OPKO Health - Q2 2024

Executive Summary

• Q2 2024 revenue was $182.2M; net loss improved to $10.3M ($0.01 loss per share) as non-cash other income from the GeneDx mark-to-market offset an operating loss driven by lapping 2023 milestones.
• Diagnostics execution improved: services revenue rose to $129.4M (+2% YoY) and operating loss narrowed to $26.6M (vs. $44.3M YoY), reflecting progress on cost reductions and mix/pricing tailwinds.
• Pharmaceuticals revenue from products was $40.5M; NGENLA gross profit share and Genotropin royalties reached $6.3M, while ModeX advanced MDX2001 into Phase 1 and BARDA-funded COVID multispecifics progressed to pre-IND enabling stage.
• Liquidity and capital allocation catalysts: $250M HCR royalty financing secured by NGENLA profit share, $100M share repurchase authorization, and the expected $237.5M BioReference asset sale closing at quarter-end; management guided Q3 revenue to $180–$185M and expects a $114–$120M gain on the Labcorp closing.
• Consensus estimates comparison unavailable in this report due to an S&P Global request limit; investors should focus on the near-term catalyst path (Labcorp closing, Pfizer NGENLA scaling benefits, ModeX clinical milestones) and operational cost takeout shaping Diagnostics profitability.

What Went Well and What Went Wrong

What Went Well

• Diagnostics segment improved: services revenue rose to $129.4M (+$2.4M YoY) and operating loss narrowed by ~40% to $26.6M; management highlighted cost-reduction traction and oncology demand momentum.
• NGENLA scaling: gross profit share and Genotropin royalties grew to $6.3M (+$2.5M YoY), and Pfizer’s global launch continues across major markets; OPKO expects higher gross profit share in H2 as manufacturing scale benefits emerge.
• Balance sheet optimization and capital return: $250M HCR financing provides non-dilutive capital; Board authorized a $100M share repurchase; management emphasized flexibility to fund ModeX R&D and opportunistic note/share buybacks (“we expect to have a significant cash balance…invest in our highest priority R&D…return capital to shareholders”).

What Went Wrong

• Operating performance weakened YoY on milestone compare: pharmaceuticals operating loss of $24.8M vs. prior-year operating income, and consolidated operating loss of $61.7M due to the absence of the 2023 $90M NGENLA approval milestone.
• NGENLA profit share timing: guidance narrowed/trimmed vs. prior commentary due to inventory adjustments in certain territories; “final pull-through…looks like it’s going to be late third quarter…annual range came down to kind of the mid-30s” (context: gross profit share cadence).
• Rayaldee growth remains subdued: Q2 revenue $7.2M (vs. $7.7M YoY); management acknowledged nephrology practice-change timelines and emphasized outcome-led adoption efforts and publications, implying slower near-term uptake.

Transcript

Operator (participant)

Good day and welcome to the OPKO Health Second Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal Conference Specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Yvonne Briggs. Please go ahead.

Yvonne Briggs (Head of Investor Relations)

Thank you, Operator, and good afternoon. This is Yvonne Briggs with LHA. Thank you all for joining today's call to discuss OPKO Health's financial results for the second quarter of 2024. I'd like to remind you that any statements made during this call by management, other than statements of historical fact, will be considered forward-looking and, as such, will be subject to risks and uncertainties that can materially affect the company's expected results. Those forward-looking statements include, without limitation, the various risks described in the company's SEC filings, including the annual report on Form 10-K for the year ended December 31, 2023, and in subsequently filed SEC reports. The conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 7, 2024.

Except as required by law, OPKO undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Before we begin, let me review the format of today's call. Dr. Phillip Frost, Chairman and Chief Executive Officer, will open the call. Dr. Elias Zerhouni, Vice Chairman and President, will then provide an overview of BioReference Health, followed by OPKO's pharmaceutical business. After that, Adam Logal, OPKO's CFO, will review the company's second quarter financial results and then will open up the call to questions. Now I'd like to turn the call over to Dr. Frost.

