This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk09: Good day, ladies and gentlemen, and welcome to the Opco Health, Inc. 4th Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Yvonne Briggs with LHA.
spk08: Thank you, operator. Good afternoon. This is Yvonne Briggs with LHA. Thank you all for joining today's call to discuss Opco Health's financial results for the fourth quarter of 2021. 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 could 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, 2021, and in subsequently filed SEC reports. Importantly, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 24, 2022. Except as required by law, OPCO 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 for today's call. Dr. Philip Frost, Chairman and Chief Executive Officer, we'll open the call. Steve Rubin, OPCO's Executive Vice President, will provide a business update and pipeline review. And then Dr. John Cohen will discuss bioreference laboratories. After that, Adam Logel, OPCO's CFO, will review the company's fourth quarter financial results, and then we'll open the call to questions. Now I'd like to turn the call over to Dr. Frost.
spk00: Good afternoon, and thank you for joining today's call to discuss our fourth quarter financial results and business update. 2021 was a record year for Opco Health with revenue of more than $1.7 billion. Starting with our pharmaceutical division, we were pleased to announce NGENLA approval in several major markets, including the European Union and Japan, as well as in Canada and Australia. Angela is the brand name for somatotrogin for the treatment of pediatric growth hormone deficiency. Pfizer launched Angela in Canada on February 16th, and we look forward to launches in other territories as they receive pricing determinations. In the U.S., we were disappointed with the FDA's issuance of a complete response letter. However, Pfizer and Opco are evaluating the FDA's comments, and will work with the FDA to better understand their requirements for a path forward. Both Pfizer and Opco are committed to bringing this product and its benefits to growth hormone deficient children globally. Since the start of the pandemic, the bioreference laboratories team has responded to the nation's needs with efficiency and innovative testing services. As a result, bioreference exceeded sales expectations for the quarter, and closed out a record year with $1.6 billion in revenue. For the past two years, BioReference has effectively managed its resources and pivoted its operations to be prepared with testing capacity. Moreover, the addition of our digital health service, Scarlet Health, has made it more convenient for patients requiring both COVID and routine tests, and we expect Scarlet to be a growth driver in the future. John will provide further details on bioreference and its performance in a moment. As part of our strategy to unlock the value of Opco's assets and maximize value for shareholders, we entered into a definitive agreement to sell GeneDx to Semaphore for $150 million in cash and 80 million Semaphore shares upon the closing of the transaction. We're also entitled to receive up to $150 million of potential milestones. Catherine Stuhland, CEO of GeneDx, will become co-CEO of the combined companies. With a significant equity stake in Semaphore at closing, our co-shareholders will continue to participate in the growing genomics market without significant investment of capital. V4 Forcenius, our commercial partner for Rialdi in Europe and other markets outside the U.S., launched the product in Germany earlier this month. This is the first launch of Rialdi outside the United States, and we're enthusiastic about rollout plans, with a launch in Switzerland anticipated next. In December, we announced top-line results for our Phase II clinical trial with Rialdi, in COVID-19 patients. The preliminary data demonstrated that improving vitamin D status with oral reality results in earlier resolution of respiratory symptoms. Last time, I mentioned in OpcoGem, our small Latin American business. It finished the year with record sales and profits and is now planning to expand into Ecuador and from its unit in Spain into France. As I've stated in the past, we believe the market doesn't adequately value Opco's assets presently. The GeneDx transaction is one step towards better recognition of actual value. I'll now turn the call over to Steve Rubin, who will provide further commentary on our pharmaceutical business.
