OPKO Health's (OPK) CEO Phillip Frost on Q2 2014 Results - Earnings Call Transcript

| About: OPKO Health, (OPK)


Q2 2014 Earnings Conference Call

August 12, 2014 8:30 am ET


Steven D. Rubin - EVP, Administration

Phillip Frost - Chairman and CEO

Charles W. Bishop - CEO of OPKO Renal Division

Scott Toner - VP of Marketing and Sales, OPKO Renal Division

David Okrongly - President of OPKO Diagnostics

Martin J. Petkovich - CSO, Renal Division

Adam Logal - SVP and CFO


Charley Jones - Barrington Research

Rohit Vanjani - Oppenheimer

Kevin DeGeeter - Ladenburg Thalmann

John - Jefferies


Greetings and welcome to the OPKO Health Top-Line Rayaldee Results and Second Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I would now turn the conference over to Mr. Steven Rubin, Executive Vice President, Administration. Thank you, Mr. Rubin. You may now begin.

Steven D. Rubin

Thank you and good morning. Before we begin, I'd like to remind you that any statements made during this call which are historical will be considered forward-looking, and as such will be subject to risk and uncertainties which could materially affect our expected results, including without limitation the various risks described in our annual report on Form 10-K for the year ended December 31, 2013 and our subsequent filings with the SEC.

With that, I'll turn it over to Dr. Frost.

Phillip Frost

Good morning. This is Phil Frost, the Chairman and CEO of OPKO. I'd like to just say a word about the format for today's session. We'll start with Charlie Bishop, the Head of our Renal Division, who will provide an overview of the Rayaldee clinical program which reported positive top-line results from the first of two pivotal Phase 3 trials yesterday. He will be followed by Scott Toner, our Head of Marketing for OPKO's Renal Division, who will then discuss the market opportunity for Rayaldee. And he will then be followed by David Okrongly, the Head of OPKO's Diagnostics Division, who will provide an update on our recent 4Kscore launch and progress of the development and commercialization of Claros 1. Adam Logal, our Chief Financial Officer, will then talk about our financial results for the quarter, and I will follow up by a very brief wrap-up.

This is a very important time in the history of OPKO. For several years now, we have been putting together a group of what we consider to be very important products in several fields, and each of the projects in these fields seems to be coming to fruition in a very positive way. These are projects in the field of chronic kidney disease and urology and endocrinology, and [inaudible] of the products that you'll hear about this morning [are planned to do so] (ph) in a very programmed and clear basis an additional [inaudible] that we can develop franchises in each of these specific areas.

You'll hear about Rayaldee [inaudible] human growth hormone and endocrinology and also factor VII for hemophilia which is in a related field of hematology. You'll also hear about our efforts in the diagnostic field which directly relates to our efforts in urology for the moment, but also going forward with the vitamin D test that we are developing will add to our endocrinology business.

So with that brief introduction, I'll introduce Charlie Bishop who will tell you about the Rayaldee.

Charles W. Bishop

Thanks, Phil. Good morning. I'm Charlie Bishop, CEO of the OPKO Renal Division. I'm pleased to report to all of you that the first pivotal Phase 3 trial with Rayaldee is a success. Top line data showed that the trial met all primary efficacy and safety endpoints. We expect to unwind the second identical pivotal trial in September, giving us the required efficacy data to support our forthcoming NDA submission targeted for the end of 2014.

Just a quick rundown on the study design and the top line data. The trial was randomized double-blind placebo-controlled design. The main objective was to determine if Rayaldee safely and effectively treated secondary hyperparathyroidism by correcting the underlying vitamin D insufficiency. A total of 213 patients were enrolled, all of whom had SHPT stage 3 or 4 CKD and vitamin D insufficiency. Enrolment was stratified to achieve an equal number of patients with stage 3 and 4 CKD or chronic kidney disease.

Patients were randomized in a 2-to-1 fashion to treatment with either Rayaldee or placebo, and excellent balance was achieved between the Rayaldee and placebo groups for gender, race, ethnicity and age. The Rayaldee and placebo groups did not differ with regards to mean baseline characteristics, including severity of SHPT and vitamin D insufficiency, renal function, routine laboratory parameters and body mass index.

Dosing started at one capsule per day and was increased if necessary to two per day. In the Rayaldee group, each capsule contained 30 micrograms of calcifediol, a vitamin D prohormone. Dosing continued for six months. The primary efficacy endpoint was the percentage of patients in the Rayaldee and placebo groups who achieved the required PTH lowering response. PTH of course is the abbreviation for parathyroid hormone.

The trial was declared successful if this percentage was significantly higher in the Rayaldee group compared with the placebo group, meaning that the probability or P-value had to be less than 0.05. The P-value for this study turned out to be 0.0002, meaning that this was a highly significant result. The primary safety endpoints included the usual list, treatment, emerging adverse events, routine lab parameters, vital signs, physical exams and ECG measurements.

