PREVIEW
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, 2021 (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 Health LLC , formerlyBioReference Laboratories, Inc. ("BioReference"), one of the nation's largest full service laboratories with an almost 250-person sales and marketing team to drive growth and leverage new products. 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 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 . Regulatory applications for Somatrogon (hGH-CTP) have been submitted to several countries around the world for review. InFebruary 2022 , theEuropean Commission granted marketing authorization in theEuropean Union for Somatrogon (hGH-CTP) under the brand name NGENLA® to treat children and adolescents from as young as three years of age with growth disturbance due to insufficient secretion of growth hormone and we received pricing approval inGermany inApril 2022 . InJanuary 2022 , theMinistry of Health, Labour and Welfare inJapan approved NGENLA® (Somatrogon) for the long-term treatment of pediatric patients who have growth failure due to an inadequate secretion of endogenous growth hormone and we received pricing approval inApril 2022 . InOctober 2021 ,Health Canada approved NGENLA® for the long-term treatment of pediatric patients who have growth hormone deficiency, andAustralia's Therapeutic Goods Administration approved NGENLA® for the long-term treatment of pediatric patients with growth disturbance due to insufficient secretion of growth hormone. We also submitted the initial Biologics License Application ("BLA") with the FDA for approval of Somatrogon (hGH-CTP) inthe United States , and Pfizer received a Complete Response Letter inJanuary 2022 . Pfizer and OPKO are evaluating theFDA's comments and will work with the agency to determine the best path forward for Somatrogon (hGH-CTP) inthe United States . 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 In early 2022, each of theEuropean Commission and theMinistry of Health, Labour and Welfare inJapan approved the next-generation long-acting recombinant human growth hormone NGENLA (Somatrogon), a once-weekly injection to treat pediatric growth hormone deficiency inEurope andJapan , respectively. Further,Canada andAustralia approved NGENLA in October and November of 2021, respectively. InApril 2022 , Pfizer notified OPKO that NGENLA has received pricing approval inGermany andJapan . With the achievement of these milestones, we are entitled to receive an aggregate of$85.0 million in milestone payments.
In early 2022, VFMCRP initiated the commercial launch of Rayaldee in
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InJanuary 2022 , the FDA issued a Complete Response Letter for the BLA for Somatrogon. Pfizer and OPKO are evaluating theFDA's comments and will work with the agency to determine the best path forward for Somatrogon (hGH-CTP) inthe United States . InJanuary 2022 , Sema4 Holdings Corp. ("Sema4") and OPKO entered into a definitive agreement (the "GeneDx Merger Agreement"), pursuant to which Sema4 agreed to acquire OPKO's wholly owned subsidiary,GeneDx LLC , formerlyGeneDx, Inc. ("GeneDx"), a leader in genomic testing and analysis, subject to the satisfaction of customary closing conditions (the "GeneDx Transaction"). The GeneDx Transaction closed onApril 29, 2022 . OnMay 9, 2022 , the Company entered into an Agreement and Plan of Merger withOrca Acquisition Sub, Inc. ("Merger Sub ", a subsidiary of the Company formed for the purposes of this transaction),ModeX Therapeutics, Inc. , ("ModeX" or "Seller") and Sellers' representative (the "Merger Agreement"), pursuant to which Merger Sub was merged with and into ModeX, with ModeX becoming a wholly owned subsidiary of the Company (the "Merger"). The Company paid an aggregate of$300 million for all of the outstanding equity of ModeX, as adjusted by customary adjustments. The consideration paid at closing consisted of shares of our common stock, which was valued based on the average of the daily volume-weighted average price over the thirty (30) trading days prior to the date that is two (2) days prior to the signing of the Merger Agreement . In addition, the Company has made a number of management changes in connection with the Merger.Elias Zerhouni , M.D.,Gary Nabel , M.D., PhD., andAlexis Borisy were appointed to the Board of the Company, withDr. Zerhouni appointed as the Vice Chair.Elizabeth Nabel , one of the founders of ModeX, is the new Chief Medical Officer of the Company. Dr.Gary Nabel has been named the CEO of ModeX and Chief Innovation Officer of the Company andDr. Zerhouni has been named the President of the Company. 45