Phillip Frost (Chairman and CEO)

Good afternoon and thank you for joining us today. We recently made a few announcements focused on optimizing our balance sheet and enhancing shareholder value. We entered into a $250 million note purchase agreement with Healthcare Royalty that is secured by the gross profit share arrangement we have with Pfizer, our global commercial partner for NGENLA. The transaction allows us to retain a significant portion of the near-term profit share payments and also provides substantial upside opportunities long-term. We maintain rights to the full $100 million of remaining potential milestone payments from Pfizer. The proceeds provide financial flexibility to advance our R&D efforts for ModeX and its multi-specific antibody programs, other OPKO programs, and the option to repurchase shares of our common stock and convertible notes. As you know, our board authorized a $100 million share repurchase program, which at present prices represents approximately 10% of our shares outstanding.

This share buyback program represents an attractive investment opportunity given our confidence in the business and our strategy. NGENLA, our long-acting growth hormone therapy, continues to gain traction as Pfizer expands its launch, with the product now being sold globally. NGENLA competes in a large and expanding global market opportunity. As mentioned on our last conference call, the IND for MDX-2001 was cleared by the FDA for us to proceed to a phase I clinical trial to treat solid tumors. Our goal is to develop a first-in-class tetra-specific antibody that activates T cells and survival enhancement receptors to optimize sustained cancer treatment. The first patient is expected to be dosed in the coming weeks. In addition, we're on track to begin clinical trials of our Epstein-Barr vaccine candidate with our partner Merck later this year.

Elias will provide more detail on these and other ModeX pipeline programs in a moment. As for BioReference Health, we're making steady progress on the return to profitability, which will accelerate when we close the announced transaction with OPKO. We're continuing to progress our collaboration with Entera Bio to develop oral tablet formulations of our proprietary long-acting GLP-2 peptide and oxyntomodulin analogs using Entera’s proprietary N-Tab oral delivery technology. Entera recently announced in vivo PK results for oral GLP-2 tablets to treat short bowel syndrome and other GI disorders. Plasma levels compared favorably with those reported for teduglutide Gattex products. Pharmacology and incremental PKs are expected early in the second half of 2024. With that brief overview, I'll turn it over to Elias. Elias.

Elias Zerhouni (Vice Chairman and President)

Thank you, Phil, and good afternoon, everyone. To echo Phil's comments, we're well positioned to execute on our strategy. This includes advancing our multi-specific pipeline at ModeX and streamlining BioReference Health's operations to return to profitability. Let me start with BioReference Health. We're on track to close our transaction with Labcorp in late September, early October. After this transaction closes, our ongoing diagnostic operations will include our national oncology and urology franchises and our full suite of testing services in New York and New Jersey. This transaction will streamline our remaining diagnostic business by enhancing our focus on core testing operations and supporting our efforts to reestablish profitability. As an ongoing initiative, we continue to improve BioReference's performance and, in turn, build value. Our goals remain clear, and that is to reduce costs, to improve efficiency, and to enhance productivity, as well as to drive top-line growth.

For instance, at the end of Q2, our FTE number at BioReference was 2,697, and this will drop to approximately 2,100 following the transfer of FTEs to Labcorp at closing of the transaction. This geographic refocusing of our operations will help further reduce our cost structures in coming quarters. Now, oncology remains a growing and high-value segment of the diagnostics business. In the second quarter, testing volume increased 8%, and revenue overall increased 6% versus the year-ago quarter due to demand for our innovative platform and competitive turnaround times. As I mentioned last quarter, the growth in this segment is being driven by collaborations with large cancer centers and mid-level health systems. We continue to expand these relationships as it is a costly proposition for a health system to run these specialty oncology tests in-house.

