OPKO HEALTH, INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Annual Report on Form 10-K contains forward-looking statements within the meaning of 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”), about our expectations, beliefs, or intentions regarding our product development efforts, business, financial condition, results of operations, strategies and prospects. You can identify forward-looking statements by the fact that these statements do not relate 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 contained in “Item 1A — Risk Factors” of this Annual Report on Form 10-K. We do not undertake any obligation to update forward-looking statements except as required by applicable law. We intend that all forward-looking statements be subject to the safe harbor provisions of PSLRA. These forward-looking statements reflect our views only as of the date they are made. OVERVIEW 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 Laboratories, Inc. (“BioReference”), one of the nation’s largest full service laboratories with an almost 250-person sales and marketing team to drive growth and leverage new products. Our pharmaceutical business features Rayaldee , 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 a pipeline of products in various stages of development. Our leading product in development is Somatrogon (hGH-CTP), a once-weekly human growth hormone for which we have partnered with Pfizer, Inc. (“Pfizer”) and successfully completed a phase 3 study in August 2019. Regulatory applications for Somatrogon have been submitted to several countries around the world for review. In February 2022, the European Commission granted marketing authorization in the European Union for Somatrogon under the brand name NGENLA® to treat children and adolescents from as young as 3 years of age with growth disturbance due to insufficient secretion of growth hormone. In January 2022, the Ministry of Health, Labour and Welfare in Japan approved NGENLA® (Somatrogon) for the long-term treatment of pediatric patients who have growth failure due to an inadequate secretion of endogenous growth hormone. In October 2021, Health Canada approved NGENLA® for the long-term treatment of pediatric patients who have growth hormone deficiency, and Australia’s Therapeutic Goods Administration approved NGENLA® for the long-term treatment of pediatric patients with growth disturbance due to insufficient secretion of growth hormone. We also submitted the initial Biologics License Application (“BLA”) with the FDA for approval of Somatrogon (hGH-CTP) in the United States and Pfizer received a Complete Response Letter in January 2022. Pfizer and OPKO are evaluating the FDA’s comments and will work with the agency to determine the best path forward for Somatrogon (hGH-CTP) in the United States. We are incorporated in Delaware, and our principal executive offices are located in leased offices in Miami, Florida. 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 diseases, serology, hormones, and toxicology assays, as well as Pap smear, anatomic pathology (biopsies) and other types of tissue analysis. We market our laboratory testing services directly to physicians, geneticists, hospitals, clinics, correctional and other health facilities. We operate established pharmaceutical platforms in Ireland, Chile, Spain, 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. In addition, we have a development and commercial supply pharmaceutical company and a global supply chain operation and holding company in Ireland. We own a specialty active pharmaceutical ingredients 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. RECENT DEVELOPMENTS In early 2022, each of the European Commission and the Ministry of Health, Labour and Welfare in Japan approved the next-generation long-acting recombinant human growth hormone NGENLA (Somatrogon), a once-weekly injection to treat 60 pediatric growth hormone deficiency in Europe and Japan, respectively. Further, Canada and Australia approved NGENLA in October and November of 2021, respectively. In January 2022, the FDA issued a Complete Response Letter for the BLA for Somatrogon. Pfizer and OPKO are evaluating the FDA’s comments and will work with the agency to determine the best path forward for Somatrogon (hGH-CTP) in the United States. In January 2022, Sema4 Holdings Corp. (“Sema4”) and OPKO announced they had signed a definitive agreement (the “GeneDx Merger Agreement”) pursuant to which Sema4 has agreed to acquire OPKO’s wholly owned subsidiary, GeneDx, Inc. (“GeneDx”), a leader in genomic testing and analysis, subject to the satisfaction of customary closing conditions (the “GeneDx Transaction”). The GeneDx Transaction is expected to close in the second quarter of 2022. Under the terms of the GeneDx Merger Agreement, Sema4 has agreed to acquire GeneDx for an upfront payment of $150 million in cash together with 80.0 million shares of Sema4’s Class A common stock, par value $0.0001 per share (“Sema4 Common Stock”), subject to a customary purchase price adjustment mechanism providing for a normalized level of working capital and that GeneDx be free of debt at closing of the GeneDx Transaction. Additionally, Sema4 agreed to pay OPKO up to an additional $150.0 million, which may be paid in Sema4 Common Stock, cash or a combination thereof in Sema4’s discretion, subject to GeneDx achieving certain revenue targets for the fiscal years ending December 31, 2022 and 2023. Based on the closing stock price of Sema4 Common Stock as of January 14, 2022, the total upfront consideration is approximately $473 million, and the total aggregate consideration including potential milestones is approximately $623 million. As of December 31, 2021, GeneDx met the held-for-sale accounting criteria and the related assets and liabilities are classified as held for sale in the consolidated balance sheet. Depending upon the value Sema4 shares upon closing of the transaction, an impairment charge may be incurred. GeneDx was included in our diagnostics segment as of December 31, 2021. In December 2021, we announced preliminary topline results from our Phase 2 trial with Rayaldee to treat mild-to-moderate COVID-19 which indicate that vitamin D repletion therapy can accelerate recovery from COVID-19. In December 2021, we announced that the FDA approved our 4Kscore test for use in men age 45 and older who have not had a prior prostate biopsy or are biopsy negative and have an age-specific abnormal total PSA and/or abnormal digital rectal exam. RESULTS OF OPERATIONS Impact of COVID-19 As the disease caused by SARS-CoV-2, a novel strain of coronavirus, COVID-19 continues to spread and severely impact the U.S. economy and economies of other countries around the world, we continue to be a part of the coordinated public and private sector response to this unprecedented challenge. There continues to be a high level of uncertainty relating to how the pandemic will evolve, how governments and consumers will react, progress on the distribution of vaccines and whether the pandemic will have a longer-term effect on the healthcare industry and patient habits. In response to the COVID-19 pandemic, BioReference is providing COVID-19 solutions, including diagnostic molecular testing and serology antibody testing, to meet the testing needs of its customers, including physicians, health systems, long-term care facilities, governments, schools, employers, professional sports teams and entertainment venues, as well as the general public through relationships with retail pharmacy chains. Revenue from services for the year ended December 31, 2021 increased by $344.9 million as compared to 2020 due to COVID-19 testing volumes. We are unable to predict how long the demand will continue for our COVID-19 related testing, or whether pricing and reimbursement policies for testing will be sustained. In addition, in the second half of 2021, overall demand for COVID-19 testing declined. Additionally, beginning in March 2020, BioReference experienced a decline in testing volumes due to the COVID-19 pandemic; however as stay at home orders and other restrictions have been lifted, we have seen our routine clinical testing volumes trending towards normalization with prior periods. Should stay at home orders or other restrictions be reenacted, we could see our routine testing levels decline. Excluding COVID-19 test volumes, for the year ended December 31, 2021, genomic and routine clinical test volume increased 26.4% and 6.9%, respective, as compared to volumes for the year ended December 31, 2020. Additionally, sales of Rayaldee have not increased in accordance with its expected growth trajectory as a result of challenges in onboarding new patients due to the COVID-19 pandemic. Federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 have resulted in, among other things, a significant reduction in physician office visits, the cancellation of elective medical procedures, customers closing or severely 61 curtailing their operations (voluntarily or in response to government orders), and the adoption of work-from-home or shelter-in-place policies. In March 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees. We have received, or expect to receive a number of benefits under the CARES Act including, but not limited to: • During the year ended December 31, 2020, we received approximately $14 million under The Centers for Medicare & Medicaid Services (CMS) Accelerated and Advance Payment Program, which provides accelerated payments to Medicare providers/suppliers working to provide treatment to patients and combat the COVID-19 pandemic, and the amounts advanced are loans which will be offset against future claims and were repaid in 2021. These loans were initially recorded as contract liabilities included in Accrued expenses and were reduced as the amounts are recouped by CMS; • We are eligible to defer depositing the employer’s share of Social Security taxes for payments due from March 27, 2020 through December 31, 2020, interest-free and penalty-free; • We received approximately $16.2 million during 2020 from the funds that were distributed to healthcare providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic. We recognized the $16.2 million grant in other revenues for the year ended December 31, 2020; • U.S. Department of Health and Human Services (HHS), will provide claims reimbursement to healthcare providers generally at Medicare rates for testing uninsured patients; and • Clinical laboratories are provided a one-year reprieve from the reporting requirements under PAMA as well as a one-year delay of reimbursement rate reductions for clinical laboratory services provided under Medicare that were scheduled to take place in 2021. Since the pandemic began in the U.S., we have invested in testing capabilities and infrastructure to meet demand for our molecular and antibody testing for COVID-19. In 2021, we kicked off company-wide lab operations specimen acquisition, logistics, procurement, customer service, cost reduction initiatives to right size our cost structure to match the declining COVID testing volumes and to drive efficiency gains in our core clinical lines of business. Three vaccines for COVID-19 have received approval or emergency authorization and have had increasingly widespread acceptance. However, we believe that, based on our experience with the pandemic, the high medical need for efficient and widespread testing for COVID-19 will extend beyond the current phase of the pandemic. Our belief is supported by the unprecedented healthcare and economic impact of the pandemic thus far, the uneven and incomplete rollout of vaccines and the fact that significant portions of the U.S. population may never be vaccinated, and the continued likelihood of surges of COVID-19 including from new strains of SARS-CoV-2 with uncertain susceptibility to the current vaccines. We believe that these factors have greatly magnified the need for more effective therapeutics, and the need for efficient and widespread testing. For The Years Ended December 31, 2021 and December 31, 2020 Our consolidated income (loss) from operations for the years ended December 31, 2021 and 2020 is as follows: 62 For the years ended December 31, (In thousands) 2021 2020 Change % Change Revenues: Revenue from services $ 1,607,106 $ 1,262,242 $ 344,864 27 % Revenue from products 141,770 119,952 21,818 18 % Revenue from transfer of intellectual property and other 25,842 53,219 (27,377) (51) % Total revenues 1,774,718 1,435,413 339,305 24 % Costs and expenses: Cost of revenue 1,193,194 894,408 298,786 33 % Selling, general and administrative 468,857 355,573 113,284 32 % Research and development 76,850 75,316 1,534 2 % Contingent consideration (1,703) (3,989) 2,286 (57) % Amortization of intangible assets 50,278 56,391 (6,113) (11) % Gain on sale of assets (31,508) — (31,508) (100) % Total costs and expenses 1,755,968 1,377,699 378,269 27 % Income (loss) from operations 18,750 57,714 (38,964) (68) % Diagnostics For the years ended December 31, (In thousands) 2021 2020 Change % Change Revenues Revenue from services $ 1,607,106 $ 1,262,242 344,864 27 % Revenue from transfer of intellectual property and other — 16,240 (16,240) (100) % Total revenues 1,607,106 1,278,482 328,624 26 % Costs and expenses: Cost of revenue 1,102,175 823,927 278,248 34 % Selling, general and administrative 357,633 266,488 91,145 34 % Research and development 18,652 15,003 3,649 24 % Contingent consideration — (2,066) 2,066 (100) % Amortization of intangible assets 30,579 36,208 (5,629) (16) % Total costs and expenses 1,509,039 1,139,560 369,479 32 % Income from operations 98,067 138,922 (40,855) (29) % Revenue . Revenue from services for the year ended December 31, 2021 increased by approximately $344.9 million compared to the year ended December 31, 2020, due to an improvement in clinical test reimbursement, and an increase in clinical test volume and genomic test volume of $38.1 million, $33.5 million and $25.1 million, respectively. This was partially offset by the negative impact of a reduction in genomic test reimbursement of $5.6 million. BioReference also recognized an increase in revenue for the year ended December 31, 2021 compared to the year ended December 31, 2020 due to an increase in COVID-19 testing volume and improvement in COVID-19 test reimbursement of $97.0 million and $141.4 million, respectively. BioReference performed 11.9 million diagnostic molecular tests for COVID-19 and 0.7 million serology antibody tests during the year ended December 31, 2021, which represented 58.5% of total test volume for that period. In comparison, during the year ended December 31, 2020, BioReference performed 10.2 million molecular tests for COVID-19 and 0.8 million serology antibody tests. Estimated collection amounts are subject to the complexities and ambiguities of billing, reimbursement regulations and claims processing, as well as considerations unique to Medicare and Medicaid programs, and require us to consider the potential for retroactive adjustments when estimating variable consideration in the recognition of revenue in the period the related services are rendered. Revenue from services for the year ended December 31, 2020 included $12.1 million related to 63 the successful appeal of previously denied claims for the 4Kscore test. In addition, the years ended December 31, 2021 and 2020 included positive revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $40.4 million and $0.3 million, respectively, were recognized. The composition of revenue from services by payor for the years ended December 31, 2021 and 2020 was as follows: For the years ended December 31, (In thousands) 2021 2020 Healthcare insurers $ 520,244 $ 483,643 Government payers 222,242 90,288 Client payers 843,405 637,645 Patients 21,215 50,666 Total $ 1,607,106 $ 1,262,242 Client payors include cities, states and companies for which BioReference provides COVID-19 testing services. Revenue from transfer of intellectual property and other for the year ended December 31, 2020 are the result of grants received under the CARES Act totaling $16.2 million. Cost of revenue . Cost of revenue for the year ended December 31, 2021 increased $278.2 million compared to the year ended December 31, 2020. Cost of revenue increased primarily due to labor and material costs for COVID-19 testing and the significant volume of tests performed during the year ended December 31, 2021. Cost of revenue for the year ended December 31, 2021 also increased due to changes in the product mix of items sold during the period, which was partially offset by a $5.5 million sales and use tax credit received during the year ended December 31, 2021. Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2021 and 2020 were $357.6 million and $266.5 million, respectively. Selling, general and administrative expenses in our diagnostics segment increased primarily due to higher variable billing and compensation costs which resulted from an increase in volume and collections during the year ended December 31, 2021, and in marketing costs and other administrative costs directly associated with COVID-19 testing volumes. Selling, general and administrative expenses for the year ended December 31, 2021 also include $6.2 million of expense incurred in connection with certain legal matters and $40.0 million in administrative, IT, and marketing costs associated with our investment in the launch of Scarlet Health. Research and development expenses . The following table summarizes the components of our research and development expenses: Research and Development Expenses For the years ended December 31, 2021 2020 External expenses: PMA studies $ — $ 218 Research and development employee-related expenses 13,266 9,317 Other internal research and development expenses 5,386 5,468 Total research and development expenses $ 18,652 $ 15,003 The increase in research and development expenses for the year ended December 31, 2021 resulted primarily from increased research and development expenses related to the development of clinical and genomics testing services. Contingent consideration . Contingent consideration for the years ended December 31, 2021 and 2020 was $0 thousand and $2.1 million reversal of expense, respectively. Contingent consideration for the year ended December 31, 2020 was attributable to changes in assumptions regarding the timing of achievement of future milestones for OPKO Diagnostics, and potential amounts payable to former stockholders of OPKO Diagnostics in connection therewith, pursuant to our acquisition agreement in October 2011. Amortization of intangible assets . Amortization of intangible assets was $30.6 million and $36.2 million, for the years ended December 31, 2021 and 2020, respectively. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Amortization expense declined during the year ended December 31, 2021 due to acquired intangible assets becoming fully amortized. 64 Pharmaceuticals For the years ended December 31, (In thousands) 2021 2020 Change % Change Revenues: Revenue from products $ 141,770 $ 119,952 $ 21,818 18 % Revenue from transfer of intellectual property and other 25,842 36,979 (11,137) (30) % Total revenues 167,612 156,931 10,681 7 % Costs and expenses: Cost of revenue 91,059 70,565 20,494 29 % Selling, general and administrative 49,375 50,476 (1,101) (2) % Research and development 59,741 61,149 (1,408) (2) % Contingent consideration (1,703) (1,923) 220 (11) % Amortization of intangible assets 19,699 20,183 (484) (2) % Gain on sale of asset (31,508) — (31,508) (100) % Total costs and expenses 186,663 200,450 (13,787) (7) % Loss from operations (19,051) (43,519) 24,468 (56) % Revenue . The increase in revenue from products for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily attributable to an increase in sales at most of our international operating companies. Sales of Rayaldee were $27.0 million for the year ended December 31, 2021, as compared to $36.8 million for 2020. Sales of Rayaldee have been negatively impacted as a result of challenges in onboarding new patients due to the COVID-19 pandemic. Revenue from transfer of intellectual property for the years ended December 31, 2021 and 2020 principally reflected $10.8 million and $28.7 million, respectively, of revenue related to the Pfizer Transaction. Revenue from transfer of intellectual property and other for the year ended December 31, 2021 also included a $5.0 million non-refundable upfront payment we received under the Nicoya Agreement (as defined below) and receipt of a $4.9 million payment under the CAMP4 Agreement. Revenue from transfer of intellectual property for the year ended December 31, 2020 also included a $3.0 million milestone payment triggered by the first marketing approval of Rayaldee in Europe. Cost of revenue . Cost of revenue for the year ended December 31, 2021 increased $20.5 million compared to the year ended December 31, 2020. Cost of product revenue increased primarily due to an increase in inventory and material costs at most of our international operating companies, which was due to the increase in sales at our international operating companies and to a $3.8 million inventory reserve recognized for Rayaldee inventory for the year ended December 31, 2021. This was partially offset by a decrease in sales of Rayaldee for the year ended December 31, 2021 compared to the year ended December 31, 2020. Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2021 and 2020 were $49.4 million and $50.5 million, respectively. Selling, general and administrative expenses for the year ended December 31, 2021 was consistent with selling, general and administrative expenses for the year ended December 31, 2020. Selling, general and administrative expenses for the pharmaceutical segment for the years ended December 31, 2021 and 2020 included equity-based compensation expense of $1.3 million and $1.0 million, respectively. Research and development expenses . Research and development expenses for the years ended December 31, 2021 and 2020 were $59.7 million and $61.1 million, respectively. Research and development expenses include external and internal expenses, partially offset by third-party grants and funding arising from collaboration agreements. External expenses include clinical and non-clinical activities performed by contract research organizations, lab services, purchases of drug and diagnostic product materials and manufacturing development costs. We track external research and development expenses by individual program for phase 3 clinical trials for drug approval and premarket approval for diagnostics tests, if any. Internal expenses include employee-related expenses such as salaries, benefits and equity-based compensation expense. Other internal research and development expenses are incurred to support overall research and development activities and include expenses related to general overhead and facilities. The following table summarizes the components of our research and development expenses: 65 Research and Development Expenses For the years ended December 31, 2021 2020 External expenses: Manufacturing expense for biological products $ 9,718 $ 5,326 Phase III studies 9,877 10,513 Post-marketing studies 70 1,270 Earlier-stage programs 17,268 14,811 Research and development employee-related expenses 19,497 21,931 Other internal research and development expenses 3,614 9,440 Third-party grants and funding from collaboration agreements (303) (2,142) Total research and development expenses $ 59,741 $ 61,149 Research and development expenses for the year ended December 31, 2021 was consistent with research and development expenses for the year ended December 31, 2020. Research and development expenses for the year ended December 31, 2021 were primarily due to expenses related to Somatrogon, a once-weekly human growth hormone injection for which we have partnered with Pfizer. Ongoing expenses for the Somatrogon program support open label extension studies that will continue until the market launch of Somatrogon in certain countries, as well as the preparation of applications for marketing approvals. Research and development expenses for the pharmaceutical segment for the years ended December 31, 2021 and 2020 included equity-based compensation expense of $1.3 million and $1.6 million, respectively. Contingent consideration . Contingent consideration for the years ended December 31, 2021 and 2020 was $1.7 million and $1.9 million reversal of expense, respectively. Contingent consideration for the year ended December 31, 2021 was primarily attributable to changes in assumptions regarding the timing of achievement of future milestones for OPKO Renal and OPKO CURNA, and potential amounts payable to former stockholders of OPKO Renal and OPKO CURNA in connection therewith, pursuant to our acquisition agreements in March 2013 and January 2011, respectively. Contingent consideration for the year ended December 31, 2020 was primarily attributable to changes in assumptions regarding the timing of achievement of future milestones for OPKO Renal, and potential amounts payable to former stockholders of OPKO Renal. Amortization of intangible assets . Amortization of intangible assets was $19.7 million and $20.2 million, respectively, for the years ended December 31, 2021 and 2020. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Our indefinite lived in-process research and development (“IPR&D”) assets will not be amortized until the underlying development programs are completed. Upon obtaining regulatory approval by the FDA, the IPR&D assets will be accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. Gain on sale of assets . Gain on sale of assets for the year ended December 31, 2021 was $31.5 million, which resulted from an agreement between EirGen, our wholly owned subsidiary, and Horizon Therapeutics plc, to sell one of EirGen’s facilities in Waterford, Ireland for $65 million in cash less certain assumed and accrued liabilities relating to transferred employees. The facility housed EirGen’s sterile-fill-finish business and was no longer a core component of our ongoing operations and business strategy. 66 Corporate For the years ended December 31, (In thousands) 2021 2020 Change % Change Costs and expenses: Cost of revenue $ (40) $ (84) $ 44 (52) % Selling, general and administrative 61,849 38,609 23,240 60 % Research and development (1,543) (836) (707) 85 % Total costs and expenses 60,266 37,689 22,577 60 % Loss from operations $ (60,266) $ (37,689) $ (22,577) 60 % Operating loss for our unallocated corporate operations for the years ended December 31, 2021 and 2020 was $60.3 million and $37.7 million, respectively, and principally reflects general and administrative expenses incurred in connection with our corporate operations. The increase in operating loss for the year ended December 31, 2021 was primarily attributable to an increase in legal fees incurred for the year ended December 31, 2021, compared to the year ended December 31, 2020. Other Interest income . Interest income for the years ended December 31, 2021 and 2020 was not significant as our cash investment strategy emphasizes the security of the principal invested and fulfillment of liquidity needs. Interest expense . Interest expense for the years ended December 31, 2021 and 2020 was $18.9 million and $21.9 million, respectively. Interest expense was principally related to interest incurred on our Senior Convertible Notes due 2025 (the “2025 Notes”), our 5% Convertible Promissory Notes (the “2023 Convertible Notes”), our 3.0% Senior Notes due 2033 (the “2033 Senior Notes”), and BioReference’s outstanding debt under the A&R Credit Agreement. Fair value changes of derivative instruments, net . Fair value changes of derivative instruments, net for the years ended December 31, 2021 and 2020, was $846 thousand and $50 thousand of income, respectively. Derivative income for the year ended December 31, 2021, was principally related to the change in fair value on foreign currency forward exchange contracts at OPKO Chile. Other income (expense), net . Other income (expense), net for the years ended December 31, 2021 and 2020, was $14.8 million of expense and $12.7 million of income, respectively. Other expense for the years ended December 31, 2021 primarily consisted of a $11.1 million non-cash loss related to the exchange of $55.4 million of the outstanding 2025 Notes for 19,051,270 shares of our Common Stock and net unrealized losses recognized during the period on our investments in our equity securities. Other income for the year ended December 31, 2020 primarily consisted of realized and unrealized gains recognized during the period on our investment in VBI Vaccines Inc. (“VBI”), offset by net unrealized losses recognized during the period on our investment in Eloxx Pharmaceuticals, Inc. (“Eloxx”). Income tax provision . Our income tax provision for the years ended December 31, 2021 and 2020 was $15.5 million and $17.6 million, respectively, and reflects results using our expected effective tax rate. For the year ended December 31, 2021, the tax rate differed from the U.S. federal statutory rate of 21% primarily due to the relative mix in earnings and losses in the U.S. versus foreign tax jurisdictions, the impact of certain discrete tax events and operating results in tax jurisdictions that do not result in a tax benefit. Loss from investments in investees . We have made investments in certain early stage companies that we perceive to have valuable proprietary technology and significant potential to create value for us as a shareholder or member. We account for these investments under the equity method of accounting, resulting in the recording of our proportionate share of their losses until our share of their loss exceeds our investment. Until the investees’ technologies are commercialized, if ever, we anticipate they will report net losses. Loss from investments in investees was $0.6 million and $0.5 million for the years ended December 31, 2021 and 2020, respectively. 67 For The Years Ended December 31, 2020 and December 31, 2019 Our consolidated income (loss) from operations for the years ended December 31, 2020 and 2019 is as follows: For the years ended December 31, (In thousands) 2020 2019 Change % Change Revenues: Revenue from services $ 1,262,242 $ 716,434 $ 545,808 76 % Revenue from products 119,952 112,184 7,768 7 % Revenue from transfer of intellectual property and other 53,219 73,317 (20,098) (27) % Total revenues 1,435,413 901,935 533,478 59 % Costs and expenses: Cost of revenue 894,408 572,484 321,924 56 % Selling, general and administrative 355,573 343,305 12,268 4 % Research and development 75,316 117,870 (42,554) (36) % Contingent consideration (3,989) (14,854) 10,865 (73) % Amortization of intangible assets 56,391 64,783 (8,392) (13) % Asset impairment charges — 92,399 (92,399) (100) % Total costs and expenses 1,377,699 1,175,987 201,712 17 % Income (loss) from operations 57,714 (274,052) 331,766 (121) % We manage our operations in two reportable segments, pharmaceuticals and diagnostics. The pharmaceuticals segment consists of our pharmaceutical operations in Latin America, Ireland, Israel and Spain, Rayaldee product sales and our pharmaceutical research and development. The diagnostics segment primarily consists of our clinical and genetic laboratory operations through BioReference and GeneDx as well as our point-of-care operations. There are no significant inter-segment sales. We evaluate the performance of each segment based on operating profit or loss. The following presents the financial measures that management considers to be the most significant indicators of the Company's performance. Diagnostics For the years ended December 31, (In thousands) 2020 2019 Change % Change Revenues Revenue from services $ 1,262,242 $ 716,434 545,808 76 % Revenue from transfer of intellectual property and other 16,240 — 16,240 100 % Total revenues 1,278,482 716,434 562,048 78 % Costs and expenses: Cost of revenue 823,927 510,857 313,070 61 % Selling, general and administrative 266,488 242,020 24,468 10 % Research and development 15,003 14,219 784 6 % Contingent consideration (2,066) (8,401) 6,335 (75) % Amortization of intangible assets 36,208 42,401 (6,193) (15) % Asset impairment charges — 38,697 (38,697) (100) % Total costs and expenses 1,139,560 839,793 299,767 36 % Income (loss) from operations 138,922 (123,359) 262,281 (213) % Revenue . Revenue from services for the year ended December 31, 2020 increased by approximately $545.8 million compared to the year ended December 31, 2019, due to COVID-19 testing volumes. BioReference performed 0.8 million serology antibody tests and 10.1 million diagnostic molecular tests for COVID-19 during the year ended December 31, 2020, which represented 57% of total testing volume. Revenue attributable to tests for COVID-19 was partially offset by the negative impacts of: 68 • A reduction in clinical test volumes and genomic test volumes at BioReference resulted in decreased revenues of $99.5 million and $15.6 million, respectively, as compared to the year ended December 31, 2019. The decline in routine clinical and genomic testing volume reflects negative impacts from the COVID-19 pandemic, principally from referring physician office closures and stay-at-home guidance throughout states in which we predominately operate. • A reduction in clinical test and genomic test reimbursement at BioReference of $10.2 million and $27.6 million, respectively, as compared to the year ended December 31, 2019. The lower reimbursement within our clinical business was primarily the result of the negative impact of the PAMA price reduction that went into effect January 1, 2020 combined with an overall shift in our test mix that was partially offset by increased reimbursement of our 4KScore test. The lower reimbursement within our genomic business resulted from an increase in denial rates and changes to payor policy and procedural requirements. Estimated collection amounts are subject to the complexities and ambiguities of billing, reimbursement regulations and claims processing, as well as considerations unique to Medicare and Medicaid programs, and require us to consider the potential for retroactive adjustments when estimating variable consideration in the recognition of revenue in the period the related services are rendered. Revenue from services for the year ended December 31, 2020 included $12.1 million related to the successful appeal of previously denied claims for the 4Kscore test. In addition, the year ended December 31, 2020 included positive revenue adjustments recognized due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $0.3 million, and for the year ended December 31, 2019, revenue reductions of $24.8 million were recognized due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods. The composition of Revenue from services by payor for the years ended December 31, 2020 and 2019 was as follows: For the years ended December 31, (In thousands) 2020 2019 Healthcare insurers $ 483,643 $ 421,386 Government payers 90,288 115,711 Client payers 637,645 158,527 Patients 50,666 20,810 Total $ 1,262,242 $ 716,434 Client payers include cities, states and companies for which BioReference provides COVID-19 testing services. Revenue from transfer of intellectual property and other for the year ended December 31, 2020 are the result of grants received under the CARES Act totaling $16.2 million. Cost of revenue . Cost of revenue for the year ended December 31, 2020 increased $313.1 million compared to the year ended December 31, 2019. Cost of revenue increased primarily due to labor and material costs for COVID-19 testing and the significant volume of tests performed during the year ended December 31, 2020, partially offset by a decline in non-COVID testing volumes and to cost reduction initiatives leading to a 12.4% improvement in cost per patient encounter, inclusive of all volumes. Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2020 and 2019 were $266.5 million and $242.0 million, respectively. Selling, general and administrative expenses in our diagnostics segment increased primarily due to higher variable billing and compensation costs of $23.2 million from an increase in volume and collections during the year ended December 31, 2020 and $3.0 million in marketing costs and other administrative and marketing costs directly associated the COVID-19 PCR testing volumes. In comparison, the December 31, 2019 period included $12.6 million of expense related to the Department of Justice settlement. As a percentage of net revenue SG&A for the diagnostic segment decreased to 21% from 34%, for the years ended December 31, 2020 and 2019, respectively as a result of per requisition efficiencies and expense management during this recent period of rapid volume growth. Selling, general and administrative expenses for the diagnostics segment for the years ended December 31, 2020 and 2019 included equity-based compensation expense of $2.1 million and $2.2 million, respectively. 69 Research and development expenses . The following table summarizes the components of our research and development expenses: Research and Development Expenses For the years ended December 31, 2020 2019 External expenses: PMA studies $ 218 $ 774 Research and development employee-related expenses 9,317 7,320 Other internal research and development expenses 5,468 6,125 Total research and development expenses $ 15,003 $ 14,219 Research and development for the diagnostic segment relates to the development of testing services for our clinical and genomics testing at BioReference and the development of the Claros Analyzer, a diagnostic instrument system to provide rapid, high performance blood test results in the point-of-care setting. The increase in research and development expenses for the year ended December 31, 2020 resulted primarily from an increased research and development expenses related to the development of clinical and genomics testing services. Contingent consideration . Contingent consideration for the years ended December 31, 2020 and 2019 was $(2.1) million of expense and $8.4 million reversal of expense, respectively. Contingent consideration for the years ended December 31, 2020 and 2019 was attributable to changes in assumptions regarding the timing of achievement of future milestones for OPKO Diagnostics in both periods, and potential amounts payable to former stockholders of OPKO Diagnostics in connection therewith, pursuant to our acquisition agreement in October 2011. Amortization of intangible assets . Amortization of intangible assets was $36.2 million and $42.4 million, respectively, for the years ended December 31, 2020 and 2019. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Asset impairment charges . Asset impairment charges were $38.7 million for the year ended December 31, 2019. Asset impairment charges for the year ended December 31, 2019 is primarily related to a goodwill impairment charge of $18.0 million to write the carrying amount of the OPKO Diagnostics reporting unit down to its estimated fair value, and an impairment charge of $20.7 million to write our intangible asset for the Claros Analyzer down to its estimated fair value. The asset impairment charges for the year ended December 31, 2019, resulted from liquidity constraints, longer than expected development timelines and changes in the competitive landscape, which resulted in changes to our estimates and assumptions of the expected future cash flows associated with the Claros Analyzer. We believe that our estimates and assumptions in testing goodwill and other intangible assets are consistent with assumptions that marketplace participants would use in their estimates. However, if actual results are not consistent with our estimates and assumptions, including as a result of the COVID-19 global pandemic, we may be exposed to an impairment charge that could be material. 70 Pharmaceuticals For the years ended December 31, (In thousands) 2020 2019 Change % Change Revenues: Revenue from products $ 119,952 $ 112,184 $ 7,768 7 % Revenue from transfer of intellectual property and other 36,979 72,521 (35,542) (49) % Total revenues 156,931 184,705 (27,774) (15) % Costs and expenses: Cost of revenue 70,565 61,888 8,677 14 % Selling, general and administrative 50,476 57,589 (7,113) (12) % Research and development 61,149 104,659 (43,510) (42) % Contingent consideration (1,923) (6,453) 4,530 (70) % Amortization of intangible assets 20,183 22,382 (2,199) (10) % Asset impairment charges — 53,702 (53,702) (100) % Total costs and expenses 200,450 293,767 (93,317) (32) % Loss from operations (43,519) (109,062) 65,543 (60) % Revenue . The increase in revenue from products for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily attributable to an increase in sales at OPKO Chile and an increase in sales of Rayaldee . Sales of Rayaldee were $36.8 million for the year ended December 31, 2020, as compared to $31.4 million for 2019. Revenue from transfer of intellectual property and other for the years ended December 31, 2020 and 2019 principally reflected $28.7 million and $66.8 million, respectively, of revenue related to the Pfizer Transaction. Revenue from transfer of intellectual property and other for the year ended December 31, 2020 also included a $3 million milestone payment triggered by the first marketing approval of Rayaldee in Europe. Cost of revenue . Cost of revenue for the year ended December 31, 2020 increased $8.7 million compared to the year ended December 31, 2019. Cost of product revenue increased primarily due to an increase in sales at OPKO Chile and changes in product mix during the year ended December 31, 2020. Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2020 and 2019 were $50.5 million and $57.6 million, respectively. The decrease in selling, general and administrative expenses was primarily due to decreased expenses at our pharmaceutical subsidiaries and a decrease in equity-based compensation expense. Selling, general and administrative expenses for the pharmaceutical segment for the years ended December 31, 2020 and 2019 included equity-based compensation expense of $1.0 million and $2.0 million, respectively. Research and development expenses . Research and development expenses for the years ended December 31, 2020 and 2019 were $61.1 million and $104.7 million, respectively. Research and development expenses include external and internal expenses, partially offset by third-party grants and funding arising from collaboration agreements. External expenses include clinical and non-clinical activities performed by contract research organizations, lab services, purchases of drug and diagnostic product materials and manufacturing development costs. We track external research and development expenses by individual program for phase 3 clinical trials for drug approval and premarket approval for diagnostics tests, if any. Internal expenses include employee-related expenses such as salaries, benefits and equity-based compensation expense. Other internal research and development expenses are incurred to support overall research and development activities and include expenses related to general overhead and facilities. 71 The following table summarizes the components of our research and development expenses: Research and Development Expenses For the years ended December 31, 2020 2019 External expenses: Manufacturing expense for biological products $ 5,326 $ 38,592 Phase III studies 10,513 16,869 Post-marketing studies 1,270 2,019 Earlier-stage programs 14,811 21,201 Research and development employee-related expenses 21,931 22,023 Other internal research and development expenses 9,440 8,813 Third-party grants and funding from collaboration agreements (2,142) (4,858) Total research and development expenses $ 61,149 $ 104,659 The decrease in research and development expenses for the year ended December 31, 2020 was primarily due to a decrease in research and development expenses related to Somatrogon, a once-weekly human growth hormone injection for which we have partnered with Pfizer and successfully completed a phase 3 study in August 2019. Ongoing expenses for the Somatrogon program support open label extension studies that will continue until the market launch of Somatrogon in certain countries, as well as the preparation of applications for marketing approvals. Research and development expenses for the pharmaceutical segment for the years ended December 31, 2020 and 2019 included equity-based compensation expense of $1.6 million and $2.1 million, respectively. Contingent consideration . Contingent consideration for the years ended December 31, 2020 and 2019 was $1.9 million and $6.5 million reversal of expense, respectively. Contingent consideration for the years ended December 31, 2020 and 2019 was primarily attributable to changes in assumptions regarding the timing of achievement of future milestones for OPKO Renal, and potential amounts payable to former stockholders of OPKO Renal in connection therewith, pursuant to our acquisition agreement in March 2013. Amortization of intangible assets . Amortization of intangible assets was $20.2 million and $22.4 million, respectively, for the years ended December 31, 2020 and 2019. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Our indefinite lived IPR&D assets will not be amortized until the underlying development programs are completed. Upon obtaining regulatory approval by the U.S. FDA, the IPR&D assets will be accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. Asset impairment charges . Asset impairment charges were $53.7 million for the year ended December 31, 2019. Asset impairment charges for the year ended December 31, 2019 were primarily related to an impairment charge of $44.8 million to write our IPR&D assets for OPK88003 (oxyntomodulin) and CURNA’s platform technology for oligonucleotide therapeutics down to their estimated fair values, and a goodwill impairment charge of $8.2 million to write the carrying amount of the CURNA and Transition Therapeutics reporting units down to their estimated fair values. The Asset impairment charges for the year ended December 31, 2019, resulted from liquidity constraints, longer than expected development timelines and changes in the competitive landscape, which resulted in changes to our estimates and assumptions of the expected future cash flows associated with OPK88003 and CURNA’s platform technology. We believe that our estimates and assumptions in testing goodwill and other intangible assets, including IPR&D, for impairment are consistent with assumptions that marketplace participants would use in their estimates. However, if actual results are not consistent with our estimates and assumptions, including as a result of the COVID-19 global pandemic, we may be exposed to an impairment charge that could be material. If we are unable to successfully develop Somatrogon, or changes in projections and assumptions negatively impact our forecast of net cash flows, we may be exposed to a material impairment charge related to the IPR&D for Somatrogon. 72 Corporate For the years ended December 31, (In thousands) 2020 2019 Change % Change Revenues: Revenue from transfer of intellectual property and other $ — $ 796 (796) (100) % Total revenues — 796 (796) (100) % Costs and expenses: Cost of revenue (84) (261) 177 (68) % Selling, general and administrative 38,609 43,696 (5,087) (12) % Research and development (836) (1,008) 172 (17) % Total costs and expenses 37,689 42,427 (4,738) (11) % Loss from operations (37,689) (41,631) 3,942 (9) % Operating loss for our unallocated corporate operations for the years ended December 31, 2020 and 2019 was $37.7 million and $41.6 million, respectively, and principally reflects general and administrative expenses incurred in connection with our corporate operations. The decrease in operating loss for the year ended December 31, 2020 was primarily attributable to a decrease in legal fees incurred for the year ended December 31, 2020, as compared to the year ended December 31, 2019. Other Interest income . Interest income for the years ended December 31, 2020 and 2019 was not significant as our cash investment strategy emphasizes the security of the principal invested and fulfillment of liquidity needs. Interest expense . Interest expense for the years ended December 31, 2020 and 2019 was $21.9 million and $21.5 million, respectively. Interest expense was principally related to interest incurred on our Senior Convertible Notes due 2025 (the “2025 Notes”), our 5% Convertible Promissory Notes (the “2023 Convertible Notes”), our 3.0% Senior Notes due 2033 (the “2033 Senior Notes”), and BioReference’s outstanding debt under its credit facility. Fair value changes of derivative instruments, net . Fair value changes of derivative instruments, net for the years ended December 31, 2020 and 2019, was $50 thousand and $174 thousand of income, respectively. Derivative income for the year ended December 31, 2020, was principally related to the change in fair value on foreign currency forward exchange contracts at OPKO Chile. Other income (expense), net . Other income (expense), net for the years ended December 31, 2020 and 2019, was $12.7 million of income and $11.3 million of expense, respectively. Other income for the year ended December 31, 2020 primarily consisted of realized and unrealized gains recognized during the period on our investment in VBI Vaccines Inc. (“VBI”), offset by net unrealized losses recognized during the period on our investment in Eloxx Pharmaceuticals, Inc. (“Eloxx”). Other expense for the year ended December 31, 2019 primarily consisted of net unrealized losses recognized during the period on Eloxx and VBI. Income tax provision . Our income tax provision for the years ended December 31, 2020 and 2019 was $17.6 million and $7.1 million, respectively, and reflects results using our expected effective tax rate. For the year ended December 31, 2020, the tax rate differed from the U.S. federal statutory rate of 21% primarily due to the relative mix in earnings and losses in the U.S. versus foreign tax jurisdictions, the impact of certain discrete tax events and operating results in tax jurisdictions that do not result in a tax benefit. Loss from investments in investees . We have made investments in certain early stage companies that we perceive to have valuable proprietary technology and significant potential to create value for us as a shareholder or member. We account for these investments under the equity method of accounting, resulting in the recording of our proportionate share of their losses until our share of their loss exceeds our investment. Until the investees’ technologies are commercialized, if ever, we anticipate they will report net losses. Loss from investments in investees was $0.5 million and $2.9 million for the years ended December 31, 2020 and 2019, respectively. