Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our Common Stock is traded publicly on the NASDAQ Stock Market (“NASDAQ”) and the Tel Aviv Stock Exchange under the symbol “OPK”.
As of January 31, 2025, there were approximately 346 holders of record of our Common Stock.
On July 18, 2024, the Company announced that its Board of Directors authorized the repurchase of up to $100 million of shares of Common Stock. Under this program, the Company may repurchase shares through various methods, including open market purchases, block trades, privately negotiated transactions, and accelerated share repurchases, as well as pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1(c) of the Exchange Act, and otherwise in compliance with applicable laws. The timing and volume of repurchases will depend on market conditions, the Company's capital management, investment opportunities, and other factors. The program does not obligate the Company to repurchase any specific number of shares, has no set expiration date, and may be modified, suspended, or discontinued at the Company's discretion. Under this program, the Company repurchased an aggregate of 25,825,785 shares of Common Stock at an average price of $1.56 per share for approximately $40.2 million during the year ended December 31, 2024.
The following table presents our share repurchase activity for the quarter ended December 31, 2024 (dollars in thousands, except per share amounts).
Period
Total Number of Shares Purchased
Average Price Paid per Share
Total number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Maximum Dollar Value that May Yet be Purchased Under the Plans or Programs (1)
October 1, 2024 to October 31, 2024
7,519,831
1.48
7,519,831
65,013,074
November 1, 2024 to November 30, 2024
3,412,928
1.50
3,412,928
59,776,326
December 1, 2024 to December 31, 2024
—
—
—
—
Total
10,932,759
$
1.49
10,932,759
59,776,326
1.
All repurchases were made on the open market at prevailing market rates plus related expenses under our stock repurchase program, which authorizes the repurchase of up to $100 million of our common stock. We publicly announced this program on July 18, 2024.
Recent Sales of Unregistered Securities
All sales prior to the fourth quarter of 2024 of unregistered securities were previously reported in a Current Report on Form 8-K or Quarterly Report on Form 10-Q.
We have not declared or paid any cash dividends previously on our Common Stock.
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Stock Performance Graph
The following graph compares the five-year cumulative total return of our Common Stock with the S&P 500 Index and the NASDAQ Biotechnology Index. The graph assumes $100 invested on December 31, 2019 in our Common Stock and in each of the foregoing indices. The stock price performance reflected in the graph below is not necessarily indicative of future price performance.
12/31/2019
12/31/2020
12/31/2021
12/31/2022
12/31/2023
12/31/2024
OPKO Health, Inc.
$
100.00
$
268.71
$
327.21
$
85.03
$
102.72
$
100.00
S&P 500
100.00
118.40
152.39
124.79
157.59
197.02
NASDAQ Biotechnology
100.00
126.42
126.45
113.65
118.87
118.20
ITEM 6. [Reserved].
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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 pharmaceutical business features Somatrogon (hGH-CTP), a once-weekly human growth hormone injection. We have partnered with Pfizer Inc. (“Pfizer”) for the development and commercialization of Somatrogon (hGH-CTP). Regulatory approvals for Somatrogon (hGH-CTP) for the treatment of growth hormone deficiency in children and adolescents have been secured in more than 50 markets, including the United States, European Union (“EU”) Member States, Japan, Canada, and Australia, where it is marketed under the brand name NGENLA®. We also manufacture and sell Rayaldee , an FDA approved treatment for secondary hyperparathyroidism (“SHPT”) in adults with stage 3 or 4 chronic kidney disease (“CKD”) and vitamin D insufficiency, through our pharmaceutical division. We have also expanded our pharmaceutical pipeline with early-stage immune therapies targeting cancer and infectious diseases through our 2022 acquisition of ModeX Therapeutics, Inc. (“ModeX”).
Our diagnostics business, BioReference Health, LLC (“BioReference”), is a highly specialized laboratory in the United States, with a sales and marketing team focused on growth and new product integration, including the 4Kscore ® prostate cancer test. BioReference® offers a broad spectrum of diagnostic testing services for oncology, urology ( 4Kscore ), and corrections nationwide, setting new standards with our industry-leading turnaround times. BioReference also provides comprehensive clinical and women’s health testing in New York and New Jersey. Our test offerings are backed by a team of board-certified medical professionals and driven by the latest healthcare guidelines and standards- marketed directly to physicians, geneticists, hospitals, clinics, correctional facilities, and other healthcare providers. On September 16, 2024 we consummated the sale of certain assets of BioReference to Laboratory Corporation of America Holdings (“Labcorp”), as described below.
The Company maintains established, revenue-generating pharmaceutical platforms in Spain, Ireland, Chile, and Mexico, our most significant such platforms, contributing to positive cash flow and facilitating market entry for our development pipeline. In addition to these platforms, we operate a global pharmaceutical development and commercial supply company, a global supply chain operation, and manufacture specialty active pharmaceutical ingredients (API) in Israel through our subsidiary, FineTech.
Our management team possesses extensive industry experience in development, regulatory affairs, and commercialization. Their industry relationships support the identification and pursuit of commercial opportunities. Research and development activities are primarily conducted in facilities located in Weston, Massachusetts, Waterford, Ireland, Kiryat Gat, Israel, and Barcelona, Spain.
On March 27, 2024, the Company entered into a definitive agreement with Labcorp (the “Labcorp Asset Purchase Agreement”), pursuant to which Labcorp agreed to acquire select assets of BioReference (the “BioReference Transaction”). The BioReference Transaction closed on September 16, 2024, and upon closing, Labcorp paid to the Company aggregate consideration of $237.5 million in cash, subject to certain adjustments as set forth in the Labcorp Asset Purchase Agreement. These assets were part of our diagnostics segment and included BioReference's laboratory testing businesses focused on clinical diagnostics, reproductive health, and women's health across the United States, excluding BioReference's New York and New Jersey operations.
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Pursuant to the Labcorp Asset Purchase Agreement, a total of approximately $23.7 million was withheld at closing and deposited by Labcorp into an escrow account to satisfy potential indemnity claims. The escrow will be released to the Company on the twelve-month anniversary of the closing date, subject to any outstanding or liquidated indemnity claims. The Company recorded the escrow within other current assets on the Condensed Consolidated Balance Sheet.
We recognized a gain of $121.5 million from the BioReference Transaction for the year ended December 31, 2024.
RESULTS OF OPERATIONS
Foreign Currency Exchange Rates
For the years ended December 31, 2024, 2023, and 2022, approximately 23.1%, 29.6%, and 21.6% of revenue, respectively, was denominated in currencies other than the U.S. Dollar (USD). Our financial statements are reported in USD; therefore, fluctuations in exchange rates affect the translation of revenues and expenses denominated in foreign currencies into USD for purposes of reporting our consolidated financial results. During the years ended December 31, 2024, 2023 and 2022, the most significant currency exchange rate exposures were to the Chilean Peso and Euro. Gross accumulated currency translation adjustments recorded as a separate component of shareholders’ equity were $52.7 million and $34.6 million at December 31, 2024 and 2023, respectively.