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Table of Contents RESULTS OF OPERATIONS Impact of COVID-19 We continue to be a part of the coordinated public and private sector response to SARS-CoV-2, a novel strain of coronavirus, referred to as COVID-19. There continues to be a high level of uncertainty relating to how the pandemic will evolve, how governments and consumers will react, progress on the distribution of vaccines and whether the pandemic will have a longer-term effect on the healthcare industry and patient habits. BioReference is providing COVID-19 solutions, including diagnostic molecular testing and serology antibody testing, to meet the testing needs of its customers, including physicians, health systems, long-term care facilities, governments, schools, employers, professional sports teams and entertainment venues, as well as the general public through relationships with retail pharmacy chains. 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. Throughout the last two years, we have managed our company-wide lab operations specimen acquisition, logistics, procurement, customer service, and initiatives to manage our cost structure to match the ever changing COVID-19 testing volumes and to manage efficiency gains in our core clinical lines of business. We anticipate that COVID-19 will continue to impact our business in 2022 and demand for COVID-19 testing will fluctuate with the potential for increases and decreases in demand at different times and across different geographies; however, overall, we expect COVID-19 test demand to trend down in 2022 as compared to 2021. Revenue from services for the three months endedMarch 31, 2022 decreased by$220.4 million as compared to 2021 due to lower COVID-19 testing volumes. We maintain our ability to quickly scale-up COVID-19 PCR testing capacity, even during periods of reduced demand. In doing so, we are able to immediately and effectively respond to surges in positive cases and testing needs. 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 be sustained. Excluding COVID-19 test volumes, for the three months endedMarch 31, 2022 , genomic and routine clinical test volume increased 14.0% and 0.4% respectively, as compared to volumes for the three months endedMarch 31, 2021 . InMarch 2022 , theU.S. Health Resources and Services Administration ("HRSA") informed providers that, afterMarch 22, 2022 , it would stop accepting claims for testing and treatment for uninsured individuals under the HRSA COVID-19 Uninsured Program and that claims submitted prior to that date would be subject to eligibility and availability of funds. For the three months endedMarch 31, 2022 , revenue for testing of uninsured individuals under the HRSA COVID-19 Uninsured Program represented approximately 7.9% of our COVID-19 testing revenue. As ofMarch 31, 2022 , less than 6% of our net accounts receivable was associated with claims for reimbursement for COVID-19 testing of uninsured individuals. Although we believe that our estimates for contractual allowances and patient price concessions are appropriate, actual results could differ from those estimates.
FOR THE THREE MONTHS ENDED
Our consolidated operating profit (loss) for the three months ended
For the three months ended
March 31,
(In thousands) 2022 2021 Change % Change
Revenues:
Revenue from services $ 286,599 $ 506,951 $ (220,352) (43) %
Revenue from products 36,658 33,945 2,713 8 %
Revenue from transfer of intellectual
property and other 5,962 4,269 1,693 40 %
Total revenues 329,219 545,165 (215,946) (40) %
Costs and expenses:
Cost of revenue 243,875 363,507 (119,632) (33) %
Selling, general and administrative 117,537 112,286 5,251 5 %
Research and development 18,312 19,315 (1,003) (5) %
Contingent Consideration (106) (957) 851 (89) %
Amortization of intangible assets 22,025 12,577 9,448 75 %
Total costs and expenses 401,643 506,728 (105,085) (21) %
Income (loss) from operations (72,424) 38,437 (110,861) (288) %
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Diagnostics
For the three months ended
March 31,
(In thousands) 2022 2021 Change % Change
Revenues
Revenue from services $ 286,599 $ 506,951 $ (220,352) (43) %
Total revenues 286,599 506,951 (220,352) (43) %
Costs and expenses:
Cost of revenue 221,206 339,428 (118,222) (35) %
Selling, general and administrative 94,957 89,317 5,640 6 %
Research and development 6,222 3,631 2,591 71 %
Amortization of intangible assets 7,762 7,561 201 3 %
Total costs and expenses 330,147 439,937 (109,790) (25) %
Income (loss) from operations (43,548) 67,014 (110,562) (165) %
Revenue. Revenue from services for the three months ended March 31, 2022
decreased by approximately $220.4 million compared to the three months ended
March 31, 2021 . The decrease in revenue for the three months ended March 31,
2022 reflects lower demand for COVID-19 testing and lower COVID-19 reimbursement
of $164.0 million and $26.6 million , respectively. BioReference performed 2.0
million molecular tests for COVID-19 and 0.1 million serology antibody tests
during the three months ended March 31, 2022 , which represented 46.9% of total
volume for that period. In comparison, the three months ended March 31, 2021
included 4.1 million molecular tests for COVID-19 and 0.2 million serology
antibody tests. The reduction in reimbursement reflects an increase in
utilization of antigen point of care diagnostic tests as well as a change in the
mix of customers which have varying contract prices depending on the level of
services we provide.
