however as stay at home orders and other restrictions have been lifted, we have seen our routine clinical and genomic testing volumes trending towards normalization with prior periods. Should stay at home orders or other restrictions be reenacted, we could see our routine testing levels decline. Excluding COVID-19 test volumes, for the six months endedJune 30, 2021 , genomic and routine clinical test volume increased 39.0% and 13.4% as compared to volumes for the six months endedJune 30, 2020 . Additionally, sales of Rayaldee have not increased in accordance with its expected growth trajectory as a result of challenges in onboarding new patients due to the COVID-19 pandemic. Federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 have resulted in, among other things, a significant reduction in physician office visits, the cancellation of elective medical procedures, customers closing or severely curtailing their operations (voluntarily or in response to government orders), and the adoption of work-from-home or shelter-in-place policies. We also continue to see a substantial need for COVID-19 testing by our existing clients and expect new clients as infections for the virus continue. InMarch 2020 , in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion ofSocial Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees. We have received, or expect to receive a number of benefits under the CARES Act including, but not limited to: •During the second quarter of 2020, we received approximately$14 million underThe Centers for Medicare & Medicaid Services (CMS) Accelerated and Advance Payment Program, which provides accelerated payments to Medicare providers/suppliers working to provide treatment to patients and combat the COVID-19 pandemic, and the amounts advanced are loans which will be offset against future claims and must be repaid in 2021. These loans are initially recorded as contract liabilities included in Accrued expenses and are reduced as the amounts are recouped by CMS; •We were eligible to defer depositing the employer's share ofSocial Security taxes for payments due fromMarch 27, 2020 throughDecember 31, 2020 , interest-free and penalty-free; •We received approximately$16.2 million during 2020 from the funds that were distributed to healthcare providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic; •U.S. Department ofHealth and Human Services (HHS), will provide claims reimbursement to healthcare providers generally at Medicare rates for testing uninsured patients; and •Clinical laboratories are provided a one-year reprieve from the reporting requirements under the Protecting Access to Medicare Act ("PAMA") as well as a one-year delay of reimbursement rate reductions for clinical laboratory services provided under Medicare that were scheduled to take place in 2021. Since the pandemic began in theU.S. , we have invested in testing capabilities and infrastructure to meet demand for our molecular and antibody testing for COVID-19. Three vaccines for COVID-19 have received approval or emergency authorization and have had increasingly widespread acceptance. However, we believe that, based on our experience with the pandemic, the high medical need for efficient and 46 -------------------------------------------------------------------------------- Table of Contents widespread testing for COVID-19 will extend beyond the current phase of the pandemic. Our belief is supported by the unprecedented healthcare and economic impact of the pandemic thus far, the uneven and incomplete rollout of vaccines and the fact that significant portions of theU.S. population may never be vaccinated, and the continued likelihood of surges of COVID-19 including from new strains of SARS-CoV-2 with uncertain susceptibility to the current vaccines. We believe that these factors have greatly magnified the need for more effective therapeutics, with properties targeted to the disease processes caused by serious viral infections. FOR THE THREE MONTHS ENDEDJUNE 30, 2021 AND 2020 Our consolidated income (loss) from operations for the three months endedJune 30, 2021 and 2020 is as follows: For the three months ended June 30, (In thousands) 2021 2020 Change % Change Revenues: Revenue from services$ 397,197 $ 250,971 $ 146,226 58 % Revenue from products 35,663 29,356 6,307 21 % Revenue from transfer of intellectual property and other 9,548 20,880 (11,332) (54) % Total revenues 442,408 301,207 141,201 47 % Costs and expenses: Cost of revenue 292,908 162,651 130,257 80 % Selling, general and administrative 113,236 77,721 35,515 46 % Research and development 18,222 17,608 614 3 % Contingent Consideration (103) 1,111 (1,214) (109) % Amortization of intangible assets 12,574 14,937 (2,363) (16) % Total costs and expenses 436,837 274,028 162,809 59 % Income (loss) from operations 5,571 27,179 (21,608) (80) % Diagnostics For the three months ended June 30, (In thousands) 2021 2020 Change % Change Revenues Revenue from services$ 397,197 $ 250,971 $ 146,226 58 % Revenue from transfer of intellectual property and other - 6,194 (6,194) (100) % Total revenues 397,197 257,165 140,032 54 % Costs and expenses: Cost of revenue 267,806 144,783 123,023 85 % Selling, general and administrative 87,809 57,712 30,097 52 % Research and development 4,023 3,785 238 6 % Contingent Consideration - 35 (35) (100) % Amortization of intangible assets 7,559 9,915 (2,356) (24) % Total costs and expenses 367,197 216,230 150,967 70 % Income (loss) from operations 30,000 40,935 (10,935) (27) % Revenue. Revenue from services for the three months endedJune 30, 2021 increased by approximately$146.2 million compared to the three months endedJune 30, 2020 . BioReference recognized an increase in revenue for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 due to an increase in clinical test volume and genomic test 47 -------------------------------------------------------------------------------- Table of Contents volume of$33.9 million and$13.1 million , respectively. This was partially offset by the negative impact of a reduction in clinical test reimbursement and genomic test reimbursement of$5.3 million and$7.1 million , respectively. BioReference also recognized an increase in revenue for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 due to an increase in COVID-19 testing volume and improvement in COVID-19 test reimbursement of$35.4 million and$70.1 million , respectively. BioReference performed 2.8 million diagnostic molecular tests for COVID-19 and 0.1 million serology antibody tests during the three months endedJune 30, 2021 , which represented 56.4% of total volume for that period. In comparison, the three months endedJune 30, 2020 included 2.2 million molecular tests for COVID-19 and 0.3 million serology antibody tests. 