We are subject to foreign currency translation 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 rate fixed by the contract, 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, 2024, we held no open foreign exchange forward contracts. At December 31, 2023, we held 52 open foreign exchange forward contracts related to inventory purchases on letters of credit. These contracts matured monthly through January 2024 with a total notional value of approximately $2.9 million.
For The Years Ended December 31, 2024 and 2023
Our consolidated loss from operations for the years ended December 31, 2024 and 2023 was as follows:
For the years ended December 31,
(In thousands)
2024
2023
Change
% Change
Revenues:
Revenue from services
$
480,667
$
515,275
$
(34,608
)
(7
)%
Revenue from products
155,111
167,557
(12,446
)
(7
)%
Revenue from transfer of intellectual property and other
77,364
180,663
(103,299
)
(57
)%
Total revenues
713,142
863,495
(150,353
)
(17
)%
Costs and expenses:
Cost of revenue
494,632
545,368
(50,736
)
(9
)%
Selling, general and administrative
304,220
300,559
3,661
1
%
Research and development
105,214
89,593
15,621
17
%
Contingent consideration
-
(1,036
)
1,036
100
%
Amortization of intangible assets
82,634
86,032
(3,398
)
(4
)%
Gain on sale of assets
(121,493
)
-
(121,493
)
(100
)%
Total costs and expenses
865,207
1,020,516
(155,309
)
(15
)%
Loss from operations
(152,065
)
(157,021
)
4,956
3
%
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Diagnostics
For the years ended December 31,
(In thousands)
2024
2023
Change
% Change
Revenues
Revenue from services
$
480,667
$
515,275
$
(34,608
)
(7
)%
Total revenues
480,667
515,275
(34,608
)
(7
)%
Costs and expenses:
Cost of revenue
402,109
445,827
(43,718
)
(10
)%
Selling, general and administrative
205,185
202,341
2,844
1
%
Research and development
2,075
2,508
(433
)
(17
)%
Amortization of intangible assets
16,916
20,195
(3,279
)
(16
)%
Gain on sale of assets
(121,493
)
-
(121,493
)
(100
)%
Total costs and expenses
504,792
670,871
(166,079
)
(25
)%
Loss from operations
(24,125
)
(155,596
)
131,471
84
%
Revenue . Revenue from services for the year ended December 31, 2024 decreased by approximately $34.6 million, or 7%, compared to the year ended December 31, 2023. This decrease was primarily due to a $42.5 million decrease in clinical test volume, largely attributable to the BioReference Transaction, offset by a $7.9 million increase in clinical test reimbursement rates.
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 for the period in which the related services are rendered. For the years ended December 31, 2024 and 2023, we recorded $1.5 million and $19.2 million, respectively, of negative revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods mainly due to the composition of patient payer mix.
The composition of revenue from services by payor for the years ended December 31, 2024 and 2023 was as follows:
For the years ended December 31,
(In thousands)
2024
2023
Healthcare insurers
$
289,158
$
315,560
Government payers
82,421
82,502
Client payers
93,310
100,171
Patients
15,778
17,042
Total
$
480,667
$
515,275
Cost of revenue . Cost of revenue for the year ended December 31, 2024 decreased $43.7 million, a decrease of 10% compared to the year ended December 31, 2023. Cost of revenue decreased primarily due to lower employee headcount, reflecting our continued cost-reduction initiatives implemented at BioReference, changes in the mix of testing ordered during the period, and by a decrease in consumption reflecting the timing of the BioReference Transaction.
Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2024 and 2023 were $205.2 million and $202.3 million, respectively, representing an increase of 1% from the prior period. The increase in expense is primarily related to $26.3 million in severance charges associated with cost reduction initiatives and $9.7 million in adjustments to the life of certain leases. This was partially offset by continued cost-reduction initiatives at BioReference, which included a reduction in employee headcount and the streamlining of certain smaller operations, resulting in an overall decrease in employee-related expenses and other operating efficiencies. The divestiture of certain laboratory operations also contributed to the reduction in employee-related expenses.
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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,
2024
2023
External expenses:
Research and development employee-related expenses
$
1,333
$
1,729
Other internal research and development expenses
742
779
Total research and development expenses
$
2,075
$
2,508
The decrease in research and development expenses for the year ended December 31, 2024 was primarily due to a decrease in employee-related expenses as a result of the continued cost-reduction initiatives implemented at BioReference and the BioReference Transaction.
Amortization of intangible assets . Amortization of intangible assets was $16.9 million and $20.2 million for the years ended December 31, 2024 and 2023, respectively. The decrease is primarily attributable to the BioReference Transaction, which impacted the amount of amortizable intangible assets.
Gain on sale of assets . Gain on sale of assets for the year ended December 31, 2024 was $121.5 million due to the BioReference Transaction which closed during the third quarter of 2024.
Pharmaceuticals
For the years ended December 31,
(In thousands)
2024
2023
Change
% Change
Revenues:
Revenue from products
$
155,111
$
167,557
$
(12,446
)
(7
)%
Revenue from transfer of intellectual property and other
77,364
180,663
(103,299
)
(57
)%
Total revenues
232,475
348,220
(115,745
)
(33
)%
Costs and expenses:
Cost of revenue
92,523
99,541
(7,018
)
(7
)%
Selling, general and administrative
58,007
55,687
2,320
4
%
Research and development
103,022
87,007
16,015
18
%
Contingent consideration
—
(1,036
)
1,036
100
%
Amortization of intangible assets
65,718
65,837
(119
)
(0
)%
Total costs and expenses
319,270
307,036
12,234
4
%
(Loss) income from operations
(86,795
)
41,184
(127,979
)
311
%
Revenue from products . Revenue from products for the year ended December 31, 2024 decreased $12.5 million, or 7%, compared to the year ended December 31, 2023. The decrease in product revenue was primarily driven by unfavorable foreign exchange fluctuations of approximately $8.9 million from our international operations and a $2.0 million decrease in Rayaldee sales. While we experienced higher sales volumes in 2024 compared to 2023, this increase was more than offset by unfavorable foreign exchange fluctuations. Revenue from sales of Rayaldee for the year ended December 31, 2024, was $29.0 million compared to $31.0 million for the year ended December 31, 2023.
