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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q


(Mark One)

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

For the quarterly period ended September 30, 2023.

OR

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

For the transition period from                      to                     .

Commission file number 001-33528


˹.

(Exact Name of Registrant as Specified in Its Charter)


Delaware

75-2402409

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

 

4400 Biscayne Blvd.

Miami     FL    33137

 

(Address of Principal Executive Offices) (Zip Code)

 

(305575-4100

 

(Registrants Telephone Number, Including Area Code)


Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

OPK

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

x

Accelerated filer

Non-accelerated filer

Smaller reporting company

  

Emerging growth company

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):     Yes    ☒  No

 

As of November 1, 2023, the registrant had 773,056,533 shares of Common Stock outstanding.



 

 

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

Page

Item 1.

Financial Statements

 

Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited)

7

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (unaudited)

8

Condensed Consolidated Statements of Comprehensive loss for the three and nine months ended September 30, 2023 and 2022 (unaudited)

9

Condensed Consolidated Statements of Equity for the three and nine months ended September 30, 2023 and 2022 (unaudited)

10

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)

12

Notes to Condensed Consolidated Financial Statements (unaudited)

13

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

48

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

63

Item 4.

Controls and Procedures

64

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

65

Item 1A.

Risk Factors

65

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

Item 3.

Defaults Upon Senior Securities

65

Item 4.

Mine Safety Disclosures

66

Item 5.

Other Information

66

Item 6.

Exhibits

66

Signatures

67

     
     
     
     
     
     
     
     
     
     
     
     
     
 

 

3

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies or prospects, operating results, cash flows and/or financial condition. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described below and in “Item 1A-Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, and described from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). We do not undertake any obligation to update forward-looking statements, except to the extent required by applicable law. We intend that all forward-looking statements be subject to the safe-harbor provisions of the PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

 

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

 

 

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

 

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

 

adverse results in material litigation matters or governmental inquiries;

 

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

 

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

 

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

 

that we may fail to successfully commercialize Somatrogon (hGH-CTP);

 

that we may not generate or sustain profits or cash flow from our laboratory operations or substantial revenue from Somatrogon (hGH-CTP), Rayaldee and our other pharmaceutical and diagnostic products;

 

our ability to manage our growth and our expanded operations;

 

that our acquisition of ModeX Therapeutics, Inc. will be successful and the products in the R&D pipeline will ultimately be commercialized;

 

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

 

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

 

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

 

changes in regulation and policies in the U.S. and other countries, including increasing downward pressure on healthcare reimbursement;

 

4

 

 

increased competition, including price competition;

 

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

 

integration challenges for acquired businesses;

 

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

 

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

 

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

 

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

 

the information technology systems that we rely on may be subject to unauthorized tampering, cyberattack or other data security or privacy incidents that could impact our billing processes or disrupt our operations;

 

failure to obtain and retain new clients and business partners, or a reduction in tests ordered or specimens submitted by existing clients;

 

failure to establish, and perform to, appropriate quality standards to assure that the highest level of quality is observed in the performance of our testing services;

 

failure to maintain the security of patient-related information;

 

our ability to obtain and maintain intellectual property protection for our products;

 

our ability to defend our intellectual property rights with respect to our products;

 

our ability to operate our business without infringing the intellectual property rights of others;

 

our ability to attract and retain key scientific and management personnel;

 

the risk that the carrying value of certain assets may exceed the fair value of the assets causing us to impair goodwill or other intangible assets;

 

our ability to comply with the terms of our 2022 Corporate Integrity Agreement with the U.S. Office of Inspector General of the Department of Health and Human Services;

 

failure to obtain and maintain regulatory approval outside the U.S.; 

 

legal, economic, political, regulatory, currency exchange, and other risks associated with international operations.

 

disruptions to operations, including impact on employees, and business continuity, including physical damage or impaired access to company facilities, office of technology from the current conflict in Israel and the Gaza Strip

   

 

   

 

5

 

PART I. FINANCIAL INFORMATION

 

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to the “Company”, “OPKO”, “we”, “our”, “ours”, and “us” refer to ˹., a Delaware corporation, including our consolidated subsidiaries.

 

Item 1. Financial Statements

 

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

 

6

 

 

˹. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

(In thousands, except share and per share data)

 

  

September 30, 2023

  

December 31, 2022

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $138,621  $153,191 

Accounts receivable, net

  117,449   127,312 

Inventory, net

  68,960   74,060 

Other current assets and prepaid expenses

  32,209   39,962 

Total current assets

  357,239   394,525 

Property, plant and equipment, net

  78,170   82,879 

Intangible assets, net

  758,414   823,520 

In-process research and development

  195,000   195,000 

Goodwill

  594,457   595,851 

Investments

  19,377   28,080 

Operating lease right-of-use assets

  44,690   38,725 

Other assets

  9,333   8,679 

Total assets

 $2,056,680  $2,167,259 

LIABILITIES AND EQUITY

        

Current liabilities:

        

Accounts payable

 $66,801  $66,993 

Accrued expenses

  92,368   98,269 

Current maturities of operating leases

  11,267   11,628 

Current portion of convertible notes

     3,050 

Current portion of lines of credit and notes payable

  30,118   33,540 

Total current liabilities

  200,554   213,480 

Operating lease liabilities

  34,649   27,963 

Long term portion of convertible notes

  213,285   210,371 

Deferred tax liabilities

  138,007   126,426 

Other long-term liabilities, principally contract liabilities, contingent consideration and lines of credit