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 three months endedJune 30, 2021 and 2020, positive revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of$0.5 million and$9.0 million were recognized, respectively. Revenue adjustments for the three months endedJune 30, 2021 were primarily due to an improvement in COVID-19 test reimbursement estimates. The composition of Revenue from services by payor for the three months endedJune 30, 2021 and 2020 was as follows: Three months ended June 30, (In thousands) 2021 2020 Healthcare insurers$ 109,084 $ 84,082 Government payers 57,611 15,886 Client payers 225,936 141,090 Patients 4,566 9,913 Total$ 397,197 $ 250,971 Client payors include cities, states and companies for which BioReference provides COVID-19 testing services. Revenue from the transfer of intellectual property and other for the three months endedJune 30, 2020 are the result of grants received under the CARES Act totaling$6.2 million . Cost of revenue. Cost of revenue for the three months endedJune 30, 2021 increased$123.0 million compared to the three months endedJune 30, 2020 . Cost of revenue increased primarily due to labor and material costs for COVID-19 testing and the significant volume of tests performed during the three months endedJune 30, 2021 . Cost of revenue for the three months endedJune 30, 2021 also increased due to changes in the product mix of items sold during the period. Selling, general and administrative expenses. Selling, general and administrative expenses for the three months endedJune 30, 2021 and 2020 were$87.8 million and$57.7 million , respectively. Selling, general and administrative expenses in our diagnostics segment increased primarily due to higher variable billing and compensation costs from an increase in volume and collections during the three months endedJune 30, 2021 , and in marketing costs and other administrative costs directly associated with COVID-19 testing volumes. Selling, general and administrative expenses for the three months endedJune 30, 2021 also include$6.1 million of expense incurred in connection with certain legal matters. Research and development expenses. The following table summarizes the components of our research and development expenses: Research and Development Expenses Three months ended June 30, 2021 2020 External expenses: PMA studies $ 31 $ 57 Research and development employee-related expenses 2,742 2,163 Other internal research and development expenses 1,250 1,565 Total research and development expenses$ 4,023 $ 3,785 48
-------------------------------------------------------------------------------- Table of Contents Research and development expenses for the three months endedJune 30, 2021 were consistent with research and development expenses for the three months endedJune 30, 2020 . Research and development expenses for the three months endedJune 30, 2021 are primarily related to the development of clinical and genomics testing services. Contingent consideration. Contingent consideration for the three months endedJune 30, 2021 and 2020 was$0.0 thousand and$35.0 thousand of expense, respectively. Contingent consideration for the three months endedJune 30, 2020 was attributable to changes in assumptions regarding the timing of achievement of future milestones forOPKO Diagnostics , and potential amounts payable to former stockholders ofOPKO Diagnostics in connection therewith, pursuant to our acquisition agreement inOctober 2011 . Amortization of intangible assets. Amortization of intangible assets was$7.6 million and$9.9 million , respectively, for the three months endedJune 30, 2021 and 2020. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Amortization expense declined during the three months endedJune 30, 2021 due to acquired intangible assets becoming fully amortized. Pharmaceuticals For the three months ended June 30, (In thousands) 2021 2020 Change % Change Revenues: Revenue from products$ 35,663 $ 29,356 $ 6,307 21 % Revenue from transfer of intellectual property and other 9,548 14,686 (5,138) (35) % Total revenues 45,211 44,042 1,169 3 % Costs and expenses: Cost of revenue 25,111 17,882 7,229 40 % Selling, general and administrative 14,120 12,007 2,113 18 % Research and development 14,778 14,051 727 5 % Contingent Consideration (103) 1,076 (1,179) (110) % Amortization of intangible assets 5,015 5,022 (7) - % Total costs and expenses 58,921 50,038 8,883 18 % Loss from operations (13,710) (5,996) (7,714) 129 % Revenue. The increase in revenue from products for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 was primarily attributable to an increase in sales at most of our international operating companies. Revenue from sales of Rayaldee for the three months endedJune 30, 2021 and 2020 was$5.0 million and$8.6 million , respectively. Sales of Rayaldee have been negatively impacted as a result of challenges in onboarding new patients due to the COVID-19 pandemic. Revenue from transfer of intellectual property for the three months endedJune 30, 2021 and 2020 principally reflected$2.8 million and$13.9 million , respectively, of revenue related to the Pfizer Transaction. Revenue from transfer of intellectual property for the three months endedJune 30, 2021 also includes a$5.0 million non-refundable upfront payment we will receive under the license agreement with Nicoya Agreement. Cost of revenue. Cost of revenue for the three months endedJune 30, 2021 increased$7.2 million compared to the three months endedJune 30, 2020 primarily due to an increase in inventory and material costs at most of our international operating companies, which was due to the increase in sales at our international operating companies. This was partially offset by a decrease in sales of Rayaldee for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . Selling, general and administrative expenses. Selling, general and administrative expenses for the three months endedJune 30, 2021 and 2020 were$14.1 million and$12.0 million , respectively. The increase in selling, general and administrative expenses was primarily due to an increase in selling, general and administrative expenses for most of our international operating companies primarily due to higher variable costs from an increase in sales volume during the three months endedJune 30, 2021 . Selling, general and administrative expenses for the pharmaceutical segment for the three months endedJune 30, 2021 and 2020 included equity-based compensation expense of$0.4 million and$0.2 million , respectively. 49 -------------------------------------------------------------------------------- Table of Contents Research and development expenses. Research and development expenses for the three months endedJune 30, 2021 and 2020 were$14.8 million and$14.1 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 premarket approval for diagnostics tests, if any. Internal expenses include employee-related expenses such 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 Three