spk06: Steve? Thanks, Phil. Good afternoon, everyone, and thank you for joining us today. As Phil mentioned, we are reporting record revenue for the year, His bio-reference was able to effectively respond to surges in COVID testing while his core business began to return to pre-pandemic volumes. Regarding our pharmaceutical business, we recently jointly announced with Pfizer that Ingenla was approved in the EU and Japan. Ingenla is a once-weekly, long-acting, recombinant human growth hormone for the treatment of pediatric patients who have growth failure due to an inadequate secretion of endogenous growth hormone. In the fourth quarter, Australia and Canada granted approvals for Ingenua as well. As Phil mentioned, Pfizer launched Ingenua in Canada on February 16th. Under the worldwide agreement with Pfizer, Copco is eligible to receive milestone payments upon regulatory approval and pricing determinations in major markets outside of the U.S., which is expected within the next 12 months in both Europe and Japan. In addition, upon launching the primary regions of the U.S., Europe, and Japan were entitled to tier gross profit sharing on sales of both somatrogon and Pfizer's daily GHD drug, genotropin, within the respective regions. Tending the commencement of profit sharing within a region, APCO will receive tiered double-digit royalties on net sales of somatrogon. In the U.S., we were disappointed that the FDA issued a complete response letter to Pfizer for the U.S. BLA submission. We are collaborating with Pfizer to evaluate the FDA's comments and intend to work with the agency to determine the best path forward. We look forward to providing an update once we are able to do so after we gain greater clarity from the FDA regarding their requirements. In the meantime, Pfizer is seeking pricing approvals and preparing launch plans in Europe, Japan, and other territories where the product has been approved around the world. Opco and Pfizer remain committed to bringing the potential treatment benefits of somatrogen to pediatric GHG patients around the world. Turning now to reality, our treatment for secondary hyperparathyroidism in adults at stage 3 or 4 of chronic kidney disease and low vitamin D levels. The numbers for the quarter break down as follows. Total prescriptions for reality in Q4 2021, as reported by Acuvia, We're essentially unchanged from the previous quarter, and we're approximately 11,450, representing a decrease from approximately 15,100 in Q4 of 2020. New patient starts decreased by 6% in Q4 versus Q3. Since the product was launched, nearly 30,000 patients have had reality prescribed by approximately 4,100 physicians. More than 150 positions, or nearly 10 percent of the total number of prescribers, were new Reality prescribers in Q4. Earlier this month, B4 launched Reality in Germany with a sales kickoff led by presentations from several nephrology key opinion leaders and B4 executives. B4 has received marketing authorizations for Reality in 11 European countries and expects to launch in additional markets later this year. with a launch in Switzerland being expected in March. Europe represents a large market opportunity for Reality with an estimated 26 million people suffering from Stage 3 or 4 CKD. We received a $3 million payment triggered by the first marketing approval of Reality in Europe and are eligible to receive up to an additional 17 million in regulatory milestones and $210 million in milestone payments tied to launch pricing and sales, as well as tiered double-digit royalties. Reality of sales continued to be impacted by pandemic-related challenges in onboarding new patients during Q4-21. The downward trend in sales, which started at the onset of the pandemic, bottomed out in Q1-21, and sales remained stable for the duration of the year. During the pandemic, we progressively reduced the size of our commercial team by approximately 40% to 57 individuals in order to maintain profitability with the reduced level of sales. We expect that sales will gradually rise again as the pandemic subsides and we rebuild our commercial infrastructure. We hope to soon regain the same strong growth in sales that had been achieved before the pandemic began. In December, We announced top line data from our phase two trial with reality in adult patients with mild to moderate COVID-19. This multicenter trial entitled a randomized, double-blind, placebo-controlled study to evaluate the safety and efficacy of reality, or calcidiol, extended release capsules, to treat symptomatic patients infected with SARS-CoV-2, or R.E.S.C.U. Enrolled 171 symptomatic COVID-19 outpatients from 10 sites across the U.S. Patients were randomized one-to-one to four weeks of treatment with reality, 30 micrograms per capsule, or matching placebo, and a two-week follow-up. Dosing was designed to raise serum total 25-hydroxyvitamin D more quickly, but in a controlled, progressive manner to a targeted range of 50 to 100 nanograms per mil, well before day seven. 