Post by luxetvox on Aug 10, 2023 18:42:20 GMT
Since last week's call, a few numbers have been rattling around in the old noggin. Namely, R&D expense. Unlike Ed Tenthoff of Piper, I heard Logal's Q3 projections for that part of the expense budget loud and clear...$21 to $24 million. On the one hand, I have no experience on which to draw that would give me some perspective on such a number. On the other hand, it seems like a lot of money....for a firm already losing money. Since these figures are a significant jump from those recorded in that line item for Q2, and even an inexperienced feller like myself can project these costs rising even more going forward, I decided to email Yvonne to try and get more info. Here's the exchange:
Hello Yvonne,
I hope you’re well. Although I’ve owned a healthy position in Opko for over 10 years, it is usually not protocol for a private investor to ask questions on a quarterly call. So I’m hoping you can pass my question along. Adam Logal projected R&D expense of $21-24 million for Q3, up from $17.5 million in Q2. He attributed the increase in Q2 YoY (from $14.8 million) mainly to “ModeX development programs”, offset by a decrease in expenses related to Ngenla development. My question relates to the absolute amount of costs of R&D. Can you clarify the breakdown of the $21-24 million forecast for Q3? Is it chiefly earmarked for ModeX activities? If so, which compounds account for those expenses? Alternatively, if the ModeX portfolio is not predominant consumer of those monies, then what else is absorbing the R&D expense.
It seems like a lot of money, and it is increasing. The projected annual run rate, using Q3 projections, would be between $80 and $100 million, perhaps more. That’s a great deal of funding. Please ask for more detail from management. MANY individual investors are wondering about this. And unfortunately none of the analysts covering Opko, with the exception of Mike Petusky of Barrington, ask very important and very obvious questions like those I’ve posed above.
I look forward to your reply. Thank you.
Her reply:
Thank you for your email and continued interest in OPKO Health.
The increase in R&D expense is primarily driven by expanded activities at ModeX as they prepare to enter the clinic early next year with certain pipeline programs. Specifically, Dr. Zerhouni mentioned on the last earnings call the plan to advance two oncology programs to the clinic in 2024.
Kind regards,
Yvonne
My follow up:
Ok thanks for the response Yvonne. But my question is about Q3 2023, not 2024. Are you saying that the Q3 R&D expense forecast of $21-24 million will be primarily earmarked for ModeX programs, and de minimus for any Opko legacy pharma assets? Furthermore, if that’s the case, since the clinical activities won’t even begin until 2024, should we expect a significant increase in R&D then (barring any new partnerships that may be signed)?
Her follow up:
I will reiterate that the primary reason for the increase in 3Q23 is due to ModeX’s preparation to enter the clinic next year, including the steps necessary to prepare IND submissions.
My conclusion: So, I think we should indeed pencil in at least $100 million in R&D costs for 2024. Clearly, another partnership on either of the two cancer programs (solid and liquid tumors) could mitigate these costs. But it's important to consider in the following context. Even if BRLI is sold sometime next year, and sold for +/- $700 million, the cost of a buyback of any significance (100-150 million shares) will eat as much as half of those proceeds. With perhaps $350 million left 'in the bank,' prudence would suggest we'd likely need another partnership to help with several years of very costly clinical development ahead.
And another thing that would be required to happen would be a total transparency in the accounting of the remaining business lines: Iberoamerica, Finetech, and profit share and/or royalty revenue (does anyone recall if the Vifor arrangement for Rayaldee is gross profit share, like that for Ngenla?) from the licensed products. Investors could then determine if the new Opko (or, hopefully, ModeX) would be self sustaining. In other words, would those businesses be generators or consumers of cash. And therefore, can we pad to the putative $350 million, thereby extending our clinical development runway? Or will we be eating into the cash pile from both the existing and the developing businesses?
Hello Yvonne,
I hope you’re well. Although I’ve owned a healthy position in Opko for over 10 years, it is usually not protocol for a private investor to ask questions on a quarterly call. So I’m hoping you can pass my question along. Adam Logal projected R&D expense of $21-24 million for Q3, up from $17.5 million in Q2. He attributed the increase in Q2 YoY (from $14.8 million) mainly to “ModeX development programs”, offset by a decrease in expenses related to Ngenla development. My question relates to the absolute amount of costs of R&D. Can you clarify the breakdown of the $21-24 million forecast for Q3? Is it chiefly earmarked for ModeX activities? If so, which compounds account for those expenses? Alternatively, if the ModeX portfolio is not predominant consumer of those monies, then what else is absorbing the R&D expense.
It seems like a lot of money, and it is increasing. The projected annual run rate, using Q3 projections, would be between $80 and $100 million, perhaps more. That’s a great deal of funding. Please ask for more detail from management. MANY individual investors are wondering about this. And unfortunately none of the analysts covering Opko, with the exception of Mike Petusky of Barrington, ask very important and very obvious questions like those I’ve posed above.
I look forward to your reply. Thank you.
Her reply:
Thank you for your email and continued interest in OPKO Health.
The increase in R&D expense is primarily driven by expanded activities at ModeX as they prepare to enter the clinic early next year with certain pipeline programs. Specifically, Dr. Zerhouni mentioned on the last earnings call the plan to advance two oncology programs to the clinic in 2024.
Kind regards,
Yvonne
My follow up:
Ok thanks for the response Yvonne. But my question is about Q3 2023, not 2024. Are you saying that the Q3 R&D expense forecast of $21-24 million will be primarily earmarked for ModeX programs, and de minimus for any Opko legacy pharma assets? Furthermore, if that’s the case, since the clinical activities won’t even begin until 2024, should we expect a significant increase in R&D then (barring any new partnerships that may be signed)?
Her follow up:
I will reiterate that the primary reason for the increase in 3Q23 is due to ModeX’s preparation to enter the clinic next year, including the steps necessary to prepare IND submissions.
My conclusion: So, I think we should indeed pencil in at least $100 million in R&D costs for 2024. Clearly, another partnership on either of the two cancer programs (solid and liquid tumors) could mitigate these costs. But it's important to consider in the following context. Even if BRLI is sold sometime next year, and sold for +/- $700 million, the cost of a buyback of any significance (100-150 million shares) will eat as much as half of those proceeds. With perhaps $350 million left 'in the bank,' prudence would suggest we'd likely need another partnership to help with several years of very costly clinical development ahead.
And another thing that would be required to happen would be a total transparency in the accounting of the remaining business lines: Iberoamerica, Finetech, and profit share and/or royalty revenue (does anyone recall if the Vifor arrangement for Rayaldee is gross profit share, like that for Ngenla?) from the licensed products. Investors could then determine if the new Opko (or, hopefully, ModeX) would be self sustaining. In other words, would those businesses be generators or consumers of cash. And therefore, can we pad to the putative $350 million, thereby extending our clinical development runway? Or will we be eating into the cash pile from both the existing and the developing businesses?