months ended
2021 2020 External expenses: Manufacturing expense for biological products $ 912$ (309) Phase III studies 2,660 2,297 Post-marketing studies 22 282 Earlier-stage programs 4,841 3,964 Research and development employee-related expenses 4,927 4,886 Other internal research and development expenses 1,430 2,931 Third-party grants and funding from collaboration agreements (14) - Total research and development expenses$ 14,778
The increase in research and development expenses for the three months endedJune 30, 2021 was primarily due to an increase in research and development expenses for Somatrogon, a once-weekly human growth hormone injection for which we have partnered with Pfizer and successfully completed a phase 3 study inAugust 2019 . Ongoing expenses on the Somatrogon program support open label extension studies that will continue until market launch of Somatrogon in certain countries, as well as the preparation of applications for marketing approvals. Research and development expenses for the pharmaceutical segment for the three months endedJune 30, 2021 and 2020 included equity-based compensation expense of$0.3 million and$0.3 million , respectively. Contingent consideration. Contingent consideration for the three months endedJune 30, 2021 and 2020 was$0.1 million reversal of expense and$1.1 million of expense, respectively. Contingent consideration for the three months endedJune 30, 2021 was primarily attributable to changes in assumptions regarding the timing of achievement of future milestones for OPKO Renal and OPKO CURNA, and potential amounts payable to former stockholders of OPKO Renal and OPKO CURNA in connection therewith, pursuant to our acquisition agreements inMarch 2013 andJanuary 2011 , respectively. Contingent consideration for the three months endedJune 30, 2020 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. Amortization of intangible assets. Amortization of intangible assets was$5.0 million and$5.0 million , respectively, for the three months endedJune 30, 2021 and 2020. 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. 50 --------------------------------------------------------------------------------
Table of Contents Corporate For the three months ended June 30, (In thousands) 2021 2020 Change % Change Costs and expenses: Cost of revenue $ (9)$ (14) $ 5 (36) % Selling, general and administrative 11,307 8,002 3,305 41 % Research and development (579) (228) (351) 154 % Total costs and expenses 10,719 7,760 2,959 38 % Loss from operations (10,719) (7,760) (2,959) 38 % Operating loss for our unallocated corporate operations for the three months endedJune 30, 2021 and 2020 was$10.7 million and$7.8 million , respectively, and principally reflects general and administrative expenses incurred in connection with our corporate operations. The increase in operating loss for the three months endedJune 30, 2021 was primarily attributable to an increase in legal and accounting fees incurred for the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 . Other Interest income. Interest income for the three months endedJune 30, 2021 and 2020 was not significant as our cash investment strategy emphasizes the security of the principal invested and fulfillment of liquidity needs. Interest expense. Interest expense for the three months endedJune 30, 2021 and 2020 was$4.9 million and$5.5 million , respectively. Interest expense was principally related to interest incurred on the 2025 Notes, the 2023 Convertible Notes, the 2033 Senior Notes, and BioReference's outstanding debt under the Credit Agreement. Fair value changes of derivative instruments, net. Fair value changes of derivative instruments, net for the three months endedJune 30, 2021 and 2020, was$272 thousand and$13 thousand of expense, respectively. Derivative expense for the three months endedJune 30, 2021 , 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 endedJune 30, 2021 and 2020, was$11.8 million of expense and$18.2 million of income, respectively. Other expense for the three months endedJune 30, 2021 primarily consisted of a$11.1 million non-cash loss related to the exchange of$55.4 million of the outstanding 2025 Notes for 19,051,270 shares of our Common Stock. Other income for the three months endedJune 30, 2020 primarily consisted of net unrealized gains recognized during the period on our investment in VBI. Income tax provision. Our income tax provision for the three months endedJune 30, 2021 and 2020 was$4.8 million and$6.0 million , respectively, and reflects quarterly results using our expected effective tax rate. For the three months endedJune 30, 2021 , the tax rate differed from theU.S. federal statutory rate of 21% primarily due to the relative mix in earnings and losses in theU.S. versus foreign tax jurisdictions, the impact of certain discrete tax events and operating results in tax jurisdictions which do not result in a tax benefit. Loss from investments in investees. We have made investments 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, resulting in the 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$0.1 million and$0.2 million for the three months endedJune 30, 2021 and 2020, respectively. FOR THE SIX MONTHS ENDEDJUNE 30, 2021 AND 2020 Our consolidated income (loss) from operations for the six months endedJune 30, 2021 and 2020 is as follows: 51
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Table of Contents For the six months ended June 30, (In thousands) 2021 2020 Change % Change Revenues: Revenue from services$ 904,149 $ 421,811 $ 482,338 114 % Revenue from products 69,608 60,430 9,178 15 % Revenue from transfer of intellectual property and other 13,816 30,433 (16,617) (55) % Total revenues 987,573 512,674 474,899 93 % Costs and expenses: Cost of revenue 656,414 302,909 353,505 117 % Selling, general and administrative 225,522 153,852 71,670 47 % Research and development 37,537 39,369 (1,832) (5) % Contingent Consideration (1,059) 251 (1,310) (522) % Amortization of intangible assets 25,151 29,874 (4,723) (16) % Total costs and expenses 943,565 526,255 417,310 79 % Income (loss) from operations 44,008 (13,581) 57,589 (424) % Diagnostics For the six months ended June 30, (In thousands) 2021 2020 Change % Change Revenues Revenue from services$ 904,149 $ 421,811 $ 482,338 114 % Revenue from transfer of intellectual property and other - 6,194 (6,194) (100) % Total revenues 904,149 428,005 476,144 111 % Costs and expenses: Cost of revenue 607,233 267,689 339,544 127 % Selling, general and administrative 177,127 110,436 66,691 60 % Research and development 7,654 7,178 476 7 % Contingent Consideration - 68 (68) (100) % Amortization of intangible assets 15,121 19,831 (4,710) (24) % Total costs and expenses 807,135 405,202 401,933 99 % Income from operations 97,014 22,803 74,211 325 % Revenue. Revenue from services for the six months endedJune 30, 2021 increased by approximately$482.3 million compared to the six months endedJune 30, 2020 . BioReference recognized an increase in revenue for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 due to an improvement in clinical test reimbursement, and an increase in clinical test volume and genomic test volume of$14.0 million ,$28.7 million and$14.7 million , respectively. This was partially offset by the negative impact of a reduction in genomic test reimbursement of$17.6 million . BioReference also recognized an increase in revenue for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 due to an increase in COVID-19 testing volume and improvement in COVID-19 test reimbursement of$278.7 million and$157.9 million , respectively. BioReference performed 6.9 million diagnostic molecular tests for COVID-19 and 0.3 million serology antibody tests during the six months endedJune 30, 2021 , which represented 61.6% of total volume for that period. In comparison, the six months endedJune 30, 2020 included 2.3 million molecular tests for COVID-19 and 0.3 million serology antibody tests. 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 52 -------------------------------------------------------------------------------- Table of Contents related services are rendered. For the six months endedJune 30, 2021 and 2020, positive revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of$28.5 million and$0.2 million were recognized, respectively. Revenue adjustments for the six months endedJune 30, 2021 were primarily due to an improvement in COVID-19 test reimbursement estimates. The composition of Revenue from services by payor for the six months endedJune 30, 2021 and 2020 was as follows: Six months ended June 30, (In thousands) 2021 2020 Healthcare insurers$ 273,913 $ 183,232 Government payers 131,269 42,784 Client payers 488,845 180,191 Patients 10,122 15,604 Total$ 904,149 $ 421,811 Client payors include cities, states and companies for which BioReference provides COVID-19 testing services. Revenue from the transfer of intellectual property and other for the six months endedJune 30, 2020 are the result of grants received under the CARES Act totaling$6.2 million . Cost of revenue. Cost of revenue for the six months endedJune 30, 2021 increased$339.5 million compared to the six months endedJune 30, 2020 . Cost of revenue increased primarily due to labor and material costs for COVID-19 testing and the significant volume of tests performed during the six months endedJune 30, 2021 . Cost of revenue for the six months endedJune 30, 2021 also increased due to changes in the product mix of items sold during the period.. Selling, general and administrative expenses. Selling, general and administrative expenses for the six months endedJune 30, 2021 and 2020 were$177.1 million and$110.4 million , respectively. Selling, general and administrative expenses in our diagnostics segment increased primarily due to higher variable billing and compensation costs from an increase in volume and collections during the six months endedJune 30, 2021 , and in marketing costs and other administrative costs directly associated with COVID-19 testing volumes. Selling, general and administrative expenses for the six months endedJune 30, 2021 also include$6.1 million of expense incurred in connection with certain legal matters. As a percentage of net revenue, selling, general and administrative expenses for the diagnostic segment decreased to 20% from 26% for the six months endedJune 30, 2021 and 2020, respectively, as a result of per requisition efficiencies and continued execution of appropriate expense management during the period. 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, 2021 2020 External expenses: PMA studies $ 31$ 111 Research and development employee-related expenses 4,936 4,373 Other internal research and development expenses 2,687 2,694 Total research and development expenses$ 7,654
The increase in research and development expenses for the six months endedJune 30, 2021 resulted primarily from an increased research and development expenses related to the development of clinical and genomics testing services. Contingent consideration. Contingent consideration for the six months endedJune 30, 2021 and 2020 was$0 thousand and$68 thousand of expense, respectively. Contingent consideration for the six months endedJune 30, 2020 was attributable to changes in assumptions regarding the timing of achievement of future milestones forOPKO Diagnostics , and potential amounts payable to former stockholders ofOPKO Diagnostics in connection therewith, pursuant to our acquisition agreement inOctober 2011 . Amortization of intangible assets. Amortization of intangible assets was$15.1 million and$19.8 million , respectively, for the six months endedJune 30, 2021 and 2020. Amortization expense reflects the amortization of acquired intangible assets 53 -------------------------------------------------------------------------------- Table of Contents with defined useful lives. Amortization expense declined during the three months endedJune 30, 2021 due to acquired intangible assets becoming fully amortized. Pharmaceuticals For the six months ended June 30, (In thousands) 2021 2020 Change % Change Revenues: Revenue from products$ 69,608 $ 60,430 $ 9,178 15 % Revenue from transfer of intellectual property and other 13,816 24,239 (10,423) (43) % Total revenues 83,424 84,669 (1,245) (1) % Costs and expenses: Cost of revenue 49,201 35,292 13,909 39 % Selling, general and administrative 27,525 26,670 855 3 % Research and development 30,595 32,602 (2,007) (6) % Contingent Consideration (1,059) 183 (1,242) (679) % Amortization of intangible assets 10,030 10,043 (13) - % Total costs and expenses 116,292 104,790 11,502 11 % Loss from operations (32,868) (20,121) (12,747) 63 % Revenue. The increase in revenue from products for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 was primarily attributable to an increase in sales at most of our international operating companies. Revenue from sales of Rayaldee for the six months endedJune 30, 2021 and 2020 was$8.6 million and$18.6 million , respectively. Sales of Rayaldee have been negatively impacted as a result of challenges in onboarding new patients due to the COVID-19 pandemic. Revenue