Analysis of the primary safety endpoints showed no significant differences between the Rayaldee and placebo groups. A key secondary efficacy endpoint was the percentage of patients whose vitamin D insufficiency was fully corrected. 96% of patients treated with Rayaldee achieved vitamin D adequacy.

Overall, the results of this first pivotal trial demonstrate that Rayaldee can safely and effectively modulate PTH and correct vitamin D insufficiency in stage 3 and 4 CKD.

Just a quick summary of the Phase 3 clinical program for Rayaldee. The program includes three clinical trials which are intended to support FDA approval. The two six-month double-blind placebo-controlled trials are identical and governed by a common protocol. The protocol and statistical analysis plan governing the conduct and analysis of the two pivotal trials were included in a special protocol assessment, or SPA, established between the FDA and OPKO in August 2012.

In this SPA, the FDA agreed that the design and planned analysis of these studies adequately adjust the objectives necessary to support an NDA submission. As we have just discussed, the first pivotal trial is a success. We expect the second pivotal trial, which is identical, to be successful too enabling an NDA submission later this year. The top line data from the second pivotal trial will be available next month.

Patients completing the two pivotal trials are being treated at their election for additional six months with Rayaldee during a third open-label extension study which will provide safety data on 12 months of treatment. More than 80% of completing patients have elected to rollover into the extension study. The extension study will yield sufficient safety data by late September to support the planned NDA submission.

The need for Rayaldee is plainly apparent in the United States. There are approximately 8 million patients with stage 3 or 4 CKD and at least half of these patients suffer from vitamin D insufficiency and the resultant secondary hyperparathyroidism or SHPT. Primarily nephrologists and endocrinologists care for these patients and they can be effectively reached with a small specialized sales force.

Over-the-counter or prescription nutritional vitamin D products are currently used to treat about one-third of the stage 3 and stage 4 patients. It's widely recognized that nutritional vitamin D is safe, but doctors Kalantar-Zadeh and Kovesdy recently published a comprehensive review of clinical trials conducted with nutritional vitamin D in CKD patients and this study concluded, this paper concluded, and I'm quoting the article, 'most of the studies have shown either no or minimal to inadequate changes in PTH levels'.

Vitamin D hormone drugs such as Calcitriol are used in approximately another third of these patients but they are cautiously used in sub-therapeutic bruises to avoid over-suppressing PTH which causes adynamic bone disease hypercalcemia, which is excessive blood calcium, and vascular calcification. It is well established that vitamin D hormones and analogs are far more likely to cause PTH over-suppression and hypercalcemia than nutritional vitamin D when used with therapeutically relevant doses. Therefore, experts caution that vitamin D hormones should not be used to treat secondary hyperparathyroidism arising from vitamin D insufficiency.

Given that there are at least 4 million patients with SHPT derived from vitamin D therapy or about 4 million to 4.5 million patients, if we were to price Rayaldee at the lower cost range of vitamin D therapy, which is $3,000 per year, the U.S. CKD market alone represents a potential $12 billion revenue opportunity. Now we are approximately 1.5 years away from launch, so we have plenty of time to sharpen our pricing strategy and to adjust it as necessary. There's plenty of room for adjustment as you can see.

Why is Rayaldee the solution to the unmet need? Rayaldee is a modified-release oral formulation of 25-hydroxyvitamin D3, the prohormone form of vitamin D3. This prohormone is a blood-borne storage form of vitamin D and is monitored by physicians to determine the vitamin D status of their patients.

When the blood level is adequate, this prohormone is converted in functioning kidneys to a vitamin D hormone known as calcitriol. When the blood prohormone level is low, a condition known as vitamin D insufficiency, the kidneys make and secrete too little calcitriol into the blood. This situation causes the parathyroid glands to secrete excessive amounts of PTH leading to the development of secondary hyperparathyroidism.

The modified-release formulation is the key to Rayaldee's efficacy since slow release of the prohormone avoids up-regulation of the vitamin D catabolic enzyme known as CYP24 which produces resistance to vitamin D therapies. Rayaldee gradually and progressively lowers elevated PTH by correcting the underlying vitamin D insufficiency.

At this point, I'd like to turn the teleconference over to Scott Toner, Vice President of Marketing and Sales of the Renal Division. Scott?

Scott Toner

Thank you, Charlie. Good morning everyone. As most of you can imagine, given that we're still a year or so away from launch, we're spending a considerable amount of time conducting research to understand the common practices for treating secondary hyperparathyroidism and vitamin D insufficiency, particularly among nephrologists, endocrinologists and others of our key stakeholders. What I'd like to do in the two minutes that I have this morning is to give you a glimpse into some of the findings from our research that give us greater assurance that we are looking at a very substantial opportunity for Rayaldee.