34 COVID-19 symptoms were self-reported daily by patients. One primary endpoint was attainment of a targeted serum 25D level by day 14. Mean serum 25D levels increased with reality treatment to 82 nanograms per mil by day 7 and remained elevated for the duration of the study, with 86% of subjects attaining the targeted level of greater than 50% nanograms per mil versus 15% of placebo subjects. A secondary primary endpoint was time to resolution of five composite COVID-19 symptoms, trouble breathing, chest congestion, dry or hacking cough, body aches or pains, chills or shivering. Time to resolution for these five aggregated symptoms was unchanged virality given that the two composite non-respiratory symptoms responded poorly. However, the other three respiratory symptoms, trouble breathing, chest congestion, and dry or hacking cough, when analyzed together post hoc, resolved three days faster on average when serum 25D was elevated above baseline at days 7 and 14. Chest congestion resolved 3.4 days faster. Resolution time for chest congestion was four days faster with 25D increases of at least 25 in the endograms for Bell. These data support the conclusion that reality was effective in increasing serum 25D and COVID-19 outages, possibly accelerating resolution of respiratory symptoms and mitigating pneumonia risk. In January, we posted a manuscript on MedRx, which summarized the top-line data from this Phase II study in more detail. The manuscript is currently under review for formal publication in a peer-reviewed journal. We are currently completing a full analysis of the data and plan to review them with the FDA in Q2-22, along with a proposed design for a follow-on phase three study. Here's a brief update on our joint venture with the LeaderMed Health Group based in Asia. In September of last year, we granted exclusive rights to manufacture, develop, and commercialize the once-weekly Oxygen Modulin and the CTP Factor VII technology in Greater China and eight other Asian territories. We retain the global rights for all other territories. Since the agreement, LeaderMed has made significant progress in advancing manufacturing, preclinical, and clinical activities to develop these products in the Asian territories. In addition to HDH-CTP and Factor VIIa-CTP, we believe that the CTP technology may also be broadly applicable to other therapeutic proteins in the rare disease market and provide a reduction in the number of injections required for treatment. We are currently engaged in research and development efforts to use the CPT technology and other drug delivery technologies to develop long-acting therapies and expand our rare disease pipeline. Our lead targets are IGF-1 and a growth hormone antagonist. Our knowledge and expertise in this area should expedite development. Finally, as we have previously disclosed and Phil mentioned, On January 14th, we entered into a definitive agreement for Semaphore to acquire our wholly-owned subsidiary, GNDX. The transaction provides the opportunity to unlock value in GNDX as it offers higher-value genomics testing and fits with Semaphore's business and growth strategy to advance precision medicine as a standard of care. Based on Semaphore's closing price as of January 14th, the aggregate purchase price was approximately $623 million. comprised of $150 million in upfront cash, 80 million shares of Semaphore common stock, and $150 million of contingent consideration based upon achievement of commercial milestones over the next two years. As part of the transaction, Semaphore also entered into definitive agreements for a $200 million private placement of Semaphore stock from a syndicate of institutional investors, including Pfizer. GeneDx is a leader in genomic testing and analysis, and together, Semaphore and GenDx will be one of the largest and most advanced providers of genomic clinical testing in the U.S., with a projected $350 million in pro forma 2022 revenue. Catherine Stulin, the President and CEO of GenDx, will be appointed as Semaphore co-CEO and is expected to join the Semaphore Board of Directors upon completion of the acquisition. The acquisition and the private placement are expected to close in the second quarter of this year. subject to customary closing conditions, including approval by the stockholders of Semaphore. Now let me turn the call over to John Cohen to discuss BioReference Labs. John?
