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 and otherwise reflect our views related thereto only 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. 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 Health, LLC (“BioReference”), one of the nation’s largest full service laboratories with a 180-person sales and marketing team to drive growth and leverage new products, and we offer our 4Kscore prostate cancer test through BioReference. Our pharmaceutical business features Rayaldee , a U.S. Food and Drug Administration (“FDA”) approved treatment for secondary hyperparathyroidism (“SHPT”) in adults with stage 3 or 4 chronic kidney disease (“CKD”) and vitamin D insufficiency, and Somatrogon (hGH-CTP), a once-weekly human growth hormone injection for which we completed a successful phase 3 study in August 2019 and is partnered with Pfizer Inc. (“Pfizer”). Regulatory applications for Somatrogon (hGH-CTP) have been submitted to the applicable regulatory bodies for review in several countries around the world. In February 2022, the European Commission granted marketing authorization in the European Union for Somatrogon (hGH-CTP) 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 and has been granted pricing approval in Germany. NGENLA® has also been approved in Japan, Canada, and Australia. 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 have evaluated the FDA’s comments and will work with the agency to determine an appropriate path forward for the advancement of Somatrogon (hGH-CTP). In May 2022, we acquired ModeX Therapeutics, Inc. (“ModeX”), a biotechnology company focused on developing innovative multi-specific immune therapies for cancer and infectious diseases candidates. ModeX has a robust early-stage pipeline with assets in key areas of immuno-oncology and infectious diseases, and we intend to further expand our pharmaceutical product pipeline through ModeX’s portfolio of development candidates. Through BioReference, we provide laboratory testing services, primarily to customers in the larger metropolitan areas in New York, New Jersey, Florida, Texas, Maryland, California, Pennsylvania, Delaware, Washington, DC, Illinois and Massachusetts, as well as to customers in a number of other states. We offer a comprehensive test menu of clinical diagnostics for blood, urine and tissue analysis. This includes hematology, clinical chemistry, immunoassay, infectious disease, serology, hormones, and toxicology assays, as well as Pap smear, anatomic pathology (biopsies) and other types of tissue analysis, as well as testing for COVID-19. We market our laboratory testing services directly to physicians, geneticists, hospitals, clinics, correctional and other health facilities. We operate established pharmaceutical platforms in Ireland, Chile, Spain, Mexico, and the U.S.,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 APIs manufacturer in Israel, which we expect will facilitate the development of our pipeline of molecules and compounds for our proprietary molecular diagnostic and therapeutic products. 59 RESULTS OF OPERATIONS Impact of COVID-19 We continue to be a part of the coordinated public and private sector response to the COVID-19 pandemic. There continues to be a high level of uncertainty relating to the pandemic’s continuing evolution, including how governments and consumers will react to new developments and whether the pandemic will have a longer-term effect on the healthcare industry and patient habits. BioReference is providing COVID-19 solutions, including diagnostic molecular testing and serology antibody testing, to meet the testing needs of its customers, including physicians, health systems, long-term care facilities, governments, schools, employers, professional sports teams and entertainment venues, as well as the general public through relationships with retail pharmacy chains. However, the decline of COVID-19 infection rates and the normalization of living with COVID-19 following the increase in accessibility to COVID-19 vaccines and antiviral treatments has led to a decline in testing volumes, which has adversely affected our results of operations. Throughout the pandemic, we have managed our company-wide lab operations specimen acquisition, logistics, procurement, customer service, and initiatives to manage our cost structure to match the ever changing COVID-19 testing volumes and to identify and capitalize on efficiencies in our core clinical lines of business. While BioReference benefitted from significant COVID-19 testing volumes in 2020 and 2021, demand declined in 2022 and we expect COVID-19 test demand to continue to decline in 2023 as compared to 2022. Revenue from services for the year ended December 31, 2022 decreased by $851.5 million as compared to 2021 due to a decline in COVID-19 testing volumes. Excluding COVID-19 test volumes, for the year ended December 31, 2022, routine clinical test volume decreased 2.0% as compared to volumes for the year ended December 31, 2021. Foreign Currency Exchange Rates For the years ended December 31, 2022, 2021, and 2020, approximately 21.6%, 7.4%, and 5.7% of revenue was denominated in currencies other than the U.S. Dollar (USD). Our financial statements are reported in USD and, accordingly, fluctuations in exchange rates will affect the translation of revenues and expenses denominated in foreign currencies