  25,617   27,371 

Total long-term liabilities

  411,558   392,131 

Total liabilities

  612,112   605,611 

Equity:

        

Common Stock - $0.01 par value, 1,000,000,000 shares authorized; 781,711,885 and 781,306,164 shares issued at September 30, 2023 and December 31, 2022, respectively

  7,817   7,813 

Treasury Stock - 8,655,082 shares at September 30, 2023 and December 31, 2022, respectively

  (1,791)  (1,791)

Additional paid-in capital

  3,430,340   3,421,872 

Accumulated other comprehensive loss

  (46,495)  (43,323)

Accumulated deficit

  (1,945,303)  (1,822,923)

Total shareholders’ equity

  1,444,568   1,561,648 

Total liabilities and equity

 $2,056,680  $2,167,259 

 

 

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

 

7

 

 

˹. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)

 

   

For the three months ended September 30,

   

For the nine months ended September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Revenues:

                               

Revenue from services

  $ 131,679     $ 142,856     $ 391,100     $ 616,259  

Revenue from products

    40,670       32,388       124,553       104,938  

Revenue from transfer of intellectual property and other

    6,246       4,500       165,938       97,659  

Total revenues

    178,595       179,744       681,591       818,856  

Costs and expenses:

                               

Cost of service revenue

    106,375       128,182       333,460       521,221  

Cost of product revenue

    24,543       20,263       74,711       65,410  

Selling, general and administrative

    72,240       79,674       227,676       298,675  

Research and development

    19,435       18,792       70,199       54,359  

Contingent consideration

    (1,125 )     (754 )     (1,023 )     (685 )

Amortization of intangible assets

    21,534       21,407       64,543       66,225  

Gain on sale of assets

                      (15,365 )

Total costs and expenses

    243,002       267,564       769,566       989,840  

Operating loss

    (64,407 )     (87,820 )     (87,975 )     (170,984 )

Other income and (expense), net:

                               

Interest income

    970       667       3,077       838  

Interest expense

    (3,384 )     (3,017 )     (10,053 )     (8,754 )

Fair value changes of derivative instruments, net

    88       446       (829 )     652  

Other expense, net

    (11,645 )     (36,651 )     (16,045 )     (111,091 )

Other expense, net

    (13,971 )     (38,555 )     (23,850 )     (118,355 )

Loss before income taxes and investment losses

    (78,378 )     (126,375 )     (111,825 )     (289,339 )

Income tax benefit (provision)

    (6,075 )     40,327       (10,456 )     46,524  

Net loss before investment losses

    (84,453 )     (86,048 )     (122,281 )     (242,815 )

Loss from investments in investees

    (20 )     (43 )     (99 )     (359 )

Net loss

  $ (84,473 )   $ (86,091 )   $ (122,380 )   $ (243,174 )

Loss per share, basic and diluted:

                               

Loss per share

  $ (0.11 )   $ (0.11 )   $ (0.16 )   $ (0.34 )

Weighted average common shares outstanding, basic and diluted

    751,525,007       750,396,263       751,716,692       708,121,980  

 

 

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

 

8

 

 

˹. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

   

For the three months ended September 30,

   

For the nine months ended September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Net loss

  $ (84,473 )   $ (86,091 )   $ (122,380 )   $ (243,174 )

Other comprehensive income (loss), net of tax:

                               

Change in foreign currency translation and other comprehensive loss

    (9,554 )     (8,855 )     (3,173 )     (27,531 )

Comprehensive loss

  $ (94,027 )   $ (94,946 )   $ (125,553 )   $ (270,705 )

 

 

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

 

9

 

 

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands, except share data)

For the three and nine months ended September 30, 2023

 

                                           

Accumulated

                 
                                   

Additional

   

Other

                 
   

Common Stock

   

Treasury

   

Paid-In

   

Comprehensive

   

Accumulated

         
   

Shares

   

Dollars

   

Shares

   

Dollars

   

Capital

   

Loss

   

Deficit

   

Total

 

Balance at June 30, 2023

    781,693,135     $ 7,817       (8,655,082 )   $ (1,791 )   $ 3,427,094     $ (36,942 )   $ (1,860,830 )   $ 1,535,348  

Equity-based compensation expense

                            3,218                   3,218  

Exercise of common stock options and warrants

    18,750       0                   28                   28  

Net loss

                                        (84,473 )     (84,473 )

Other comprehensive loss

                                  (9,553 )           (9,553 )

Balance at September 30, 2023

    781,711,885     $ 7,817       (8,655,082 )   $ (1,791 )   $ 3,430,340     $ (46,495 )   $ (1,945,303 )   $ 1,444,568  

 

                                           

Accumulated

                 
                                   

Additional

   

Other

                 
   

Common Stock

   

Treasury

   

Paid-In

   

Comprehensive

   

Accumulated

         
   

Shares

   

Dollars

   

Shares

   

Dollars

   

Capital

   

Loss

   

Deficit

   

Total

 