So starting with our primary research with nephrologists and endocrinologists, it's probably not surprising to you that we've confirmed, as Charlie said, that both secondary hyperparathyroidism and vitamin D insufficiency are widespread among the CKD 3 and 4 population, but we have also confirmed now that treating both are a significant priority to this group of physicians.

With regard to correction of vitamin D insufficiency, we found that both nephs and endos and routinely checking for vitamin D insufficiency and typically they attempt to normalize it very shortly after it's diagnosed. What we found even more interesting though is that although over-the-counter and prescription nutritional vitamin D products work for certain patients, there is a substantial proportion of patients that are unable to achieve the targeted levels of 25-D regardless of the dose regimen or formulation of the nutritional Ds that are being used with them. So with regard to vitamin D insufficiency, we've been able to confirm that there is a clear unmet need in a substantial portion of these patients.

Turning now to secondary hyperparathyroidism, the most commonly used hormonal form of vitamin D in this population is calcitriol, and it's reported to be quite effective in suppressing PTH. However as Charlie said, there is widespread concern among clinicians, particularly the nephrologists, that it can lead to over-suppression of PTH and contribute to adynamic bone disease and mineral metabolism disorders. And in fact what we're hearing that many, if not most, of the commissions actually end up switching their patients from nutritional therapy – or from hormone therapy when they develop SHPT rather than adding it to the nutritional vitamin D. And of course not surprisingly when they do this, this usually leads to declining levels of circulating 25-D.

So basically in a lot of cases, we are hearing that they are choosing to treat either SHPT or vitamin D insufficiency but not both. And while it would seem the rationale on the surface to stop treating vitamin D insufficiency in favor of treating only SHPT, it actually makes sense from the standpoint that hormonal products tend to exacerbate mineral metabolism disorders and this leads to clinicians having to try to titrate phosphate binders, nutritional and hormonal forms of vitamin D, in order to maintain control of the calcium, phosphorus and PTH, and it simply becomes too complicated for many clinicians to actually want to deal with.

So now in addition to asking about their current treatment practices, we want to share with them a product profile that represented what we believe could be the Rayaldee clinical study results. And in response, based on the Rayaldee product attributes that we presented to them and the way that they are currently practising, they expressed a high degree of interest in trying Rayaldee.

So in summary, our early qualitative research with nephrologists and endos has shown that there's a clear unmet need for a product that could simultaneously correct both vitamin D insufficiency and SHPT, and with a high degree of interest in trying Rayaldee once it's approved.

Now in addition to the research with clinicians that I've just outlined, I can tell you that we also recently initiated research with both payors and patients and we expect to have something to share with you with regards to those findings on a future call.

And at this time, I'd like to turn the teleconference over to David Okrongly, the President of Diagnostics.

David Okrongly

Thank you very much, Scott. I'm David Okrongly, President of OPKO Diagnostics and I'm going to talk about three things today. First is a launch update on the 4Kscore test which is the only blood test for identifying high-grade aggressive prostate cancer. Then I'm going to talk about the reimbursement progress we're making with the 4Kscore test and then I'll conclude with a discussion about the Claros 1 and our preparation for FDA submission on the Total PSA and Testosterone assays.

So the 4Kscore test was launched in March 31 of 2014. We had a highly enthusiastic reception at the AUA, at the EAU prior to that. The Spanish National Conference, we had a plenary address there in June. And we continue to have strong interest, we'll be presenting in Brazil at the Congress for Brazilian Urology in November, and also in Mexico at the Mexican Urology Society Meeting where we have plenary addresses as well. So, lot of enthusiasm for the test. People are really seeing this as a way to help reduce the over-diagnosis and overtreatment associated with traditional prostate cancer screening.

We've now in the U.S. have over 170 urologists that are ordering the test, have ordered the test. We're seeing a very strong ramp in sales. We expect that to continue over time, especially as we work further and further into the reimbursement and also with the boost that we have now put into place, which is our Medical Affairs team.

We've added Dr. [Mitch Steiner] (ph), Dr. [Jane Numark] (ph) and Dr. [Grantham Sand] (ph) to our team of medical affairs people that will now be working directly with urologists across the United States and really educating them about the 4Kscore test and how this will improve not only the situation for their patients but also help to convince the primary care physicians that those are the new tests available in the marketplace that will help to manage those patients that are now not being referred to the urologists.

We've also extensively renovated our Web-site, both the physician and patient sites, and we've now begun to use social media to get the word out about the 4Kscore test.

So on the reimbursement side, the reimbursement process in the United States requires us to get what's called a CPT code. This is a reimbursement code that is issued first through the AMA CPT Committee and then used by both the Medicare payors and private insurance payors to quote for our test. We submitted that application on July 3. We expect to have the unique CPT code issued to us early in 2015, which will then give us the ability to start billing for the test.