into USD for purposes of reporting the consolidated financial results. During the years ended December 31, 2022 and 2021, the most significant currency exchange rate exposures were to the Euro and Chilean Peso. Gross accumulated currency translation adjustments recorded as a separate component of shareholders’ equity were $39.9 million and $27.1 million at December 31, 2022 and 2021, respectively. We are subject to foreign currency transaction risk for fluctuations in exchange rates during the period of time between the consummation and cash settlement of transactions. We limit foreign currency transaction risk through hedge transactions with foreign currency forward contracts. Under these forward contracts, for any rate above or below the fixed rate, we receive or pay the difference between the spot rate and the fixed rate for the given amount at the settlement date. At December 31, 2022, we had 194 open foreign exchange forward contracts relating to inventory purchases on letters of credit with various amounts maturing monthly through January 2023 with a notional value totaling approximately $11.9 million. At December 31, 2021, we had 33 open foreign exchange forward contracts relating to inventory purchases on letters of credit with various amounts maturing monthly through January 2022 with a notional value totaling approximately $2.6 million. For The Years Ended December 31, 2022 and 2021 Our consolidated income (loss) from operations for the years ended December 31, 2022 and 2021 is as follows: 60 For the years ended December 31, (In thousands) 2022 2021 Change % Change Revenues: Revenue from services $ 755,630 $ 1,607,106 $ (851,476) (53) % Revenue from products 142,845 141,770 1,075 1 % Revenue from transfer of intellectual property and other 105,721 25,842 79,879 309 % Total revenues 1,004,196 1,774,718 (770,522) (43) % Costs and expenses: Cost of revenue 715,977 1,193,194 (477,217) (40) % Selling, general and administrative 372,672 468,857 (96,185) (21) % Research and development 73,887 76,850 (2,963) (4) % Contingent consideration (1,312) (1,703) 391 23 % Amortization of intangible assets 87,784 50,278 37,506 75 % Gain on sale of assets (18,559) (31,508) 12,949 41 % Total costs and expenses 1,230,449 1,755,968 (525,519) (30) % Income (loss) from operations (226,253) 18,750 (245,003) (1307) % Diagnostics For the years ended December 31, (In thousands) 2022 2021 Change % Change Revenues Revenue from services $ 755,630 $ 1,607,106 (851,476) (53) % Total revenues 755,630 1,607,106 (851,476) (53) % Costs and expenses: Cost of revenue 627,559 1,102,175 (474,616) (43) % Selling, general and administrative 284,388 357,633 (73,245) (20) % Research and development 12,024 18,652 (6,628) (36) % Amortization of intangible assets 23,870 30,579 (6,709) (22) % Gain on sale of assets (18,559) — (18,559) (100) % Total costs and expenses 929,282 1,509,039 (579,757) (38) % Income (loss) from operations (173,652) 98,067 (271,719) (277) % Revenue . Revenue from services for the year ended December 31, 2022 decreased by approximately $851.5 million compared to the year ended December 31, 2021. The decrease in revenue for the year ended December 31, 2022 primarily reflected reflects lower demand for COVID-19 testing and lower COVID-19 reimbursement of $650.3 million and $55.1 million, respectively. BioReference performed 3.1 million molecular tests for COVID-19 and 325 thousand serology antibody tests during the year ended December 31, 2022, which represented 28.7% of total testing volume for that period. In comparison, during the year ended December 31, 2021 Bio Reference performed 11.9 million molecular tests for COVID-19 and 0.7 million serology antibody tests,which represented 58.5% of total test volume for that period. The reduction in reimbursement reflected an increase in utilization of antigen point of care diagnostic tests as well as a change in the mix of customers which have varying contract prices depending on the level of services we provide. For the year ended December 31, 2022, clinical test volume decreased $25.8 million compared to the year ended December 31, 2021. In addition, clinical test reimbursement decreased $54.0 million year over year as a result of the change in the mix of tests ordered. Furthermore, as a result of our sale of GeneDx (as defined below) in 2022, genomic test revenues decreased by $63.9 million for the year ended December 31, 2022, as compared to the prior year. 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 61 related services are rendered. For the year ended December 31, 2022, negative revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $21.5 million were recognized, primarily due to lower COVID-19 test reimbursement estimates. For the year ended December 31, 2021, positive revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $40.4 million were recognized, primarily due to an increase in COVID-19 test reimbursement estimates. The composition of revenue from services by payor for the years ended December 31, 2022 and 2021 was as follows: For the years ended December 31, (In thousands) 2022 2021 Healthcare insurers $ 326,144 $ 520,244 Government payers 97,191 222,242 Client payers 316,309 843,405 Patients 15,986 21,215 Total $ 755,630 $ 1,607,106 Client payors include cities, states and companies for which BioReference provides COVID-19 testing services. Cost of revenue . Cost of revenue for the year ended December 31, 2022 decreased $474.6 million compared to the year ended December 31, 2021. Cost of revenue decreased primarily due to a decline in the volume of COVID-19 tests performed during the year ended December 31, 2022 compared to the year ended December 31, 2021. Cost of revenue for the year ended December 31, 2022 also decreased due to a decline in the number of genomic tests performed during the period as a result of changes in the test mix during the period. Cost of revenue for the year ended December 31, 2022, included $6.1 million in severance costs resulting from reductions in our workforce. Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2022 and 2021 were $284.4 million and $357.6 million, respectively. Selling, general and administrative expenses in our diagnostics segment decreased primarily due to our sale of the GeneDx. BioReference has and continues to implement significant cost-reduction initiatives and scaled back digital health investments as it looks to return to profitability following the buildup and then decline of COVID related testing. Selling, general and administrative expenses for the year ended December 31, 2021 includes $6.2 million of expense incurred in connection with certain legal matters. Research and development expenses . The following table summarizes the components of our research and development expenses: Research and Development Expenses For the years ended December 31, 2022 2021 External expenses: Research and development employee-related expenses 8,691 13,266 Other internal research and development expenses 3,333 5,386 Total research and development expenses $ 12,024 $ 18,652 The decrease in research and development expenses for the year ended December 31, 2022 primarily related to the development of more efficient clinical testing services at BioReference and as a result of the GeneDx Transaction. Amortization of intangible assets . Amortization of intangible assets was $23.9 million and $30.6 million for the years ended December 31, 2022 and 2021, respectively. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Amortization expense declined during the year ended December 31, 2022 as a result of the GeneDx Transaction and due to acquired intangible assets becoming fully amortized. Gain on sale of assets . Gain on sale of assets for the year ended December 31, 2022, was $18.6 million due to the sale of GeneDx Transaction. 62 Pharmaceuticals For the years ended December 31, (In thousands) 2022 2021 Change % Change Revenues: Revenue from products $ 142,845 $ 141,770 $ 1,075 1 % Revenue from transfer of intellectual property and other 105,721 25,842 79,879 309 % Total revenues 248,566 167,612 80,954 48 % Costs and expenses: Cost of revenue 88,418 91,059 (2,641) (3) % Selling, general and administrative 49,232 49,375 (143) — % Research and development 61,275 59,741 1,534 3 % Contingent consideration (1,312) (1,703) 391 23 % Amortization of intangible assets 63,914 19,699 44,215 224 % Gain on sale of asset — (31,508) 31,508 100 % Total costs and expenses 261,527 186,663 74,864 40 % Loss from operations (12,961) (19,051) 6,090 32 % Revenue . Revenue from products for the years ended December 31, 2022 and 2021 was $142.8 million and $141.8 million, respectively. The increase in revenue from products for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily attributable to an increase in sales in our international operating companies offset by foreign exchange fluctuations. Revenue from sales of Rayaldee for the years ended December 31, 2022 and 2021, was $27.3 million and $27.0 million, respectively. During the year ended December 31, 2022, we began to receive royalty payments from sales of Rayaldee from VFMCRP pursuant to the VFMCRP Agreement, and we expect these payments to increase as VFMCRP launches Rayaldee in additional territories throughout Europe. Revenue from transfer of intellectual property for the year ended December 31, 2022 reflects $85.0 million of regulatory milestone payments from Pfizer due from the commencement of sales from NGENLA (Somatrogon) in Europe and Japan, as well as royalty payments and gross profit share for both NGENLA (Somatrogon) and Pfizer’s Genotropin® (somatropin), $3.0 million related to a sales milestone pursuant to the VFMCRP Agreement, and $2.5 million from Nicoya tied to the first anniversary of the effective date of the Nicoya Agreement. For the years ended December 31, 2022, and December 31, 2021, revenue from transfer of intellectual property and other includes $9.3 million and $10.8 million, respectively, of revenue related to the Pfizer Transaction. For the year ended December 31, 2021, revenue from transfer of intellectual property and other also included $1.0 million related to the LeaderMed joint venture , $4.9 million related to the CAMP4 Agreement and a $5.0 million non-refundable upfront payment received under the Nicoya Agreement. Cost of revenue . Cost of revenue for the year ended December 31, 2022 decreased $2.6 million compared to the year ended December 31, 2021 primarily due to a $3.8 million inventory reserve charge for Rayaldee recognized for the year ended December 31, 2021 and changes in the product mix during these annual periods, which were partially offset by the negative impact of foreign exchange fluctuations at our international operating companies. Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2022 and 2021 were $49.2 million and $49.4 million, respectively. The decrease in selling, general and administrative expenses was primarily due to a decrease in legal expenses and selling expenses related to Rayaldee . Selling, general and administrative expenses for the pharmaceutical segment for the years ended December 31, 2022 and 2021 included equity-based compensation expense of $1.2 million and $1.3 million, respectively. Research and development expenses . Research and development expenses for the years ended December 31, 2022 and 2021 were $61.3 million and $59.7 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. 63 The following table summarizes the components of our research and development expenses: Research and Development Expenses For the years ended December 31, 2022 2021 External expenses: Manufacturing expense for biological products $ 10,038 $ 9,718 Phase 3 studies 9,611 9,877 Post-marketing studies 35 70 Earlier-stage programs 14,347 17,268 Research and development employee-related expenses 25,440 19,497 Other internal research and development expenses 2,951 3,614 Third-party grants and funding from collaboration agreements (1,147) (303) Total research and development expenses $ 61,275 $ 59,741 The increase in research and development expenses for the year ended December 31, 2022 was primarily due to research expenses at ModeX Therapeutics, partially offset by lower expenses related to Somatrogon (hGH-CTP) due to the closure of the open-label extension studies in countries with marketing authorization, lower expenditure on the Rayaldee COVID-19 study due to the study’s completion, and lower spending as a result of the sale of one of EirGen’s facilities in Waterford, Ireland to Horizon Therapeutics in 2021 discussed below. Research and development expenses for the pharmaceutical segment for the years ended December 31, 2022 and 2021 included equity-based compensation expenses of $2.6 million and $1.3 million, respectively. Contingent consideration . Contingent consideration for the years ended December 31, 2022 and 2021 was $1.3 million and $1.7 million reversal of expense, respectively. Contingent consideration for the years ended December 31, 2022 and 2021, was primarily attributable to changes in assumptions regarding the timing of achievement of future milestones for OPKO Renal, and potential amounts payable to former stockholders of OPKO Renal in connection therewith, pursuant to our acquisition agreement in March 2013. Amortization of intangible assets . Amortization of intangible assets was $63.9 million and $19.7 million, respectively, for the years ended December 31, 2022 and 2021. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. During the year ended December 31, 2022, we reclassified $590.2 million of IPR&D related to Somatrogon (hGH-CTP) from IPR&D in our Consolidated Balance Sheet upon the approval of NGENLA (Somatrogon) in Europe and Japan, which was the primary reason for the increase in amortization of intangible assets compared to the year ended December 31, 2021. The assets will be amortized on a straight-line basis over their estimated useful life of approximately 12 years. 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. Corporate For the years ended December 31, (In thousands) 2022 2021 Change % Change Costs and expenses: Cost of revenue $ — $ (40) $ 40 100 % Selling, general and administrative 39,052 61,849 (22,797) (37) % Research and development 588 (1,543) 2,131 138 % Total costs and expenses 39,640 60,266 (20,626) (34) % Loss from operations $ (39,640) $ (60,266) $ 20,626 34 % 64 Operating loss for our unallocated corporate operations for the years ended December 31, 2022 and 2021 was $39.6 million and $60.3 million, respectively, and principally reflects general and administrative expenses incurred in connection with our corporate operations. The decrease in operating loss for our unallocated corporate operations for the year ended December 31, 2022 was driven by decreases in legal and professional fees incurred partially offset by an increase in equity based compensation. Other Interest income . Interest income for the years ended December 31, 2022 and 2021 was not significant as our cash investment strategy emphasizes the security of the principal invested and fulfillment of liquidity needs. Interest expense . Interest expense for the years ended December 31, 2022 and 2021 was $12.1 million and $18.9 million, respectively. Interest expense was principally related to interest incurred on the 2025 Notes, the 2023 Convertible Notes, the 2033 Senior Notes (each as defined below), as well as on BioReference’s outstanding debt under the Credit Agreement. The decrease in interest expense was primarily due to the impact of the adoption of ASU 2020-06 on the 2025 Notes. Due to the adoption of ASU 2020-06, interest expense decreased for the year ended December 31, 2022 compared to the prior year period due to the elimination of the discount created by recognizing a component of convertible debt in equity. Refer to Note 7 of the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K Fair value changes of derivative instruments, net . Fair value changes of derivative instruments, net for the years ended December 31, 2022 and 2021, was $649 thousand and $846 