Balance at December 31, 2022

    781,306,164     $ 7,813       (8,655,082 )   $ (1,791 )   $ 3,421,872     $ (43,323 )   $ (1,822,923 )   $ 1,561,648  

Equity-based compensation expense

                            8,745                   8,745  

Exercise of common stock options and warrants

    405,721       4                   (277 )                 (273 )

Net loss

                                        (122,380 )     (122,380 )

Other comprehensive loss

                                  (3,172 )           (3,172 )

Balance at September 30, 2023

    781,711,885     $ 7,817       (8,655,082 )   $ (1,791 )   $ 3,430,340     $ (46,495 )   $ (1,945,303 )   $ 1,444,568  

 

 

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

 

10

 

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands, except share data)

For the three and nine months ended September 30, 2022

 

                                           

Accumulated

                 
                                   

Additional

   

Other

                 
   

Common Stock

   

Treasury

   

Paid-In

   

Comprehensive

   

Accumulated

         
   

Shares

   

Dollars

   

Shares

   

Dollars

   

Capital

   

Loss

   

Deficit

   

Total

 

Balance at June 30, 2022

    780,591,681     $ 7,806       (8,655,082 )   $ (1,791 )   $ 3,413,556     $ (49,171 )   $ (1,651,601 )   $ 1,718,799  

Equity-based compensation expense

                            3,390                   3,390  

Exercise of common stock options and warrants

    27,750       1                   (464 )                 (463 )

ModeX Acquisition

    721,800       7                   2,281                   2,288  

Net loss

                                        (86,091 )     (86,091 )

Other comprehensive loss

                                  (8,855 )           (8,855 )

Balance at September 30, 2022

    781,341,231     $ 7,814       (8,655,082 )   $ (1,791 )   $ 3,418,763     $ (58,026 )   $ (1,737,692 )   $ 1,629,068  

 

                                           

Accumulated

                 
                                   

Additional

   

Other

                 
   

Common Stock

   

Treasury

   

Paid-In

   

Comprehensive

   

Accumulated

         
   

Shares

   

Dollars

   

Shares

   

Dollars

   

Capital

   

Loss

   

Deficit

   

Total

 

Balance at December 31, 2021

    690,082,283     $ 6,901       (8,655,082 )   $ (1,791 )   $ 3,222,487     $ (30,495 )   $ (1,511,976 )   $ 1,685,126  

Equity-based compensation expense

                            15,315                   15,315  

Exercise of common stock options and warrants

    629,837       7                   (695 )                 (688 )

Adoption of ASU 2020-06

                            (39,100 )           17,458       (21,642 )

ModeX Acquisition

    90,629,111       906                   220,756                   221,662  

Net loss

                                        (243,174 )     (243,174 )

Other comprehensive loss

                                  (27,531 )           (27,531 )

Balance at September 30, 2022

    781,341,231     $ 7,814       (8,655,082 )   $ (1,791 )   $ 3,418,763     $ (58,026 )   $ (1,737,692 )   $ 1,629,068  

 

 

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

 

11

 

 

˹. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   

For the nine months ended September 30,

 
   

2023

   

2022

 

Cash flows from operating activities:

               

Net loss

  $ (122,380 )   $ (243,174 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    79,315       82,195  

Non-cash interest

    2,057       2,057  

Amortization of deferred financing costs

    908       863  

Losses from investments in investees

    99       359  

Equity-based compensation – employees and non-employees

    8,746       15,315  

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

    1,444       (814 )

Change in fair value of equity securities and derivative instruments

    14,406       104,126  

Change in fair value of contingent consideration

    (1,023 )     (685 )

Gain on sale of GeneDx

          (15,365 )

Deferred income tax benefit

    7,307       (48,883 )

Changes in assets and liabilities:

               

Accounts receivable, net

    8,741       130,052  

Inventory, net

    4,082       11,314  

Other current assets and prepaid expenses

    10,220       (3,977 )

Other assets

    (2,666 )     211  

Accounts payable

    191       (25,000 )

Foreign currency measurement

    24       10,541  

Contract liabilities

    (2 )     (73 )

Accrued expenses and other liabilities

    (1,372 )     (82,631 )

Net cash provided by (used in) operating activities

    10,097       (63,569 )

Cash flows from investing activities:

               

Investments in investees

    (5,000 )      

Proceeds from sale of equity securities

    364        

Proceeds from sale of GeneDx

          115,423  

Acquisition of businesses, net of cash

          228  

Proceeds from the sale of property, plant and equipment

    1,109       1,501  

Capital expenditures

    (13,253 )     (18,242 )

Net cash provided by (used in) investing activities

    (16,780 )     98,910  

Cash flows from financing activities:

               

Proceeds from the exercise of common stock options

    (273 )     (688 )

Borrowings on lines of credit

    515,318       893,548  

Repayments of lines of credit

    (519,597 )     (880,033 )

Redemption of 2033 Senior Notes

    (3,000 )      

Net cash provided by (used in) financing activities

    (7,552 )     12,827  

Effect of exchange rate changes on cash and cash equivalents

    (335 )     (2,040 )

Net increase (decrease) in cash and cash equivalents

    (14,570 )     46,128  

Cash and cash equivalents at beginning of period

    153,191       134,710  

Cash and cash equivalents at end of period

  $ 138,621     $ 180,838  

SUPPLEMENTAL INFORMATION:

