Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act ) as of December 31, 2022. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of December 31, 2022.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined effective could provide only reasonable assurance with respect to financial statement preparation and presentation.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the framework in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission . Based on such evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by Ernst & Young LLP, our independent registered public accounting firm, which also audited our Consolidated Financial Statements included in this Annual Report on Form 10-K, as stated in their report which appears with our accompanying Consolidated Financial Statements.
Changes to the Company’s Internal Control Over Financial Reporting
There have been no changes to the Company’s internal control over financial reporting that occurred during quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
The information required in Items 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related Transactions, and Director Independence), and Item 14 (Principal Accounting Fees and Services) is incorporated by reference to the Company’s definitive proxy statement for the 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of December 31, 2022.
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PART IV.
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) (1) Financial Statements: See Part II, Item 8 of this report.
Schedule I - Condensed Financial Information of Registrant. Additionally, the financial statement schedule entitled “Schedule II – Valuation and Qualifying Accounts” has been omitted since the information required is included in the consolidated financial statements and notes thereto. Other schedules are omitted because they are not required.
(2) Exhibits: See Index to Exhibits below.
INDEX TO EXHIBITS
Exhibit
Number Description
1.1
Underwriting Agreement, dated October 24, 2019, by and among OPKO Health, Inc., Jeffries LLC, Piper Jaffray & Co., and Guggenheim Securities, LLC as representatives of underwriters named therein , filed with the Company ’ s Current Report on Form 8-K filed wit h the Securities and Exchange Commission on October 29 , 2019 , and incorporated here in by reference .
2.1 +
Agreement and Plan of Merger, dated January 28, 2011, by and among CURNA, Inc., KUR, LLC, OPKO Pharmaceuticals, LLC, OPKO CURNA, LLC, and certain individuals named therein , filed with the Company ’ s Quarterly Report on Form 10-Q/A filed with t he Securities and Exchange Commission on Jul y 2 5, 2011, and inco r porated herein by reference .
2.2
Agreement and Plan of Merger, dated October 13, 2011, by and among OPKO Health, Inc., Claros Merger Subsidiary, LLC, Claros Diagnostics, Inc., and Ellen Baron, Marc Goldberg and Michael Magliochetti on behalf of the Shareholder Representative Committee , filed with the Company’s Quarterly Report on Form 10 ⁃ Q filed with the Securities and Exchange Commission on Novembe r 9, 20 12 for the Company’s three-month period ended September 30, 2012, and incorporated herein by reference .
2.3
Agreement and Plan of Merger and Reorganization, dated as of January 14, 2022, by and among the Company, Sema4 Holdings Corp., Orion Merger Sub I, Inc., Orion Merger Sub II, LLC, GeneDx Inc. and GeneDx Holding 2, Inc. , filed with the Company’s Current Report on Form 8- K filed with the Securities and Exchange Commission on January 18, 2022 , and incorporated herein by reference .
2.4
A greement and Plan of Merger, dated as of May 9, 2022, by and among the Company, ModeX Therapeutics, Inc., Orca Acquisition Sub, Inc. and Gary J. Nabel, solely in the capacity of a representative of the Stockholders , filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on May 13, 2022, and incorporated herein by reference.
3.1
Amended and Restated Certificate of Incorporation, as amended , filed with the Company’s Quarterly Report on Form 10⁃Q filed with the Securities and Exchange Commission on November 12 , 201 3 for the Company’s three-month period ended September 30, 201 3 , and incorporated herein by reference .
3.2
Amended and Restated Bylaws , filed with the Company’s Annual Report on Form 10⁃ K filed with the Securities and Exchange Commission on Februar y 18 , 20 2 1 , and incorporated herein by reference .
3.3
Certificate of Designation of Series D Preferred Stock , filed with the Company’s Current Report on Form 8 ⁃ K filed with the Securities and Exchange Commission on September 24 , 20 09 , and incorporated herein by reference .
3.4
Amendment to Amended and Restated Certificate of Incorporation , filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on June 2 1 , 20 1 9, and incorporated herein by reference .