Revenue from transfer of intellectual property and other. For the year ended December 31, 2024, we recorded $77.4 million in revenue from the transfer of intellectual property and other. Revenue for the year ended December 31, 2024 principally reflects $30.0 million from Pfizer, which includes $28.3 million from gross profit share and royalty payments for both NGENLA (somatrogon) and Pfizer's Genotropin® (somatropin). Revenue in 2024 also included $23.8 million from the BARDA Contract, a $12.5 million milestone payment from Merck, and $10.2 million from contract manufacturers' commercial milestones.
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In comparison, for the year ended December 31, 2023, we recorded $180.7 million in revenue from the transfer of intellectual property and other. This was primarily driven by a $90.0 million milestone payment, triggered by the FDA approval of NGENLA (somatrogon), and $26.7 million in revenue that included $22.6 million from gross profit share and royalty payments for both NGENLA (somatrogon) and Pfizer's Genotropin® (somatropin). In 2023, revenue also included $50.0 million from Merck in consideration for the rights granted to Merck under the Merck Agreement, $7.0 million from VFMCRP triggered by the German price approval for Rayaldee , $2.5 million from Nicoya due to Nicoya's submission of the investigational new drug application to China's Center for Drug Evaluation, $2.4 million from contract manufacturers' commercial milestones and $1.2 million from the BARDA Contract.
Cost of revenue . Cost of revenue for the year ended December 31, 2024 decreased by 7% to $92.5 million compared to $99.5 million for the year ended December 31, 2023, which was primarily driven by favorable foreign exchange fluctuations. Despite increased sales volumes during 2024, which typically increases cost of revenue, we were able to limit this increase due to a combination of factors, including favorable foreign currency fluctuations and a reduction in Rayaldee's cost of revenue. Favorable foreign currency fluctuations positively impacted cost of revenue by approximately $6.1 million. The reduction in Rayaldee's cost of revenue resulted from a lower standard cost per bottle, achieved through ongoing process improvements and favorable raw material pricing.
Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2024 and 2023 were $58.0 million and $55.7 million, respectively, representing an increase of 4% from the prior year period. The increase in selling, general and administrative expenses was due to higher employee-related, professional, and legal expenses related to our international operations.
Research and development expenses . Research and development expenses for the years ended December 31, 2024 and 2023 were $103.0 million and $87.0 million, respectively, representing an increase of 18% from the prior year. 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:
Research and Development Expenses
For the years ended December 31,
2024
2023
External expenses:
Manufacturing expense for biological products
$
37,394
$
14,687
Phase 3 studies
1,239
4,414
Post-marketing studies
713
591
Earlier-stage programs
29,882
45,476
Research and development employee-related expenses
37,650
33,719
Other internal research and development expenses
8,036
4,894
Third-party grants and funding from collaboration agreements
(11,892
)
(16,774
)
Total research and development expenses
$
103,022
$
87,007
Research and development expenses for the year ended December 31, 2024, increased primarily due to growth in our BARDA collaboration and higher employee-related expenses. These increases were partially offset by a one-time payment to Sanofi of $12.5 million made in 2023 pursuant to the Sanofi In-License Agreement, which was triggered as a result of the Merck Agreement, and lower costs related to Somatrogon (hGH-CTP) following the closure of open-label extension studies in countries where it has received marketing authorization.
Contingent consideration . Contingent consideration for the year ended December 31, 2023 reflected a reversal of expense of $1.0 million. This 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. We recorded no contingent consideration for the year ended December 31, 2024.
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Amortization of intangible assets . Amortization of intangible assets was $65.7 million and $65.8 million, respectively, for the years ended December 31, 2024 and 2023. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Our indefinite lived IPR&D assets will not be amortized until the underlying development programs are completed. Upon obtaining regulatory approval, 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 of approximately 12 years.
Corporate
For the years ended December 31,
(In thousands)
2024
2023
Change
% Change
Costs and expenses:
Selling, general and administrative
$
41,028
$
42,531
$
(1,503
)
(4
)%
Research and development
117
78
39
50
%
Total costs and expenses
41,145
42,609
(1,464
)
(3
)%
Loss from operations
$
(41,145
)
$
(42,609
)
$
1,464
3
%
Operating loss for our unallocated corporate operations for the years ended December 31, 2024 and 2023 was $41.4 million and $42.6 million, respectively, and principally reflect general and administrative expenses incurred in connection with our corporate operations.
Other
Interest income . Interest income for the years ended December 31, 2024 and 2023 was $8.4 million and $4.0 million, respectively. The increase reflects higher average cash and investment balances as a result of the cash received from the BioReference Transaction, the issuance of the 2044 Notes, and the sale of common stock of GeneDx Holdings Corp. (formerly, Sema4 Holdings Corp., (“GeneDx Holdings”). We originally acquired shares of GeneDx Holdings in the 2022 disposition of our former subsidiary, GeneDx LLC (“GeneDx”) and subsequently acquired additional shares in an underwritten offering by GeneDx Holdings.
Interest expense . Interest expense for the years ended December 31, 2024 and 2023 was $47.5 million and $13.5 million, respectively. The increase was primarily driven by interest incurred on the 2029 Convertible Notes (as defined below) and the 2044 Notes, including amortization of deferred financing and debt issuance costs. This increase was partially offset by the extinguishment of our outstanding 2023 Convertible Notes (as defined below) in connection with their exchange for 2029 Convertible Notes and the repurchase of a significant portion of the outstanding 2025 Notes (as defined in Note 7 of the Consolidated Financial Statements) using a portion of the net proceeds from the issuance of 2029 Convertible Notes.
Fair value changes of derivative instruments, net . Fair value changes of derivative instruments, net for the years ended December 31, 2024 and 2023 were $26.2 million of expense and $0.8 million reversal of expense, respectively. Derivative expense for the years ended December 31, 2024 and 2023 was principally related to the change in fair value of the 2029 Convertible Notes and of foreign currency forward exchange contracts at OPKO Chile.
Other income (expense), net . Other income (expense), net for the years ended December 31, 2024 and 2023, was $206.9 million and ($17.0 million), respectively. The increase in 2024 was primarily driven by a $140.0 million gain related to the change in fair value of our investment in GeneDx Holdings and a $64.5 million gain from the sale of 2,937,762 shares of GeneDx Holdings. In 2023, the expense was primarily due to a $23.0 million loss related to the change in fair value of our investment in GeneDx Holdings, partially offset by a $6.7 million gain resulting from GeneDx Holdings achieving specific revenue target milestones. Foreign currency fluctuations resulted in a $3.8 million loss in 2024 and a $1.2 million gain in 2023.
Income tax benefit (provision) . Our income tax benefit (provision) for the years ended December 31, 2024 and 2023 was ($42.8 million) and ($4.4 million), respectively. For the year ended December 31, 2024, 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, impact related to the BioReference Transaction, the impact of the payments under Merck Agreement, the impact of sales of the GeneDx investment, and operating results in tax jurisdictions which do not result in a tax benefit.