Meetings are also ongoing with various members of Congress and with the [inaudible] involved in the healthcare veterans affairs immense health issues. We think it's very important to have the support of the [inaudible] and also the agencies to really educate them about the issues that are facing us in abandoning prostate cancer screening, which is what United States Preventive Services Task Force has recommended doing. We think the answer is to screen smarter, use PSA to screen them but then take these men that are at higher risk for prostate cancer and run a test like the 4Kscore test to determine appropriate next step.

So we're also conducting various meetings with private insurance payors as well as some of the [inaudible] that can make local coverage decisions to basically take away the major headwind we have with the 4Kscore test, which is the fact that it's out of pocket pay right now.

I'll conclude now with the Claros 1 which is our physician in-office analyzer for doing rapid finger-stick blood sample testing. The machine is actually well done, we've been using the instrument as it is for now several years. We've been actually developing the best for both Total TSA and testosterone to really build out our urology franchise and provide them with two of the highest volume test to be conducted in the urology office setting. We submitted our pre-submissions to the FDA for both of those assays and we're expecting to begin our clinical trials in the third quarter or early fourth quarter and to complete those rather quickly since these are both 510(k) submissions.

We've also made, as I alluded to in some earlier calls, major improvements in volume and quality of our manufacturing and we've now just added an entirely new robotic system which is now undergoing its final validation for producing [inaudible] million cassettes per year in our manufacturing facility near Boston, Massachusetts. So great progress on Claros, and at this point I'm going to turn it over to our CFO, Adam Logal.

Adam Logal

Thank you, David, and good morning everyone. We ended June with approximately $134 million in cash and cash equivalents, providing sufficient liquidity to complete the development of our ongoing late stage clinical program. We strengthened our balance sheet during the quarter by retiring $70 million of convertible debt through a privately negotiated exchange transaction which also resulted in over $2 million in annual cash savings through the avoidance of future interest payments. Cash used by operations during the first six months principally reflects our ongoing investments in Rayaldee Phase 3 clinical trials as well as our ongoing human growth hormone development programs.

Turning to revenue, OPKO's pharmaceutical operating unit showed positive results during the three and six month periods with 15% and 21% increases in year-over-year product revenue growth. Total revenue for the three and six months of 2014 was $23.5 million and $45.8 million compared to $23.8 million and $55.2 million for the comparable periods of 2013. These decreases were the result of nonrecurring licensing revenue recognized during the three and six months of 2013 of $2 million and $14.5 million. The nonrecurring revenue was partially offset by our increased pharmaceutical product sales driven by our Israeli API business FineTech, our European business at OPKO Spain, as well as our Mexican operations.

As David outlined, as we continue to see increases in the adoption of the 4Kscore test and the launch of the 4Kscore test in Europe next month and elsewhere shortly thereafter, we expect to see revenue build over the coming quarters. We also anticipate receiving the first milestone from TESARO upon the acceptance of their NDA on filing in mid-September.

Our net loss for the three and six months increased in comparison to the 2013 periods as a result of our significant investments into development programs for Rayaldee and human growth hormone, along with our other earlier stage programs.

Research and development expense increased $6.7 million to $16.2 million for the three months and increased $16.7 million to $37.2 million for the six months ended June 30, 2014. In addition, we have recorded nonrecurring in-process research and development expense related to the acquisition of Inspiro during the second quarter 2014.

As a result, net loss was $24.5 million for the three months ended and $70.0 million for the six months ended June 30, 2014 in comparison to $3.4 million and $38 million for the comparable periods of 2013.

I would like to turn the call back to Dr. Frost for some closing remarks before opening the call for Q&A.

Phillip Frost

Thank you, Adam. I'd just like to finish by emphasizing a few of the products in the pipeline that are slightly earlier stage. Yesterday we announced, or a few days ago we announced that we are expanding our Rayaldee program to evaluate its possible efficacy in the treatment of cancer and other diseases such as multiple sclerosis. The literature is replete with data indicating that vitamin D insufficiency is important in the development of these as well as several other diseases. Factor VII was mentioned. The product that we are developing possibly can be in human trials by the end of this year and it is again a possible game changes for the people who suffer from hemophilia and require this product.

Normally these patients come to the hospital after a bleed to get a replenishment of Factor VII which they are missing and they have to get it by intravenous infusion. Our product, being long acting, first of all can be given with a subcutaneous injection, and because it's long-acting, we hope to provide a new paradigm for these patients by having it used prophylactically, in which case they can take it at home and avoid the bleeds. It's important to avoid these bleeds because they do damage to the joints and to the cardiovascular system and ultimately to chronic disease and even death.

In closing, I'll mention one product that the people around me know is one of my favorites and it's called oxyntomodulin. Oxyntomodulin is a naturally occurring hormone that's produced in the gut in response to a meal. It's designed, it's nature's way of, I should say, of controlling our appetite so that we avoid overweight and obesity.