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4.1
Form of Common Stock Warrant , filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on April 2 , 200 7 , and incorporated herein by reference .
4.2
Form of Common Stock Warrant , filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on September 24, 2009, and incorporated herein by reference .
4.3
Indenture, dated January 30, 2013, between OPKO Health, Inc. and Wells Fargo Bank, National Association , filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on February 5 , 20 13 , and incorporated herein by reference .
4.4
Base Indenture related to the 4.50% Convertible Senior Notes due 2025, dated as of February 7, 2019, by and between OPKO Health, Inc. and U.S. Bank National Association, as trustee , filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on February 7 , 201 9 , and incorporated herein by reference .
4.5
Supplemental Indenture related to the 4.50% Convertible Senior Notes due 2025, dated as of February 7, 2019, by and between OPKO Health, Inc. and U.S. Bank National Association, as trustee , filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on February 7 , 201 9 , and incorporated herein by reference .
4.6
Description of Securities , filed with the Company’s Annual Report on Form 10⁃K filed with the Securities and Exchange Commission on Februar y 18 , 2021, and incorporated herein by reference .
10.1
Form of Director Indemnification Agreement , filed with the Company’s Quarterly Report on Form 10⁃Q filed with the Securities and Exchange Commission on August 8 , 20 08 for the Company’s three-month period ended June 30, 20 08 , and incorporated herein by reference .
10.2
Form of Officer Indemnification Agreement , filed with the Company’s Quarterly Report on Form 10⁃Q filed with the Securities and Exchange Commission on August 8 , 2008 for the Company’s three-month period ended June 30, 2008, and incorporated herein by reference .
10.3 *
Form of Restricted Share Award Agreement for Directors , filed with the Company’s Quarterly Report on Form 10⁃Q filed with the Securities and Exchange Commission on N ovember 9 , 200 9 for the Company’s three-month period ended September 30, 200 9 , and incorporated herein by reference .
10.4 +
Exclusive License Agreement by and between TESARO, Inc. and OPKO Health, Inc. dated December 10, 2010 , filed with the Company’s Quarterly Report on Form 10- K /A filed with the Securities and Exchange Commission on Jul y 28 , 2011, and inco r porated herein by reference .
10.5
OPKO Health, Inc. 2016 Equity Incentive Plan , filed with the Company’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on Marc h 25 , 201 6 , and incorporated herein by reference .
10.6
Development and License Agreement between OPKO Health, Inc. and Vifor Fresenius Medical Care Renal Pharma Ltd., dated May 8, 2016 , filed with the Company’s Quarterly Report on Form 10⁃Q filed with the Securities and Exchange Commission on August 8 , 20 16 for the Company’s three-month period ende d June 30, 20 16 , and incorporated herein by reference .
10.7
Form of 5% Convertible Promissory Note dated February 27, 2018 , filed with the Company’s Annual Report on Form 10⁃K filed with the Securities and Exchange Commission on March 1 , 20 1 8 , and incorporated herein by reference .
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10.8
Share Lending Agreement, dated February 4, 2019, by and between the OPKO Health, Inc. and Jefferies Capital Services, LLC , filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on February 7, 2019, and incorporated herein by reference .
10.9
Amendment to Development and License Agreement between EirGen Pharma Ltd. and Vifor Fresenius Medical Care Renal Pharma Ltd., dated May 5, 2020 , filed with the Company’s Quarterly Report on Form 10⁃Q filed with the Securities and Exchange Commission on July 31, 2020 for the Company’s three-month period ende d June 30, 20 20 , and incorporated herein by reference .
10.10
Amended and Restated Development and Commercialization License Agreement by and between Pfizer Inc. and OPKO Ireland Ltd., dated May 12, 2020 , filed with the Company’s Quarterly Report on Form 10⁃Q filed with the Securities and Exchange Commission on July 31, 2020 for the Company’s three-month period ende d June 30, 2020, and incorporated herein by reference .
10.11
Form of Exchange Agreement, dated as of May 6, 2021, by and between OPKO Health Inc. and the applicable Noteholder , filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on May 7, 20 2 1 , and incorporated herein by reference .