Additionally, we grew our oncology menu in the second quarter with the addition of IHC stains for neuroendocrine, rhabdoid, and gastric markers, and moved some of our somatic markers to new advanced testing platforms. This enables us to stay best in class with our portfolio and brings value to our clients and the patients they serve. Our 4Kscore test for prostate cancer continues to perform well. Now, moving to our pharmaceutical segment, I'd like to start with ModeX programs and specifically the MDX-2001 program that was mentioned by Phil, which has been approved by FDA to progress into the clinical stage. We expect to dose our first patient in the phase I trial for our tetra-specific antibody program for solid tumors in the coming weeks.

This phase I open-label trial is expected to enroll 45 cancer patients with a variety of solid tumors, including lung, breast, prostate, and pancreatic cancers, with the goal to focus on certain tumor types that are responding to treatment and then expand the trial accordingly. We anticipate a total of six clinical sites to evaluate safety, tolerability, and pharmacokinetics, as well as early anti-tumor activity. Two sites are already enrolling patients, and fore more will come online very promptly. In addition, we look forward to advancing our other immuno-oncology programs through IND enabling studies and expect to enter the clinic next year with an immune modulator multi-specific antibody known as MDX-2004 that could potentially be used in a large number of oncology and non-oncology indications. We continue to actively evaluate possible partnerships for our portfolio assets, seeking non-dilutive funding for several of our programs.

Another program we expect to enter the clinic this year or early next year is MDX-2201, which is our Epstein-Barr virus multivalent nanoparticle vaccine. Merck is our collaboration partner who funds all preclinical work performed by the ModeX team until IND, at which time Merck will assume all development and commercialization aspects of this novel vaccine for EBV. Pending regulatory clearance, our goal is to begin studies in late 2024, early 2025. We also have a very active collaboration with BARDA to develop our multi-specific antibodies against known variants of SARS-CoV-2 for the treatment and prevention of COVID-19. This program is also progressing very well and is entering the pre-IND enabling stage of development. BARDA, as we mentioned before, granted us $59 million to fund R&D and clinical evaluation through phase I.

Additional funding of up to $109 million may be available to accelerate the COVID program and target other biodefense threats, as well as develop a platform with gene-based delivery methods for use against future pandemics. Now, switching gears to NGENLA, Pfizer has launched a pediatric long-acting growth hormone drug in all major global markets, and we expect Pfizer to continue to penetrate markets and gain share for this once-weekly drug as patients shift from the daily products. We're working with Pfizer on two additional indications, including growth hormone deficiency in adults and other pediatric applications. As you know, OPKO is entitled to an additional $100 million in potential milestone payments related to these two indications. Finally, Rayaldee continues to perform as expected, with new evidence showing its potential to improve outcomes in chronic kidney disease 3 and 4 stage patients with secondary hyperparathyroidism.

In summary, I think we've made significant progress in both segments of the business as we get closer to returning BioReference Health to profitability and, in parallel, advancing our promising ModeX pipeline as programs enter the clinic and progress through clinical testing. I'll now turn the call over to Adam Logal to discuss our second quarter financial results. Adam.

Adam Logal (CFO)

Thank you, Elias. As Phil and Elias have discussed, the first half of 2024 was transformational for our balance sheet as we position ourselves to realize and demonstrate the inherent value of our assets for our shareholders. We initiated and completed 5 significant transactions, which Phil and Elias have already discussed in part, including the refinancing of our convertible notes in January, which allowed us to extend the maturity of our notes, repurchase 55 million shares of common stock, and added approximately $25 million of cash to our balance sheet while working to realize the significant value of our underlying asset. We then announced the Labcorp transaction to position BioReference to return to profitable growth through focus on certain strategic and geographic customer segments, as well as demonstrate the value of the remaining business of BioReference.

We announced the Healthcare Royalty financing transaction recently, pulling forward $250 million of cash while maintaining significant upside in the gross profit share payments and all remaining milestone payments. Fourth, we announced an additional common stock buyback of up to $100 million. And finally, we've begun to monetize a portion of our holdings in GeneDX. We look at all options of enhancing shareholder value and will continue to execute operational through strategic transactions like the ones I just mentioned. This includes opportunities to realize the inherent value of our assets and through the return of capital to shareholders through our stock buyback program, as well as repurchasing our convertible notes as market conditions allow. We expect to have a significant cash balance, which we'll use to invest in our highest priority R&D programs and to fund prudent equity repurchases.