thousand of reversal of expense, respectively, which were 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, 2022 and 2021, was $155.8 million and $14.8 million of expense, respectively. Other income (expense), net for the year ended December 31, 2022, includes $150.9 million of expense due to the decrease in the fair value of our investment in GeneDx Holdings. Other income (expense), net for the year 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 and net unrealized losses recognized during the period on our investments in our equity securities. Income tax benefit (provision) . Our income tax benefit (provision) for the years ended December 31, 2022 and 2021 was $63.5 million and $(15.5) million, respectively, and reflects results using our expected effective tax rate. For the year ended December 31, 2022, the tax rate differed from the U.S. federal statutory rate of 21% primarily due to a $22.5 million discrete benefit resulting from reduced tax rates applicable to foreign deferred tax liabilities, the impact from the IPR&D tax basis difference on deferred attribute realization as a result of the acquisition of ModeX, as well as the relative mix of earnings and losses in the U.S. versus foreign tax jurisdictions, and operating results in tax jurisdictions which do not result in a tax benefit compared to year ended December 31, 2021. 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 $0.4 million and $0.6 million for the years ended December 31, 2022 and 2021, respectively. For The Years Ended December 31, 2021 and 2020 Our consolidated income (loss) from operations for the years ended December 31, 2021 and 2020 is as follows: 65 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 66 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. 67 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 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: 68 Research and Development Expenses For the years ended December 31, 2021 2020 External expenses: Manufacturing expense for biological products $ 9,718 $ 5,326 Phase 3 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 (hGH-CTP), a once-weekly human growth hormone injection for which we have partnered with Pfizer. Ongoing expenses for the Somatrogon (hGH-CTP) program support open label extension studies that will continue until the market launch of Somatrogon (hGH-CTP) 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. 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. 69 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 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., 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. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2022, we had cash and cash equivalents of approximately $153.2 million. Cash used in operations of $95.2 million for year ended December 31, 2022 principally reflected 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, 2022 primarily reflected proceeds of $115.4 million from the sale of GeneDx, which was partially offset by capital expenditures of $24.6 million. Cash provided by financing activities of $23.0 million primarily reflected net borrowings 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. On May 9, 2022, the Company entered into an Agreement and Plan of Merger (the “ModeX Merger Agreement”), in accordance with which we acquired ModeX, which became a wholly owned subsidiary of the Company on that date. The Company paid the entirety of the $300.0 million purchase price in shares of Common Stock (the “Consideration Shares”) to the former stockholders of ModeX. The Consideration Shares were valued at $219.4 million, based on the closing price per share of our Common Stock of $2.44 as reported by NASDAQ on the closing date, which reflected the deduction from the purchase price of the value of certain equity awards issued by the Company to ModeX employees in an aggregate amount equal to $12.4 million on the closing date. Included in the total fair value of consideration transferred of $221.7 million were $2.3 million of fully vested equity awards. The Company deposited 10% of the Consideration Shares in a twelve-month escrow for purposes of satisfying the potential indemnity obligations of the sellers under the ModeX Merger Agreement. On April 29, 2022, the Company completed the GeneDx Transaction. GeneDx Holdings paid to the Company aggregate consideration of $150 million in cash (before deduction of transaction expenses and other customary purchase price adjustments), together with the Closing Shares. Additionally, subject to GeneDx achieving certain revenue targets for the fiscal 70 years ending December 31, 2022 and 2023, we are eligible to receive an earnout payment in cash or stock (at GeneDx Holdings’ discretion) equal to a maximum of 30.9 million shares of GeneDx Holdings’ Class A common stock if paid in stock. Based on the closing stock price of GeneDx Holdings as of April 29, 2022, the total upfront consideration represented approximately $322 million, and the total aggregate consideration including the potential Milestone Consideration is approximately $447 million. We recognized a gain of $18.6 million on the GeneDx Transaction for the year ended December 31, 2022. In April 2022, Pfizer notified OPKO that NGENLA (Somatrogon), a once-weekly injection to treat pediatric growth hormone deficiency, has received pricing approval in Germany and Japan. NGENLA was granted marketing authorization by the Ministry of Health, Labour and Welfare in Japan and by the European Commission in January and February of 2022, respectively. With the achievement of these milestones, we received $85.0 million in milestone payments during the year ended December 31, 2022 under the Restated Pfizer Agreement. 