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Loss from investments in investees . We have invested in certain early stage companies that we believe have valuable proprietary technology and significant potential to create value for us as an equityholder. 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 $18.0 thousand and $107.0 thousand for the years ended December 31, 2024 and 2023, respectively.
For The Years Ended December 31, 2023 and 2022
Our consolidated income (loss) from operations for the years ended December 31, 2023 and 2022 is as follows:
For the years ended December 31,
(In thousands)
2023
2022
Change
% Change
Revenues:
Revenue from services
$
515,275
$
755,630
$
(240,355
)
(32
)%
Revenue from products
167,557
142,845
24,712
17
%
Revenue from transfer of intellectual property and other
180,663
105,721
74,942
71
%
Total revenues
863,495
1,004,196
(140,701
)
(14
)%
Costs and expenses:
Cost of revenue
545,368
715,977
(170,609
)
(24
)%
Selling, general and administrative
300,559
372,672
(72,113
)
(19
)%
Research and development
89,593
73,887
15,706
21
%
Contingent consideration
(1,036
)
(1,312
)
276
21
%
Amortization of intangible assets
86,032
87,784
(1,752
)
(2
)%
Gain on sale of assets
—
(18,559
)
18,559
100
%
Total costs and expenses
1,020,516
1,230,449
(209,933
)
(17
)%
Loss from operations
(157,021
)
(226,253
)
69,232
(31
)%
Diagnostics
For the years ended December 31,
(In thousands)
2023
2022
Change
% Change
Revenues
Revenue from services
$
515,275
$
755,630
(240,355
)
(32
)%
Total revenues
515,275
755,630
(240,355
)
(32
)%
Costs and expenses:
Cost of revenue
445,827
627,559
(181,732
)
(29
)%
Selling, general and administrative
202,341
284,388
(82,047
)
(29
)%
Research and development
2,508
12,024
(9,516
)
(79
)%
Amortization of intangible assets
20,195
23,870
(3,675
)
(15
)%
Gain on sale of assets
—
(18,559
)
18,559
100
%
Total costs and expenses
670,871
929,282
(258,411
)
(28
)%
Loss from operations
(155,596
)
(173,652
)
18,056
10
%
Revenue . Revenue from services for the year ended December 31, 2023 decreased by approximately $240.4 million, or 32%, compared to the year ended December 31, 2022. The decrease in revenue for the year ended December 31, 2023 primarily reflected lower demand for COVID-19 testing and lower COVID-19 reimbursement of $189.7 million and $5.1 million, respectively. The reduction in reimbursement reflects an increase in utilization of antigen point of care diagnostic tests as well as a change in the mix of customers, which pay varying contract prices depending on the level of services we provide. For the year ended December 31, 2023, clinical test volume increased $31.1 million, while clinical test reimbursement decreased $28.4 million, respectively, as a result of the mix of testing ordered. Furthermore, as a result of our sale of GeneDx in April 2022, genomic test revenues decreased by $48.3 million for the year ended December 31, 2023.
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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 for the period in which the related services are rendered. For the years ended December 31, 2023, and 2022, negative revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $19.2 million and $21.5 million, respectively, were recognized. Revenue adjustments for the year ended December 31, 2023 were primarily due to lower reimbursements from Medicare payors and for the year ended December 31, 2022 were primarily due to lower COVID-19 test reimbursement estimates.
The composition of revenue from services by payor for the years ended December 31, 2023 and 2022 was as follows:
For the years ended December 31,
(In thousands)
2023
2022
Healthcare insurers
$
315,560
$
326,144
Government payers
82,502
97,191
Client payers
100,171
316,309
Patients
17,042
15,986
Total
$
515,275
$
755,630
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, 2022 represents grants received under the CARES Act totaling $16.2 million.
Cost of revenue . Cost of revenue for the year ended December 31, 2023 decreased $181.7 million, a decrease of 29% compared to the year ended December 31, 2022. Cost of revenue decreased primarily due to continued cost-reduction initiatives implemented at BioReference, a decline in the volume of COVID-19 tests performed during the year ended December 31, 2023 compared to 2022, and changes in the mix of testing ordered during the period. Furthermore, cost of revenue decreased by $34.9 million as a result of our sale of GeneDx in 2022.
Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2023 and 2022 were $202.3 million and $284.4 million, respectively, respresenting a decrease of 29% from the prior period. Selling, general and administrative expenses in our diagnostics segment decreased primarily due to continued cost-reduction initiatives implemented at BioReference as we strive to return to profitability, as well as decreased expenses due to our sale of GeneDx in 2022.
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,
2023
2022
External expenses:
Research and development employee-related expenses
$
1,729
$
8,691
Other internal research and development expenses
779
3,333
Total research and development expenses
$
2,508
$
12,024
The decrease in research and development expenses for the year ended December 31, 2023 was primarily due to the continued cost-reduction initiatives implemented at BioReference and partly as a result of the disposition of GeneDx.
Amortization of intangible assets . Amortization of intangible assets was $20.2 million and $23.9 million for the years ended December 31, 2023 and 2022, respectively. Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Amortization expense declined for the year ended December 31, 2023 due to the disposition of GeneDx and as a result of the full amortization of certain acquired intangible assets.
Gain on sale of assets. Gain on sale of assets for the year ended December 31, 2022 was $18.6 million due to the disposition of GeneDx. There was no comparable transaction for the year ended December 31, 2023.
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Pharmaceuticals
For the years ended December 31,
(In thousands)
2023
2022
Change
% Change
Revenues:
Revenue from products
$
167,557
$
142,845
$
24,712
17
%
Revenue from transfer of intellectual property and other
180,663
105,721
74,942
71
%
Total revenues
348,220
248,566
99,654
40
%
Costs and expenses:
Cost of revenue
99,541
88,418
11,123
13
%
Selling, general and administrative
55,687
49,232
6,455
13
%
Research and development
87,007
61,275
25,732
42
%
Contingent consideration
(1,036
)
(1,312
)
276
21
%
Amortization of intangible assets
65,837
63,914
1,923
3
%
Total costs and expenses
307,036
261,527
45,509
17
%
Income (loss) from operations
41,184
(12,961
)
54,145
418
%
Revenue from products . Revenue from products for the year ended December 31, 2023 increased $24.7 million, or 17%, compared to the year ended December 31, 2022. The increase in revenue was driven by growing sales from our international operations, which were positively impacted by foreign exchange fluctuations of approximately $6.3 million, as well as increased sales of Rayaldee . Revenue from sales of Rayaldee for the years ended December 31, 2023, and 2022, was $31.0 million and $27.2 million, respectively, an increase of 14%.