Before I move to the financial results for the quarter, I wanted to summarize the key terms of our recent Healthcare Royalty transaction. Through this agreement, we've accelerated the value realization of a portion of our partnership with Pfizer while retaining $100 million of milestone payments. The agreement also allows us to retain near-term upside and the long-term potential of the collaboration at a cost of capital below our benchmarks. The transaction was structured as a royalty bond secured by the gross profit share payments we received from Pfizer. This will be accounted for as debt, meaning the balance sheet will reflect the cash and principal balance of what we receive from Healthcare Royalty. Revenue, gross margin, and operating income will continue to reflect the economics of our existing relationship with Pfizer. However, interest expense will increase as a result of this financing.

For the first 4 years, if the payments received from Pfizer exceed interest expense, all excess will be paid to OPKO. Shortfalls, if any, will be treated as payments in kind and increase the principal balance. After the first 4 years, all payments from Pfizer will be retained by Healthcare Royalty, first repaying interest and any excess to pay down the principal, again with any interest shortfalls being treated as payments in kind accruing to principal. When considering our internal forecast and base case model, we anticipate the royalty bond will be fully repaid within 8 years, with our downside models showing repayment within 10 years. The interest rate is based on SOFR plus 7.5% with a 4% SOFR floor. Now, moving to the financial results of our diagnostic segment, revenue increased 2% to $129.4 million for Q2 2024, compared with $127.1 million for the 2023 period.

This increase was driven by strong volume and price growth in our oncology segment, partially offset by declines in our women's health and clinical testing businesses. Costs and expenses decreased 9%, or $15.3 million to $156 million for the second quarter of 2024, from $171.3 million for the 2023 period. Operating loss for our diagnostic segment narrowed by 40% to $26.6 million for the second quarter of 2024, compared to the second quarter of 2023's $44.3 million operating loss. Sequentially, we also saw an improvement in operating loss of $7.8 million, reflecting the realization of the cost reduction programs outlined last quarter. Revenue from the assets being sold to Labcorp represented $25.5 million of revenue, and related costs and expenses totaled $32.5 million during the second quarter of 2024. Depreciation and amortization expense for the diagnostic segment were $6.2 million and $8.6 million for the 2024 and 2023 periods, respectively.

The team at BioReference continues to work tirelessly to execute our plan to return this business to profitability, and they continue to make significant strides toward that objective. I'll provide some additional clarity on the details and timing of these significant improvements when I provide guidance in a few moments. Moving to our pharmaceutical segment, revenue was $52.8 million for the second quarter of 2024, compared with $138.4 million for the 2023 period. As a reminder, the 2023 period included a $90 million milestone payment from Pfizer for the regulatory approval of NGENLA in the U.S. Revenue from products, including our international pharmaceutical businesses, was $40.5 million, compared to $43.5 million for the comparable period of 2023. Despite the challenging foreign currency environment, the profitability profile of the business improved against our expectations.

Product revenue includes revenue from Rayaldee of $7.2 million, which was similar to 2023's $7.7 million, reflecting a slight decrease in the number of bottles shipped, partially offset by increased pricing. Revenue from the transfer of IP was $12.3 million the second quarter of 2024, compared to $94.9 million for the 2023 quarter, which, as I mentioned, included $90 million from Pfizer for the U.S. regulatory approval of NGENLA. Our U.S. gross profit share from Pfizer was $6.3 million during the second quarter of 2024, compared to $3.8 million for the 2023 period. In addition, the second quarter of 2024 includes $5 million of other IP revenue related to our BARDA agreement. Costs and expenses for our pharmaceutical segment were $77.6 million for the second quarter of 2024, compared with $74.7 million for the 2023 period. Research and development expenses were $23.7 million, compared to $17.5 million a year ago.