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. These 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”). As of December 31, 2022, an aggregate principal amount of $142.1 million of the 2025 Notes was outstanding. 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. As of December 31, 2022, the total commitments under our amended and restated credit agreement, dated August 30, 2021 (as amended, the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“CB”) and our lines of credit with financial institutions in Chile and Spain were $63.2 million, of which $31.8 million was drawn as of December 31, 2022. At December 31, 2022, the weighted average interest rate on these lines of credit was approximately 5.5%. These lines of credit are short-term and are used primarily as a source of working capital. The highest aggregate principal balance at any time outstanding during the year ended December 31, 2022, 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. The Credit Agreement provides for a $75.0 million secured revolving credit facility and includes a $20.0 million sub-facility for swingline loans and a $20.0 million sub-facility for the issuance of letters of credit. The Credit Agreement matures on August 30, 2024 and is guaranteed by all of BioReference’s domestic subsidiaries, subject to certain exceptions. The 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 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, 2022, $16.8 million remained available for borrowing under the Credit Agreement. In connection with our agreements with Pfizer, VFMCRP, Nicoya and CAMP4, we are eligible to receive various milestone payments and royalty considerations. Under the terms of the Restated Pfizer Agreement, we are eligible to receive up to an additional $275.0 million upon the achievement of certain regulatory milestones, including $85 million which we received 71 during the second quarter of 2022. In addition, we are eligible to receive initial tiered royalty payments associated with the commercialization of Somatrogon (hGH-CTP) for adult GHD with percentage rates ranging from the high teens to mid-twenties. Upon the launch of Somatrogon (hGH-CTP) for pediatric GHD in certain major markets, the royalties will transition to regional, tiered gross profit sharing for both Somatrogon (hGH-CTP) and Pfizer’s Genotropin®. Under the terms of the VFMCRP Agreement, we are entitled to receive up to an additional $17 million in regulatory milestones and $207 million in milestone payments tied to launch, pricing and sales of Rayaldee , including a $3.0 million milestone payment we recognized during the year ended December 31, 2022 following the first sale of Rayaldee in Europe. In addition, we are eligible to receive tiered, double-digit royalty payments. Under the terms of the Nicoya Agreement, we received an initial upfront payment of $5 million and are eligible to receive an aggregate of $5 million tied to the first anniversary of the effective date of the Nicoya Agreement, of which we have received $2.5 million. Furthermore, we are eligible to receive the additional $2.5 million upon the earlier of (i) Nicoya’s submission of the investigational new drug application to the Center for Drug Evaluation (“CDE”) of China, of which we received in February 2023. We are also eligible to receive up to an additional aggregate amount of $115 million upon the achievement of certain development, regulatory and sales-based milestones by Nicoya for the Nicoya Product in the Nicoya Territory. We will also receive tiered, double digit royalty payments at rates in the low double digits on net product sales within the Nicoya Territory and in the Nicoya Field. Under the terms of the CAMP4 Agreement, we received an initial upfront payment of $1.5 million and we are eligible to receive up to $3.5 million in development milestone payments for Dravet syndrome products, and $4 million for non-Dravet syndrome products, as well as sales milestones of up to $90 million for Dravet syndrome products and up to $90 million for non-Dravet syndrome products. In connection with our acquisitions of CURNA, OPKO Diagnostics and OPKO Renal, we agreed to pay future consideration to the sellers upon the achievement of certain events, including up to an additional $19.1 million in shares of our Common Stock to the former stockholders 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, 2022, 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 (hGH-CTP) 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 (hGH-CTP) outside the United States, including in Europe, Japan, Australia and Canada, the commercial success of Rayaldee , BioReference’s financial performance, possible acquisitions and dispositions, the continued progress of research and development of our product candidates, the timing and outcome of clinical trials and regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability of financing, our success in developing markets for our product candidates