Furthermore, clinical test reimbursement decreased $44.9 million as a result of
the mix of testing ordered. Partially offsetting the decrease in COVID-19 test
volumes and clinical test reimbursement, were an improvement in genomic test
reimbursement of $9.7 million , an increase in clinical test volume of $1.9
million , and genomic test volume of $3.2 million , respectively.
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 ended March 31, 2022 and 2021, positive
revenue adjustments due to changes in estimates of implicit price concessions
for performance obligations satisfied in prior periods of $2.0 million and $28.0
million were recognized, respectively. Revenue adjustments for the three months
ended March 31, 2022 and 2021 were primarily due to an improvement in COVID-19
test reimbursement estimates.
The composition of Service revenue by payer for the three months ended
Three months ended March 31, (In thousands) 2022 2021 Healthcare insurers$ 95,779 $ 164,829 Government payers 27,588 73,658 Client payers 159,040 262,907 Patients 4,192 5,557 Total$ 286,599 $ 506,951
Paying customers include cities, states, and businesses for which BioReference provides COVID-19 testing services.
Cost of revenue. Cost of revenue for the three months endedMarch 31, 2022 decreased$118.2 million compared to the three months endedMarch 31, 2021 . Cost of revenue decreased primarily due to a decline in the volume of COVID-19 tests performed during the three months endedMarch 31, 2022 compared to 2021. Cost of revenue for the three months endedMarch 31, 2022 also decreased due to changes in the test mix during the period. 47
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Selling, general and administrative expenses. Selling, general and administrative expenses for the three months endedMarch 31, 2022 and 2021 were$95.0 million and$89.3 million , respectively. Selling, general and administrative expenses in our diagnostics segment increased primarily due to increased investment in our commercial digital organization resulting in higher professional fees, personnel expenses and equity-based compensation due to the acceleration of certain option awards.
Research and development costs. The following table summarizes the components of our research and development expenses:
Research and Development Expenses Three months ended March 31,
2022 2021
External expenses:
PMA studies $ - $ 31
Research and development employee-related expenses 4,926 2,194
Other internal research and development expenses 1,296 1,406
Total research and development expenses $
6,222
The increase in research and development expenses for the three months endedMarch 31, 2022 resulted primarily related to the development of clinical and genomics testing services at BioReference. Amortization of intangible assets. Amortization of intangible assets was$7.8 million and$7.6 million , respectively, for the three months endedMarch 31, 2022 and 2021. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Pharmaceuticals For the three months ended March 31, (In thousands) 2022 2021 Change % Change Revenues: Revenue from products$ 36,658 $ 33,945 $ 2,713 8 % Revenue from transfer of intellectual property and other 5,962 4,269 1,693 40 % Total revenues 42,620 38,214 4,406 12 % Costs and expenses: Cost of revenue 22,669 24,089 (1,420) (6) % Selling, general and administrative 11,611 13,406 (1,795) (13) % Research and development 12,291 15,817 (3,526) (22) % Contingent Consideration (106) (957) 851 (89) % Amortization of intangible assets 14,263 5,016 9,247 184 % Total costs and expenses 60,728 57,371 3,357 6 % loss from operations (18,108) (19,157) 1,049 (5) % Revenue. The increase in revenue from products for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was primarily attributable to an increase in sales at most of our international operating companies. Revenue from sales of Rayaldee for the three months endedMarch 31, 2022 and 2021 was$5.1 million and$5.8 million , respectively. Sales of Rayaldee in 2022 and 2021 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 and other for the three months endedMarch 31, 2022 and 2021 reflect$2.2 million and$2.8 million , respectively, of revenue related to the Pfizer Transaction. In addition, OPKO recognized a$3.0 million milestone payment from VFMCRP in transfer of intellectual property and other during the three months endedMarch 31, 2022 . 48