from transfer of intellectual property for the six months endedJune 30, 2021 and 2020 principally reflected$5.6 million and$22.7 million , respectively, of revenue related to the Pfizer Transaction. Revenue from transfer of intellectual property for the three months endedJune 30, 2021 also includes a$5.0 million non-refundable upfront payment we will receive under the license agreement with Nicoya Therapeutics. Cost of revenue. Cost of revenue for the six months endedJune 30, 2021 increased$13.9 million compared to the six months endedJune 30, 2020 . Cost of product revenue increased primarily due to an increase in inventory and material costs at most of our international operating companies, which was due to the increase in sales at our international operating companies and to a$3.0 million inventory reserve recognized for Rayaldee inventory for the six months endedJune 30, 2021 . This was partially offset by a decrease in sales of Rayaldee for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . Selling, general and administrative expenses. Selling, general and administrative expenses for the six months endedJune 30, 2021 and 2020 were$27.5 million and$26.7 million , respectively. The increase in selling, general and administrative expenses was primarily due to an increase in selling, general and administrative expenses for most of our international operating companies primarily due to higher variable costs from an increase in sales volume during the three months endedJune 30, 2021 . Selling, general and administrative expenses for the pharmaceutical segment for the six months endedJune 30, 2021 and 2020 included equity-based compensation expense of$0.7 million and$0.5 million , respectively. Research and development expenses. Research and development expenses for the six months endedJune 30, 2021 and 2020 were$30.6 million and$32.6 million , respectively. Research and development expenses include external and internal expenses, partially offset by third-party grants and funding arising from collaboration agreements. External expenses include clinical and non-clinical activities performed by contract research organizations, lab services, purchases of drug and diagnostic product materials and manufacturing development costs. We track external research and development expenses by individual program for phase 3 clinical trials for drug approval and premarket approval for diagnostics tests, if any. Internal expenses include employee-related expenses such as salaries, benefits and equity-based compensation expense. Other internal research and development expenses are incurred to support overall research and development activities and include expenses related to general overhead and facilities. 54 -------------------------------------------------------------------------------- Table of Contents The following table summarizes the components of our research and development expenses: Research and Development Expenses Six
months ended
2021 2020 External expenses: Manufacturing expense for biological products$ 2,479 $ 2,728 Phase III studies 5,011 5,339 Post-marketing studies 27 1,122 Earlier-stage programs 10,034 7,568 Research and development employee-related expenses 10,255 11,268 Other internal research and development expenses 2,813 4,577 Third-party grants and funding from collaboration agreements (24) - Total research and development expenses$ 30,595
The decrease in research and development expenses for the six months endedJune 30, 2021 was primarily due to a decrease in research and development expenses related to Somatrogon, a once-weekly human growth hormone injection for which we have partnered with Pfizer and successfully completed a phase 3 study inAugust 2019 . Ongoing expenses on the Somatrogon program support open label extension studies that will continue until market launch of Somatrogon in certain countries, as well as the preparation of applications for marketing approvals. Research and development expenses for the pharmaceutical segment for the six months endedJune 30, 2021 and 2020 included equity-based compensation expense of$0.7 million and$0.9 million , respectively. Contingent consideration. Contingent consideration for the six months endedJune 30, 2021 and 2020 was$1.1 million reversal of expense and$0.2 million of expense, respectively. Contingent consideration for the six months endedJune 30, 2021 was primarily attributable to changes in assumptions regarding the timing of achievement of future milestones for OPKO Renal and OPKO CURNA, and potential amounts payable to former stockholders of OPKO Renal and OPKO CURNA in connection therewith, pursuant to our acquisition agreements inMarch 2013 andJanuary 2011 , respectively. Contingent consideration for the six months endedJune 30, 2020 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. Amortization of intangible assets. Amortization of intangible assets was$10.0 million and$10.0 million , respectively, for the six months endedJune 30, 2021 and 2020. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Our indefinite lived IPR&D assets will not be amortized until the underlying development programs are completed. Upon obtaining regulatory approval by the FDA, the IPR&D assets will be accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. Corporate For the six months ended June 30, (In thousands) 2021 2020 Change % Change Costs and expenses: Cost of revenue$ (20) $ (72) $ 52 (72) % Selling, general and administrative 20,870 16,746 4,124 25 % Research and development (712) (411) (301) 73 % Total costs and expenses 20,138 16,263 3,875 24 % Loss from operations (20,138) (16,263) (3,875) 24 % Operating loss for our unallocated corporate operations for the six months endedJune 30, 2021 and 2020 was$20.1 million and$16.3 million , respectively, and principally reflects general and administrative expenses incurred in connection with our corporate operations. The increase in operating loss for the six months endedJune 30, 2021 was primarily attributable to an increase in legal and accounting fees incurred for the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 . 