Acquisitions and Investments

9 Months Ended

Sep. 30, 2022

ModeX Acquisition

On May 9, 2022, the Company entered into the ModeX Merger Agreement, pursuant to which ModeX survived the ModeX Merger as a wholly owned subsidiary of the Company. The Company paid the entirety of the $300.0 million purchase price pursuant to the issuance of the Consideration Shares to the former stockholders of ModeX. The Consideration Shares were valued at $221.7 million, based on the closing price per share of our Common Stock of $2.44 as reported by NASDAQ on the Closing Date. Included in the total purchase price of $221.7 million are $2.3 million of fully vested equity awards.

The following table summarizes the preliminary purchase price allocation and the estimated fair value of the net assets acquired and liabilities assumed at the date of acquisition. The purchase price allocation for the ModeX transaction is preliminary pending completion of the fair value analysis of acquired assets and liabilities:


(in thousands)	ModeX
Current assets
Cash and cash equivalents	$	228
Other assets	554
Property, plant and equipment	1,046
IPR&D assets	195,000
Goodwill	65,865
Accounts payable	(291)
Deferred tax liability	(40,740)
Total purchase price	$	221,662

Goodwill from the acquisition of ModeX principally relates to intangible assets that do not qualify for separate recognition (for instance, ModeX's assembled workforce) and the deferred tax liability generated as a result of the transaction. Goodwill is not tax deductible for income tax purposes and was assigned to the pharmaceutical reporting segment.

Our IPR&D assets will not be amortized until the underlying development programs are completed. Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, although IPR&D is required to be tested at least annually until the project is completed or abandoned. Upon obtaining regulatory approval, the IPR&D asset is then accounted for as a finite-lived intangible asset and amortized depending on pattern of future use.

Net loss in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2022 includes $4.6 million net loss of ModeX from the date of acquisition.

Investments

The following table reflects the accounting method, carrying value and underlying equity in net assets of our unconsolidated investments as of September 30, 2022 and December 31, 2021:


(in thousands)	As of September 30, 2022				As of December 31, 2021
Investment type	Investment Carrying Value		Underlying Equity in Net Assets		Investment Carrying Value		Underlying Equity in Net Assets
Equity method investments	$	141	$	2,623	$	263	$	3,577
Variable interest entity, equity method	786		1,920		816		3,043
Equity method investments - FV option	70,240				—
Equity securities	1,227				4,226
Equity securities with no readily determinable fair value	5,389				5,408
Warrants and options	21				16
Total carrying value of investments	$	77,804			$	10,729

Equity method investments

Our equity method investments, other than Sema4 disclosed below, consist of investments in Pharmsynthez (ownership 9%), Cocrystal Pharma, Inc. (“COCP”) (3%), Non-Invasive Monitoring Systems, Inc. (“NIMS”) (1%), Neovasc, Inc. (“Neovasc”) (0.5%), BioCardia, Inc. (“BioCardia”) (1%), Xenetic Biosciences, Inc. (“Xenetic”) (3%), and LeaderMed Health Group Limited (“LeaderMed”) (47%). The aggregate amount of assets, liabilities, and net losses of these equity method investees as of and for the nine months ended September 30, 2022 were $162.5 million, $45.3 million, and $101.9 million, respectively. The aggregate amount of assets, liabilities, and net losses of our equity method investees as of and for the year ended December 31, 2021 were $223.6 million, $37.9 million, and $69.4 million, respectively. We have determined that we and/or our related parties have the ability to exercise significant influence over our equity method investments through our board representation and/or voting power. Accordingly, we account for our investment in these entities under the equity method and record our proportionate share of their losses in Loss from investments in investees in our Condensed Consolidated Statement of Operations. The aggregate value of our equity method investments based on the quoted market prices of their respective shares of common stock and the number of shares held by us as of September 30, 2022 and December 31, 2021 was $1.5 million and $4.5 million, respectively.

Equity method investments - Fair value option

On April 29, 2022, the Company sold GeneDx to Sema4 in accordance with the terms of the GeneDx Merger Agreement, pursuant to which Sema4 paid to the Company aggregate consideration of $150.0 million in cash (before deduction of transaction expenses and other customary purchase price adjustments), together with the Closing Shares of Sema4 Common Stock. As of September 30, 2022, we held 80 million shares of Sema4’s Class A common stock, representing an approximate 21.0% ownership interest.

Pursuant to the GeneDx Merger Agreement, the Company designated, and Sema4 nominated for election an individual to serve on the board of directors of Sema4, and such nominee was elected by Sema4’s stockholders to serve as a director until Sema4’s 2024 annual meeting of stockholders. As a result, we have determined that the Company or our related parties can exercise significant influence over the investee through our board representation or voting power. However, our influence is restricted by the Sema4 Shareholder Agreement, pursuant to which we have agreed to vote our shares of Sema4 Common Stock in accordance with the recommendation of Sema4’s board of directors for so long as we continue to hold at least 5% of the outstanding shares of Sema4 Common Stock. Other than through our sole board seat, we are unable to influence Sema4’s policy-making process. We hold one of eleven seats on Sema4’s board of directors, and it is anticipated that designee will serve until Sema4’s 2024 annual meeting of stockholders or otherwise in accordance with the applicable lock-up period. As such, OPKO is not actively participating in the policy-making process of Sema4. We elected to account for our investment in Sema4 under the equity method fair value option and record gains and losses from changes in fair value in other income (expense), net in our Condensed Consolidated Statement of Operations. For the three and nine months ended September 30, 2022, we recognized $30.6 million and $101.8 million, respectively, in net losses for fair value changes in our Sema4 investment. As of September 30, 2022, the aggregate value of our Sema4 investment based on the quoted market price of their respective shares of common stock and the number of shares held by us was $70.2 million.