10.12
Asset Purchase Agreement, dated June 16, 2021, among EirGen Pharma Limited, Horizon Therapeutics Ireland DAC, and OPKO Health, Inc. (with respect to certain sections) , filed with the Company’s Quarterly Report on Form 10⁃Q filed with the Securities and Exchange Commission on July 29 , 202 1 for the Company’s three-month period ende d June 30, 202 1 , and incorporated herein by reference .
10.13
License Agreement by and among EirGen Pharma Limited and Nicoya Macua Limited, dated June 18, 2021 , filed with the Company’s Quarterly Report on Form 10⁃Q filed with the Securities and Exchange Commission on July 29, 2021 for the Company’s three-month period ende d June 30, 2021, and incorporated herein by reference .
10.14
Exclusive License Agreement, dated July 6, 2021, by and between OPKO Health, Inc. and CAMP4 Therapeutics Corporation , filed with the Company’s Quarterly Report on Form 10⁃Q filed with the Securities and Exchange Commission on July 29, 2021 for the Company’s three-month period ende d June 30, 2021, and incorporated herein by reference .
10.15
Amended and Restated Credit Agreement, dated August 30, 2021, by and among by and among BioReference Laboratories, Inc., certain of its subsidiaries, and JPMorgan Chase Bank, N.A. , filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on Septemb er 3 , 2021, and incorporated herein by reference .
10.16
Shareholder Agreement, dated January 14, 2022, by and between OPKO Health, Inc. and SEMA4 Holdings Corp. , filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on Januar y 18 , 202 2 , and incorporated herein by reference .
10.17
Lock-up and Voting Agreement, dated as of May 9, 2022, by and among the Company, Dr. Phillip Frost, Dr. Jane Hsiao and Frost Gamma Investments Trust.
10.18
Offer Letter, dated May 9, 2022, by and between the Company and Dr. Zerhouni.
10.19
Offer Letter, dated May 9. 2022, by and between the Company and Dr. Nabel.
10. 20
Waiver Under and Amendment No. 1 to Amended and Restated Credit Agreement between BioReference Health, LLC, GeneDx, LLC, the other Subsidiary Borrowers party hereto, the other Loan Parties party hereto, the Lenders party hereto, and JPMorgan Chase Bank, N.A., as the administrative agent for the Lenders, dated April 29, 2022, filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on May 4, 2022, and incorporated herein by reference.
138
10.21
Settlement Agreement between United States of America, acting through the United States Department of Justice and on behalf of the Office of Inspector General of the Department of Health and Human Services, and the Defense Health Agency, acting on behalf of the TRICARE Program, the Commonwealth of Massachusetts, acting through the Medicaid Fraud Division of the Office of Attorney General and on behalf of the Executive Office of Health and Human Services, limited to its role as the single state agency for Medicaid, the State of Connecticut, acting through the Attorney General of the State of Connecticut, BioReference Health, LLC and OPKO Health, Inc., and Jean Marie Crowley, effective July 14, 2022, filed with the Company’s Current Report on Form 8⁃K filed with the Securities and Exchange Commission on July 15, 2022, and incorporated herein by reference.
10.22 **
Form of Amended 5% Convertible Promissory Note dated February 10, 2023.
21
Subsidiaries of the Company.
23.1
Consent of Ernst & Young LLP.
31.1
Certification by Phillip Frost, Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 202 2 .
31.2
Certification by Adam Logal, Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 202 2 .
32.1
Certification by Phillip Frost, Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 202 2 .
32.2
Certification by Adam Logal, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 202 2 .
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
* Denotes management contract or compensatory plan or arrangement.
** Filed herewith.
+ Certain confidential material contained in the document has been omitted and filed separately with the Securities and Exchange Commission.
Item 16. FORM 10-K SUMMARY.
None.
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Schedule I - Condensed Financial Information of Registrant
OPKO Health, Inc.