               

Interest paid

  $ 10,748     $ 7,019  

Income taxes paid, net of refunds

  $ (823 )   $ 4,471  

Assets acquired by finance leases

  $ 713     $  

Operating lease right-of-use assets obtained in exchange for lease obligations

  $ 5,966     $  

Non-cash financing:

               

Shares issued upon the conversion of:

               

Common stock options, warrants, and restricted stock units surrendered in net exercise

  $ 301     $ 1,182  

Issuance of common stock for acquisition of ModeX

  $     $ 221,662  

Fair value of shares received included in consideration from GeneDx Holdings

  $ 6,689     $ 172,000  

 

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

 

12

 

˹. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

NOTE 1 BUSINESS AND ORGANIZATION

 

We are a diversified healthcare company that seeks to establish industry-leading positions in large and rapidly growing medical markets. Our diagnostics business includes BioReference Health, LLC (“BioReference”), one of the nation’s largest full service laboratories with a 180-person sales and marketing team to drive growth and leverage new products, and we offer our 4Kscore prostate cancer test through BioReference. Our pharmaceutical business features Rayaldee, a U.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 Somatrogon (hGH-CTP), a once-weekly human growth hormone injection for which we have partnered with Pfizer Inc. (“Pfizer”) with respect to Somatrogon (hGH-CTP)’s further development. Regulatory applications for Somatrogon (hGH-CTP) have been approved in more than 40 markets worldwide, including the United States, European Union Member States, Japan, Canada, and Australia 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. In May 2022, we acquired ModeX Therapeutics, Inc. (“ModeX”), a biotechnology company focused on developing innovative multi-specific immune therapies for cancer and infectious disease candidates. ModeX has a robust early-stage pipeline with assets in key areas of immuno-oncology and infectious diseases, and we intend to further expand our pharmaceutical product pipeline through ModeX’s portfolio of development candidates.

 

Through BioReference, we provide laboratory testing services, primarily to customers in the larger metropolitan areas in New York, New Jersey, Florida, Texas, Maryland, California, Pennsylvania, Delaware, Washington, DC, Illinois and Massachusetts, as well as to customers in a number of other states. We offer a comprehensive test menu of clinical diagnostics for blood, urine and tissue analysis. This includes hematology, clinical chemistry, immunoassay, infectious disease, serology, hormones, and toxicology assays, as well as Pap smear, anatomic pathology (biopsies) and other types of tissue analysis, as well as testing for COVID-19. We market our laboratory testing services directly to physicians, geneticists, hospitals, clinics, correctional and other health facilities.

 

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

 

Our research and development activities are primarily performed at facilities in Natick, Massachusetts, Waterford, Ireland, Kiryat Gat, Israel, and Barcelona, Spain.

 

On May 9, 2022, the Company entered into an Agreement and Plan of Merger (the “ModeX Merger Agreement”), pursuant to which the Company acquired ModeX. The Company paid the entirety of the $300.0 million purchase price pursuant to the issuance of an aggregate of 89,907,310 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”), to the former stockholders of ModeX.  Please see Note 6 for additional information.

 

13

 

On January 14, 2022, the Company entered into an Agreement and Plan of Merger and Reorganization (the “GeneDx Merger Agreement”) with GeneDx Holdings Corp. (f/k/a “Sema4 Holdings Corp.”), a Delaware corporation (“GeneDx Holdings”), pursuant to which, on April 28, 2022, GeneDx Holdings acquired the Company’s former subsidiary, GeneDx LLC, (f/k/a GeneDx, Inc. “GeneDx”).

 

At closing, GeneDx Holdings paid to the Company aggregate consideration of $150 million in cash (before deduction of transaction expenses and other customary purchase price adjustments), together with 80.0 million shares (the “Closing Shares”) of GeneDx Holdings’ Class A common stock, par value $0.0001 per share (“GeneDx Holdings Common Stock”). Based on the closing stock price of GeneDx Holdings as of April 29, 2022, the total upfront consideration represented approximately $322 million. Additionally, subject to GeneDx achieving certain revenue targets for the fiscal years ending December 31, 2022 and 2023, we are eligible to receive an earnout payment (“Milestone Consideration”) in cash or stock (at GeneDx Holdings’ discretion) equal to a maximum of 30.9 million shares of GeneDx Holdings’ Common Stock if paid in stock. We received 23.1 million shares of Class A Common Stock as a result of GeneDx satisfactorily achieving targets as of December 31, 2022.

 

In connection with the transactions contemplated by the GeneDx Merger Agreement, on January 14, 2022, the Company entered into a shareholder agreement with GeneDx Holdings, pursuant to which the Company agreed to certain lockup restrictions in respect the shares of GeneDx Holdings Common Stock held by the Company.  Additionally, pursuant to the GeneDx Merger Agreement, the Company designated, and GeneDx Holdings nominated for election an individual to serve on the board of directors of GeneDx Holdings, and such nominee was elected by GeneDx Holdings’ stockholders to serve as a director at least until GeneDx Holdings’ 2024 annual meeting of stockholders. The Company has further agreed to certain standstill provisions whereby, subject to certain exceptions, it is obligated to refrain from taking certain actions with respect to the GeneDx Holdings Common Stock, and the Company has also agreed to vote its shares of GeneDx Holdings Common Stock in accordance with the recommendations of GeneDx Holdings’ board of directors for so long as it continues to hold at least 5% of the outstanding shares of GeneDx Holdings Common Stock. Please see Note 6 for additional information.