Now what it does, it goes to the brain after a meal and it goes to the satiety center and makes you feel full. It also goes to the liver and goes through a receptor that controls sugar metabolism. We have wonderful animal data showing that in two mouse models that it can control the appetite and these animals wind up looking – afterwards they eat a lot and they get enormous and develop Type II diabetes.

Our product given once a week, and this is a big issue because a problem with this product although it's been known for a long time, is the duration with acting, given once a week makes them eat normally, they shrink back to their normal size and the Type II diabetes goes away. We hope to have this product in human trials sometime around the end of this year.

Now you may know that overweight and obesity is a crisis around the world. Mexico for example has declared overweight and obesity a national crisis that needs to be attended to. So, the number of patients around the world are so huge that I think that this has the hope of offering a relief to the many people who need it, especially since these problems lead to chronic diseases which are the main causes of health spending, healthcare spending around the world. So from an economic point of view as well as a personal health point of view, I think a product like this can make a huge contribution and we're all I think very enthusiastic about this as an example of our whole array of products all of which have big potential.

So with that, I think we'll open the floor to questions.

Question-and-Answer Session


(Operator Instructions) Our first question is from Charley Jones of Barrington Research. Please go ahead.

Charley Jones - Barrington Research

I was hoping to get started with Rayaldee. I guess one of my first questions is whether or not this product or how big this product could be I guess for the MS and the metastatic bone cancer market, but I guess to go a little bit further with than that, I'm curious whether or not this is an appropriate drug or some formulation of this drug would be appropriate for people in general with vitamin D deficiency or whether or not it's really more appropriate for just CKD SHPT product group?

Charles W. Bishop

At this point, we only know enough about Rayaldee to say that it is suitable for use in the chronic kidney disease population to treat secondary hyperparathyroidism, but as Dr. Frost mentioned just a little while ago, we are beginning plans to expand our clinical space to examine the potential utility of Rayaldee in other disease indications. We have on the line our CSO, Dr. Martin Petkovich, who is a professor at Queens University, who can comment briefly on the application of Rayaldee to metastatic bone disease. Marty, can I pass it to you for a minute?

Martin J. Petkovich

Sure, Charlie, thanks. Good morning everybody. Maybe it's worth just mentioning the indication itself. We're very interested in using Rayaldee to treat patients with advanced cancer because they often have metastases to bone. For example in breast cancer, the vast majority of breast cancer patients with metastases do have metastases to bone, and bone metastases can modify and enhance bone metabolism resulting in what are called skeletal related events, and these include hypocalcemic episodes, bone pain, breaks, vertebral compressions. These all make quality of life very poor. So these morbidity needs to be addressed.

And as well increase in bone metabolism can also accelerate cancer progression, and [pertinent] (ph) SREs or skeletal related events are managed by basically shutting down bone metabolism. And this is accomplished using antiresorptive therapies which include denosumab and zoledronate, and although these agents are effective and very important for managing bone metastases and they are certainly growing in use over the past few years as an important tool for oncologists, they can also cause hypocalcemia which can be fatal and they also cause increased PTH which has been shown to be associated with very poor outcomes in this patient group.

So there is clearly an opportunity for Rayaldee to address these issues. So we think it would be very, Rayaldee would be very effective at normalizing calcium and reducing risk in these patients of hypocalcemic episodes, and as well it will be very effective in reducing PTH, as Charlie has shown very nicely in the results of the Phase 3 trial in CKD.

But I think what will make Rayaldee even more important in oncology is that we know from numerous nonclinical studies that vitamin D has very important anticancer effects and these include the ability to suppress epithelial-mesenchymal transition of circulating tumor cells and this is a critical process that allows tumor cells to become metastatic to find a place to settle down, like bone, and continue to grow.

They can also – vitamin D signaling can also reduce the inflammatory response, and inflammation is becoming very critical or at least we're understanding that it's very critical for circulating tumor cells to take hold in bone as well. So these work together, inflammation and epithelial-mesenchymal transition, and vitamin D seems to act on both of these processes.

In addition, vitamin D can also suppress angiogenesis which is important for tumor growth, and can suppress tumor cell proliferation. And furthermore, it can suppress bone metabolism by reducing PTH as I mentioned, and this will increase the effectiveness of the antiresorptive therapies which as I mentioned are growing in use, and they may also decrease tumor progression by suppressing PTH.

So we think that there is a very potentially great market not only for use of Rayaldee as an adjuvant therapy for the use of bone sparing agents on antiresorptive therapies but also because of its anticancer properties, we believe that it will be very important for other forms of cancer as well. And we hope that in the Phase 1 study that we plan to conduct very shortly, that we will be able to demonstrate what levels of 25-D are essential to see these anticancer effects in these patients.

