Note 5 - Acquisitions and Investments

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Business Combination And Investments Disclosure [Text Block]

Note 5 Acquisitions and Investments

ModeX Acquisition

On May 9, 2022, the Company entered into the ModeX Merger Agreement, pursuant to which the Company acquired ModeX. The Company paid the entirety of the $300.0 million purchase price pursuant to the issuance of shares of Common Stock to the former stockholders of ModeX. Such shares were valued at $219.4 million, based on the closing price per share of our Common Stock of $2.44 as reported by NASDAQ on the closing date of the acquisition. Included in the total purchase price of $221.7 million were $2.3 million of fully vested equity awards.

The following table summarizes the final purchase price allocation and the fair value of the net assets acquired and liabilities assumed at the Modex acquisition date:

(in thousands)	ModeX
Cash and cash equivalents	$	228
Other assets		727
Property, plant and equipment		1,046
IPR&D assets		195,000
Goodwill		80,260
Accounts payable		(287	)
Deferred tax liability		(55,312	)
Total purchase price	$	221,662

Goodwill from the acquisition of ModeX principally related to intangible assets that did 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.

IPR&D assets from the acquisition of ModeX will not be amortized until the underlying development programs are completed and we obtain regulatory approval. The IPR&D asset is then accounted for as a finite-lived intangible asset and amortized depending on pattern of future use. 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.

Net loss in the Consolidated Statement of Operations for the year ended December 31, 2022, includes ModeX net loss from the date of acquisition to December 31, 2022 of $10.6 million. Revenue and net loss in the Consolidated Statement of Operations for the year ended December 31, 2023, includes ModeX revenue and net income of $51.2 million and $5.4 million, respectively.

Investments

The following table reflects the accounting method, carrying value and underlying equity in net assets of our unconsolidated investments as of December 31, 2023 and 2022:

(in thousands)	As of December 31, 2023					As of December 31, 2022
Investment type	Investment Carrying Value			Underlying Equity in Net Assets		Investment Carrying Value		Underlying Equity in Net Assets
Equity method investments	$	(0	)	$	2,942	$	103	$	4,120
Variable interest entity, equity method		796			420		800		1,370
Equity method investments - FV option		9,786					21,120
Equity securities		116					648
Equity securities with no readily determinable fair value		5,382					5,381
Warrants and options		2					28
Total carrying value of investments	$	16,082				$	28,080

Equity method investments

Our equity method investments, other than GeneDx Holdings disclosed below, consist of investments in Pharmsynthez (ownership 8.5%), Cocrystal Pharma, Inc. (“COCP”) (2.2%), Non-Invasive Monitoring Systems, Inc. (“NIMS”) (0.5%), BioCardia, Inc. (“BioCardia”) (1.0%), Xenetic Biosciences, Inc. (“Xenetic”) (2.9%), and LeaderMed Health Group Limited (“LeaderMed”) (47.0%). Neovasc, Inc., in which we owned a  0.5%  interest was acquired by Shockwave Medical, Inc. in April 2023, and during the year ended December 31, 2023, we received $363 thousand in merger consideration in exchange for our shares. The aggregate amount of assets, liabilities, and net losses of these equity method investees as of and for the year ended December 31, 2023 was $85.5 million, $20.8 million, and $37.7 million, respectively. The aggregate amount of assets, liabilities, and net losses of these equity method investees as of and for the year ended December 31, 2022 was $167.1 million, $46.5 million, and $101.5 million, respectively. We have determined that we or our related parties have the ability to exercise significant influence over our equity method investments through our board representation 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 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 December 31, 2023 and 2022 was $0.7 million and 1.3 million, respectively.