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2021, we had cash and cash equivalents of approximately $134.7 million. Cash provided by operations of $38.3 million for year ended December 31, 2021 principally reflects cash generated by our diagnostics segment due to the 73 positive impact of COVID-19 testing volumes, which was partially offset by general and administrative expenses related to our corporate operations and research and development activities. Cash provided by investing activities for the year ended December 31, 2021 primarily reflects $66.0 million from the sale of property, plant and equipment, which was partially offset by capital expenditures of $32.2 million. Cash used in financing activities of $10.4 million primarily reflects net repayments on our lines of credit. We have historically not generated sustained positive cash flow sufficient to offset our operating and other expenses, and our primary sources of cash have been from the public and private placement of equity, the issuance of the 2033 Senior Notes, 2023 Convertible Notes and 2025 Notes and credit facilities available to us. However, as a result of the significant increase in testing volumes resulting from the COVID-19 pandemic, we have generated positive cash flow from operations; however we are unable to predict how long the demand will continue for our COVID-19 related testing, or whether pricing and reimbursement policies for testing will sustain, and accordingly, the sustainability of our cash flows from operations. Overall demand for COVID-19 testing has recently declined, and accordingly, the sustainability of our COVID-19 testing volumes is uncertain. In January 2022, we and Sema4 announced the execution of the GeneDx Merger Agreement, pursuant to which Sema4 has agreed to acquire our wholly owned subsidiary, GeneDx, Inc. The GeneDx Transaction is expected to close in the second quarter of 2022. Under the terms of the GeneDx Merger Agreement, Sema4 has agreed to acquire GeneDx for an upfront payment of $150 million in cash, together with 80.0 million shares of Sema4 Common Stock, subject to a customary purchase price adjustment mechanism providing for a normalized level of working capital and that GeneDx be free of debt at closing of the GeneDx Transaction. Additionally, Sema4 agreed to pay OPKO up to an additional $150.0 million, which may be paid in Sema4 Common Stock, cash or a combination thereof in Sema4’s discretion, subject to GeneDx achieving certain revenue targets for the fiscal years ending December 31, 2022 and 2023 . Based on the closing stock price of Sema4 Common Stock as of January 14, 2022, the total upfront consideration is approximately $473 million, and the total aggregate consideration including potential milestones is approximately $623 million. As of December 31, 2021, GeneDx met the held-for-sale accounting criteria and the related assets and liabilities are classified as held for sale in the consolidated balance sheet. Depending upon the value Sema4 shares upon closing of the transaction, an impairment charge may be incurred. GeneDx was included in our diagnostics segment as of December 31, 2021. In June 2021, EirGen Pharma Limited (“EirGen”), our wholly owned subsidiary, entered into a definitive agreement to sell one of its facilities in Waterford, Ireland to Horizon Therapeutics plc for $65 million in cash less certain assumed and accrued liabilities relating to transferred employees. The facility, which was formerly included in our pharmaceutical segment, housed EirGen’s sterile-fill-finish business and was no longer a core component of our ongoing operations and business strategy. The transaction closed in the third quarter of 2021. On February 25, 2020, we entered into a credit agreement with an affiliate of Dr. Frost, pursuant to which the lender committed to provide us with an unsecured line of credit in the amount of $100 million. Borrowings under this line of credit incurred interest at a rate of 11% per annum and could be repaid and reborrowed at any time. The line of credit also called for a commitment fee equal to 0.25% per annum of the unused portion of the line. No funds were borrowed under this line of credit. We terminated this line of credit in June 2021. In February 2019, we issued $200.0 million aggregate principal amount of the 2025 Notes in an underwritten public offering. The 2025 Notes bear interest at a rate of 4.50% per year, payable semiannually in arrears on February 15 and August 15 of each year. The notes mature on February 15, 2025, unless earlier repurchased, redeemed or converted. Holders may convert their 2025 Notes into shares of Common Stock at their option at any time prior to the close of business on the business day immediately preceding November 15, 2024, subject to the satisfaction of certain conditions. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our Common Stock, or a combination of cash and shares of our Common Stock, at our election. The current conversion rate for the 2025 Notes is 236.7424 shares of Common Stock per $1,000 principal amount of 2025 Notes (equivalent to a conversion price of approximately $4.22 per share of Common Stock). The conversion rate for the 2025 Notes is subject to adjustment in certain events but will not be adjusted for any accrued and unpaid interest. In May 2021, we entered into exchange agreements with certain holders of the 2025 Notes pursuant to which the holders exchanged $55.4 million in aggregate principal amount of the outstanding 2025 Notes for 19,051,270 shares of our Common Stock (the “Exchange”). Upon consummation of the Exchange, we paid the holders of the exchanged notes an aggregate of approximately $0.6 million in accrued and unpaid interest on the exchanged notes. We recorded an $11.1 million non-cash loss related to the Exchange. 74 As of December 31, 2021, the total commitments under our A&R Credit Agreement (as defined below) with CB and our lines of credit with financial institutions in Chile and Spain were $90.2 million, of which $13.7 million was drawn as of December 31, 2021. At December 31, 2021, the weighted average interest rate on these lines of credit was approximately 5.4%. These lines of credit are short-term and are used primarily as a source of working capital. The highest aggregate principal balance at any time outstanding during the year ended December 31, 2021, was $66.5 million. We intend to continue to draw on these lines of credit as needed. There is no assurance that these lines of credit or other funding sources will be available to us on acceptable terms, or at all, in the future. In November 2015, BioReference and certain of its subsidiaries entered into the Credit Agreement with CB, as lender, which was amended and restated on August 30, 2021 (the “A&R Credit Agreement”). The A&R Credit Agreement provides for a $75.0 million secured revolving credit facility and includes a $20.0 million sub-facility for swingline loans and a $20.0 million sub-facility for the issuance of letters of credit. The A&R Credit Agreement matures on August 30, 2024 and is guaranteed by all of BioReference’s domestic subsidiaries, subject to certain exceptions. The A&R Credit Agreement is also secured by substantially all assets of BioReference and its domestic subsidiaries, subject to certain exceptions, as well as a non-recourse pledge by us of our equity interest in BioReference. Availability under the A&R Credit Agreement is based on a borrowing base composed of eligible accounts receivables of BioReference and certain of its subsidiaries, as specified therein. As of December 31, 2021, $64.8 million remained available for borrowing under the A&R Credit Agreement. In February 2018, in a transaction exempt from registration under the Securities Act, we issued the 2023 Convertible Notes in the aggregate principal amount of $55.0 million maturing in February 2023. Each holder of a 2023 Convertible Note has the option, from time to time, to convert all or any portion of the outstanding principal balance of such 2023 Convertible Note, together with accrued and unpaid interest thereon, into shares of our Common Stock, par value $0.01 per share, at a conversion price of $5.00 per share of Common Stock. We may redeem all or any part of the then issued and outstanding 2023 Convertible Notes, together with accrued and unpaid interest thereon upon no fewer than 30 days, and no more than 60 days, notice to the holders. The 2023 Convertible Notes contain customary events of default and representations and warranties of OPKO. In December 2021, we announced that the FDA approved our 4Kscore test for use in men age 45 and older who have not had a prior prostate biopsy or are biopsy negative and have an age-specific abnormal total PSA and/or abnormal digital rectal exam. In December 2021, we announced preliminary topline results from our Phase 2 trial with Rayaldee to treat mild-to-moderate COVID-19. This study builds on increasing medical evidence that vitamin D repletion therapy can mitigate the severity of upper respiratory tract infections and accelerate recovery from COVID-19. One primary efficacy endpoint was reaching the targeted serum 25D level. By Day 7, mean serum 25D levels increased with Rayaldee treatment to 82 ng/mL (p<0.001) and remained elevated for the duration of the trial, with 88% of subjects attaining the targeted level. In contrast, mean 25D declined slightly with placebo treatment. On September 14, 2021, we and LeaderMed Health Group Limited (“LeaderMed”), a pharmaceutical development company with operations based in Asia, announced the formation of a joint venture to develop, manufacture and commercialize two of OPKO’s clinical stage, long-acting drug products in Greater China and eight other Asian territories. Under the terms of the agreements, we will grant the joint venture exclusive rights to develop, manufacture and commercialize (a) OPK88003, an oxyntomodulin analog being developed for the treatment of obesity and diabetes, and (b) Factor VIIa-CTP, a novel long-acting coagulation factor being developed to treat hemophilia, in exchange for a 47% ownership interest in the joint venture. In addition, we received an upfront payment of $1 million and will be reimbursed for clinical trial material and technical support it provides the joint venture. LeaderMed will be responsible for funding the joint venture’s operations, development and commercialization efforts and will, with its syndicate partners, initially invest $11 million in exchange for a 53% ownership interest. We retain full rights to oxyntomodulin and Factor VIIa-CTP in all other geographies. On August 16, 2021, BioReference announced the acquisition of Ariosa Diagnostics, Inc. (“Ariosa”), the U.S. Ariosa centralized laboratory prenatal testing business from Roche Molecular Systems Inc. Ariosa's non invasive prenatal screening (NIPS) test, the Harmony Prenatal Test, is one of the most widely studied tests utilized in prenatal screening. The test has been performed in over 1.5 million patients. BioReference currently offers, ClariTest™ Core, which utilizes the same core technology as the Harmony Prenatal Test. The acquisition of Ariosa will complement our current NIPS offering. On July 6, 2021, we entered into the CAMP4 Agreement, pursuant to which we granted to CAMP4 an exclusive license to develop, manufacture, commercialize or improve therapeutics utilizing the AntagoNAT technology, an oligonucleotide 75 platform developed under OPKO CURNA, which includes the CAMP4 Licensed Compound and the CAMP4 Licensed Product, worldwide. The CAMP4 Agreement grant covers human pharmaceutical, prophylactic, and therapeutic and certain diagnostic uses. We received an initial upfront payment of $1.5 million and 3,373,008 shares of CAMP4’s Preferred Stock, which equates to approximately 9% of the outstanding shares of CAMP4, and we are eligible to receive up to $3.5 million in development milestone payments for Dravet syndrome products, and $4 million for non-Dravet syndrome products, as well as sales milestones of up to $90 million for Dravet syndrome products and up to $90 million for non-Dravet syndrome products. We may also receive double digit royalty payments on the net sales of royalty bearing products, subject to adjustment. In addition, upon achievement of certain development milestones, we will be eligible to receive additional equity consideration of up to 5,782,299 shares of CAMP4 Preferred Stock in connection with Dravet syndrome products and up to 1,082,248 shares of CAMP4 Preferred Stock in connection with non-Dravet syndrome products. Unless earlier terminated, the CAMP4 Agreement will remain in effect on a CAMP4 Licensed Product-by-Licensed Product and country by-country basis until such time as the royalty term expires for a CAMP4 Licensed