Charley Jones - Barrington Research

Thank you very much. I got a little bit more than I bargained for there. That was great, I appreciate it. I guess the next question on that is, maybe I had a few questions but maybe the next one to go to is on the diagnostic, maybe David or whoever could talk a little bit about the timing related to vitamin D diagnostic test in general and then maybe one related to Claros as well? Then I have one more follow-up and I'll jump back in queue.

David Okrongly

Charlie, it's Dave. The vitamin D test is actually going to be coming right behind testosterone and that has a lot to do with that we need to overcome the same pre-treatment step with testosterone that we need to use to test for vitamin D. Both testosterone and vitamin D are actually bound up to proteins that circulate in the blood. So this pre-treatment is something we've actually now got working very well for testosterone and as soon as the resources that are working on testosterone and PSA are freed up, we are going to be applying them to vitamin D.

We actually did quite a bit of the groundwork for the vitamin D assay back in 2013 and the early part of 2014. So we're anticipating very quickly moving that into clinical trials in 2015 and having it in plenty of time to support the launch in the U.S. of Rayaldee.

And on the PSA and testosterone, as I alluded to, we're moving on all fronts to bring this into clinical trials later part of this year, both the regulatory, our manufacturing validation and our closing out of development activities on the cassettes.

Charley Jones - Barrington Research

Thanks Dave. I guess, Charlie, sorry if I missed this but could you discuss how many of these 4 million CKD patients with SHPT and vitamin D deficiency are treated currently and how big that market is, and I was hoping could you give your thoughts on whether you think this percentage changes drastically with Rayaldee? And maybe just to kind of throw one more in there for you, because I'm curious, how long does it take for these other therapies, calcitriol and vitamin D hormone, to have the negative effects such as hypercalcemia and how long does that take for it to result in a clinical notable change?

Charles W. Bishop

Charley, great question, I'll answer really quickly because I know there's [others who] (ph) want to ask questions too. About a third of the CKD patients, stage 3 and stage 4, are treated with nutritional vitamin D method and treated with vitamin D hormones, and a large third, nearly a half, aren't treated at all because neither one of these new treatment options are great. Rayaldee can move into all three of these sectors I think with vigor. Actually I think Rayaldee will become the product of preference by far. You asked about how quickly vitamin D hormones can exhibit their negative effects. They are highly potent and they can exhibit negative effects within weeks of starting treatment.


The next question is from Rohit Vanjani of Oppenheimer. Please go ahead.

Rohit Vanjani - Oppenheimer

Charlie, do you have any sense of the percent of production in the 30 microgram versus the 60 microgram dosing for the PTH levels?

Charles W. Bishop

It's a great question. I can tell you we un-blinded the first pivotal trial late on Tuesday night. We've had essentially four business days to review the data and we don't even have the download of dosing data yet from the IBRS, I'm sorry to admit. So I don't have an answer for you yet but we will have that very shortly.

Rohit Vanjani - Oppenheimer

Okay. And then Scott, I missed your commentary, you said you had started conversations with payors, is that right or any sense appearing there how are those conversations going?

Scott Toner

So we're very early on this. We talk about the general landscape of published policies. Published policies reveal nothing of significance. I think what's going to be much more important at this point in time is getting our one-to-one qualitative interviews with representative payors and those will be starting in the next couple of weeks.

Rohit Vanjani - Oppenheimer

Okay, and then when will we see, a second Charlie I guess, when will we see the secondary endpoints?

Charles W. Bishop

Probably by the end of this month is our working timetable to have all of the analyses completed.

Rohit Vanjani - Oppenheimer

Is that part of a press release or some kind of publication or anything?

Charles W. Bishop

We won't have a publication that quickly but we certainly will present both of the pivotal studies together in granular detail at major symposium upcoming later this year, and whether or not we'll issue another press release regarding secondary endpoints needs to be determined, I can't answer that yet.

Rohit Vanjani - Oppenheimer

Okay. And then the trial design I guess was 71 receiving 30 microgram, 71 receiving the 60 microgram, 71 receiving the placebo, and then it was split I guess 106-106 between stage 3 and stage 4 CKD patients. What was the breakdown of stage 3 patients receiving 30 microgram and stage 4 receiving 30 microgram, do you have that?

Charles W. Bishop

So just for the clarity, every person assigned to the active in the first pivotal trial, and this is true also of the second pivotal trial which is ongoing, started dosing at 30 micrograms per day and they stayed on 30 micrograms per day, which is one capsule, for 12 weeks. At the end of 12 weeks, if the PTH level was not dropped to the normal range, then the dosage – and if the safety parameters indicated that it was safe to do so, the dosage increased to two capsules per day or 60 micrograms. So I don't yet have the breakdown as to how many patients titrated at week 12 but we know that some patients ended the 26 week treatment period on 60 micrograms and some ended on 30 micrograms, and I'll have those data fairly soon.