Revenue from transfer of intellectual property and other. For the years ended December 31, 2023 and 2022, revenue from transfer of intellectual property and other principally reflects $90.0 million from Pfizer triggered by the FDA approval of NGENLA (Somatrogon) in 2023, and, in 2022, a $85.0 million regulatory milestone payment based on the commencement of sales from NGENLA (Somatrogon) in Europe and Japan, as well as gross profit share and royalty payments for both NGENLA (Somatrogon) and Pfizer’s Genotropin® (Somatropin) of $22.6 million and $4.4 million for the years ended December 31, 2023 and 2022, respectively. For the years ended December 31, 2023 and 2022, revenue from transfer of intellectual property and other principally reflects $4.1 million and $9.3 million, respectively, of revenue related to the Pfizer Transaction. For the year ended December 31, 2023, revenue from transfer of intellectual property and other included $50.0 million from Merck in consideration for the rights granted to Merck under the Merck Agreement, $7.0 million from VFMCRP triggered by German price approval for Rayaldee, and $2.5 million from Nicoya due to Nicoya’s submission of the investigational new drug application to China's Center for Drug Evaluation. For the year ended December 31, 2022, revenue from transfer of intellectual property and other included $3.0 million related to the achievement of 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.
Cost of revenue . Cost of revenue for the year ended December 31, 2023 increased by 13% to $99.5 million compared to the year ended December 31, 2022, which was driven by growing sales in our international operations due primarily to changes in product mix during the period and higher inventory costs compared to the prior period partially impacted by unfavorable foreign exchange fluctuations of $4.4 million.
Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2023 and 2022 were $55.7 million and $49.2 million, respectively, representing an increase of 13% from the prior year period. The increase in selling, general and administrative expenses was due to higher employee-related expenses from our international operations and from higher employee-related expenses from Rayaldee .
Research and development expenses . Research and development expenses for the years ended December 31, 2023 and 2022 were $87.0 million and $61.3 million, respectively, representing an increase of 42% from the prior year. 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.
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The following table summarizes the components of our research and development expenses:
Research and Development Expenses
For the years ended December 31,
2023
2022
External expenses:
Manufacturing expense for biological products
$
14,687
$
10,038
Phase 3 studies
4,414
9,611
Post-marketing studies
591
35
Earlier-stage programs
45,476
14,347
Research and development employee-related expenses
33,719
25,440
Other internal research and development expenses
4,894
2,951
Third-party grants and funding from collaboration agreements
(16,774
)
(1,147
)
Total research and development expenses
$
87,007
$
61,275
The increase in research and development expenses for the year ended December 31, 2023 was primarily due to research expenses at ModeX driven by growth in our early-stage programs, including a $12.5 million payment to Sanofi under the Sanofi In-License Agreement and an increase in employee-related expenses, partially offset by lower expenses related to Somatrogon (hGH-CTP) due to the closure of the open-label extension studies in countries in which Somatrogon (hGH-CTP) received marketing authorization. Research and development expenses for the pharmaceutical segment for the years ended December 31, 2023 and 2022 included equity-based compensation expenses of $4.0 million and $2.6 million, respectively.
Contingent consideration . Contingent consideration for the years ended December 31, 2023 and 2022 reflected reversals of expense of $1.0 million and $1.3 million, respectively. Contingent consideration for the years ended December 31, 2023 and 2022, 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 $65.8 million and $63.9 million, respectively, for the years ended December 31, 2023 and 2022. 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. The year ended December 2023 had a full year of amortization, while the year ended December 2022 had eleven months of amortization. The assets will be amortized on a straight-line basis over their estimated useful life of approximately 12 years.
Corporate
For the years ended December 31,
(In thousands)
2023
2022
Change
% Change
Costs and expenses:
Selling, general and administrative
$
42,531
$
39,052
$
3,479
9
%
Research and development
78
588
(510
)
(87
)%
Total costs and expenses
42,609
39,640
2,969
7
%
Loss from operations
$
(42,609
)
$
(39,640
)
$
(2,969
)
(7
)%
Operating loss for our unallocated corporate operations for the years ended December 31, 2023 and 2022 was $42.6 million and $39.6 million, respectively, and principally reflect general and administrative expenses incurred in connection with our corporate operations. The increase in operating loss for our unallocated corporate operations for the year ended December 31, 2023 was primarily due to an increase in employee-related and professional expenses, partially offset by a decrease in legal expenses.
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Other
Interest income . Interest income for the years ended December 31, 2023 and 2022 was $4.0 million and $2.0 million, respectively. The increase is driven by having higher average cash and investment balances as a result of the cash received related to our sale of GeneDx, as well as higher interest rates.
Interest expense . Interest expense for the years ended December 31, 2023 and 2022 was $13.5 million and $12.1 million, respectively. Interest expense was principally related to interest incurred on the 2025 Notes, the 2023 Convertible Notes, the 2033 Senior Notes, and BioReference’s outstanding debt under the BioReference Credit Agreement.
Fair value changes of derivative instruments, net . Fair value changes of derivative instruments, net for the years ended December 31, 2023 and 2022 were $0.8 million of expense and $0.7 million reversal of expense, respectively. Derivative expense for the years ended December 31, 2023 and 2022 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, 2023 and 2022, was $17.0 million and $155.8 million of expense, respectively. Other income (expense), net for the years ended December 31, 2023 and 2022, included $23.0 million and $150.9 million, respectively, of expense as a result of a decrease in the fair value of our investment in GeneDx Holdings. For the year ended December 31, 2023, we recorded $6.7 million of income as a result of GeneDx Holdings achieving specific revenue target milestones for the fiscal year ended December 31, 2022. Foreign currency gains of $1.2 million and losses of $1.8 million were the majority of other expenses for the years ended December 31, 2023 and 2022, respectively.
Income tax benefit (provision) . Our income tax benefit (provision) for the years ended December 31, 2023 and 2022 was ($4.4 million) provision and $63.5 million benefit, respectively. For the year ended December 31, 2023, 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 the payments under the Merck Agreement, and operating results in tax jurisdictions which do not result in a tax benefit. For the year ended December 31, 2022, the tax rate differed from the U.S. federal statutory rate of 21% primarily due to changes in the company’s estimated tax liability, 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.
Loss from investments in investees . We have made investments in certain early stage companies that we believe 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 $0.1 million and $0.4 million for the years ended December 31, 2023 and 2022, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2024, we had cash, cash equivalents and restricted cash of approximately $445.6 million. Cash used in operations of $183.5 million for year ended December 31, 2024 principally reflects general and administrative expenses related to our corporate operations, research and development activities and sales and marketing activities related to our pharmaceutical and diagnostic business. Cash provided by investing activities was $352.2 million for the year ended December 31, 2024 primarily reflected both the proceeds from the BioReference Transaction and the sale of equity securities, offset by capital expenditures. Cash provided by financing activities of $184.2 million primarily reflected the issuance of our 2029 Convertible Notes and the issuance of the 2044 Notes, which was partially offset by the redemption of the 2025 Notes, repurchase of shares of our Common Stock, and net repayments on our lines of credit. We have historically not generated sustained positive cash flow sufficient to offset our operating and other expenses, and our primary sources of cash have been from the public and private placement of equity and debt, as well as credit facilities available to us.