55 -------------------------------------------------------------------------------- Table of Contents Other Interest income. Interest income for the six months endedJune 30, 2021 and 2020 was not significant as our cash investment strategy emphasizes the security of the principal invested and fulfillment of liquidity needs. Interest expense. Interest expense for the six months endedJune 30, 2021 and 2020 was$10.3 million and$11.0 million , respectively. Interest expense was principally related to interest incurred on the 2025 Notes, the 2023 Convertible Notes, the 2033 Senior Notes, and BioReference's outstanding debt under its credit facility. Fair value changes of derivative instruments, net. Fair value changes of derivative instruments, net for the six months endedJune 30, 2021 and 2020, was$0.7 million of expense and$0.6 million reversal of expense, respectively. Derivative income (expense) for the six months endedJune 30, 2021 and 2020, 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 six months endedJune 30, 2021 and 2020, was$12.7 million of expense and$5.9 million of income, respectively. Other expense for the six months endedJune 30, 2021 primarily consisted of a$11.1 million non-cash loss related to the exchange of$55.4 million of the outstanding 2025 Notes for 19,051,270 shares of our Common Stock. Other income for the six months endedJune 30, 2020 primarily consisted of net unrealized gain recognized during the period on our investment in VBI, offset by a net unrealized loss recognized during the period on our investment in Eloxx. Income tax provision. Our income tax provision for the six months endedJune 30, 2021 and 2020 was$5.3 million and$7.2 million , respectively, and reflects quarterly results using our expected effective tax rate. For the six months endedJune 30, 2021 , the tax rate differed from theU.S. federal statutory rate of 21% primarily due to the relative mix in earnings and losses in theU.S. versus foreign tax jurisdictions, the impact of certain discrete tax events and operating results in tax jurisdictions which do not result in a tax benefit. Loss from investments in investees. We have made investments 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, resulting in the 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$110 thousand and$323 thousand for the six months endedJune 30, 2021 and 2020, respectively. 56 -------------------------------------------------------------------------------- Table of Contents LIQUIDITY AND CAPITAL RESOURCES AtJune 30, 2021 , we had cash and cash equivalents of approximately$65.8 million . Cash provided by operations of$10.6 million for the six months endedJune 30, 2021 principally reflects cash generated by our diagnostics segment due to the positive impact of COVID-19 testing volumes, which was partially offset by general and administrative expenses related to our corporate operations and research and development activities. Cash used in investing activities for the six months endedJune 30, 2021 primarily reflects capital expenditures of$18.2 million , which was partially offset by proceeds from the sale of equity securities of$8.1 million . Cash used in financing activities of$6.9 million primarily reflects net repayments on our lines of credit. We have historically not generated sustained positive cash flow sufficient to offset our operating and other expenses, and our primary sources of cash have been from the public and private placement of equity, the issuance of the 2033 Senior Notes, 2023 Convertible Notes and 2025 Notes and credit facilities available to us. However, as a result of the significant increase in testing volumes resulting from the COVID-19 pandemic, we have generated positive cash flow from operations; however we are unable to predict how long the demand will continue for our COVID-19 related testing, or whether pricing and reimbursement policies for testing will sustain, and accordingly, the sustainability of our cash flows from operations. We are unable to predict how long the demand will continue for our COVID-19 related testing, whether pricing and reimbursement policies for testing will sustain, or whether further restrictions will be placed on elective procedures or if stay at home orders will be reinstated and accordingly, the sustainability of the cash flow is uncertain. InJune 2021 , we announced thatEirGen Pharma Limited ("EirGen"), our wholly owned subsidiary, entered into a definitive agreement to sell one of its facilities inWaterford, Ireland to Horizon Therapeutics plc for$65 million in cash less certain assumed and accrued liabilities relating to transferred employees. The facility houses EirGen's sterile-fill-finish business and is no longer a core component of our ongoing operations and business strategy. The transaction closed in the third quarter of 2021. OnFebruary 25, 2020 , we entered into a credit agreement with an affiliate ofDr. Frost , pursuant to which the lender committed to provide us with an unsecured line of credit in the amount of$100 million . The line of credit called for a commitment fee equal to 0.25% per annum of the unused portion of the line. We terminated the credit agreement inJune 2021 and as ofJune 30, 2021 , no amount was outstanding thereunder. InFebruary 2019 , we issued$200.0 million aggregate principal amount of the 2025 Notes in an underwritten public offering. The 2025 Notes bear interest at a rate of 4.50% per year, payable semiannually in arrears onFebruary 15 andAugust 15 of each year. The notes mature onFebruary 15, 2025 , unless earlier repurchased, redeemed or converted. 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 precedingNovember 15, 2024 , subject to the satisfaction of certain conditions. 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 election. 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. InMay 2021 , we entered into exchange agreements with certain holders of the 2025 Notes pursuant to which the holders exchanged$55.4 million in aggregate principal amount of the outstanding 2025 Notes for 19,051,270 shares of our Common Stock. Upon consummation of the Exchange, we paid the holders of the exchanged notes an aggregate of approximately$0.6 million in accrued and unpaid interest on the exchanged notes. We recorded an$11.1 million non-cash loss related to the Exchange. As ofJune 30, 2021 , the total commitments under our Credit Agreement with CB and our lines of credit with financial institutions inChile andSpain were$95.6 million , of which$16.2 million was drawn as ofJune 30, 2021 . AtJune 30, 2021 , the weighted average interest rate on these lines of credit was approximately 5.4%. 