So there were just two treatment groups; one group was treated with Rayaldee starting at 30, possibly moving to 60 or staying on 30 micrograms per day; the other group received placebo. And the breakdown is this, there were 141 patients out of the 213 assigned to active and there were 72 patients assigned to placebo, making a total of 213. There was equal balance between the CKD stages because that was a stratification. So we had 36 stage 3 patients on placebo and 36 in stage 4. We had 71 active patients in stage 3 and 70 active patients in stage 4.

Rohit Vanjani - Oppenheimer

Okay. And then my last question is for Dave. Do you have any number that how many tests been done on the 4Kscore, how is that pace going since you launched on March 31, any sense of how many you want to do in 2014?

David Okrongly

We are not forecasting numbers or talking about numbers. Really right now we're in awareness building mode and 170 physicians ordering the test is a great start. We're actually going to be building a sales force in response to how reimbursement discussions goes. We right now have eight people dedicated in the field and a couple of field managers. And also we're going to be looking at the medical affairs impact on our sales. So we're going to be growing it in proportion to how much we see – and the sales, like I said, for the sales force we have out there right now, we are very pleased with what we're seeing on the ramp, it's a very, very nice increase since the AUA which was really when we started the formal marketing of the test.

Rohit Vanjani - Oppenheimer

Okay, good for me. Thanks everybody. I appreciate it.


The next question is from Kevin DeGeeter of Ladenburg. Please go ahead.

Kevin DeGeeter - Ladenburg Thalmann

I want to add my congratulations on some nice data. Charlie, can you talk a little bit about the statistical plan for the Rayaldee program? I guess really kind of two questions I'd like some clarification on. I know there's an opportunity to look at both pooled analysis to both Phase 3 as in sort of each study independently. Can you remind us whether the primary analysis for the SPA is the pooled analysis or do you have to kind of hit on both studies independently? And on a related question, I guess this ultimately gets to label, can you do a pooled analysis of stage 3 patients across the two studies and kind of look to that in the label or should we look for ultimately the primary analysis moving forward into a potential label being driven based off of each study kind of standalone?

Charles W. Bishop

Kevin, thanks for the question and it's a complex question. There is one statistical analysis plan for the two pivotal trials. So that SAP as we call it was covered by the special protocol assessment that was established in August 2012. So the analysis of these two pivotal trials was preset with FDA in August of 2012. So to answer your question more precisely, there will be a separate analysis of the first pivotal trial and the same separate analysis for the second pivotal trial, and there will also be a pooled analysis which will be conducted according to the same statistical analysis plan with the exception that some additional secondary endpoints have been included in that analysis of the pooled data from the two pivotal trials.

The additional secondary endpoints are those that can't be addressed readily with a smaller end. So it's appropriate that these are added to the pooled analysis because in order to see the effect of Rayaldee on these particular endpoints, you need a larger number of subjects.

So I'll give you an example. One of the things that we will be looking to see in this study is if there is efficacy determination at 30 micrograms at the end of 12 weeks of treatment. Right now efficacy is determined at the end of 26 weeks, but we're interested to know if we can declare on the basis of a pooled analysis that Rayaldee works as soon as 12 weeks and that requires a larger end. So that just gives you a sense for the secondary endpoints that we'll be looking at in the pooled analysis. This pooled analysis has been submitted to the FDA prior to un-blinding the first pivotal trial.

Kevin DeGeeter - Ladenburg Thalmann

Great. Maybe just two more quick questions for me. Can you just comment on what is the gating factor at this point for potential FDA submission? It looks like actually you're a bit of ahead of schedule at least for what I was looking for. It looks like we're going to have the end of the clinical 12 month safety data by the end of September. Following that, what are the additional items outstanding?

Charles W. Bishop

So there are three main activities at OPKO that are gating the NDA submission, and I'm happy to report that the two pivotal trials are really not the gating items. So as you know obviously from what I said, we'll have top line data from the second pivotal trial next month and our NDA submission is not planned until mid December. So the gating items are ongoing carcinogenicity study which will get a final report in late November, that's on schedule. The second gating item is our CMC efforts, one year stability data on three registration lots, we'll finish up in October. So that's on schedule. And the third gating item is we need sufficient safety data from our ongoing open label extension clinical trial which show that Rayaldee is safe in patients treated for a year and we'll have sufficient safety data from our ongoing extension study by the end of September.

So with regard to the three critical path items, we are fully on schedule for the submission of the NDA by the end of the year. We had previously said that it would be later than this but we've been comfortable now enough to accelerate the announced timing of the NDA submission.

Kevin DeGeeter - Ladenburg Thalmann

Terrific. And then just lastly for me, is it appropriate to think of the ASN meeting in November as potential placeholder for discussing some of this Rayaldee data or is that too soon in your view?

Charles W. Bishop

No, that would be appropriate, Kevin.