On January 7th, 2025, ModeX announced the dosing of the first participant in a Phase 1 study of an EBV vaccine candidate being developed in collaboration with Merck. This achievement triggered a $12.5 million cash milestone payment from Merck to ModeX under the Merck Agreement, pursuant to which Merck obtained a license to certain patent rights and know-how in connection with the development of ModeX’s preclinical nanoparticle vaccine candidate targeting the Epstein-Barr Virus. Under the terms of the Merck Agreement, ModeX is eligible to receive up to an additional $860.0 million upon the achievement of certain commercial and development milestones.
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ModeX and Merck have established a strategic collaboration with a detailed research plan to guide the development of such a vaccine or related product. This plan includes the creation of a joint steering committee, and the potential use of third-party contract development and manufacturing organization carry out such activities unless otherwise agreed. Merck will reimburse ModeX for development costs incurred as part of this research plan. To date, we have incurred $25.0 million of development costs related to the Epstein-Barr Virus, which Merck has reimbursed in full.
In September 2024, ModeX entered into the BARDA Amendments which increased funding by $26.9 million, for the ongoing development, manufacturing, and execution of a Phase 1 clinical trial for a next-generation MSTAR multispecific antibody with broad neutralizing activity against known variants of SARS-CoV-2. The BARDA Amendments also included BARDA's exercise of an option for the development of a multispecific protein antibody for influenza or another pathogen, with the additional funding allocated to cover the expanded work. These modifications increased the total value of the BARDA Contract to $110.0 million, with a potential value of $205.0 million if BARDA exercises all options thereunder to expand ModeX's services. The BARDA Contract covers a five-year period through February 2028. We expect this funding will support the development of a second novel multispecific antibody to SARS-CoV-2, from preclinical through Phase 1 trials, as well as preclinical work on gene-based expression of multispecific antibodies to SARS-CoV-2, including mRNA and/or DNA vectors. In addition, ModeX plans to begin development of influenza multispecifics with gene and/or protein delivery modalities. As of December 31, 2024, the aggregate amount remaining to be funded by BARDA, which is subject to performance obligations and excluding unexercised contract options, was $85.0 million.
On September 16, 2024, the Company consummated the BioReference Transaction, pursuant to which Labcorp acquired select assets of BioReference. Labcorp paid to the Company aggregate consideration of $237.5 million in cash, subject to certain adjustments as set forth in the Labcorp Asset Purchase Agreement. The assets acquired by Labcorp included BioReference's laboratory testing businesses focused on clinical diagnostics, reproductive health, and women's health across the United States, excluding New York and New Jersey.
During the year ended December 31, 2024, the Company sold 2,937,762 shares of GeneDx Holdings common stock at various prices for approximately $166.6 million in aggregate proceeds. The sale reduced the Company's total ownership in GeneDx Holdings to 2.3% as of December 31, 2024. As of December 31, 2024, the aggregate value of our GeneDx Holdings investment was $47.7 million based on the closing market price of the GeneDx Holdings common stock on such date.
On July 18, 2024, our Board of Directors authorized the repurchase of up to $100 million of our Common Stock. Under this program, we may repurchase shares through various methods, including open market purchases, block trades, privately negotiated transactions and accelerated share repurchases, as well as pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1(c) of the Exchange Act, and otherwise in compliance with applicable laws. The timing and volume of repurchases will depend on market conditions, our capital management, investment opportunities, and other factors. The program does not obligate us to repurchase any specific number of shares, has no set expiration date, and may be modified, suspended, or discontinued at our discretion. Through December 31, 2024, the Company repurchased an aggregate of 25,825,785 shares of Common Stock at an average price of $1.56 per share for approximately $40.2 million under this repurchase program.
On July 17, 2024, we completed a private offering of $250 million aggregate principal amount of the 2044 Notes in accordance with the terms of the 2044 Note Purchase Agreement. The 2044 Notes are secured by the Company’s profit share payments from Pfizer under the Restated Pfizer Agreement. The 2044 Notes bear interest at the 3-month SOFR plus 7.5%, subject to a minimum interest rate of 4.0% per annum. The 2044 Notes mature in July 2044, with interest-only payments required for the first four years.
In January 2024, we completed a private offering of $230.0 million aggregate principal amount of our 3.75% Convertible Senior Notes due 2029 (the “2029 Convertible 144A Notes”) in accordance with the terms of the note purchase agreement (the “144A Note Purchase Agreement”) entered into by and between the Company and J.P. Morgan Securities LLC (the "Initial Purchaser").
We received approximately $220.0 million of net proceeds from the issuance of the 2029 Convertible 144A Notes, after deducting fees and estimated offering expenses. We used approximately $50.0 million of the net proceeds to repurchase shares of our Common Stock from purchasers of the 2029 Convertible 144A Notes in privately negotiated transactions at a purchase price equal to the closing sale price per share of Common Stock on January 4, 2024, which was $0.9067. Contemporaneously with the pricing of the 2029 Convertible 144A Notes, we entered into separate, privately negotiated transactions with certain holders of the outstanding 2025 Notes to repurchase, on the closing date, approximately $144.4 million aggregate principal amount of such notes. We effected such repurchases for cash, using $146.3 million of the net proceeds from the offering of the 2029 Convertible 144A Notes, following which only $170 thousand aggregate principal amount of the 2025 Notes remained outstanding.
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Additionally, we issued and sold approximately $71.1 million aggregate principal amount of our 3.75% Convertible Senior Notes due 2029 (the “2029 Convertible Affiliate Notes” and, together with the 2029 Convertible 144A Notes, the “ 2029 Convertible Notes”) pursuant to the terms of a note purchase agreement entered into on January 4, 2024 (the “Affiliate Note Purchase Agreement”) by and among the Company and certain investors including, Frost Gamma Investments Trust, a trust controlled by Phillip Frost, M.D., the Company’s Chairman and Chief Executive Officer, and Jane H. Hsiao, Ph.D., MBA, the Company’s Vice-Chairman and Chief Technical Officer (collectively, the “Affiliate Purchasers”). Pursuant to the Affiliate Note Purchase Agreement, the Company issued and sold the 2029 Convertible Affiliate Notes to the Affiliate Purchasers in exchange for $55.0 million aggregate principal amount of the Company’s existing 5% Convertible Promissory Notes (the "2023 Convertible Notes"), together with approximately $16.1 million of accrued but unpaid interest thereon, held by the Affiliate Purchasers. Following such exchange, no 2023 Convertible Notes remained outstanding.