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Revenue cost. Cost of sales for the three months ended
decreases
mainly due to a
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months endedMarch 31, 2022 and 2021 were$11.6 million and$13.4 million , respectively. The decrease in selling, general and administrative expenses was primarily due to a decrease in legal expenses and selling expenses related to Rayaldee. Selling, general and administrative expenses for the pharmaceutical segment for the three months endedMarch 31, 2022 and 2021 included equity-based compensation expense of$0.3 million and$0.3 million , respectively. Research and development expenses. Research and development expenses for the three months endedMarch 31, 2022 and 2021 were$12.3 million and$15.8 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
2022 2021 External expenses: Manufacturing expense for biological products $ 1,250$ 1,567 Phase III studies 2,632 2,351 Post-marketing studies 17 5 Earlier-stage programs 2,601 5,193 Research and development employee-related expenses 5,173 5,328 Other internal research and development expenses 618 1,383 Third-party grants and funding from collaboration agreements - (10) Total research and development expenses $
12,291
The decrease in research and development expenses for the three months endedMarch 31, 2022 was primarily due to a decrease in research and development expenses for Somatrogon (hGH-CTP), 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 endedMarch 31, 2022 and 2021 included equity-based compensation expense of$0.3 million and$0.4 million , respectively. Contingent consideration. Contingent consideration for the three months endedMarch 31, 2022 and 2021 was$0.1 million and$1.0 million reversal of expense, respectively. Contingent consideration for the three months endedMarch 31, 2022 and 2021 was primarily attributable to changes in assumptions regarding the timing of achievement of future milestones for OPKO Renal, and potential amounts payable to former stockholders of OPKO Renal in connection therewith, pursuant to our acquisition agreement inMarch 2013 . Amortization of intangible assets. Amortization of intangible assets was$14.3 million and$5.0 million , respectively, for the three months endedMarch 31, 2022 and 2021. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. In the first quarter of 2022, we reclassified$590.2 million of IPR&D related to Somatrogon (hGH-CTP) from IPR&D in our Condensed Consolidated Balance Sheet upon the approval of NGENLA (Somatrogon) inEurope andJapan . The assets will be amortized on a straight-line basis over their estimated useful life of approximately 12 years. 49
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Corporate
For the three months ended March
31,
(In thousands) 2022 2021 Change % Change
Costs and expenses:
Cost of revenue $ - $ (10) $ 10 (100) %
Selling, general and administrative 10,969 9,563 1,406 15 %
Research and development (201) (133) (68) 51 %
Total costs and expenses 10,768 9,420 1,348 14 %
Loss from operations (10,768) (9,420) (1,348) 14 %
Operating loss for our unallocated corporate operations for the three months
ended March 31, 2022 and 2021 was $10.8 million and $9.4 million , respectively,
and principally reflect general and administrative expenses incurred in
connection with our corporate operations. Operating loss for our unallocated
corporate operations for the three months ended March 31, 2022 was driven by an
increase in legal fees.
Other
Interest income. Interest income for the three months ended March 31, 2022 and
2021 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 ended March 31, 2022 and
2021 was $2.7 million and $5.4 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 A&R
Credit Agreement. The decrease in interest expense was primarily due to the
impact of the adoption of ASU 2020-06 on the 2025 Notes. Due to the adoption of
ASU 2020-06, interest expense decreased due to the elimination of the discount
created by recognizing a component of convertible debt in equity. Refer to Note
7.