Research and development expense increased as a result of our activities for the ModeX development programs, including the recently commenced phase I clinical trial for our first immuno-oncology program. The resulting operating loss for the quarter ended June 30th, 2024, was $24.8 million, compared with operating income of $63.3 million for the second quarter of 2023. Depreciation and amortization expense for the pharmaceutical segment related to intangible assets were unchanged at $17.9 and $17.8 million for the 2024 and 2023 second quarters. Turning to our consolidated financial results, for the second quarter of 2024, we reported a net loss of $10.3 million, or $0.01 per share, compared with a net loss of $19.6 million, or $0.03 per share for the 2023 period.

Net loss for the second quarter of 2024 included a non-cash unrealized gain on our investment in GeneDx of $60.5 million, compared to a non-realized loss of $19.9 million for the 2023 period. In addition, as I've mentioned, the 2023 period benefited from the non-recurring $90 million milestone payment from Pfizer. As we look ahead, providing financial guidance with the following assumptions. For our pharmaceutical segment, global sales of Genotropin for the first half of 2024, as reported by Pfizer, were $349 million. Pfizer has not separately reported sales of NGENLA. However, we continue to observe consistent prescription growth globally for NGENLA, as reported by both IQVIA and Symphony. We were pleased to see that Pfizer has begun to realize the cost benefits of the increased manufacturing scale of NGENLA during the second quarter.

As a result, we believe that the gross profit share payments beginning late in the third quarter will reflect this improvement in gross profit for the product. As such, we expect to receive gross profit share payments from Pfizer of $7-$9 million in Q3 and $15-$20 million for the full second half of 2024. We assume a stable foreign currency exchange rate for XUS pharmaceutical business. R&D expenses for the third quarter of 2024 will reflect higher activities related to our ModeX program, including CMC and efforts related to our immuno-oncology trial. A portion of the increased activities will continue to be funded by our BARDA agreement. For our diagnostic segment, we anticipate the closing of the Labcorp transaction to occur by the end of September or early October, but have included the results for the full quarter in our outlook.

This significant milestone allows us to rationalize our fixed cost structure and provides the foundation for BioReference Health to return to profitability. We are continuing our multi-year, multi-phase cost reduction program, and this program is expected to include operational efficiencies and product portfolio rationalization. This program is focused on the reduction of fixed infrastructure costs and is expected to deliver annualized savings of approximately $25 million by the end of 2024, some of which we expect to begin realizing during the third quarter of 2024. The one-time costs to achieve the savings with the near-term phase of the program are expected to be approximately $40 million and primarily include severance and facility closure costs. These costs will be recorded primarily in 2024, with cash outflows expected through 2028.

In addition, we have taken action on a number of our RCM programs, including implementing a price increase during the third quarter for certain testing modalities, including our oncology offerings, which are expected to result in an overall annual increase of revenue of $8-$10 million. Before considering any non-recurring costs that may result from our restructuring and other non-recurring expenses, we expect costs and expenses in Q3 to decline approximately $3 million to approximately $153-$156 million, without giving effect to the approximately $33 million of costs related to the assets conveying to Labcorp. We expect to realize a gain net of transaction expenses of approximately $114-$120 million related to the closing of the Labcorp agreement.

As a result, we expect the following for the third quarter of 2024: total revenues between $180-$185 million, with revenue from services between $125-$129 million, including $24-$25 million from the assets which will be sold to Labcorp. Revenue from product sales of $40-$43 million, and other revenue between $10-$14 million, inclusive of the Pfizer gross profit share, which is estimated to be between $7-$9 million. We expect third quarter costs and expenses to be between $238-$245 million, excluding the non-recurring expenses I previously mentioned. R&D expenses are expected to increase to be between $24-$28 million, with the range being dependent on certain CMC activities for our ModeX programs. We expect depreciation and amortization expense to be approximately $24 million. This concludes our prepared remarks.