PARENT COMPANY CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
December 31,
2022 2021
ASSETS
Current assets:
Cash and cash equivalents $ 104,783 $ 24,592
Other current assets and prepaid expenses 14,666 2,620
Total current assets 119,449 27,212
Investments 1,665,355 1,870,743
Operating lease right-of-use assets 1,822 3,030
Other assets 4 1
Total assets $ 1,786,630 $ 1,900,986
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 311 $ 317
Accrued expenses 6,238 21,484
Current maturities of operating leases 1,225 1,203
Current portion of convertible notes 3,050 —
Current portion of notes payable 2,615 2,615
Total current liabilities 13,439 25,619
Operating lease liabilities 693 1,827
Convertible notes 210,371 187,935
Deferred tax liabilities, net 479 479
Total long-term liabilities 211,543 190,241
Total liabilities 224,982 215,860
Equity:
Common Stock - $ 0.01 par value, 1,000,000,000 shares authorized; 781,306,164 and 690,082,283 shares issued at December 31, 2022 and 2021, respectively
7,813 6,901
Treasury Stock, at cost - 8,655,082 shares at December 31, 2022 and 2021, respectively
( 1,791 ) ( 1,791 )
Additional paid-in capital 3,421,872 3,222,487
Accumulated other comprehensive income (loss) ( 43,323 ) ( 30,495 )
Accumulated deficit ( 1,822,923 ) ( 1,511,976 )
Total shareholders’ equity 1,561,648 1,685,126
Total liabilities and equity $ 1,786,630 $ 1,900,986
The accompanying Notes to Parent Company Condensed Financial Statements are an integral part of these statements.
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OPKO Health, Inc.
PARENT COMPANY CONDENSED STATEMENTS OF INCOME
(In thousands)
For the years ended December 31,
2022 2021 2020
Revenues:
Revenue from products $ — $ — $ —
Revenue from transfer of intellectual property and other — — 1,069
Total revenues — — 1,069
Costs and expenses:
Costs of revenue 2,347 1,279 260
Selling, general and administrative 46,882 66,483 41,736
Research and development 4,196 2,029 1,951
Gain on sale of GeneDx ( 18,559 ) — —
Total costs and expenses 34,866 69,791 43,947
Operating loss ( 34,866 ) ( 69,791 ) ( 42,878 )
Other income and (expense), net:
Interest income 1,762 334 967
Interest expense ( 13,688 ) ( 21,297 ) ( 23,585 )
Fair value changes of derivative instruments, net 12 ( 58 ) ( 46 )
Other income (expense), net ( 154,807 ) ( 9,013 ) 10,354
Other income and (expense), net ( 166,721 ) ( 30,034 ) ( 12,310 )
Loss before income taxes and investment losses ( 201,587 ) ( 99,825 ) ( 55,188 )
Income tax provision ( 10 ) ( 2 ) ( 175 )
Net loss before investments and loss from subsidiaries ( 201,597 ) ( 99,827 ) ( 55,363 )
Loss from investments in investees ( 383 ) ( 629 ) ( 480 )
Net income (loss) from subsidiaries, net of taxes ( 126,425 ) 70,313 86,429
Net income (loss) $ ( 328,405 ) $ ( 30,143 ) $ 30,586
The accompanying Notes to Parent Company Condensed Financial Statements are an integral part of these statements.
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OPKO Health, Inc.
PARENT COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the years ended December 31,
2022 2021 2020
Net income (loss) $ ( 328,405 ) $ ( 30,143 ) $ 30,586
Other comprehensive income (loss), net of tax:
Change in foreign currency translation and other comprehensive income (loss) ( 12,828 ) ( 26,270 ) 17,845
Comprehensive income (loss) $ ( 341,233 ) $ ( 56,413 ) $ 48,431
The accompanying Notes to Parent Company Condensed Financial Statements are an integral part of these statements.
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OPKO Health, Inc.
PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
For the years ended December 31,
2022 2021 2020
Cash flows from operating activities:
Net income (loss) $ ( 328,405 ) $ ( 30,143 ) $ 30,586
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Non-cash interest 2,750 9,389 9,994
Amortization of deferred financing costs 1,093 722 787
Losses from investments in investees 383 629 480
(Income) loss from subsidiaries 126,425 ( 70,313 ) ( 86,429 )
Equity-based compensation – employees and non-employees 18,509 13,632 8,947
Non-cash revenue from the transfer of intellectual property — ( 3,801 ) —
Realized gain on equity securities and disposal of fixed assets — ( 2,981 ) ( 10,324 )
Change in fair value of derivative instruments and equity securities 154,473 4,871 ( 6 )
Loss on conversion of the 2025 Notes — 11,111 —
Adoption of ASC 326 and other — — ( 1,311 )
Gain on sale of GeneDx ( 18,559 ) — —
Changes in other assets and liabilities ( 14,993 ) 10,970 ( 243 )
Net cash used in operating activities ( 58,324 ) ( 55,914 ) ( 47,519 )
Cash flows from investing activities:
Investments in investees — ( 2,000 ) —
Subsidiary financing 23,866 69,608 ( 23,234 )
Proceeds from sale of equity securities 115,423 8,078 15,110
Net cash (used in) provided by investing activities 139,289 75,686 ( 8,124 )
Cash flows from financing activities:
Proceeds from the exercise of Common Stock options and warrants ( 774 ) 1,080 756
Net cash (used in) provided by financing activities ( 774 ) 1,080 756
Net increase (decrease) in cash and cash equivalents 80,191 20,852 ( 54,887 )
Cash and cash equivalents at beginning of period 24,592 3,740 58,627
Cash and cash equivalents at end of period $ 104,783 $ 24,592 $ 3,740
SUPPLEMENTAL INFORMATION:
Interest paid $ 7,420 $ 8,515 $ 10,908
Income taxes paid, net of refunds $ 8,037 $ 5,969 $ ( 903 )
Non-cash financing:
Shares issued upon the conversion of:
Common Stock options and warrants, surrendered in net exercise $ 1,268 $ — $ —
Issuance of common stock for acquisition of ModeX $ 221,662 $ — $ —
Fair value of shares included in consideration from GeneDx Holdings $ 172,000 $ — $ —
The accompanying Notes to Parent Company Condensed Financial Statements are an integral part of these statements.
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OPKO Health, Inc.
Notes to Parent Company Condensed Financial Statements
Note 1. Organization and Basis of Presentation
We are a diversified healthcare company that seeks to establish industry-leading positions in large and rapidly growing medical markets. The parent company condensed financial statements included in this Schedule I represent the financial statements of OPKO Health, Inc., the parent company (or “OPKO”), on a stand-alone basis and do not include results of operations from our consolidated subsidiaries. The Parent Company Condensed Financial Statements should be read in conjunction with our audited consolidated financial statements included in Item 8 of Part II of this Form 10-K. As of December 31, 2022 and 2021, approximately $ 1.7 billion and $ 1.9 billion, respectively, of our Investments, net have not been eliminated in the parent company condensed financial statements.
The Parent Company Condensed Financial Statements included herein have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, as substantially all the assets of BioReference, a wholly-owned subsidiary, and its subsidiaries are restricted from sale, transfer, lease, disposal or distributions to OPKO under the A&R Credit Agreement (as defined below), subject to certain exceptions. BioReference and its subsidiaries’ net assets as of December 31, 2022 were approximately $ 608.6 million, which includes goodwill of $ 283.0 million and intangible assets of $ 187.9 million. BioReference’s restricted net assets exceeds 25 % of OPKO’s consolidated net assets of $ 1.6 billion as of December 31, 2022.
Note 2 Debt
In February 2019, we issued $ 200.0 million aggregate principal amount of Senior Convertible Notes due 2025 (the “2025 Notes”) in an underwritten public offering. The 2025 Notes bear interest at a rate of 4.50 % per year, payable semiannually in arrears on February 15 and August 15 of each year. The 2025 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 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ended March 31, 2019 (and only during such calendar quarter), if the last reported sale price of our Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our Common Stock and the conversion rate on each such trading day; (3) if we call any or all of the 2025 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events set forth in the indenture governing the 2025 Notes. On or after November 15, 2024, until the close of business on the business day immediately preceding the maturity date, holders of the 2025 Notes may convert their notes at any time, regardless of the foregoing 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 initial and 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 addition, following certain corporate events that occur prior to the maturity date of the 2025 Notes or if we deliver a notice of redemption, in certain circumstances the indenture governing the 2025 Notes requires an increase in the conversion rate of the 2025 Notes for a holder who elects to convert its notes in connection with such a corporate event or notice of redemption, as the case may be.