 

 

NOTE 2 FOREIGN EXCHANGE RATES

 

Foreign Currency Exchange Rates

 

Approximately 30.7% of revenue for the nine months ended September 30, 2023, and approximately 22.0% of revenue for the nine months ended September 30, 2022, were denominated in currencies other than the U.S. Dollar (USD). Our financial statements are reported in USD and, accordingly, fluctuations in exchange rates affect the translation of revenues and expenses denominated in foreign currencies into USD for purposes of reporting the consolidated financial results. During the nine months ended September 30, 2023, and the year ended December 31, 2022, the most significant currency exchange rate exposures were to the Euro and Chilean Peso. Gross accumulated currency translation adjustments recorded as a separate component of shareholders’ equity were $43.1 million and $39.9 million at  September 30, 2023 and December 2022, respectively.

 

14

 

We are subject to foreign currency transaction risk for fluctuations in exchange rates during the period of time between the consummation and cash settlement of transactions. We seek to limit foreign currency transaction risk through hedge transactions with foreign currency forward contracts. Under these forward contracts, for any rate above or below the fixed rate, we receive or pay the difference between the spot rate and the fixed rate for the given amount at the settlement date. At September 30, 2023, we had 13 open foreign exchange forward contracts relating to inventory purchases on letters of credit with various amounts maturing monthly through October 2023 with a notional value totaling approximately $0.7 million. At December 31, 2022, we had 194 open foreign exchange forward contracts relating to inventory purchases on letters of credit with various amounts maturing monthly through January 2023 with a notional value totaling approximately $11.9 million.

 

 

 NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments or adjustments otherwise disclosed herein) considered necessary to present fairly the Company’s results of operations, financial position and cash flows have been made. The results of operations and cash flows for the nine months ended September 30, 2023 are not necessarily indicative of the results of operations and cash flows that may be reported for the remainder of 2023 or any other future periods. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

 

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

 

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

 

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

 

Inventories. Inventories are valued at the lower of cost and net realizable value. Cost is determined by the first-in, first-out method. We consider such factors as the amount of inventory on hand, estimated time required to sell such inventories, remaining shelf-life, and current market conditions to determine whether inventories are stated at the lower of cost and net realizable value. Inventories at our diagnostics segment consist primarily of purchased laboratory supplies, which are used in our testing laboratories. Inventory obsolescence expense for the three and nine months ended September 30, 2023, was $2.6 million and $4.0 million, respectively. Inventory obsolescence expense for the three and nine months ended September 30, 2022, was $3.0 million and $4.0 million, respectively.

 

Goodwill and intangible assets. Goodwill represents the difference between the purchase price and the estimated fair value of the net assets acquired accounted for by the acquisition method of accounting. Refer to Note 5. Goodwill, in-process research and development (“IPR&D”) and other intangible assets acquired in business combinations, licensing and other transactions was $1.6 billion at September 30, 2023 and December 31, 2022.

 

15

 

Assets acquired and liabilities assumed in business combinations, licensing and other transactions are generally recognized at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recognized as goodwill. At acquisition, we generally determine the fair value of intangible assets, including IPR&D, using the “income method.”

 

Subsequent to their acquisition, goodwill and indefinite lived intangible assets are tested at least annually as of October 1 for impairment, or when events or changes in circumstances indicate it is more likely than not that the carrying amount of such assets may not be recoverable.

 

Estimating the fair value of a reporting unit for goodwill impairment is highly sensitive to changes in projections and assumptions and changes in assumptions could potentially lead to impairment. We perform sensitivity analyses around our assumptions in order to assess the reasonableness of the assumptions and the results of our testing. Ultimately, potential changes in these assumptions may impact the estimated fair value of a reporting unit and result in an impairment if the fair value of such reporting unit is less than its carrying value. Goodwill was $594.5 million and $595.9 million, respectively, at September 30, 2023 and December 31, 2022.

 

Net intangible assets other than goodwill was $1.0 billion on September 30, 2023, and December 31, 2022, respectively, including IPR&D of $195.0 million on September 30, 2023, and December 31, 2022. Intangible assets are highly vulnerable to impairment charges, particularly newly acquired assets for recently launched products and IPR&D. Considering the high risk nature of research and development and the industry’s success rate of bringing developmental compounds to market, IPR&D impairment charges may occur in future periods. Estimating the fair value of IPR&D for potential impairment is highly sensitive to changes in projections and assumptions and changes in assumptions could potentially lead to impairment.

 

Upon obtaining regulatory approval, IPR&D assets are then accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. If the project is abandoned, the IPR&D asset is charged to expense. Finite lived intangible assets are tested for impairment when events or changes in circumstances indicate it is more likely than not that the carrying amount of such assets may not be recoverable. The testing includes a comparison of the carrying amount of the asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, then an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. We believe that our estimates and assumptions in testing goodwill and other intangible assets, including IPR&D, for impairment are reasonable and otherwise consistent with assumptions that marketplace participants would use in their estimates of fair value. Based on the current financial performance of our diagnostic segment, if future results are not consistent with our estimates and assumptions, then we may be exposed to impairment charges, which could be material.