Kevin DeGeeter - Ladenburg Thalmann

Okay, great. Thanks so much.


The next question is from [Natasha] (ph) of [indiscernible]. Please go ahead.

Unidentified Analyst

Congratulations on the results. I was wondering if you could remind us the IP surrounding the drug and also if you have any data in terms of the hypercalcemia events during the trial?

Charles W. Bishop

I'll answer the IP question, I have also on the line Joel Melnick, our VP of Clinical Research and Development and he can comment on the safety question. Regarding IP, Rayaldee is covered worldwide by about six issued or pending patents and the coverage is really very comprehensive because it's far beyond just the coverage of the Rayaldee formulation. It covers any modified release delivery of calcifediol which is the active in Rayaldee. It also covers immediate release calcifediol if it's used in such a fashion to try to mimic what you could achieve with a modified release formulation, for instance giving multiple immediate release doses over the course of the day to try to achieve the same pharmacokinetic effect that you would get by administering once daily modified release formulation. And there are other pending patents as well which we believe will strengthen our IP position even further. I know we're short on time, so I'll pass it over to Joel to comment on the safety data.

I guess Joel is not on the line. So we had in this first pivotal trial no difference in the safety parameters of interest between the Rayaldee treated group and the placebo treated group, and we looked very specifically at hypercalcemia, we looked at elevation urine calcium, we also looked at hyperphosphatemia which is too much phosphorus in the blood, and there was no breakout at all there between the treatment groups.

Unidentified Analyst

And if I could ask one follow up, do you plan to do any comparison trials versus the existing drugs that are currently on the market, and if I could ask one more about commercialization, how will you compete versus the generic market?

Charles W. Bishop

Okay, good questions. So I sketched out what our Phase 3 program from a clinical standpoint was to support the NDA submission but I didn't sketch out other clinical studies which are in our Phase 3 program to compare Rayaldee against other products that are currently being used by CKD patients. We do have comparative studies in planning right now and these studies will be completed before we launch Rayaldee. We'll have more information on those trials as we go through this year and the early part of next year. With regard to the commercialization question, I'm going to pass that over to Scott.

Scott Toner

I first want to follow up on that. So I think it's important when we look at the comparative trials, we could go off and execute lots of comparative trials with different endpoints but I think it's really important for us to know very precisely what the payors are going to want to see, what the nephrologists and endocrinologists are doing, and so we decided internally that we wait for the results of these very exhaustive studies that we are doing right now so we can deliver the kind of comparative study that they really want and will have meaning for them. And I'm sorry, going back to your question on commercialization, could you repeat that one?

Charles W. Bishop

Natasha, are you still on the line?

Scott Toner

So as I remarked in my opening comments, the generics are very good at what they do but they have singular actions and they leave quite a gap of unmet needs clinically, the nutritional Ds in terms of what they do. And so, we are carving a new paradigm here where basically this product can achieve a clinical result that right now does not appear to be achievable with the two generic products individually. So from that perspective, I think we're on very solid ground that we have a branded commercialization strategy for a unique product profile.


Our final question comes from Eun Yang of Jefferies. Please go ahead.

John - Jefferies

This is John in for Yang. First, how should we think about the added benefits of Rayaldee versus a combination regimen of over-the-counter vitamin D plus a generic form of Hectorol or Zemplar? And as a quick follow-up, are you breaking out revenue from 4Kscore in second quarter and when would you expect meaningful revenue flow from 4Kscore?

Scott Toner

This is Scott. Let me take the first part of it and then I'll hand it over to David. So it goes back to my comments, so what we have been able to determine so far is although it's logical that clinicians would put the two products together, put the nutritional on top of the hormonal product, we're finding that vast majority are consciously avoiding doing that because in putting them together they are actually finding tremendous challenges in terms of trying to manage all the different parameters managing the titration between not only the vitamin Ds but also the phosphate binders and then trying to get an optimal mineral metabolism profile. And so, it's literally, they are opting out of doing what might on the surface seem like a logical profile. So I think we are quite unique now.

David Okrongly

So as I mentioned, the 4Kscore test is, we're about three months post AUA right now. We expect revenues to be continuing steadily for the next several years. Reimbursement is really going to be a key event for us, and as I mentioned earlier, our CPT code is now underway and that's going to be the trigger for I would say meaningful revenues. I think we can certainly be talking about significant pre-CPT code pre-reimbursement numbers, but to really start getting at that market, the CPT code is going to be critical for us. We also have revenues that we'll be starting to be generated in Europe beginning in September. So that's going to be another fold into the 4Kscore commercial activities. And we have plans that are now incubating for launching in Chile and Mexico. We're aiming for that to start coming into 2015.

Phillip Frost

Thank you all for participating in this morning's session and of course if you have other questions on an individual basis, we're all here to try to answer them by telephone. Thank you all for participating once again.


Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.

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