Thank you all for your attention, and now, Operator, let's open the call for questions.

Operator (participant)

Thank you. We will now begin our question and answer session. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. And the first question will be from Maury Raycroft from Jefferies. Please go ahead.

Maury Raycroft (Equity Research Analyst)

Hi. Thanks for taking my questions, and congrats on the progress for the quarter. Maybe first one just on NGENLA. So it seems like the guidance for the second half of this year is narrowing and lowering a little bit.

Just checking if anything changed commercially since last quarter, or is this related to just getting experience with the gross profit share economics, or is it due to inventory or anything else commercially that Pfizer could be seeing?

Adam Logal (CFO)

Yeah, no, this is tied into the inventory adjustment that we talked about last quarter, Mari. So it's just the final pull-through of certain territories. That adjustment's getting flushed out. We had hoped it would be earlier in the third quarter. It looks like it's going to be late third quarter based on our internal factors. So that's why the annual range came down to kind of the mid-30s from potentially size 40. Got it. Okay. That's helpful. And then is it possible to bookend timing for when Pfizer could aim to refile for the adult growth hormone opportunity?

Is there more you can say on the status and plan for the additional pediatric indications? So on the pediatric indications, Pfizer is planning their registration studies to bring those forward for the global launch for those additional indications. We haven't provided any specific timelines for those trials to be completed yet, Mari, but I think more to come. They're definitely actively working on the programs. As it relates to the U.S., the U.S. for the adult, they're still working with their team to formulate their strategy for the U.S. approval.

Maury Raycroft (Equity Research Analyst)

Understood. Okay. And then last question, I'll hop back in the queue. Just for the deal closing with BioReference, thanks for providing the clarity into when you expect that to happen. Is there anything else you can share about where you're at with the process and what are specific gating factors to the closing?

Adam Logal (CFO)

Yeah.

So right now, it's really focused heavily on the integration steps between the clients and Labcorp. So those are the main gating items. There's a couple of minor regulatory filings that just need to get cleared up. But all of the major hurdles are behind us, which is why we have pretty certain clarity that this transaction will get closed late September, early October.

Maury Raycroft (Equity Research Analyst)

Got it. Okay. Thanks for taking my questions.

Operator (participant)

And the next question will be from Yale Jen from Laidlaw & Company. Please go ahead.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

Good afternoon, and thanks for taking the questions. My first one is that in terms of closing the Labcorp deals, and you mentioned some of the savings, should that all be realized? Could you give us some sort of quantitative look in terms of how far from that to break even and cash break even, and then we have a follow-up?

Adam Logal (CFO)

Yes.

So Yale, I think if you step through the numbers and the cost savings plan and the realization of the price increases coupled with the closing of the Labcorp transaction, that'll put us to a point where the business is break even to slightly profitable. So we only gave the initiatives that we expect or we have in hand that we'll initiate upon the closing of the Labcorp transaction. A handful of those are not dependent on the Labcorp transaction closing. Some of the larger ones are as it relates to some of the facility closures. However, we feel highly confident in our ability to deliver the savings that we walked through, and the price increases have already been put into effect.

So we feel very confident on those numbers being realized in our run rate numbers by the end of the year, which was where we had previously guided to.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

Okay. Great. That's very helpful and congrats on that. And just one more question on the MDX-2001, which is the first, have you guys reviewed what the specific target for the tetra-specific antibody was against? And the second one actually is on the size of study, which you mentioned about 45 patients. Is that just only the phase I, IA, IB, or that's more? I understand the full study also has the 2A portion, phase IIA portion. So would you be able to clarify a little bit more on the specific? And thanks.

Elias Zerhouni (Vice Chairman and President)

Yes. Yes. I can do that. Elias, yeah. Thanks for the question.