and results of government investigations, payor claims, and legal proceedings that may arise, including, without limitation class action and derivative litigation to which we are subject, and our ability to obtain insurance coverage for such claims. We have historically not generated sustained positive cash flow and if we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials or research and development programs or possible acquisitions or reduce our marketing or sales efforts or cease operations. Additionally, the rapid development and fluidity of the COVID-19 pandemic and new variants of the virus makes it very difficult to predict its ultimate impact on our business, results of operations and liquidity. The pandemic presents a significant uncertainty that could materially and adversely affect our results of operations, financial condition and cash flows. For example, testing needs for COVID-19 decreased significantly as a result of declining infection rates and the normalization of living with COVID-19 following the increase in accessibility to COVID-19 vaccines and antiviral treatments, which negatively impacted our COVID-19-related diagnostics testing services provided by BioReference and our results of operations, which had been positively affected by COVID-19 during 2020 and 2021. 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, 2022, with respect to the amounts and timing of our known contractual obligation payments due by period. 72 Contractual obligations (In thousands) 2023 2024 2025 2026 2027 Thereafter Total Open purchase orders $ 58,131 $ 236 $ 5 $ — $ — $ — $ 58,372 Operating leases 11,628 7,340 4,621 3,424 3,200 9,378 39,591 Capital leases 2,709 2,283 1,683 1,057 241 1,925 9,898 2033 Senior Notes, 2025 and 2023 Convertible Notes 3,050 — 210,371 — — — 213,421 Mortgages and other debts payable 1,921 1,716 1,382 1,174 928 4,091 11,212 Lines of credit 31,820 — — — — — 31,820 Interest commitments 6,957 6,790 1,235 209 185 641 16,017 Total $ 116,216 $ 18,365 $ 219,297 $ 5,864 $ 4,554 $ 16,035 $ 380,331 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 $141.8 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. 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. Goodwill and intangible assets. Goodwill, IPR&D and other intangible assets acquired in business combinations, licensing and other transactions was $1.6 billion and $1.4 billion at December 31, 2022 and 2021, 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: 73 • 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 $595.9 million and $520.6 million at December 31, 2022 and 2021, respectively. In addition, Assets held for sale at December 31, 2021 included $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 $1.0 billion and $1.1 billion at December 31, 2022 and 2021, respectively, including IPR&D of $195.0 million and $590.2 million at December 31, 2022 and 2021, respectively. Intangible assets are highly vulnerable to impairment charges, particularly newly acquired assets for recently launched products and IPR&D. Considering the high risk nature of research and development and the industry’s success rate of bringing developmental compounds to market, IPR&D impairment charges may occur in future periods. Estimating the fair value of IPR&D for potential impairment is highly sensitive to changes in projections and assumptions and changes in assumptions could potentially lead to impairment. Upon obtaining regulatory approval, IPR&D assets are then accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. If the project is abandoned, the IPR&D asset is charged to expense. Finite lived intangible assets are tested for impairment when events or changes in circumstances indicate it is more likely than not that the carrying amount of such assets may not be recoverable. The testing includes a comparison of the carrying amount of the asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, then an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment charges were recognized for the years ended December 31 2022, 2021, and 2020. We believe that our estimates and assumptions in testing goodwill and other intangible assets, including IPR&D, for impairment are reasonable and otherwise consistent with assumptions that marketplace participants would use in their estimates of fair value. Based on the current financial performance of our diagnostic segment, if future results are not consistent with our estimates and assumptions, then we may be exposed to impairment charges, which could be material. In our pharmaceutical segment, Pfizer 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 have evaluated the FDA’s comments and will work with the agency to determine the best path forward for Somatrogon (hGH-CTP) in the United States. If we are unable to get approval for Somatrogon (hGH-CTP) in the United States, then we may be exposed to impairment charges, which could be material. In the first quarter of 2022, we reclassified $590.2 million of IPR&D related to Somatrogon (hGH-CTP) from IPR&D in our Consolidated Balance Sheet upon the approval of NGENLA (Somatrogon) in Europe and Japan. The assets are being amortized on a straight-line basis over their estimated useful life of approximately 12 years. We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from 3 to 20 years. We use the straight-line method of amortization as there is no reliably determinable pattern in which the economic 74 benefits of our intangible assets are consumed or otherwise used up. Amortization expense was $87.8 million, $50.3 million and $56.4 million for the years ended December 31, 2022, 2021 and 2020, 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. 