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 six months endedJune 30, 2021 was$17.2 million . We intend to continue to draw under these lines of credit as needed. There is no assurance that these lines of credit or other funding sources will be available to us on acceptable terms, or at all, in the future. InNovember 2015 , BioReference and certain of its subsidiaries entered into the Credit Agreement with CB, as lender. The Credit Agreement provides for a$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. The Credit Agreement matures onNovember 5, 2021 and is guaranteed by all of BioReference's domestic subsidiaries. The Credit Agreement is also secured by substantially all assets of BioReference and its domestic subsidiaries, as well as a non-recourse pledge by us of our equity interest in BioReference. Availability under the Credit Agreement is based on a borrowing base composed of eligible accounts 57 -------------------------------------------------------------------------------- Table of Contents receivables of BioReference and certain of its subsidiaries, as specified therein. As ofJune 30, 2021 ,$64.3 million remained available for borrowing under the Credit Agreement. InFebruary 2018 , in a transaction exempt from registration under the Securities Act, we issued the 2023 Convertible Notes in the aggregate principal amount of$55.0 million maturing inFebruary 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, par value$0.01 per share, at a conversion price of$5.00 per share of Common Stock. 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 holders. The 2023 Convertible Notes contain customary events of default and representations and warranties of OPKO. OnJuly 6, 2021 , we entered into 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 Licensed Compound and the Licensed Product, worldwide. The License 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 Preferred Stock, which equates to approximately 5% of the outstanding shares of CAMP4, and 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 additional 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. 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 Agreement after a specified notice period. OnJune 18, 2021 , EirGen and Nicoya entered into the Nicoya Agreement granting Nicoya the exclusive rights for the development and commercialization of the "Nicoya Product inGreater China the Nicoya Territory. Extended release calcifediol is marketed in theU.S. under the tradename Rayaldee by OPKO. EirGen received an initial upfront payment of$5 million and is eligible to receive an additional$5 million upon the first to occur of (A) a certain predetermined milestone, or (B) the first anniversary of the effective date. 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 will also 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. OnOctober 12, 2017 , EirGen and JT entered into the JT Agreement granting JT the exclusive rights for the development and commercialization of Rayaldee inJapan . OnMay 17, 2021 , JT delivered to the Company a notice of termination of the Development Agreement pursuant to Section 16.1(a) thereof, which permits termination by JT for any reason, indicating its decision to discontinue development of Rayaldee for the Japanese market based on a comprehensive review of its development pipeline. InMay 2016 , EirGen, partnered with VFMCRP through the VFMCRP Agreement for the development and commercialization of Rayaldee in the VFMCRP Territory. The license to VFMCRP potentially covers all therapeutic and prophylactic uses of the product in human patients, provided that initially the license is for the use of the product for the treatment or prevention of SHPT related to patients with CKD and vitamin D insufficiency/deficiency ("VFMCRP Initial Indication"). EffectiveMay 23, 2021 , we entered into an amendment to our agreement with VFMCRP for the development and commercialization of Rayaldee, pursuant to which the parties thereto agreed to includeJapan as part of the VFMCRP Territory. EffectiveMay 5, 2020 , we entered into the VFMCRP Amendment, pursuant to which the parties agreed to excludeMexico ,South Korea , theMiddle East and all of the countries ofAfrica from the VFMCRP Territory. In addition, the parties agreed to certain amendments to the milestone structure and to reduce minimum royalties payable. 58 -------------------------------------------------------------------------------- Table of Contents We have received non-refundable and non-creditable payments of$55 million to date and are eligible to receive up to an additional$227 million pursuant to the terms of the VFMCRP Amendment upon the achievement of certain regulatory and sales-based milestones tied to sales and reimbursement levels. In addition, we are eligible to receive tiered royalties on sales of the product at percentage rates that range from the mid-teens to the mid-twenties or a minimum royalty, whichever is greater, upon commencement of sales of the product. As part of the arrangement, the companies will share responsibility for the conduct of trials specified within an agreed-upon development plan, with each company leading certain activities within the plan. For the initial development plan, the companies have agreed to certain cost sharing arrangements. VFMCRP will be responsible for all other development costs that VFMCRP considers necessary to develop the product for the VFMCRP Initial Indication in the VFMCRP Territory except as otherwise provided in the VFMCRP Agreement. EirGen also granted to VFMCRP an option to acquire an exclusive license to use, import, offer for sale, sell, distribute and commercialize the product in theU.S. for treatment of SHPT in dialysis patients with stage 5 CKD and vitamin D insufficiency (the "Dialysis Indication"). Upon exercise of the Option, VFMCRP will reimburse EirGen for all of the development costs incurred by EirGen with respect to the product for the Dialysis Indication in theU.S. VFMCRP would also pay EirGen up to an additional aggregate amount of$555 million upon the achievement of certain 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 or a minimum royalty, whichever is greater, upon commencement of sales of the product. InOctober 2019 , we and Pfizer announced that the global phase 3 trial evaluating Somatrogon (hGH-CTP) dosed once-weekly in prepubertal children with GHD met its primary endpoint of non-inferiority to daily Genotropin® (somatropin) for injection, as measured by annual height velocity at 12 months. InJune 2020 , we announced that theJapan phase 3 clinical trial met its primary and secondary objectives, and demonstrated that the efficacy and safety of Somatrogon administered weekly was comparable to GENOTROPIN® for injection administered once-daily as measured by annual height velocity after 12 months of treatment in treatment-naïve Japanese pre-pubertal children with GHD. In 2014, Pfizer and OPKO entered into a worldwide agreement for the development and commercialization of our long-acting Somatrogon for the treatment of GHD in adults and children, as well as for the treatment of growth failure in children born small for gestational age. InMay 2020 , we entered into a Restated Agreement with Pfizer which was effective as ofJanuary 1, 2020 , pursuant to which the parties agreed to share all costs for Manufacturing Activities, as defined in