We may not redeem the 2025 Notes prior to February 15, 2022. We may redeem for cash any or all of the notes, at our option, on or after February 15, 2022, if the last reported sale price of our Common Stock has been at least 130 % of the then current conversion price for the notes for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2025 Notes.
If we undergo a fundamental change, as defined in the indenture governing the 2025 Notes, prior to the maturity date of the 2025 Notes, holders may require us to repurchase for cash all or any portion of their notes at a repurchase price equal to
144
100 % of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The 2025 Notes are our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the 2025 Notes; equal in right of payment to any of our existing and future liabilities that are not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our current or future subsidiaries.
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”). We recorded an $ 11.1 million non-cash loss related to the Exchange during 2021.
In conjunction with the issuance of the 2025 Notes, we agreed to loan up to 30,000,000 shares of our Common Stock to affiliates of the underwriter in order to assist investors in the 2025 Notes to hedge their position. Following consummation of the Exchange, the number of outstanding borrowed shares of Common Stock was reduced by 8,105,175 shares. As of December 31, 2022 and 2021, a total of 21,144,825 and 21,144,825 shares remained outstanding under the share lending arrangement, respectively. We will not receive any of the proceeds from the sale of the borrowed shares, but we received a one-time nominal fee of $ 0.3 million for the newly issued shares. Shares of our Common Stock outstanding under the share lending arrangement are excluded from the calculation of basic and diluted earnings per share. See Note 4.
The following table sets forth information related to the 2025 Notes which is included in our Consolidated Balance Sheet as of December 31, 2022:
(In thousands) 2025 Senior Notes Discount Debt Issuance Costs Total
Balance at December 31, 2021 $ 144,580 $ ( 22,747 ) $ ( 2,473 ) $ 119,360
Amortization of debt discount and debt issuance costs — — 1,094 1,094
Adoption of ASU 2020-06 — 22,747 ( 1,105 ) 21,642
Balance at December 31, 2022 $ 144,580 $ — $ ( 2,484 ) $ 142,096
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.
In February 2018, we issued a series of 5 % Convertible Promissory Notes (the “2023 Convertible Notes”) in the aggregate principal amount of $ 55.0 million. The 2023 Convertible Notes mature 5 years from the date of issuance. 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 at a conversion price of $ 5.00 per share. We may redeem all or any part of the then issued and outstanding 2023 Convertible Notes, together with accrued and unpaid interest thereon, pro rata among the holders, 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.
Purchasers of the 2023 Convertible Notes included an affiliate of Dr. Phillip Frost, M.D., our Chairman and Chief Executive Officer, and Dr. Jane H. Hsiao, Ph.D., MBA, our Vice-Chairman and Chief Technical Officer.
In January 2013, we entered into note purchase agreements with respect to the issuance and sale of our 3.0 % Senior Notes due 2033 (the “2033 Senior Notes”) in a private placement exempt from registration under the Securities Act. We issued the
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2033 Senior Notes on January 30, 2013. The 2033 Senior Notes, which totaled $ 175.0 million in original principal amount, bear interest at the rate of 3.0 % per year, payable semiannually on February 1 and August 1 of each year. The 2033 Senior Notes mature on February 1, 2033, unless earlier repurchased, redeemed or converted. Upon a fundamental change as defined in the indenture, governing the 2033 Senior Notes, subject to certain exceptions, the holders may require us to repurchase all or any portion of their 2033 Senior Notes for cash at a repurchase price equal to 100 % of the principal amount of the 2033 Senior Notes being repurchased, plus any accrued and unpaid interest to but not including the related fundamental change repurchase date.