On the target, I think it's something we have now shared, so I think it's no problem sharing it with you. So it's a tetra-specific antibody that has for tumor targeting has two targets. One is TROP2, and the other one is c-Met. These are the two targets we chose because they're present on about 14 different tumors in oncology. So that's the answer to that. The size of the study really reflects what you typically do. It's what we do. We call it a basket trial, where you really try different tumor types. We have 11 ones identified, and you try to get signals about the most promising one, which we believe is going to be non-small cell lung cancer, breast cancer, the solid tumors, pancreatic cancer. We don't know. So that's the first phase of the study. That's what you call the IA phase.

Once we do that, then we'll narrow down to one or maybe two tumor types, which is contained within the patient volume that we identified for the patient number. And then we'll expand that depending on the results, obviously, the side effects. And so that's clinical development. We need to learn from the basket trial and then decide how we go. And yes, indeed, we have a phase 1A or 1B or go straight to a phase IIA. That's to be determined by the clinical.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

Okay. Great. And maybe just tap one more here, which is, was there any timeline we can start to get some top line or initial readouts?

Phillip Frost (Chairman and CEO)

Okay. So typically, when you do an immuno-oncology trial, you have a first phase, which is safety. So we are escalating the dose. We hope that this will take about six months if everything goes well.

And then we'll go into a more efficacy-type trial with a cohort of patients, about three patients per dose, ascending dose. So it's hard to predict, really, because you can't really tell how many patients are going to show up at what time in the six sites. We have two sites right now, and we have four more. Two are imminently going to get activated and two more after that. And so it's really hard to tell, but I think that by 2025, first quarter, we will know if we have a drug that is safe and that can be increasingly dosed. Okay? So that's step one. And we don't know that at this time. Immuno-oncology is always a very powerful therapy, but they also have side effects we need to understand and manage.

So that's where you would get a readout as to the viability of the program is probably the first half of 2025. And then we will know what targets to go after within 2025, depending on results.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

Okay. Great. That's very, very helpful. And again, congrats on the progress.

Phillip Frost (Chairman and CEO)

Thank you.

Operator (participant)

And the next question will be from Michael Petusky from Barrington Research. Please go ahead.

Michael Petusky (Managing Director and Senior Research Analyst)

Yes. Good afternoon, guys. So I guess the first question, at the end of this year, it seems like a lot of things are sort of converging, sort of going in the right direction. Presumably, you'll have approximately $240 million, just under $240 million coming in from the Labcorp. Obviously, you just did something a couple of weeks ago that gives you additional financial flexibility in terms of the $250 million.

You'll have a lab business that presumably by the end of the year won't be losing much money, if losing money at all. Can you just talk about capital allocation priorities as you sort of end this year and look towards the future? I mean, what matters the most as far as the sort of unprecedented financial flexibility you guys will have going forward? Thanks.

Phillip Frost (Chairman and CEO)

Elias, you want to kick us off, and I can fill in?

Elias Zerhouni (Vice Chairman and President)

I'll talk about capital allocation in terms of R&D and BioReference. When we look at BioReference, it's clear that we will need to grow the business once it becomes profitable. And whether or not we need to allocate capital to that is unclear. It's clearly true that if you look at the market in New York and New Jersey, it's still very fragmented.

And so definitely accelerate the growth in BioReference for increasing revenues. The second is ModeX. I mean, ModeX has a rich portfolio, and we're going to do two things. We're going to explore partnerships, as we've done with Merck and BARDA and others that are in the hopper. But because we have some capital, we can get better economics with a partner than we do without capital being available. So for example, if you look at certain assets, you get a much higher inflection point in value if you can progress the program to proof of concept. And that may be actually the best way to achieve greater economics for the portfolio.

So it's going to be depending upon results, obviously, depending upon partnerships, because we think that we're not going to take the risk, I believe, unless we have exceptional results of allocating the capital to completely carry the development program all the way to approval. I don't think we have enough of that, and it will not be hedging and not be reasonable to do that unless you have outstanding exceptional results. But the best path forward right now is to really try to get a bigger share of the economics of our portfolio by very judicious and very limited capital allocation. You're not talking about $hundreds of millions. But if you can advance a program to a POC, a feasibility stage, then it really increases in value for potential strategic partners or other moves. I don't know if I'm making myself clear.