At December 31, 2024, $280.6 million aggregate principal amount of the 2029 Convertible Notes was outstanding.
Holders may convert their 2029 Convertible Notes at their option prior to the close of business on the business day immediately preceding September 15, 2028 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2024 (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 the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; (2) during the five consecutive business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 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 applicable conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events specified in the indenture governing the 2029 Convertible Notes. On or after September 15, 2028 until the close of business on the business day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing conditions. Upon conversion of a note, 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 conversion rate is initially equal to 869.5652 shares of Common Stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $1.15 per share of Common Stock). The conversion rate for the 2029 Convertible Notes is subject to adjustment upon the occurrence of certain events, but will not be adjusted for any accrued and unpaid interest. We may not redeem the 2029 Convertible Notes prior to the maturity date.
As of December 31, 2024, the total commitments under our lines of credit with financial institutions in Chile and Spain were $30.8 million, of which $13.5 million was drawn as of December 31, 2024. At December 31, 2024, the weighted average interest rate on these lines of credit was approximately 5.52%. 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, 2024, was $23.6 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.
Separately, on September 16, 2024, BioReference fully repaid its obligations and terminated the BioReference Credit Agreement. BioReference paid approximately $9.7 million to settle its obligations, incurring no prepayment premium or penalty.
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In connection with our agreements with Merck, Pfizer, VFMCRP, and Nicoya, we are eligible to receive various milestone payments and royalty considerations. Under the terms of the Merck Agreement, we received an initial payment of $50.0 million and are also eligible to receive up to an additional $860.0 million upon the achievement of certain commercial and development milestones under several indications. We are also eligible to receive tiered royalty payments ranging from high single digits to low double digits upon achievement of certain sales targets of the Product (as defined in the Merck Agreement). On January 7, 2025, ModeX announced the dosing of the first participant in a Phase 1 study for an EBV vaccine candidate being developed in collaboration with Merck which triggered a $12.5 million milestone payment from Merck under the Merck Agreement. Under the terms of the Restated Pfizer Agreement, we have received or are eligible to receive up to an additional $275.0 million upon the achievement of certain regulatory milestones, including $90 million triggered by the FDA approval in the United States and $85 million due to the commencement of sales of NGENLA (Somatrogon) in Europe and Japan, which we received in 2022. In addition, we are eligible to receive 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 $15 million in regulatory milestones and $200 million in milestone payments tied to the launch, pricing and sales of Rayaldee , including a $7 million regulatory milestone payment we recorded in the first quarter of 2023 triggered by the German price approval for Rayaldee and $3 million regulatory milestone payment we recognized in 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 received the additional $2.5 million upon Nicoya’s submission of the investigational new drug application to the Center for Drug Evaluation of China in March 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 are also eligible to 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.
We believe that cash, cash equivalents and restricted cash on hand at December 31, 2024 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 approval and success of our products and products in development, particularly our long acting Somatrogon (hGH-CTP) for which we have received approval in over 50 markets, including the United States, 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, existing legal proceedings and those that may arise in the future. 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.
The following table provides information as of December 31, 2024, with respect to the amounts and timing of our known contractual obligation payments due by period.
Contractual obligations
(In thousands)
2025
2026
2027
2028
2029
Thereafter
Total
Open purchase orders
$
33,812
$
4,959
$
415
$
—
$
—
$
—
$
39,186
Operating leases
12,649
10,854
9,549
8,808
6,720
12,918
61,498
Finance leases
1,679
1,277
775
189
187
1,636
5,743
2029, 2025, and 2033 Convertible Notes
170
—
—
—
173,556
50
173,776
2044 Notes
—
—
—
—
—
245,576
245,576
Mortgages and other debts payable
1,384
1,001
763
778
461
—
4,387
Lines of credit
14,849
—
—
—
—
—
14,849
Interest commitments
10,737
10,717
10,701
10,715
441
—
43,311
Total
$
75,280
$
28,808
$
22,203
$
20,490
$
181,365
$
260,180
$
588,326
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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.
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 $1.3 billion and $1.5 billion at December 31, 2024 and 2023, 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:
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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.
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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.
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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.
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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 $529.3 million and $598.3 million at December 31, 2024 and 2023, respectively. 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 $811.6 million and $935.3 million at December 31, 2024 and 2023, respectively, including IPR&D of $195.0 million at December 31, 2024 and 2023. Intangible assets are highly vulnerable to impairment charges, particularly newly acquired assets for recently launched products and IPR&D. Considering the high risk nature of research and development and the industry’s success rate of bringing developmental compounds to market, IPR&D impairment charges may occur in future periods. Estimating the fair value of IPR&D for potential impairment is highly sensitive to changes in projections and assumptions and changes in assumptions could potentially lead to impairment.
Upon obtaining regulatory approval, IPR&D assets are then accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. If the project is abandoned, the IPR&D asset is charged to expense. Finite lived intangible assets are tested for impairment when events or changes in circumstances indicate it is more likely than not that the carrying amount of such assets may not be recoverable. The testing includes a comparison of the carrying amount of the asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, then an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. We believe that our estimates and assumptions in testing goodwill and other intangible assets, including IPR&D, for impairment are reasonable and otherwise consistent with assumptions that marketplace participants would use in their estimates of fair value. Based on the current financial performance of our diagnostic segment and our Ireland reporting unit, which includes Eirgen and Rayaldee , if future results are not consistent with our estimates and assumptions, then we may be exposed to impairment charges, which could be material. At December 31, 2024, the goodwill of our diagnostics segment totaled $219.7 million and the goodwill of our Ireland reporting unit totaled $79.4 million. No impairment charges were recognized for the years ended December 31, 2024, 2023, or 2022.
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. 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 benefits of our intangible assets are consumed or otherwise used up. Amortization expense was $82.6 million, $86.0 million and $87.8 million for the years ended December 31, 2024, 2023 and 2022, 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.
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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.
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, 2024, and 2023, negative revenue adjustments due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $1.5 million and $19.2 million, respectively, were recognized. Revenue adjustments for the year ended December 31, 2024 were primarily due to the composition of patient pay mix and for the year ended December 31, 2023 were primarily due to lower reimbursements from Medicare payors.
Third-party payors, including government programs, may decide to deny payment or recoup payments for testing they contend were improperly billed or not medically necessary, against their coverage determinations, or for which they believe they have otherwise overpaid (including as a result of their own error), and we may be required to refund payments already received. Our revenues may be subject to retroactive adjustment as a result of these factors among others, including without limitation, differing interpretations of billing and coding guidance and changes by government agencies and payors in interpretations, requirements, and “conditions of participation” in various programs. We have processed requests for recoupment from third-party payors in the ordinary course of our business, and it is likely that we will continue to do so in the future. If a third-party payor denies payment for testing or recoups money from us in a later period, reimbursement for our testing could decline.