 

During 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) in Europe and Japan. The assets will be amortized on a straight-line basis over their estimated useful life of approximately 12 years.

 

We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from 3 to 20 years. We use the straight-line method of amortization as there is no reliably determinable pattern in which the economic benefits of our intangible assets are consumed or otherwise used up. Amortization expense was $21.5 million and $64.5 million for the three and nine months ended September 30, 2023, respectively. Amortization expense was $21.4 million and $66.2 million for the three and nine months ended September 30, 2022, respectively.

 

Fair value measurements. The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate their fair value due to the short-term maturities of these instruments. Investments that are considered equity securities as of September 30, 2023 and December 31, 2022 are predominately carried at fair value. Our debt under the Credit Agreement (as defined below) approximates fair value due to the variable rate of interest applicable to such debt.

 

In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts. Accordingly, the estimates of fair value presented herein may not be indicative of the amounts that could be realized in a current market exchange. Refer to Note 9.

 

16

 

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

 

Derivative financial instruments. We record derivative financial instruments on our Condensed Consolidated Balance Sheet at their fair value and recognize the changes in the fair value in our Condensed Consolidated Statement of Operations when they occur, the only exception being derivatives that qualify as hedges. For the derivative instrument to qualify as a hedge, we are required to meet strict hedge effectiveness and contemporaneous documentation requirements at the initiation of the hedge and assess the hedge effectiveness on an ongoing basis over the life of the hedge. At September 30, 2023 and December 31, 2022, our foreign currency forward contracts held to economically hedge inventory purchases did not meet the documentation requirements to be designated as hedges. Accordingly, we recognized all changes in the fair values of our derivatives instruments, net, in our Condensed Consolidated Statement of Operations. Refer to Note 10.

 

Property, plant and equipment. Property, plant and equipment are recorded at cost or fair value if acquired in a business combination. Depreciation is provided using the straight-line method over the estimated useful lives of the assets and includes amortization expense for assets capitalized under finance leases. The estimated useful lives by asset class are as follows: software - 3 years, machinery, medical and other equipment - 5-8 years, furniture and fixtures - 5-12 years, leasehold improvements - the lesser of their useful life or the lease term, buildings and improvements - 10-40 years, and automobiles - 3-5 years. Expenditures for repairs and maintenance are charged to expense as incurred. Assets held under finance leases are included within Property, plant and equipment, net in our Condensed Consolidated Balance Sheets and are amortized over the shorter of their useful lives or the expected term of their related leases. Depreciation expense was $4.8 million and $14.8 million for the three and nine months ended September 30, 2023, respectively. Depreciation expense was $5.0 million and $16.0 million for the three and nine months ended September 30, 2022, respectively.

 

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

 

Income taxes. Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. We periodically evaluate the realizability of our net deferred tax assets. Our tax accruals are analyzed periodically and adjustments are made as events occur to warrant such adjustment. Valuation allowances on certain U.S. deferred tax assets and non-U.S. deferred tax assets are established, because realization of these tax benefits through future taxable income does not meet the more-likely-than-not threshold.

 

We operate in various countries and tax jurisdictions globally.  For interim reporting purposes, we record income taxes based on the expected effective income tax rate, taking into consideration year to date and global forecasted tax results. For the nine months ended September 30, 2023, the tax rate differed from the U.S. federal statutory rate of 21% primarily due to the valuation allowance against certain U.S. and non-U.S. deferred tax assets, the relative mix in earnings and losses in the U.S. versus foreign tax jurisdictions, and the impact of certain discrete tax events and operating results in tax jurisdictions which do not result in a tax benefit.

 

17

 

Included in Other long-term liabilities is an accrual of $6.0 million related to uncertain tax positions involving income recognition. In connection with an examination of foreign tax returns for the 2014 through 2020 tax years, a foreign taxing authority has issued an income tax assessment of approximately $246 million (including interest). We are appealing this assessment, as we believe, other than for uncertain tax positions for which we have reserved, the issues are without merit. We intend to exhaust all judicial remedies necessary to resolve the matter, which could be a lengthy process. There can be no assurance that this matter will be resolved in our favor, and an adverse outcome, or any future tax examinations involving similar assertions, could have a material adverse effect on our financial condition, results of operations and cash flows.

 

Revenue recognition. We recognize revenue when a customer obtains control of promised goods or services in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“Topic 606”). The amount of revenue that is recorded reflects the consideration that we expect to receive in exchange for those goods or services. We apply the following five-step model in order to determine this amount: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation.

 

We apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. For a complete discussion of accounting for Revenues from services, Revenues from products and Revenue from transfer of intellectual property and other, refer to Note 13.

 

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

 

While we have receivables due from federal and state governmental agencies, such receivables are not a credit risk because federal and state governments fund the related healthcare programs. Payment is primarily dependent upon submitting appropriate documentation. On September 30, 2023 and December 31, 2022, receivable balances (net of explicit and implicit price concessions) from Medicare and Medicaid were 11.6% and 14.2%, respectively, of our consolidated Accounts receivable, net.

 

The portion of our accounts receivable due from individual patients comprises the largest portion of credit risk. At September 30, 2023 and December 31, 2022, receivables due from patients represented approximately 2.1% and 2.9%, respectively, of our consolidated Accounts receivable, net.