Fair value changes of derivative instruments, net. Fair value changes of
derivative instruments, net for the three months ended March 31, 2022 and 2021,
was $0.1 million and $0.4 million of expense, respectively. Derivative expense
for the three months ended March 31, 2022 and 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
ended March 31, 2022 and 2021, was $1.4 million of income and $0.9 million of
expense, respectively. Other income (expense) for the three months ended
March 31, 2022 and 2021 primarily consisted of foreign currency transaction
gains (losses) recognized during the period.
Income tax benefit (provision). Our income tax benefit (provision) for the three
months ended March 31, 2022 and 2021 was $21.3 million and $(0.6) million ,
respectively, and reflects quarterly results using our expected effective tax
rate. For the three months ended March 31, 2022 , the tax rate differed from the
U.S. federal statutory rate of 21% primarily due to a $22.0 million discrete
benefit resulting from reduced tax rates that will be applicable to existing
foreign deferred tax liabilities, as well as the relative mix in earnings and
losses in the U.S. versus foreign tax jurisdictions, and operating results in
tax jurisdictions which do not result in a tax benefit.
Loss from investments in investees. We have 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 $49 thousand and $43 thousand for the three months
ended March 31, 2022 and 2021, respectively.
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CASH AND CAPITAL RESOURCES
AtMarch 31, 2022 , we had cash and cash equivalents of approximately$102.3 million . Cash used in operations of$19.9 million for the three months endedMarch 31, 2022 principally reflects general and administrative expenses related to our corporate operations and research and development activities. Cash used in investing activities for the three months endedMarch 31, 2022 primarily reflects capital expenditures of$5.3 million . Cash used in financing activities of$7.9 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. InApril 2022 , Pfizer notified OPKO that NGENLA (Somatrogon), a once-weekly injection to treat pediatric growth hormone deficiency, has received pricing approval inGermany andJapan . NGENLA was granted marketing authorization by theMinistry of Health, Labour and Welfare inJapan and by theEuropean Commission in January and February of this year, respectively. With the achievement of these milestones, we are entitled to receive an aggregate of$85.0 million in milestone payments. InJanuary 2022 , we and Sema4 announced the execution of the GeneDx Merger Agreement, pursuant to which Sema4 has agreed to acquire our wholly owned subsidiary,GeneDx . The GeneDx Transaction closed onApril 29, 2022 . As ofMarch 31, 2022 andDecember 31, 2021 ,GeneDx met the held-for-sale accounting criteria and the related assets and liabilities are classified as held for sale in the consolidated balance sheet. Under the terms of the GeneDx Merger Agreement, Sema4 has agreed to acquireGeneDx for an upfront payment of$150 million in cash, subject to adjustments, plus 80.0 million shares in Sema4, with up to an additional$150 million revenue-based milestones over the next two years (which will be payable in cash or Sema4 shares at Sema4's discretion). Based on the closing stock price of Sema4 as ofApril 29, 2022 , the total upfront consideration represents approximately$322 million , and the total aggregate consideration including potential milestones is approximately$472 million . 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 Bonds is 236.7424 ordinary shares per
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 (the "Exchange"). As ofMarch 31, 2022 , the total commitments under our A&R Credit Agreement with CB and our lines of credit with financial institutions inChile andSpain were$89.5 million , of which$16.5 million was drawn as ofMarch 31, 2022 . AtMarch 31, 2022 , the weighted average interest rate on these lines of credit was approximately 5.5%. 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 three months endedMarch 31, 2022 was$16.6 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. The A&R 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 A&R Credit Agreement matures onAugust 30, 2024 and is guaranteed by all of BioReference's domestic subsidiaries, subject to certain exceptions. The A&R Credit Agreement is also secured by substantially all assets of BioReference and its domestic subsidiaries, subject to certain exceptions, as well as a non-recourse pledge by us of our equity interest in BioReference. Availability under the A&R Credit Agreement is based on a borrowing base composed of eligible accounts receivables of BioReference and certain of its subsidiaries, as specified therein. As ofMarch 31, 2022 ,$64.8 million remained available for borrowing under the A&R Credit Agreement. 51 -------------------------------------------------------------------------------- Table of Contents In connection with our agreements with Pfizer, VFMCRP, Nicoya and CAMP4, we are eligible to receive various milestone payments and royalty considerations. Under the terms of the Pfizer Agreement, we are eligible to receive up to an additional$275.0 million upon the achievement of certain regulatory milestones, including$85 million of milestone payments we expect to receive during the second quarter of 2022. 