Now, in terms of the other uses of capital, I'll let Adam comment on that.

Adam Logal (CFO)

Yeah. So Mike, I think the other components, we announced a $100 million share buyback. I think we've talked a little bit about potentially taking out portions of the convertible notes that are outstanding as well. But I think we're going to be allocating that capital based on the market conditions for both of those items. We'll provide longer-term guidance as it relates to the R&D budget and other items in upcoming calls. But we're sitting here today working through all of those different pulls and pushes on creating that shareholder value and are committing significant dollars already to returning capital to shareholders through those two repurchase programs.

Michael Petusky (Managing Director and Senior Research Analyst)

Adam, if I could ask, is there any sort of targeted timeframe on sort of achieving or executing most of the share repurchase or in whatever notes you might decide to repurchase?

Adam Logal (CFO)

So we haven't set a timetable to it right now.

Michael Petusky (Managing Director and Senior Research Analyst)

Okay. And then I guess on Rayaldee, you guys have been maybe for the last few quarters sort of suggesting, "Hey, we think we've got some data that could be interesting to nephrologists in terms of the efficacy for these CKD patients." It hasn't really shown up in the numbers. I think we're about flat year over year for the first half versus first half of 2023. I mean, is there anything anecdotal that you're getting back from sales in terms of this data that you guys are trying to argue, "Hey, this should matter to you guys"?

I mean, is there anything to say on that that would be encouraging, or does it just, is this missionary and it takes a while? Thanks.

Phillip Frost (Chairman and CEO)

I don't know if Charlie is online. Dr. Bishop? He's not. Okay. So let me take it. So when you look at the issue of growth for Rayaldee, the number one request from nephrologists is, does it have a good outcome impact? And that's defined as delaying dialysis and delaying the onset of total renal failure. Now, one of the factors that drives that is when your hyperparathyroid is producing a large amount of hormone because the kidney itself is no longer producing vitamin D. And the only drug that really has been shown to be able to raise the levels of vitamin D to the levels where the parathyroid hormone goes down is Rayaldee. We've shown that before, so it's not new.

However, what we haven't shown, and this is where we are hoping that the nephrology world, which has been supportive, would like to what we would like to show is, in fact, that there is an impact. Now, there are complications that are coming out that Dr. Bishop is pushing, and obviously, the guidelines will have to be changed. So that takes time. As you know, medical practice is not something you can change overnight. But we're optimistic. Now, is this going to be a short-term big bang for Rayaldee? I don't think so, honestly. I think it's going to take time to sink in into the practice world.

Michael Petusky (Managing Director and Senior Research Analyst)

Can I ask one last question that sort of links both of the questions I've already asked so far?

Is there any rationale for trying to buy maybe a commercial product that could be marketed to nephrologists just to give the Rayaldee sales team just another arrow in the quiver? I mean, would something like that make sense, or is there just nothing out there that really would fit like that in terms of potentially looking at that as a source of capital allocation priority? Thanks.

Elias Zerhouni (Vice Chairman and President)

I'll answer that then. Your question is a good one. It's perfectly rational. And I will tell you that we have been looking for opportunities of that sort. And if you come across one, please let us know.

Michael Petusky (Managing Director and Senior Research Analyst)

Fair enough. All right. Thank you.

Operator (participant)

And ladies and gentlemen, this concludes today's question and answer session. I would like to turn the conference back over to Dr. Frost for any concluding remarks.

Phillip Frost (Chairman and CEO)

Well, I just want to thank everybody for your participation and for your good questions. We look forward to meeting with you again after our next quarter's results. Thank you, and have a good evening. Thank you. The conference has now concluded.

Thank you for attending today's presentation. You may now disconnect. Thank you.