spk05: Thanks, Steve, and good afternoon, everyone. As Phil mentioned, BioReference had a better-than-expected quarter given the surge in COVID testing volumes due to the Omicron variant, complemented by the continued normalization of the core clinical lab business, the growth in specialty testing, and the acceleration of Scarlet Health. BioReference continues to make significant strides relative to patient access with the payers. We executed a national preferred agreement with Aetna for their 24 million covered lives. We are one of only three laboratories in the country with this designation, which means that most patients will have no co-pays or out-of-pocket charges for their lab services from BioReference. This is similar to our preferred status with UnitedHealthcare. We also executed a preferred agreement with Oscar Health, where there's 600,000 covered lives. Our base clinical business volume remained stable year over year, despite the impact of Omicron on the general public in December. Our women's health vertical volume increased 8% year over year. As a result of our announcement that we discussed last quarter, relative to our acquisition of the Roche-Ariosa business, an IPS test performed doubled in comparison to 2020, the same period. In December, we announced the FDA approval of our 4K score test. This test is approved for the use in men 45 years of age or older who have not had a prior prostate biopsy or are biopsy negative and have an age-specific abnormal total PSA or an abnormal digital rectal exam. The 4K score test has been used by more than 7,700 healthcare providers, including approximately 4,200 urologists. Over 300,000 tests have been performed since its launch as an LDT in 2014. With the new FDA approval, we have developed an aggressive plan aimed at converting additional commercial health plans to positive coverage policies for 4Ks. In addition, we have launched the process to utilize our Scarlet Health home draw service to significantly improve patient access to 4K. The urology business grew significantly, growing in volume by 29% over the prior year and 13% in revenue. In Q4, most of the oncology testing returned to pre-pandemic Q4 2019 levels or surpassed the volumes in Q4 2019. This was led by our genomic offering, which more than doubled the pre-pandemic volume. In 2021, oncology brought in over 200 new accounts, including large partnerships with academic medical centers and cancer centers. Scarlet Health has been well received by oncologists for many of their patients, specifically those that are immunosuppressed and are resistant to going to physicians' offices. In Q4, Scarlet Health orders for oncology grew 45% compared to Q3. Our strategic partnership initiative continues to grow with strong performance in growing our hospital reference business. In the last quarter, Q4, we added eight new reference clients. In addition, Scarlet Health has been rolled out to multiple of our partners, including large medical groups and health systems, employed physicians with significant success. Now let me turn my attention to COVID. During the fourth quarter, we performed 2.7 million COVID-19 PCR tests compared to 2.2 million tests performed in Q3. Since the pandemic began, we have performed more than 22 million COVID-19 molecular tests. Testing increased significantly in December as a result of Omicron, especially at our Rite Aid retail sites. We also experienced significant increases in our point-of-care rapid COVID testing offerings with our cruise lines, sports, employer, and retail partners, and performed almost 600,000 rapid tests in Q4. We continue to be one of the largest providers for school-based testing, testing the largest school district, New York City, as well as many others. In Q4, we brought on 76 new schools for COVID testing programs. We continue to be one of the largest providers for the cruise lines, testing on over 30 ships, at 11 ports around the country. In Q4, we were able to assist the city and state of New York with COVID testing in the community, opening 28 new locations in under one week's time to meet the rapid demand of the Omicron surge, coupled with the holiday and travel testing needs. We also continue to perform a significant amount of testing at large events. Recently, we provided testing for the Super Bowl, the Pro Bowl, the NHL All-Star Game, the NBA All-Star Game, and the Collegiate Bowl. Many employers have started using Scarlett for COVID testing for their employees' needs for returning work in a safe environment. As I have discussed, we continue to see a significant demand for Scarlett Health across all of our commercial verticals, including oncology, women's health, urology, and the strategic venture partners. I am also proud to announce that multiple national payers have agreed to pay us a premium for Scarlet Health above our negotiated rates. In December, we announced a collaboration with MVP Healthcare to offer their members medically necessary COVID-19 testing, blood work, and other diagnostic tests in the comfort of their homes. MVP is the first insurer in New York State and Vermont to offer this service. 85 million lives now have specific additional in-network coverage for Scarlet Health Services, which is now available to 92% of the U.S. population. Scarlet Health's volume has grown sequentially over 400% through Q4 of 2021. Over 600 individual providers now use Scarlet, and we are seeing an increasing number of patients taking advantage of our patient-initiated testing service. And now I'll turn the call over to our CFO, Adam.