Investments in Equity Securities

Our equity securities consist of investments in Phio Pharmaceuticals (“Phio”) (ownership 0.01%), VBI Vaccines Inc. (“VBI”) (1%), ChromaDex Corporation (“ChromaDex”) (0.1%), Eloxx Pharmaceuticals, Inc. (“Eloxx”) (1.5%), and CAMP4

Therapeutics Corporation (“CAMP4”) (2%) and HealthSnap, Inc. (7%). We have determined that our ownership, along with that of our related parties, does not provide us with significant influence over the operations of these investments. Accordingly, we account for our investment in these entities as equity securities, and we record changes in the fair value of these investments in Other income (expense) each reporting period when they have readily determinable fair value. Equity securities without a readily determinable fair value are adjusted to fair value when there is an observable price change. Net gains and losses on our equity securities for the nine months ended September 30, 2022, and 2021 were as follows:


	For the nine months ended September 30
(in thousands)	2022		2021
Equity Securities:
Net gains and losses recognized during the period on equity securities	$	(2,999)	$	491
Less: Net gains realized during the period on equity securities	—		(2,981)
Unrealized net gains and losses recognized during the period on equity securities still held at the reporting date	$	(2,999)	$	(2,490)

Sales of investments

Gains (losses) included in earnings from sales of our investments are recorded in Other income (expense), net in our Condensed Consolidated Statement of Operations. The cost of securities sold is based on the specific identification method.

Warrants and options

In addition to our equity method investments and equity securities, we hold options to purchase 47 thousand additional shares of BioCardia, all of which were vested as of September 30, 2022 and December 31, 2021, and 33 thousand and 0.7 million to purchase additional shares of COCP and InCellDx, respectively. We recorded the changes in the fair value of the options and warrants in Fair value changes of derivative instruments, net in our Condensed Consolidated Statement of Operations. We also recorded the fair value of the options and warrants in Investments, net in our Condensed Consolidated Balance Sheet. See further discussion of the Company’s options and warrants in Note 9 and Note 10.

Investments in variable interest entities

We have determined that we hold variable interests in LeaderMed and Zebra Biologics, Inc. (“Zebra”). We made this determination as a result of our assessment that they do not have sufficient resources to carry out their principal activities without additional financial support.

On September 14, 2021, we and LeaderMed, a pharmaceutical development company with operations based in Asia, announced the formation of a joint venture to develop, manufacture and commercialize two of OPKO’s clinical stage, long-acting drug products in Greater China and eight other Asian territories. Under the terms of the agreements, we have granted the joint venture exclusive rights to develop, manufacture and commercialize (a) OPK88003, an oxyntomodulin analog being developed for the treatment of obesity and diabetes, and (b) Factor VIIa-CTP, a novel long acting coagulation factor being developed to treat hemophilia, in exchange for 4,703 shares 47% ownership interest in the joint venture. In addition, we received an upfront payment of $1.0 million and will be reimbursed for clinical trial material and technical support we provide the joint venture.

In order to determine the primary beneficiary of the joint venture, we evaluated our investment and our related parties’ investment, as well as our investment combined with the related parties’ investment to identify if we had the power to direct the activities that most significantly impact the economic performance of the joint venture. Based on the capital structure, governing documents and overall business operations of the joint venture, we determined that, while a VIE, we do not have the power to direct the activities that most significantly impact the joint venture’s economic performance and do not have an obligation to fund expected losses. We did determine that we can significantly influence control of the joint venture through our board representation and voting power. Therefore, we have the ability to exercise significant influence over the joint venture’s operations and account for our investment in the joint venture under the equity method.

We own 1,260,000 shares of Zebra Series A-2 Preferred Stock and 900,000 shares of Zebra restricted common stock (ownership 29% at September 30, 2022). Zebra is a privately held biotechnology company focused on the discovery and development of biosuperior antibody therapeutics and complex drugs. Dr. Richard Lerner, M.D., a former member of our Board of Directors, is a founder of Zebra and, along with Dr. Frost, serves as a member of Zebra’s Board of Directors.

In order to determine the primary beneficiary of Zebra, we evaluated our investment and our related parties’ investment, as well as our investment combined with the related parties’ investment to identify if we had the power to direct the activities

that most significantly impact the economic performance of Zebra. Based on the capital structure, governing documents and overall business operations of Zebra, we determined that, while a VIE, we do not have the power to direct the activities that most significantly impact Zebra’s economic performance and have no obligation to fund expected losses. We determined, however, that we can significantly influence control of Zebra through our board representation and voting power. Therefore, we have the ability to exercise significant influence over Zebra’s operations and account for our investment in Zebra under the equity method.