Equity method investments - Fair value option

On April 29, 2022, the Company sold GeneDx to GeneDx Holdings in accordance with the terms of the GeneDx Merger Agreement, pursuant to which GeneDx Holdings paid to the Company aggregate consideration of $150 million in cash (before deduction of transaction expenses and other customary purchase price adjustments), together with the Closing Shares. In January 2023, we purchased 14,285,714 shares of GeneDx Holdings Common Stock for an aggregate of $5.0 million in GeneDx Holdings’ underwritten public offering. Additionally, subject to GeneDx having achieved certain revenue targets for the year ended December 31, 2022 and 2023, we were eligible to receive the GeneDx Milestone Consideration in cash or stock (at GeneDx Holdings’ discretion) equal to a maximum of 30.9 million shares of GeneDx Holdings’ Common Stock if paid in stock. We received 23.1 million shares of Class A Common Stock as a result of GeneDx satisfactorily achieving targets as of December 31, 2022; however, we do not expect to receive any GeneDx Milestone Consideration with respect to the year ended December 31, 2023.  In April 2023, GeneDx Holdings announced a 1-for-33 reverse stock split of the GeneDx Holdings Common Stock which automatically converted every 33 outstanding shares of GeneDx Common Stock into one new share of GeneDx Common Stock. As of December 31, 2023, we held 3,558,602 shares of GeneDx Holdings Common Stock, representing an approximate 13.7% ownership interest in GeneDx Holdings.

Pursuant to the GeneDx Merger Agreement, the Company designated, and GeneDx Holdings nominated for election an individual to serve on the board of directors of GeneDx Holdings, and such nominee was elected by GeneDx Holdings stockholders to serve as a director until GeneDx Holdings 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 GeneDx Holdings Shareholder Agreement, pursuant to which we have agreed to vote our shares of GeneDx Holdings Common Stock in accordance with the recommendation of GeneDx Holdings’s board of directors for so long as we continue to hold at least 5% of the outstanding shares of GeneDx Holdings Common Stock. Other than through our sole board seat, we are unable to influence GeneDx Holdings’s policy-making process. We hold one of seven seats on GeneDx Holdings board of directors, and our designee may continue to serve following the expiration of the lock-up period if the GeneDx Holdings stockholders elect him to continue serving on the board. We elected to account for our investment in GeneDx Holdings 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 Statements of Operations. For the years ended December 31, 2023, and 2022, we recognized $23.0 million and $150.9 million of expense related to the change in fair value of our GeneDx Holdings investment, respectively. As of December 31, 2023, the aggregate value of our GeneDx Holdings investment based on the quoted market price of the GeneDx Holdings Common Stock was $9.8 million.

Investments in Equity securities

Our equity securities consist of investments in VBI (0.2%), ChromaDex Corporation (“ChromaDex”) (0.05%), Eloxx Pharmaceuticals, Inc. (“Eloxx”) (1.2%), CAMP4 Therapeutics Corporation (“CAMP4”) (2.4%), and HealthSnap, Inc. (5.2%). 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 year ended December 31, 2023, 2022 and 2021 are as follows:

	For the year ended December 31
(in thousands)	2023			2022			2021
Equity Securities:
Net gains and (losses) recognized during the period on equity securities	$	(532	)	$	(3,578	)	$	(1,832	)
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	$	(532	)	$	(3,578	)	$	(4,813	)

Sales of investments

Gains (losses) included in earnings from sales of our investments are recorded in Other income (expense), net in our 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 shares of BioCardia, all of which were vested as of December 31, 2023 and 2022, and warrants to purchase 33 thousand and 0.7 million shares of COCP and InCellDx, Inc., respectively. We recorded the changes in the fair value of these options and warrants in Fair value changes of derivative instruments, net in our Consolidated Statement of Operations. We also recorded the fair value of the options and warrants in Investments, net in our Consolidated Balance Sheet. See further discussion of the Company’s options and warrants in Note 19 and Note 20.

Investments in variable interest entities

We have determined that we hold variable interests in LeaderMed and Zebra Biologics, Inc. (“Zebra”) based on 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 December 31, 2023 and 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, was a founder of Zebra. 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.