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 year ended December 31, 2022, negative revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $21.5 million million were recognized. For the years ended December 31, 2021 and 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. 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 75 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, 2022 and 2021, we have liabilities of approximately $1.8 million and $5.0 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. 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, 2022, 2021 and 2020, we recognized $27.3 million, $27.0 million and $36.8 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 76 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 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, 2022, 2021 and 2020 we recorded $105.7 million, $25.8 million and $53.2 million of revenue from the transfer of intellectual property and other, respectively. For the year ended December 31, 2022, revenue from transfer of intellectual property and other principally reflects $85.0 million regulatory milestone payments from Pfizer based on the commencement of sales from NGENLA (Somatrogon) in Europe and Japan, as well as royalty payments and gross profit share for both NGENLA (Somatrogon) and Pfizer’s Genotropin®, $3.0 million related to a sales milestone pursuant to the VFMCRP Agreement, and $2.5 million from Nicoya tied to the first anniversary of the effective date of the agreement. For the years ended December 31, 2022, and December 31, 2021, revenue from transfer of intellectual property and other principally reflects $9.3 million and $10.8 million, respectively, of revenue related to the Pfizer Transaction. Furthermore, For the year ended December 31, 2021, revenue from transfer of intellectual property and other principally includes $1.0 million related to the LeaderMed joint venture (as defined below), $4.9 million related to the CAMP4 Agreement (as defined below) and a $5.0 million non-refundable upfront payment received under the Nicoya Agreement (as defined below). For the year ended December 31, 2020, revenue from transfer of intellectual property and other principally reflects $28.7 million of revenue related to the Pfizer Transaction (as defined in Note 16), $16.2 million of grants received by BioReference under the Coronavirus Aid, Relief, and Economic Security (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, 2022 are as follows: 77 (In thousands) Balance at December 31, 2021 $ 466 Balance at December 31, 2022 138 Revenue recognized in the period from: Amounts included in contracts liability at the beginning of the period $ 328 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, such receivables are not a credit risk because federal and state governments fund the related healthcare programs. Payment is primarily dependent upon submitting appropriate documentation. At December 31, 2022 and 2021, receivable balances (net of explicit and implicit price concessions) from Medicare and Medicaid were 14% and 8%, 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 are 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, 2022 and 2021, receivables due from patients represented approximately 2.9% and 1.7%, 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 $4.2 million and $1.8 million at December 31, 2022 and 2021, respectively. The credit loss expense for the years ended December 31, 2022, 2021 and 2020 was $0.3 million, $0.4 million and $0.2 million, respectively. 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, 2022, 2021 and 2020 was $4.1 million, $6.5 million and $4.4 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 78 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 Recently adopted 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 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. The ASU is effective for public entities for fiscal years beginning after December 15, 2021, with early adoption permitted. As required, we adopted ASU 2020-06 on January 1, 2022 and used the modified retrospective approach for all convertible debt instruments at the beginning of the period of adoptions. Results for reporting periods beginning January 1, 2022 are presented under ASU 2020-06, while prior period amounts were not adjusted and continue to be reported in accordance with historic accounting guidance. Under the modified approach, entities applied the guidance to all financial instruments that are outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. ASU 2020-06 eliminates the cash conversion and beneficial conversion feature models in ASC 470-20 that require an issuer of certain convertible debt and preferred stock to separately account for embedded conversion features as a component of equity. The adoption of ASU 2020-06 at January 1, 2022 resulted in an increase of the 2025 Convertible notes of $21.6 million, a reduction of the Accumulated deficit of $17.5 million and a reduction of Additional paid-in capital of $39.1 million.