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®. Under the terms of the VFMCRP Agreement, we are entitled to receive up to an additional$17 million in regulatory milestones and$207 million in milestone payments tied to launch, pricing and sales of Rayaldee, including a$3.0 million milestone payment we recognized during the three months endedMarch 31, 2022 upon the first sale of Rayaldee inEurope . In addition, we are eligible to receive tiered, double-digit royalty payments. Under the terms of the Nicoya Agreement, we received an initial upfront payment of$5 million and are eligible to receive an additional$5 million upon the first to occur of (A) a predetermined milestone and (B) the first anniversary of the effective date. We are 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. We 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. Under the terms of the CAMP4 Agreement, we received an initial upfront payment of$1.5 million and we are eligible to receive up to$3.5 million in development milestone payments for Dravet syndrome products, and$4 million for non-Dravet syndrome products, as well as sales milestones of up to$90 million for Dravet syndrome products and up to$90 million for non-Dravet syndrome products. In connection with our acquisitions of CURNA,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. As a result of our execution of the CAMP4 Agreement, we will have to pay a percentage of any payments received under the CAMP4 Agreement to the former CURNA stockholders. We believe that the cash and cash equivalents on hand atMarch 31, 2022 , cash from the Pfizer milestone payments of$85 million , the$150 million of cash paid at the closing of the Sema4 transaction 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 evolving 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 received approval inEurope ,Japan ,Australia andCanada , submitted for approval in theU.S. and received a Complete Response Letter inJanuary 2022 , the approval and success of Somatrogon outsidethe United States , including inEurope ,Japan ,Australia andCanada , the commercial success of Rayaldee, including from the recent launch of Rayaldee by Vifor and in other territories expected in 2022, BioReference's financial performance, possible acquisitions and dispositions, 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 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 as a result of the COVID-19 pandemic have in the past resulted, and may in the future result 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 A&R 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 52
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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 ofMarch 31, 2022 , with respect to the amounts and timing of our known contractual obligation payments due by period. Remaining Contractual obligations nine months ending (In thousands) December 31, 2022 2023
2024 2025 2026 Thereafter Total Open purchase orders $ 247,377$ 5,034 $ - $ - $ - $ -$ 252,411 Operating leases 9,083 9,360 6,006 3,673 3,071 12,093 43,286 Finance leases 1,766 1,940 1,393 893 324 - 6,316 2033 Senior Notes, 2025 and 2023 Convertible Notes - 69,254 - 141,267 - - 210,521 Deferred payments 2,478 - - - - - 2,478 Mortgages and other debts payable 1,779 865 502 271 - - 3,417 Lines of credit 16,531 - - - - - 16,531 Interest commitments 7,105 6,955 6,528 571 - - 21,159 Total $ 286,119$ 93,408 $ 14,429 $ 146,675 $ 3,396 $ 12,093 $ 556,119
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 . 53
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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, 2021 , that have a material impact on our Condensed Consolidated Financial Statements and related notes.
RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted 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 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. The ASU is effective for public entities for fiscal years beginning afterDecember 15, 2021 , with early adoption permitted. As required, we adopted ASU 2020-06 onJanuary 1, 2022 and used the modified retrospective approach for all convertible debt instruments at the beginning of the period of adoptions. Results for reporting periods beginningJanuary 1, 2022 are presented under ASU 2020-06, while prior period amounts were not adjusted and continue to be reported in accordance historic accounting guidance. Under the modified approach, entities will apply the guidance to all financial instruments that are outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. ASU 2020-06 eliminates the cash conversion and beneficial conversion feature models in ASC 470-20 that require an issuer of certain convertible debt and preferred stock to separately account for embedded conversion features as a component of equity. The adoption of ASU 2020-06 atJanuary 1, 2022 resulted in an increase of the Convertible notes of$25.6 million , a reduction of the Accumulated deficit of$17.5 million and a reduction of Additional paid-in capital of$39.1 million . 54
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