the Restated Agreement, for developing a licensed product for the three indications included in the Restated Agreement. Under the terms of the agreements with Pfizer, we received non-refundable and non-creditable upfront payments of$295 million in 2015 and are eligible to receive up to an additional$275 million upon the achievement of certain regulatory milestones. Pfizer received the exclusive license to commercialize Somatrogon worldwide. In addition, we are eligible to receive initial tiered royalty payments associated with the commercialization of Somatrogon for Adult GHD with percentage rates ranging from the high teens to mid-twenties. Upon the launch of Somatrogon for Pediatric GHD in certain major markets, the royalties will transition to regional, tiered gross profit sharing for both Somatrogon and Pfizer's Genotropin®. During the first quarter of 2021, regulatory submissions in the major global markets for Somatrogan have been accepted including, theU.S. ,European Medicines Agency , andMinistry of Health, Labour, and Welfare inJapan for Somatrogon for the treatment of pediatric patients with GHD. 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, including up to an additional$19.1 million in shares of our Common Stock to the former stockholders ofOPKO Diagnostics upon and subject to the achievement of certain milestones; and 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. We believe that the cash and cash equivalents on hand atJune 30, 2021 , cash from operations, the cash received from the sale of one of our facilities inWaterford, Ireland to Horizon Therapeutics plc and the amounts available to be borrowed under our lines of credit are sufficient to meet our anticipated cash requirements for operations and debt service beyond the next 12 months. We based this estimate on assumptions that may prove to be wrong or are subject to change, and we may be required to use our available cash resources sooner than we currently expect. If we acquire additional assets or companies, accelerate our product development programs or initiate additional clinical trials, we will need additional funds. Our future cash requirements, and the timing of those requirements, will depend on a number of factors, including the impact of the COVID-19 pandemic on our business, the approval and success of our products in development, particularly our long acting Somatrogon for which we have submitted for approval in theU.S. ,Europe andJapan , the commercial success of Rayaldee, including the launch of Rayaldee by Vifor expected in 2022, BioReference's financial performance, possible acquisitions, the continued progress of research and development of our product candidates, the timing and outcome of clinical trials and regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability of financing, our success in developing markets for our product candidates and results of government investigations, payor claims, and legal proceedings that may arise, including, without limitation class action and derivative litigation to which we are subject, and our ability to obtain insurance 59 -------------------------------------------------------------------------------- Table of Contents coverage for such claims. We have historically not generated sustained positive cash flow and if we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials or research and development programs or possible acquisitions or reduce our marketing or sales efforts or cease operations. Additionally, the rapid development and fluidity of the COVID-19 pandemic and new variants of the virus makes it very difficult to predict its ultimate impact on our business, results of operations and liquidity. The pandemic presents a significant uncertainty that could materially and adversely affect our results of operations, financial condition and cash flows, including a negative impact on non-COVID-related diagnostics testing services provided by BioReference in our diagnostics segment, notwithstanding that our results of operations have been positively impacted by our provision of COVID-19 testing services. Further, deteriorating economic conditions globally have resulted in a challenging capital raising environment, which could materially limit our access to capital, whether through the issuance and sale of our Common Stock, debt securities or otherwise, as well as through bank facilities and lines of credit. Events resulting from the effects of COVID-19 or new variants of the virus could negatively impact our ability to comply with certain covenants in the Credit Agreement or require that we pursue alternative financing. We can provide no assurance that any such alternative financing, if required, could be obtained on acceptable terms or at all. The combination of potential disruptions to our business resulting from COVID-19 together with and volatile credit and capital markets could adversely impact our future liquidity, which could have an adverse effect on our business and results of operations. We will continue to monitor and assess the impact COVID-19 and new variants of the virus may have on our business and financial results. The following table provides information as ofJune 30, 2021 , with respect to the amounts and timing of our known contractual obligation payments due by period. Remaining Contractual obligations six months ending (In thousands) December 31, 2021 2022 2023 2024 2025 Thereafter Total Open purchase orders$ 134,832 $ 660 $ - $ - $ - $ -$ 135,492 Operating leases 4,501 10,457 7,076 4,926 3,013 10,734 40,707 Finance leases 1,183 1,573 997 680 210 - 4,643 2033 Senior Notes, 2025 and 2023 Convertible Notes - - 58,050 - 116,009 - 174,059 Mortgages and other debts payable 599 1,016 815 723 241 193 3,587 Lines of credit 16,197 - - - - - 16,197 Interest commitments 3,516 6,638
20,048 6,535 573 - 37,310 Total$ 167,825 $ 22,297 $ 86,986 $ 12,864 $ 120,047 $ 10,927 $ 420,946 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$144.1 million . 60 -------------------------------------------------------------------------------- Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES There were no material changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , that have a material impact on our Condensed Consolidated Financial Statements and related notes. RECENT ACCOUNTING PRONOUNCEMENTS Pending accounting pronouncements. InAugust 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 will simplify 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 afterDecember 15, 2021 , with early adoption permitted. We are currently evaluating the impact of this new guidance on our Condensed Consolidated Financial Statements. 61
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