 

We assess the collectability of accounts receivable balances by considering factors such as historical collection experience, customer credit worthiness, the age of accounts receivable balances, regulatory changes and current economic conditions and trends that may affect a customer’s ability to pay. Actual results could differ from those estimates. The allowance for credit losses was $2.0 million and $4.2 million on September 30, 2023, and December 31, 2022, respectively. The credit loss expense for the three and nine months ended September 30, 2023, was $98.3 thousand and $183.4 thousand, respectively. The credit loss expense for the three and nine months ended September 30, 2022, was $57.9 thousand and $241.5 thousand, respectively.

 

Equity-based compensation. We measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized in the Condensed Consolidated Statement of Operations over the period during which an employee is required to provide service in exchange for the award. We record excess tax benefits realized from the exercise of stock options as cash flows from operations. For the three and nine months ended September 30, 2023, we recorded $3.2 million and $8.7 million, respectively, of equity-based compensation expense.  For the three and nine months ended September 30, 2022, we recorded $3.4 million and $15.3 million, respectively, of equity-based compensation expense.

 

Research and development expenses. Research and development expenses include external and internal expenses. External expenses include clinical and non-clinical activities performed by contract research organizations, lab services, purchases of drug and diagnostic product materials and manufacturing development costs. Research and development employee-related expenses include salaries, benefits and equity-based compensation expense. Other internal research and development expenses are incurred to support overall research and development activities and include expenses related to general overhead and facilities. We expense these costs in the period in which they are incurred. We estimate our liabilities for research and development expenses in order to match the recognition of expenses to the period in which the actual services are received. As such, accrued liabilities related to third party research and development activities are recognized based upon our estimate of services received and degree of completion of the services in accordance with the specific third party contract.

 

18

 

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

 

Segment reporting. Our chief operating decision-maker is Phillip Frost, M.D., our Chairman and Chief Executive Officer. Dr. Frost reviews our operating results and operating plans and makes resource allocation decisions on a Company-wide or aggregate basis. We manage our operations in two reportable segments, pharmaceutical and diagnostics. The pharmaceutical segment consists of our pharmaceutical operations in Chile, Mexico, Ireland, Israel and Spain, Rayaldee product sales and our pharmaceutical research and development. The diagnostics segment primarily consists of clinical laboratory operations through BioReference. There are no significant inter-segment sales. We evaluate the performance of each segment based on operating profit or loss. There is no inter-segment allocation of interest expense or income taxes. Refer to Note 15.

 

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

 

Foreign currency translation. The financial statements of certain of our foreign operations use the local currency as the functional currency. The local currency assets and liabilities are generally translated at the rate of exchange to the U.S. dollar on the balance sheet date. The local currency revenues and expenses are translated at average rates of exchange to the U.S. dollar during the reporting periods. Foreign currency transaction gains (losses) have been reflected as a component of Other income (expense), net within the Condensed Consolidated Statement of Operations and foreign currency translation gains (losses) have been included as a component of the Condensed Consolidated Statement of Comprehensive Income (Loss). During the three and nine months ended September 30, 2023, we recorded ($3.8 million) and $1.9 million), respectively, of transaction losses. During the three and nine months ended September 30, 2022, we recorded ($5.8 million) and ($7.6 million), respectively, of transaction losses.

 

Variable interest entities. The consolidation of a variable interest entity (“VIE”) is required when an enterprise has a controlling financial interest. A controlling financial interest in a VIE will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE. Refer to Note 6.

 

Investments. We have made strategic investments in development stage and emerging companies. We record these investments as equity method investments or as equity securities based on our percentage of ownership and whether we have significant influence over the operations of the investees. For investments classified under the equity method of accounting, we record our proportionate share of their losses in Losses from investments in investees in our Condensed Consolidated Statement of Operations. Refer to Note 6. For investments classified as equity securities, we record changes in their fair value as Other income (expense) in our Condensed Consolidated Statement of Operations based on their closing price per share at the end of each reporting period, unless the equity security does not have a readily determinable fair value. Refer to Note 6.

 

Recently adopted accounting pronouncements.

 

In December 2022, the European Union member states voted unanimously to adopt a Directive implementing the Pillar 2 (global minimum tax) rules, giving member states until December 31, 2023, to implement the Directive into national legislation. Further details regarding implementing these rules are expected, and if implemented, such reform may increase our tax liabilities and compliance costs and reduce our profitability. Pillar 2 is effective from January 1, 2024, and will be treated as a period cost in future years and will not impact operating results for 2023.

 

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40).” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. The ASU is effective for public entities for fiscal years beginning after December 15, 2021, with early adoption permitted. As required, we adopted ASU 2020-06 on January 1, 2022 and used the modified retrospective approach for all convertible debt instruments at the beginning of the period of adoptions. Results for reporting periods beginning January 1, 2022 are presented under ASU 2020-06, while prior period amounts were not adjusted and continue to be reported in accordance with historic accounting guidance.