As an integral part of our billing compliance program, we periodically assess our billing and coding practices, respond to payor audits on a routine basis, and investigate reported failures or suspected failures to comply with federal and state healthcare reimbursement requirements, as well as overpayment claims which may arise from time to time without fault on the part of the Company. We may have an obligation to reimburse Medicare, Medicaid, and third-party payors for overpayments regardless of fault. We have periodically identified and reported overpayments, reimbursed payors for overpayments and taken appropriate corrective action.
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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, 2024 and 2023, we have liabilities of approximately $2.0 million and $3.1 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, 2024, 2023 and 2022, we recognized $29.0 million, $31.0 million and $27.2 million in net product revenue from sales of Rayaldee .
Taxes collected from customers related to revenues from services and revenues from products are excluded from revenues.
Revenue from intellectual property. We recognize revenues from the transfer of intellectual property generated through license, development, collaboration and/or commercialization agreements. The terms of these agreements typically include payment to us for one or more of the following: non-refundable, up-front license fees; development and commercialization milestone payments; funding of research and/or development activities; and royalties on sales of licensed products. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the customer.
For research, development and/or commercialization agreements that result in revenues, we identify all material performance obligations, which may include a license to intellectual property and know-how, and research and development activities. In order to determine the transaction price, in addition to any upfront payment, we estimate the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. We constrain (reduce) our estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, we consider whether there are factors outside of our control that could result in a significant reversal of revenue. In making these assessments, we consider the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.
Upfront License Fees: If a license to our intellectual property is determined to be functional intellectual property distinct from the other performance obligations identified in the arrangement, we recognize revenue from nonrefundable, upfront license fees based on the relative value prescribed to the license compared to the total value of the arrangement. The revenue is recognized when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are not distinct from other obligations identified in the arrangement, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, we apply an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
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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.
BARDA Contract: Revenue from the BARDA contract is generated under terms that are cost plus fee. We recognize revenue using the incurred costs output method to measure progress. As the government has access to development research, it benefits incrementally as R&D activities occur. Revenue will only be recognized when research and development services are performed to the extent of actual costs incurred.
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.
Revenue from the transfer of intellectual property and other, which includes milestone payments, royalties, and other collaboration revenues, totaled $77.4 million, $180.7 million, and $105.7 million for the years ended December 31, 2024, 2023, and 2022, respectively.
For the year ended December 31, 2024, such revenue included $30.0 million from Pfizer, inclusive of $28.3 million from gross profit share and royalty payments for both NGENLA (Somatrogon) and Pfizer's Genotropin® (Somatropin), $23.8 million from the BARDA Contract, a $12.5 million milestone payment from Merck under the Merck Agreement, and $10.2 million from contract manufacturers' commercial milestones.
For the year ended December 31, 2023, revenue from the transfer of intellectual property included $116.7 million from Pfizer, which included a $90.0 million milestone payment triggered by the FDA approval of NGENLA (Somatrogon), $22.6 million from gross profit share and royalty payments for both NGENLA (Somatrogon) and Pfizer's Genotropin® (Somatropin), $50.0 million from Merck in consideration for the rights granted under the Merck Agreement, $7.0 million from VFMCRP triggered by the German price approval for Rayaldee , $2.5 million from Nicoya due to Nicoya's submission of the investigational new drug application to China's Center for Drug Evaluation, $1.2 million from the BARDA Contract, and $2.4 million from contract manufacturers' commercial milestones.
For the year ended December 31, 2022, revenue from the transfer of intellectual property included $98.7 million from Pfizer, inclusive of an $85.0 million regulatory milestone payment based on the commencement of sales of NGENLA (Somatrogon) in Europe and Japan and $4.4 million from gross profit share and royalty payments 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 that agreement.
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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, 2024 and 2023, receivable balances (net of explicit and implicit price concessions) from Medicare and Medicaid were 4.8% and 6.7%, respectively, of our consolidated Accounts receivable, net.
The portion of our accounts receivable due from individual patients comprises the largest portion of credit risk. At December 31, 2024 and 2023, receivables due from patients represented approximately 1.7% and 2.0%, respectively, of our consolidated accounts receivable, net.
We assess the collectability of accounts receivable balances by considering factors such as historical collection experience, customer credit worthiness, the age of accounts receivable balances, regulatory changes and current economic conditions and trends that may affect a customer’s ability to pay. Actual results could differ from those estimates. The allowance for credit losses was $1.3 million and $2.0 million at December 31, 2024 and 2023, respectively. The credit loss expense for the years ended December 31, 2024, 2023 and 2022 was $0.1 million, $0.3 million and $0.3 million, respectively.
Accounts receivable as of December 31, 2024 included $3.6 million of government contract revenue earned under the BARDA contract.
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, 2024, 2023 and 2022 was $2.1 million, $8.1 million and $4.1 million, respectively.
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RECENT ACCOUNTING PRONOUNCEMENTS
Accounting standards yet to be adopted
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (i) specific categories in the rate reconciliation, (ii) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (iii) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state, and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
Recently adopted accounting standards
In November 2023, the FASB issued ASU No 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 enhances disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. ASC 280 requires a public entity to report for each reportable segment a measure of segment profit or loss that its CODM uses to assess segment performance and to make decisions about resource allocations. ASU 2023-07 is effective for the Company beginning with the fiscal year ended December 31, 2024. The guidance is being applied prospectively.
In 2021, the Organization for Economic Co-operation and Development (“OECD”) established an inclusive framework on base erosion and profit shifting and agreed on a two-pillar solution (“Pillar Two”) to global taxation, focusing on global profit allocation and a 15% global minimum effective tax rate. On December 15, 2022, the EU member states agreed to implement the OECD’s global minimum tax rate of 15%. The OECD issued Pillar Two model rules and continues to release guidance on these rules. The inclusive framework calls for tax law changes by participating countries to take effect in 2025. Various countries have enacted or have announced plans to enact new tax laws to implement the global minimum tax. We considered the applicable tax law changes on Pillar Two implementation in the relevant countries, and there is no material impact to our tax results for the period. We anticipate further legislative activity and administrative guidance in 2025, and will continue to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in.
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).” This standard simplified the accounting for convertible instruments. We adopted ASU 2020-06 on January 1, 2022, using the modified retrospective approach. This resulted in an increase of $21.6 million to the 2025 Convertible Notes, a reduction of $17.5 million to the Accumulated deficit, and a reduction of $39.1 million to Additional paid-in capital.
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