From 2013 to 2016, holders of the 2033 Senior Notes converted $ 143.2 million in aggregate principal amount into an aggregate of 21,539,873 shares of Common Stock. On February 1, 2019, approximately $ 28.8 million aggregate principal amount of 2033 Senior Notes were tendered by holders pursuant to such holders’ option to require us to repurchase the 2033 Senior Notes as set forth in the indenture, governing the 2033 Senior Notes, following which repurchase only $ 3.0 million aggregate principal amount of the 2033 Senior Notes remained outstanding. Holders of the remaining $ 3.0 million principal amount of the 2033 Senior Notes may require us to repurchase such notes for 100 % of their principal amount, plus accrued and unpaid interest, on February 1, 2023, on February 1, 2028, or following the occurrence of a fundamental change as described above.
The terms of the 2033 Senior Notes, include, among others: (i) rights to convert the notes into shares of our Common Stock, including upon a fundamental change; and (ii) a coupon make-whole payment in the event of a conversion by the holders of the 2033 Senior Notes on or after February 1, 2017 but prior to February 1, 2019. We determined that these specific terms were embedded derivatives. Embedded derivatives are required to be separated from the host contract, the 2033 Senior Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. We concluded that the embedded derivatives within the 2033 Senior Notes met these criteria and, as such, were valued separate and apart from the 2033 Senior Notes and recorded at fair value each reporting period.
For accounting and financial reporting purposes, we combined these embedded derivatives and valued them together as one unit of accounting. In 2017, certain terms of the embedded derivatives expired pursuant to the original agreement and the embedded derivatives no longer met the criteria to be separated from the host contract and, as a result, the embedded derivatives were no longer required to be valued separate and apart from the 2033 Senior Notes and were reclassified to additional paid in capital.
In November 2015, BioReference and certain of its subsidiaries entered into a credit agreement with JPMorgan Chase Bank, N.A. (“CB”), as lender and administrative agent (as amended the “Credit Agreement”). As amended, 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 is guaranteed by all of BioReference’s domestic subsidiaries and is also secured by substantially all assets of BioReference and its domestic subsidiaries, 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. Principal under the Credit Agreement is due upon maturity on August 30, 2024.
At BioReference’s option, borrowings under the Credit Agreement (other than swingline loans) bear interest at (i) the CB floating rate (defined as the higher of (a) the prime rate and (b) the LIBOR rate (adjusted for statutory reserve requirements for Eurocurrency liabilities) for an interest period of one month plus 2.50 %) plus an applicable margin of 0.75 % or (ii) the LIBOR rate (adjusted for statutory reserve requirements for Eurocurrency liabilities) plus an applicable margin of 1.75 %. Swingline loans will bear interest at the CB floating rate plus the applicable margin. The Credit Agreement also calls for other customary fees and charges, including an unused commitment fee of 0.375 % if the average quarterly availability is 50% or more of the revolving commitment, or 0.25 % if the average quarterly availability is less than or equal to 50% of the revolving commitments.
As of December 31, 2022 and 2021, $ 18.1 million amount and no amount, respectively, was outstanding under the Credit Agreement.
The Credit Agreement contains customary covenants and restrictions, including, without limitation, covenants that require BioReference and its subsidiaries to maintain a minimum fixed charge coverage ratio if availability under the new credit facility falls below a specified amount and to comply with laws and restrictions on the ability of BioReference and its subsidiaries to incur additional indebtedness or to pay dividends and make certain other distributions to the Company, subject to certain
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exceptions as specified therein. Failure to comply with these covenants would constitute an event of default under the Credit Agreement, notwithstanding the ability of BioReference to meet its debt service obligations. The Credit Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Credit Agreement and execution upon the collateral securing obligations under the Credit Agreement. Substantially all the assets of BioReference and its subsidiaries are restricted from sale, transfer, lease, disposal or distributions to the Company, subject to certain exceptions. As of December 31, 2022, BioReference and its subsidiaries had net assets of approximately $ 608.6 million, which included goodwill of $ 283.0 million and intangible assets of $ 187.9 million.
On April 29, 2022, the Credit Agreement was amended to, among other things, (i) waive specified defaults under the Credit Agreement resulting from certain internal reorganization transactions that resulted in both BioReference and GeneDx changing their respective forms of organization from New Jersey corporations to Delaware limited liability companies, (ii) provide for the disposition of GeneDx pursuant to the transactions contemplated by the GeneDx Merger Agreement, (iii) amend certain reporting requirements under the Credit Agreement and (iv) provide that the borrowers under the Credit Agreement may effect certain restricted payments to the extent necessary for their parent entities to pay income tax in respect of income earned by the borrowers.