 

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Under the modified approach, entities will apply the guidance to all financial instruments that are outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. ASU 2020-06 eliminates the cash conversion and beneficial conversion feature models in ASC 470-20 that require an issuer of certain convertible debt and preferred stock to separately account for embedded conversion features as a component of equity. The adoption of ASU 2020-06 at January 1, 2022 resulted in an increase of the Convertible notes of $21.6 million, a reduction of the Accumulated deficit of $17.5 million and a reduction of Additional paid-in capital of $39.1 million.

 

 

NOTE 4 EARNINGS (LOSS) PER SHARE

 

Basic income (loss) per share is computed by dividing our net income (loss) by the weighted average number of shares of our Common Stock outstanding during the period. Shares of Common Stock outstanding under the share lending arrangement entered into in conjunction with the 2025 Notes (as defined in Note 7) are excluded from the calculation of basic and diluted earnings per share because the borrower of the shares is required under the share lending arrangement to refund any dividends paid on the shares lent. Refer to Note 7. For diluted earnings per share, the dilutive impact of stock options and warrants is determined by applying the “treasury stock” method. The dilutive impact of the 2033 Senior Notes, the 2023 Convertible Notes and the 2025 Notes (each, as defined and discussed in Note 7) has been considered using the “if converted” method. For periods in which their effect would be antidilutive, no effect is given to Common Stock issuable under outstanding options or warrants or the potentially dilutive shares issuable pursuant to the 2033 Senior Notes, the 2023 Convertible Notes and the 2025 Notes in the dilutive computation.

 

A total of 83,074,689 and 55,304,353 potential shares of Common Stock were excluded from the calculation of diluted net loss per share for the three months ended September 30, 2023 and 2022, respectively, because their inclusion would be antidilutive. A total of 82,368,398 and 56,529,876 potential shares of Common Stock were excluded from the calculation of diluted net loss per share for the nine months ended September 30, 2023 and 2022, respectively, because their inclusion would be antidilutive. A full presentation of diluted earnings per share has not been provided because the required adjustments to the numerator and denominator resulted in diluted earnings per share equivalent to basic earnings per share.

 

During the three months ended September 30, 2023, 18,750 options were exercised and no restricted stock units vested, resulting in the issuance of 18,750 shares of Common Stock.

 

During the nine months ended September 30, 2023, 18,750 options were exercised and 549,680 restricted stock units vested, resulting in the issuance of 405,721 shares of Common Stock.

 

During the three months ended September 30, 2022, an aggregate of 27,750 options to purchase shares of our Common Stock were exercised and 937,836 restricted stock units vested, resulting in the issuance of 749,550 shares of Common Stock. Of the 965,586 aggregate number of options exercised and restricted stock units vested, 216,036 shares of Common Stock were surrendered in lieu of a cash payment via the net exercise feature of such instruments.

 

During the nine months ended September 30, 2022, an aggregate of 211,187 options to purchase shares of our Common Stock were exercised and 1,599,212 restricted stock units vested, resulting in the issuance of 1,351,637 shares of Common Stock. Of the 1,810,399 aggregate number of options exercised and restricted stock units vested, 458,762 shares of Common Stock were surrendered in lieu of a cash payment via the net exercise or settlement feature of such instruments.

 

20

 
 

NOTE 5 COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

 

  

September 30,

  

December 31,

 

(In thousands)

 

2023

  

2022

 

Accounts receivable, net:

        

Accounts receivable

 $119,397  $131,474 

Less: allowance for credit losses

  (1,948)  (4,162)
  $117,449  $127,312 

Inventories, net:

        

Consumable supplies

 $27,259  $31,275 

Finished products

  35,053   37,139 

Work in-process

  2,589   2,449 

Raw materials

  8,691   6,771 

Less: inventory reserve

  (4,632)  (3,574)
  $68,960  $74,060 

Other current assets and prepaid expenses:

        

Taxes recoverable

 $7,452  $8,191 

Prepaid expenses

  9,483   7,918 

Prepaid insurance

  6,667   4,496 

Other receivables

  1,604   13,105 

Other

  7,003   6,252 
  $32,209  $39,962 

Intangible assets, net:

        

Customer relationships

 $314,337  $314,854 

Technologies

  824,263   826,282 

Trade names

  49,743   49,752 

Covenants not to compete

  12,909   12,911 

Licenses

  6,186   5,988 

Product registrations

  6,613   6,831 

Other

  5,807   5,861 

Less: accumulated amortization

  (461,444)  (398,959)
  $758,414  $823,520 

Accrued expenses:

        

Employee benefits

 $38,242  $33,765 

Clinical trials

  6,328   4,700 

Commitments and contingencies

  5,533   4,295 

Inventory received but not invoiced

  1,653   7,830 

Finance leases short-term

  2,931   2,809 

Professional fees

  1,911   1,820 

Taxes payable

  3,720   5,351 

Royalties

  1,509   2,323 

Commissions

  1,922   1,471 

Contingent consideration

     62 

Other

  28,619   33,843 
  $92,368  $98,269 

Other long-term liabilities:

        

Mortgages and other debts payable

 $7,892  $9,098 

Finance leases long-term

  7,680   7,089 

Contract liabilities

  136   138 

Contingent consideration

     974 

Other

  9,909   10,072 
  $25,617  $27,371 

 

21

 

Our intangible assets and goodwill relate principally to our completed acquisitions of OPKO Renal, OPKO Biologics, EirGen, BioReference and ModeX. We amortize intangi