spk07: Thank you, John. Before I review the fourth quarter results in more detail, I'd like to highlight a few of the significant financial milestones which we achieved this year. Overall revenue, as Phil mentioned, for the year was nearly $1.8 billion, with over $1.6 billion coming from our diagnostic segment as a result of the execution of the COVID testing strategy John laid out. In order to achieve these results, as John mentioned, we developed non-traditional revenue channels through our relationships with sports leagues, retail pharmacies, travel and leisure industries, as well as partnerships with state and local governments, including testing at the nation's largest school districts. More than 75% of our COVID testing volumes came from these non-traditional clients during 2021, or the result of our team's highly customized testing solutions. On the pharmaceutical side of our business, total revenue was over $167 million, and we realized revenue from product sales of more than $141 million, reflecting growth of 18%, led by our international operations, including Chile, Mexico, and Spain, which totaled nearly $100 million of revenue as a result of the execution of their growth plans in each market. Our revenue growth allowed us to make significant investments in our long-term growth initiatives, including the digital transformation of BioReference's core lab business, led by our investment in Scarlet, as well as investing in our germline genetics business, GNDX, which during 2021 reported an operating loss of approximately $31 million. In addition, we invested $75 million into our R&D projects, which, with the recent approval of Ingetinla, as well as the European commercial launch of reality, are expected to provide for near-term cash flow improvements on the pharmaceutical side of our business. We ended the year in a strong financial position with about $135 million in cash, along with cash available under our recently renewed credit facility with J.P. Morgan, resulting in nearly $200 million in liquidity. In addition, our recently announced transaction with Semaphore will result in approximately $120 million of net cash after considering transaction costs, cash escrowed. In addition, we'll receive 80 million shares of 704 at closing. We can also receive up to $150 million of additional consideration should the GNDX business achieve its forecasted revenue targets for 2022 and 2023. The combined cash on hand, as well as the proceeds from the GNDX transactions put us in a strong financial position. Turning to the results of the fourth quarter on a consolidated basis, we reported an operating loss of $63.1 million compared to 2020 operating income of $49.4 million. Net loss for the fourth quarter of 2021 was $73.8 million, or 11 cents per diluted share, compared to net income of $32.3 million, or 5 cents per share for the 2020 period. The operating losses for the fourth quarter of 2021 were impacted by non-recurring legal expenses as well as expenses related to our GNGX transaction. Our diagnostic segment reported revenue from services significantly higher than our guidance as a result of the increased demand for COVID-19 testing due to the Omicron variant. When comparing the fourth quarter of 2021 to 2020, overall revenue from services decreased to $362.8 million from $457.9 million for the 2020 period. As John highlighted, we performed nearly 600,000 point-of-care diagnostic tests during the quarter. In addition, as a significant portion of our test volume came through our retail partnership with Rite Aid and as a result of the point-of-care testing volumes, having a higher cost to serve, we saw year-over-year sequential declines in overall gross margin. We continue to invest in our commercial organization, including Scarlet Health, the digital health platform John mentioned. We also have invested in a national phlebotomy network, and we increased the investment in our GNDX commercial team. We remain focused on near-term profitable growth on our commercial and digital health operating investments. Moving to our pharmaceutical segment, we reported revenues of $38.5 million for the fourth quarter of 2021, compared to $36.7 million for the 2020 period. Revenue from product sales in the fourth quarter increased 14% to $35.3 million, including $7.7 million of revenue from Rialdi, compared to $30.8 million in the 2020 period, inclusive of $10.1 million of reality revenue. When looking at revenue from the transfer of intellectual property, we reported $3.3 million of revenue for the 2021 period, compared to $5.9 million a year ago, reflecting decreased somatrogen R&D-related revenue. Operating loss from the pharmaceutical segment was $14.8 million for the fourth quarter of 2021, The comparable period of 2020 reported an