Note 3 Commitments and Contingencies
See Note 14 of our Consolidated Financial Statements in Item 8 of Part II of this Form 10-K for a discussion of our commitments and contingencies.
Note 4 Dividends
We received $ 33 million and $ 45 million dividend payments from our consolidated subsidiaries for the years ended December 31, 2022 and 2021, respectively.
Note 5 Income Taxes
The Parent Company Condensed Financial Statements recognize the current and deferred income tax consequences that result from our activities during the current and preceding periods pursuant to the provisions of Accounting Standards Codification Topic 740, Income Taxes (ASC 740), as if we were a separate taxpayer rather than a member of the consolidated income tax return group. The tax expense and benefit recorded in OPKO’s consolidated financial statements was the result of activity at the subsidiaries and therefore all tax benefit and expense was reported in the Net income (loss) from subsidiaries, net of taxes line in the Condensed Statement of Income.
Note 6 Subsequent Events
On January 2023, in conjunction with a underwritten public offering, we invested $ 5.0 million for 14,285,714 shares of GeneDx Holdings Class A common stock at a public offering price of $ 0.35 per share.
On or about February 10, 2023, the Company amended the 2023 Convertible Notes to extend the maturity to January 31, 2025, and to reset the conversion price to the 10 day volume weighted average price immediately preceding the date of the amended note, plus a 25 % conversion premium, or $ 1.66 . In addition, under the terms of the 2023 Convertible Note, interest will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance, until the principal and accrued and unpaid interest, are paid in full. The remaining provisions of the original note are unchanged.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2023 OPKO HEALTH, INC.
By: /s/ Phillip Frost, M.D.
Phillip Frost, M.D.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Phillip Frost, M.D. Chairman of the Board and Chief Executive February 27, 2023
Phillip Frost, M.D. Officer
(Principal Executive Officer)
/s/ Jane H. Hsiao, Ph.D., MBA Vice Chairman and Chief Technical Officer February 27, 2023
Jane H. Hsiao, Ph.D., MBA
/s/ Elias A. Zerhouni, M.D. Vice Chairman and President February 27, 2023
Elias A. Zerhouni, M.D.
/s/ Steven D. Rubin Director and Executive Vice President – February 27, 2023
Steven D. Rubin Administration
/s/ Adam Logal Senior Vice President, Chief Financial Officer, February 27, 2023
Adam Logal Chief Accounting Officer and Treasurer
(Principal Financial Officer)
/s/ Gary J. Nabel, M.D., Ph.D. Director, Chief Innovation Officer February 27, 2023
Gary J. Nabel, M.D., Ph.D.
/s/ Alexis Borisy Director February 27, 2023
Alexis Borisy
/s/ Richard Krasno, Ph.D. Director February 27, 2023
Richard Krasno, Ph.D.
/s/ Prem A. Lachman, M.D. Director February 27, 2023
Prem A. Lachman M.D.
/s/ Roger J. Medel, M.D. Director February 27, 2023
Roger J. Medel, M.D.
/s/ John A. Paganelli Director February 27, 2023
John A. Paganelli
/s/ Richard C. Pfenniger, Jr. Director February 27, 2023
Richard C. Pfenniger, Jr.
/s/ Alice Lin-Tsing Yu, M.D., Ph.D. Director February 27, 2023
Alice Lin-Tsing Yu, M.D., Ph.D.
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Exhibit Number Description
10.22
Form of Amended 5% Convertible Promissory Note dated February 10, 2023.
21
Subsidiaries of the Company.
23.1
Consent of Independent Registered Public Accounting Firm.
31.1
Certification by Phillip Frost, Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 202 2 .
31.2
Certification by Adam Logal, Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 202 2 .
32.1
Certification by Phillip Frost, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 202 2 .
32.2
Certification by Adam Logal, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 202 2 .
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
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