Product in a country, and expires in its entirety upon the expiration of the royalty term for the last CAMP4 Licensed Product in the last country. CAMP4’s royalty obligations expire on the later of (i) the expiration, invalidation or abandonment date of the last patent right in connection with the royalty bearing product, or (ii) ten (10) years after a royalty bearing product’s first commercial sale in a country. In addition to termination rights for material breach and bankruptcy, CAMP4 is permitted to terminate the CAMP4 Agreement after a specified notice period. On June 18, 2021, EirGen and Nicoya entered into a Development and License Agreement (the “Nicoya Agreement”) granting Nicoya the exclusive rights for the development and commercialization of extended release calcifediol (the “ Nicoya Product”) in Greater China, which includes mainland China, Hong Kong, Macau, and Taiwan (collectively, the “Nicoya Territory”). Extended release calcifediol is marketed in the U.S. under the tradename Rayaldee by OPKO. The license grant to Nicoya covers the therapeutic and preventative use of the Product for SHPT in non-dialysis (“ND”) and hemodialysis chronic kidney disease patients (the “Nicoya Field”). EirGen received an initial upfront payment of $5 million and is eligible to receive an additional $5 million upon the first to occur of (A) a certain predetermined milestone, or (B) the first anniversary of the effective date. EirGen is also eligible to receive up to an additional aggregate amount of $115 million upon the achievement of certain development, regulatory and sales-based milestones by Nicoya for the Nicoya Product in the Nicoya Territory. EirGen will also receive tiered, double digit royalty payments at rates in the low double digits on net product sales within the Nicoya Territory and in the Nicoya Field. In May 2016, EirGen partnered with VFMCRP through the VFMCRP Agreement for the development and commercialization of Rayaldee in the VFMCRP Territory. The license to VFMCRP potentially covers all therapeutic and prophylactic uses of the product in human patients, provided that initially the license is for the use of the product for the treatment or prevention of SHPT related to patients with CKD and vitamin D insufficiency/deficiency (“VFMCRP Initial Indication”). Effective May 23, 2021, we entered into an amendment to the VFMCRP Agreement, pursuant to which the parties thereto agreed to include Japan as part of the VFMCRP Territory. Effective May 5, 2020, we entered into the VFMCRP Amendment, pursuant to which the parties agreed to exclude Mexico, South Korea, the Middle East and all of the countries of Africa from the VFMCRP Territory. In addition, the parties agreed to certain amendments to the milestone structure and to reduce minimum royalties payable. We have received non-refundable and non-creditable payments of $55 million to date and are eligible to receive up to an additional $227 million pursuant to the terms of the VFMCRP Amendment upon the achievement of certain regulatory and sales-based milestones tied to sales and reimbursement levels. In addition, we are eligible to receive tiered royalties on sales of the product at percentage rates that range from the mid-teens to the mid-twenties or a minimum royalty, whichever is greater, upon commencement of sales of the product. As part of the arrangement, the companies will share responsibility for the conduct of trials specified within an agreed-upon development plan, with each company leading certain activities within the plan. For the initial development plan, the companies have agreed to certain cost sharing arrangements. VFMCRP will be responsible for all other development costs that VFMCRP considers necessary to develop the product for the VFMCRP Initial Indication in the VFMCRP Territory except as otherwise provided in the VFMCRP Agreement. EirGen also granted to VFMCRP an option (the “Option”) to acquire an exclusive license to use, import, offer for sale, sell, distribute and commercialize the product in the U.S. for treatment of SHPT in dialysis patients with stage 5 CKD and vitamin D insufficiency (the “Dialysis Indication”). Upon exercise of the Option, VFMCRP will reimburse EirGen for all of the development costs incurred by EirGen with respect to the product for the Dialysis Indication in the U.S. VFMCRP would also pay EirGen up to an additional aggregate amount of $555 million upon the achievement of certain milestones and would be obligated to pay royalties on sales of the product at percentage rates that 76 range from the mid-teens to the mid-twenties or a minimum royalty, whichever is greater, upon commencement of sales of the product. In early 2022, the European Commission and Ministry of Health, Labour and Welfare in Japan approved the next-generation long-acting recombinant human growth hormone NGENLA (Somatrogon), a once-weekly injection to treat pediatric growth hormone deficiency. Further, Canada and Australia approved NGENLA in October and November of 2021, respectively. In January 2022, the FDA issued a Complete Response Letter for the BLA for Somatrogon. Pfizer and OPKO are evaluating the FDA’s comments and will work with the agency to determine the best path forward for Somatrogon (hGH-CTP) in the United States. In 2014, Pfizer and OPKO entered into a worldwide agreement for the development and commercialization of our long-acting Somatrogon for the treatment of GHD in adults and children, as well as for the treatment of growth failure in children born small for gestational age. In May 2020, we entered into the Restated Pfizer Agreement which was effective as of January 1, 2020, pursuant to which the parties agreed to share all costs for Manufacturing Activities, as defined in the Restated Pfizer Agreement, for developing a licensed product for the three indications included in the Restated Pfizer Agreement. Under the terms of the agreements with Pfizer, we received non-refundable and non-creditable upfront payments of $295 million in 2015 and are eligible to receive up to an additional $275 million upon the achievement of certain regulatory milestones. Pfizer received the exclusive license to commercialize Somatrogon worldwide. In addition, we are eligible to receive initial tiered royalty payments associated with the commercialization of Somatrogon for Adult GHD with percentage rates ranging from the high teens to mid-twenties. Upon the launch of Somatrogon for Pediatric GHD in certain major markets, the royalties will transition to regional, tiered gross profit sharing for both Somatrogon and Pfizer’s Genotropin®. During the first quarter of 2021, regulatory submissions in the major global markets for Somatrogan have been accepted including, the U.S., European Medicines Agency, and Ministry of Health, Labour, and Welfare in Japan for Somatrogon for the treatment of pediatric patients with GHD. In early 2022, the European Commission and Ministry of Health, Labour and Welfare in Japan approved the next-generation long-acting recombinant human growth hormone NGENLA (Somatrogon), a once-weekly injection to treat pediatric growth hormone deficiency. Further, Canada and Australia approved NGENLA in October and November of 2021, respectively. In January 2022, the FDA issued a Complete Response Letter for the BLA for Somatrogon. Pfizer and OPKO are evaluating the FDA’s comments and will work with the agency to determine the best path forward for Somatrogon (hGH-CTP) in the United States. In connection with our acquisitions of CURNA, OPKO Diagnostics and OPKO Renal, we agreed to pay future consideration to the sellers upon the achievement of certain events, including up to an additional $19.1 million in shares of our Common Stock to the former stockholders of OPKO Diagnostics upon and subject to the achievement of certain milestones; and up to an additional $125.0 million in either shares of our Common Stock or cash, at our option subject to the achievement of certain milestones, to the former shareholders of OPKO Renal. As a result of our execution of the CAMP4 Agreement, we will have to pay a percentage of any payments received under the CAMP4 Agreement to the former CURNA stockholders. We believe that the cash and cash equivalents on hand at December 31, 2021, cash from operations and the amounts available to be borrowed under our lines of credit are sufficient to meet our anticipated cash requirements for operations and debt service beyond the next 12 months. We based this estimate on assumptions that may prove to be wrong or are subject to change, and we may be required to use our available cash resources sooner than we currently expect. If we acquire additional assets or companies, accelerate our product development programs or initiate additional clinical trials, we will need additional funds. Our future cash requirements, and the timing of those requirements, will depend on a number of factors, including the evolving impact of the COVID-19 pandemic on our business, the approval and success of our products in development, particularly our long acting Somatrogon for which we have received approval in Europe, Japan, Australia and Canada, submitted for approval in the U.S. and received a Complete Response Letter in January 2022, the approval and success of Somatrogon outside the United States, including in Europe, Japan, Australia and Canada, the commercial success of Rayaldee , including from the recent launch of Rayaldee by Vifor and in other territories expected in 2022, BioReference’s financial performance, possible acquisitions and dispositions, the continued progress of research and development of our product candidates, the timing and outcome of clinical trials and regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability of financing, our success in developing markets for our product candidates and results of government investigations, payor claims, and legal proceedings that may arise, including, without limitation class action and derivative litigation to which we are subject, and our ability to obtain insurance coverage for such claims. We have historically not 77 generated sustained positive cash flow and if we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials or research and development programs or possible acquisitions or reduce our marketing or sales efforts or cease operations. Additionally, the rapid development and fluidity of the COVID-19 pandemic and new variants of the virus makes it very difficult to predict its ultimate impact on our business, results of operations and liquidity. The pandemic presents a significant uncertainty that could materially and adversely affect our results of operations, financial condition and cash flows, including a negative impact on non-COVID-related diagnostics testing services provided by BioReference in our diagnostics segment, notwithstanding that our results of operations have been positively impacted by our provision of COVID-19 testing services. Further, deteriorating economic conditions globally as a result of the COVID-19 pandemic have in the past resulted, and may in the future result in a challenging capital raising environment, which could materially limit our access to capital, whether through the issuance and sale of our Common Stock, debt securities or otherwise, as well as through bank facilities and lines of credit. Events resulting from the effects of COVID-19 or new variants of the virus could negatively impact our ability to comply with certain covenants in the A&R Credit Agreement or require that we pursue alternative financing. We can provide no assurance that any such alternative financing, if required, could be obtained on acceptable terms or at all. The combination of potential disruptions to our business resulting from COVID-19 together with and volatile credit and capital markets could adversely impact our future liquidity, which could have an adverse effect on our business and results of operations. We will continue to monitor and assess the impact COVID-19 and new variants of the virus may have on our business and financial results. The following table provides information as of December 31, 2021, with respect to the amounts and timing of our known contractual obligation payments due by period. Contractual obligations (In thousands) 2022 2023 2024 2025 2026 Thereafter Total Open purchase orders $ 249,279 $ 5,841 $ — $ — $ — $ — $ 255,120 Operating leases 11,624 8,770 5,693 3,599 3,043 11,992 44,721 Capital leases 2,102 1,499 1,002 499 79 — 5,181 2033 Senior Notes, 2025 and 2023 Convertible Notes — 68,576 — 119,360 — — 187,935 Deferred payments 2,478 — — — — — 2,478 Mortgages and other debts payable 1,230 970 883 512 277 — 3,872 Lines of credit 13,672 — — — — — 13,672 Interest commitments 9,426 6,969 6,536 575 1 — 23,507 Total $ 289,811 $ 92,625 $ 14,114 $ 124,545 $ 3,400 $ 11,992 $ 536,486 The preceding table does not include information where the amounts of the obligations are not currently determinable, including the following: • Contractual obligations in connection with clinical trials, which span over two years, and that depend on patient enrollment. The total amount of expenditures is dependent on the actual number of patients enrolled and as such, the contracts do not specify the maximum amount we may owe. • Product license agreements effective during the lesser of 15 years or patent expiration whereby payments and amounts are determined by applying a royalty rate on uncapped future sales. • Contingent consideration that includes payments upon achievement of certain milestones including meeting development milestones such as the completion of successful clinical trials, NDA approvals by the FDA and revenue milestones upon the achievement of certain revenue targets all of which are anticipated to be paid within the next seven years and are payable in either shares of our Common Stock or cash, at our option, and that may aggregate up to $144.1 million. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“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. 78 Goodwill and intangible assets. Goodwill and other intangible assets, including IPR&D, acquired in business combinations, licensing and other transactions at December 31, 2021 and 2020, was $1.4 billion and $1.7 billion, respectively. 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.” This method starts with a forecast of net cash flows, risk adjusted for estimated probabilities of technical and regulatory success (for IPR&D) and adjusted to present value using an appropriate discount rate that reflects the risk associated with the cash flow streams. Subsequent to 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. Our annual assessment may consist of a qualitative or quantitative analysis to determine whether it is more likely than not that its fair value exceeds the carrying value. When performing qualitative analysis, the factors we consider include our share price, our financial performance compared to budgets, long-term financial plans, the timing and cost of development plans, macroeconomic, industry and market conditions as well as the excess of fair value over the carrying value of net assets from the annual impairment test previously performed. When performing quantitative analysis, we use a combination of income and market valuation methods and may weigh the outcomes of valuation approaches when estimating fair value. Inputs and assumptions used to determine fair value are determined from a market participant view, which might be different than our specific views. The valuation process is complex and requires significant input and judgment using internal and external sources. Market approaches depend on the availability of guideline companies and representative transactions. When using the income approach, complex and judgmental matters applicable to the valuation process may include the following: • Estimated useful life – The asset life expected to contribute meaningful cash flows is determined after considering expected regulatory approval dates (if unapproved), exclusivity periods and other legal, regulatory or contractual provisions. • Projections – Future revenues are estimated after considering many factors such as historical results, market opportunity, pricing, sales trajectories to peak sales levels, competitive environment and product evolution. Future costs and expenses are estimated after considering historical factors such as the timing and level of development costs to obtain regulatory approvals, maintain or further enhance the product. For IPR&D projects, we generally assume initial positive cash flows to commence shortly after the receipt of expected regulatory approvals which typically may not occur for a number of years. Actual cash flows attributed to the project are likely to be different than those assumed since projections are subjected to multiple factors including trial results and regulatory matters which could materially change the ultimate commercial success of the asset as well as significantly alter the costs to develop the respective asset into commercially viable products. • Tax rates – The expected future income is tax effected using a market participant tax rate. In determining the tax rate, we consider the jurisdiction in which the intellectual property is held and the location of the research and manufacturing infrastructure. • Discount rate – Discount rates are selected after considering the risks inherent in the future cash flows; the assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of any Company specific technical, legal, regulatory, or economic barriers to entry. Goodwill was $520.6 million and $680.6 million, respectively, at December 31, 2021 and 2020. In addition, at December 31, 2021, Assets held for sale includes $151.8 million of goodwill related to GeneDx. 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. Net intangible assets other than goodwill were $911.9 million and $1.1 billion, including IPR&D of $590.2 million, at December 31, 2021 and December 31, 2020. 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. 79 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. No impairment charges were recognized for the year ended December 31. 2021. and December 31, 2020. Impairment charges for the year ended December 31, 2019 were $92.4 million and consist of a goodwill impairment charge of $26.2 million to write the carrying amount of the OPKO Diagnostics, CURNA and Transition Therapeutics reporting units down to their estimated fair value, an impairment charge of $44.8 million to write our IPR&D assets for OPK88003 and CURNA’s platform technology for oligonucleotide therapeutics down to their estimated fair value, and an impairment charge of $20.7 million to write our intangible asset for the Claros Analyzer down to its estimated fair value as a result of our testing. These impairment charges for the year ended December 31, 2019, resulted from liquidity constraints, longer than expected development timelines and changes in the competitive landscape, which resulted in changes to our estimates and assumptions of the expected future cash flows of the reporting units focused on the development of the Claros Analyzer, OPK88003 and CURNA’s platform technology. 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. However, if future results are not consistent with our estimates and assumptions, including as a result of the COVID-19 global pandemic, then we may be exposed to additional impairment charges, which could be material. Our 2021 impairment test of the OPKO Biologics reporting unit, including IPR&D related to Somatrogon, indicated an excess of estimated fair value over the carrying amount of approximately 19%. We submitted the initial BLA with the FDA for approval of Somatrogon (hGH-CTP) in the United States and Pfizer received a Complete Response Letter in January 2022. Pfizer and OPKO are evaluating the FDA’s comments and will work with the agency to determine the best path forward for Somatrogon in the United States. If we are unable to successfully commercialize Somatrogon in the U.S., or changes in projections and assumptions negatively impact our forecast of net cash flows, we may be exposed to a material impairment charge related to the IPR&D for Somatrogon. 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 $50.3 million, $56.4 million and $64.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. Revenue recognition . We generate revenues from services, products and intellectual property as follows: Revenue from services. Revenue for laboratory services is recognized at the time test results are reported, which approximates when services are provided and the performance obligations are satisfied. Services are provided to patients covered by various third-party payor programs including various managed care organizations, as well as the Medicare and Medicaid programs. Billings for services are included in revenue net of allowances for contractual discounts, allowances for differences between the amounts billed and estimated program payment amounts, and implicit price concessions provided to uninsured patients which are all elements of variable consideration. The following are descriptions of our payors for laboratory services: Healthcare Insurers. Reimbursements from healthcare insurers are based on negotiated fee-for-service schedules. Revenues consist of amounts billed, net of contractual allowances for differences between amounts billed and the estimated consideration we expect to receive from such payors, which considers historical denial and collection experience and the terms of our contractual arrangements. Adjustments to the allowances, based on actual receipts from the third-party payors, are recorded upon settlement. Government Payors. Reimbursements from government payors are based on fee-for-service schedules set by governmental authorities, including traditional Medicare and Medicaid. Revenues consist of amounts billed, net of contractual allowances for differences between amounts billed and the estimated consideration we expect to receive from such payors, which considers historical denial and collection experience and the terms of our contractual arrangements. Adjustments to the allowances, based on actual receipts from the government payors, are recorded upon settlement. 80 Client Payors. Client payors include physicians, hospitals, employers, and other institutions for which services are performed on a wholesale basis, and are billed and recognized as revenue based on negotiated fee schedules. Client payors also include cities, states and companies for which BioReference provides COVID-19 testing services. Patients. Uninsured patients are billed based on established patient fee schedules or fees negotiated with physicians on behalf of their patients. Insured patients (including amounts for coinsurance and deductible responsibilities) are billed based on fees negotiated with healthcare insurers. Collection of billings from patients is subject to credit risk and ability of the patients to pay. Revenues consist of amounts billed net of discounts provided to uninsured patients in accordance with our policies and implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration that we expect to receive from patients, which considers historical collection experience and other factors including current market conditions. Adjustments to the estimated allowances, based on actual receipts from the patients, are recorded upon settlement. The complexities and ambiguities of billing, reimbursement regulations and claims processing, as well as considerations unique to Medicare and Medicaid programs, require us to estimate the potential for retroactive adjustments as an element of variable consideration in the recognition of revenue in the period the related services are rendered. Actual amounts are adjusted in the period those adjustments become known. For the years ended December 31, 2021, and December 31, 2020, positive revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $40.4 million and $0.3 million were recognized, respectively. For the year ended December 31, 2019, revenue reductions due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $24.8 million were recognized. Third-party payors, including government programs, may decide to deny payment or recoup payments for testing they contend were improperly billed or not medically necessary, against their coverage determinations, or for which they believe they have otherwise overpaid (including as a result of their own error), and we may be required to refund payments already received. Our revenues may be subject to retroactive adjustment as a result of these factors among others, including without limitation, differing interpretations of billing and coding guidance and changes by government agencies and payors in interpretations, requirements, and “conditions of participation” in various programs. We have processed requests for recoupment from third-party payors in the ordinary course of our business, and it is likely that we will continue to do so in the future. If a third-party payor denies payment for testing or recoups money from us in a later period, reimbursement for our testing could decline. As an integral part of our billing compliance program, we periodically assess our billing and coding practices, respond to payor audits on a routine basis, and investigate reported failures or suspected failures to comply with federal and state healthcare reimbursement requirements, as well as overpayment claims which may arise from time to time without fault on the part of the Company. We may have an obligation to reimburse Medicare, Medicaid, and third-party payors for overpayments regardless of fault. We have periodically identified and reported overpayments, reimbursed payors for overpayments and taken appropriate corrective action. Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are also considered variable consideration and are included in the determination of the estimated transaction price for providing services. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and our historical settlement activity, including an assessment of the probability a significant reversal of cumulative revenue recognized will occur when the uncertainty is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known (that is, new information becomes available), or as years are settled or are no longer subject to such audits, reviews, and investigations. As of December 31, 2021 and 2020, we have liabilities of approximately $5.0 million and $14.9 million within Accrued expenses and Other long-term liabilities related to reimbursements for payor overpayments. Revenue from products. We recognize revenue from product sales when a customer obtains control of promised goods or services. The amount of revenue that is recorded reflects the consideration that we expect to receive in exchange for those goods or services. Our estimates for sales returns and allowances are based upon the historical patterns of product returns and allowances taken, matched against the sales from which they originated, and our evaluation of specific factors that may increase or decrease the risk of product returns. Product revenues are recorded net of estimated rebates, chargebacks, discounts, co-pay assistance and other deductions (collectively, “Sales Deductions”) as well as estimated product returns which are all elements of variable consideration. Allowances are recorded as a reduction of revenue at the time product revenues are recognized. The actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect Revenue from products in the period such variances become known. 81 Rayaldee is distributed in the U.S. principally through the retail pharmacy channel, which initiates with the largest wholesalers in the U.S. (collectively, “ Rayaldee Customers”). In addition to distribution agreements with Rayaldee Customers, we have entered into arrangements with many healthcare providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of Rayaldee. We recognize revenue for shipments of Rayaldee at the time of delivery to customers after estimating Sales Deductions and product returns as elements of variable consideration utilizing historical information and market research projections. For the years ended December 31, 2021, 2020 and 2019, we recognized $27.0 million, $36.8 million and $31.4 million in net product revenue from sales of Rayaldee . Taxes collected from customers related to revenues from services and revenues from products are excluded from revenues. Revenue from intellectual property. We recognize revenues from the transfer of intellectual property generated through license, development, collaboration and/or commercialization agreements. The terms of these agreements typically include payment to us for one or more of the following: non-refundable, up-front license fees; development and commercialization milestone payments; funding of research and/or development activities; and royalties on sales of licensed products. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the customer. For research, development and/or commercialization agreements that result in revenues, we identify all material performance obligations, which may include a license to intellectual property and know-how, and research and development activities. In order to determine the transaction price, in addition to any upfront payment, we estimate the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. We constrain (reduce) our estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, we consider whether there are factors outside of our control that could result in a significant reversal of revenue. In making these assessments, we consider the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required. Upfront License Fees: If a license to our intellectual property is determined to be functional intellectual property distinct from the other performance obligations identified in the arrangement, we recognize revenue from nonrefundable, upfront license fees based on the relative value prescribed to the license compared to the total value of the arrangement. The revenue is recognized when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are not distinct from other obligations identified in the arrangement, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, we apply an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Development and Regulatory Milestone Payments: Depending on facts and circumstances, we may conclude that it is appropriate to include the milestone in the estimated transaction price or that it is appropriate to fully constrain the milestone. A milestone payment is included in the transaction price in the reporting period that we conclude that it is probable that recording revenue in the period will not result in a significant reversal in amounts recognized in future periods. We may record revenues from certain milestones in a reporting period before the milestone is achieved if we conclude that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. We record a corresponding contract asset when this conclusion is reached. Milestone payments that have been fully constrained are not included in the transaction price to date. These milestones remain fully constrained until we conclude that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. We re-evaluate the probability of achievement of such development milestones and any related constraint each reporting period. We adjust our estimate of the overall transaction price, including the amount of revenue recorded, if necessary. Research and Development Activities: If we are entitled to reimbursement from our customers for specified research and development expenses, we account for them as separate performance obligations if distinct. We also determine whether the research and development funding would result in revenues or an offset to research and development expenses in accordance with provisions of gross or net revenue presentation. The corresponding revenues or offset to research and development expenses are recognized as the related performance obligations are satisfied. Sales-based Milestone and Royalty Payments: Our customers may be required to pay us sales-based milestone payments or royalties on future sales of commercial products. We recognize revenues related to sales-based milestone and royalty payments upon the later to occur of (i) achievement of the customer’s underlying sales or (ii) satisfaction of any performance 82 obligation(s) related to these sales, in each case assuming the license to our intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate. Other Potential Products and Services: Arrangements may include an option for license rights, future supply of drug substance or drug product for either clinical development or commercial supply at the licensee’s election. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations at the inception of the contract and revenue is recognized only if the option is exercised and products or services are subsequently delivered or when the rights expire. If the promise is based on market terms and not considered a material right, the option is accounted for if and when exercised. If we are entitled to additional payments when the licensee exercises these options, any additional payments are generally recorded in license or other revenues when the licensee obtains control of the goods, which is upon delivery. For the years ended December 31, 2021, 2020 and 2019 we recorded $25.8 million, $53.2 million and $73.3 million of revenue from the transfer of intellectual property and other, respectively. For the year ended December 31, 2021, revenue from transfer of intellectual property and other principally reflects $10.8 million of revenue related to the Pfizer Transaction, $1.0 million related to the LeaderMed joint venture (as defined below), a $4.9 million payment received under the CAMP4 Agreement (as defined below) and a $5.0 million non-refundable upfront payment received under the Nicoya Agreement. For the years ended December 31, 2020, and 2019 revenue from transfer of intellectual property and other principally reflects $28.7 million and $66.8 million of revenue related to the Pfizer Transaction. In addition, revenue from the transfer of intellectual property and other for the year ended December 31, 2020 included $16.2 million of grants received by BioReference under the CARES Act and a $3 million milestone payment triggered by the first marketing approval of Rayaldee in Europe. Contract liabilities relate to cash consideration that OPKO receives in advance of satisfying the related performance obligations. Changes in the contractual liabilities balance for the years ended December 31, 2021 are as follows: (In thousands) Balance at December 31, 2020 $ 16,378 Balance at December 31, 2021 466 Revenue recognized in the period from: Amounts included in contracts liability at the beginning of the period $ 15,911 The contract liability balance at December 31, 2020 related primarily to accelerated payments received as part of the CARES Act. Concentration of credit risk and allowance for doubtful accounts . 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 health care 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, we do not believe that such receivables represent a credit risk since the related healthcare programs are funded by federal and state governments, and payment is primarily dependent upon submitting appropriate documentation. At December 31, 2021 and 2020, receivable balances (net of explicit and implicit price concessions) from Medicare and Medicaid were 8% and 6%, respectively, of our consolidated Accounts receivable, net. At December 31, 2021, receivable balances (net of explicit and implicit price concessions) due directly from states, cities and other municipalities, specifically related to our real-time reverse-transcription polymerase chain reaction (real-time RT-PCR) assay to detect COVID-19, were 4.1% of our consolidated accounts receivable, net. The portion of our accounts receivable due from individual patients comprises the largest portion of credit risk. At December 31, 2021 and 2020, receivables due from patients represented approximately 1.7% and 0.7%, 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 $1.8 million and $2.1 million at December 31, 2021 and 2020, respectively. The credit loss expense for the years ended December 31, 2021, 2020 and 2019 was $0.4 million, $0.2 million and $0.5 million, respectively. 83 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. 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 Consolidated Statements 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. We estimate the grant-date fair value of our stock option grants using a valuation model known as the Black-Scholes-Merton formula or the “Black-Scholes Model.” The Black-Scholes Model requires the use of several variables to estimate the grant-date fair value of stock options including expected term, expected volatility, expected dividends and risk-free interest rate. We perform analyses to calculate and select the appropriate variable assumptions used in the Black-Scholes Model. The selection of assumptions is subject to significant judgment and future changes to our assumptions and estimates which may have a material impact on our Consolidated Financial Statements. 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 years ended December 31, 2021, 2020 and 2019 was $6.5 million, $4.4 million and $2.3 million, respectively. Contingent consideration. Each period we revalue the contingent consideration obligations associated with certain prior acquisitions to their fair value and record increases in the fair value as contingent consideration expense and decreases in the 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. RECENT ACCOUNTING PRONOUNCEMENTS Pending accounting pronouncements . 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 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. The ASU is effective for public entities for fiscal years beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the impact of this new guidance on our Consolidated Financial Statements.