operating loss of $9 million. Overall research and development expense for the fourth quarter of 2021 was $16.2 million compared to $14 million in 2020, reflecting a slight increase in spending on our SOMATROGEN development program. As we look into 2022, we've built the following assumptions into our forecast. We anticipate performing between $2.2 million and 2.6 million COVID-19 PCR point-of-care and antibody tests during the year. We have capacity well in excess of these levels should demand for testing increase. Our revenue could expand beyond our guidance. Through February 23rd, we have already performed approximately 1.6 million COVID tests, so our range of guidance reflects testing demand from our physician and general public testing channels with our more stable channels of sports, education, and leisure activities remain. As we have not assumed any new surge in COVID testing for the remainder of 22, should such a surge occur, we could see significantly higher revenue than guided. Our clinical laboratory business will grow year over year in the mid-teens. We anticipate the GDX transaction will close during the second quarter of 2022, However, given the shareholder and regulatory approvals required, we have included full year forecasts until the transaction closes and have not forecasted any gain or loss on the disposal, given that 80 million shares to be received will be marked at the time of the actual closing. For reality, we anticipate double-digit volume and revenue growth and assumes improving access to CKD clinics as a result of the declining COVID infection rates. We have not assumed Pfizer will obtain pricing in any of the regions that has received regulatory approval that would trigger a milestone payment. As a result, we have not forecasted a profit share with Pfizer to begin in 2022. However, we expect but have not forecasted royalties on product sales, which we expect to commence during 22 beyond Canada. V4 has recently launched RALV in Germany and has plans to launch in other countries in the coming months. We have forecasted milestones and royalties expected while V4 establishes pricing throughout their territories. With that, we expect overall revenue for 2022 to be between $1.1 and $1.2 billion, including revenue from services of $940 million to $1 billion. revenue from products of $145 million to $155 million, and other revenue of $18 to $22 million. We expect costs and expenses to be between $1.1 to $1.3 billion, which reflect various assumptions of testing volumes, as well as our investment levels and commercial initiatives at file reference, which we may choose to accelerate or delay depending on the uptake levels. Operating results include approximately $100 million of non-cash depreciation and amortization expense, as well as an expectation of research and development expense of $85 to $97 million. With that, I'll open the call up for questions. Operator?
spk09: Thank you, sir. Ladies and gentlemen, if you have a question at this time, please press the star, then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. We have our first question from Jeffrey Collin with Leidenberg.
spk04: Good afternoon and thank you for taking our questions. So a few, Adam, based on your 2022 guidance and projections as far as outline. Can you talk about labor a little bit and what you've seen on the labor front, particularly through Q4 and maybe through the beginning of this year and any expectation or anticipation there for the balance of the year?
spk07: Yeah, I think like most people on a macro basis, we've seen labor costs increase overall and during some of the staffing shortages that we saw at the end of the year and the beginning of this year, we did have to to make some increases to attract talent in. So we are seeing probably the same labor pressure across the industry that everybody is seeing. We haven't seen that accelerate, but we did come under some pressure to make some adjustments during the end of the year period.
spk04: Okay, got it. And for Dr. Foster, Steve, as far as Soma Trogan goes, could you talk about the current territories there now as a... as it relates to the U.S. as far as the size comparison in the European Union, some of Scandinavia, as well as Australia, Canada, and Japan, please.
spk00: I couldn't understand.
spk06: So just so I understand what you're asking for, Jeff. So, I mean, the U.S. is the biggest market. You know, Japan is, from pricing-wise, is probably as big as Europe. But in size, the U.S. is as big as Europe is second. And Japan is third. And our European approval will be global. And the way our deal looks, if you remember, once we get pricing or Pfizer gets pricing in two of the majors, it was shipped to a profit share, which would encompass, you know, sales of genotropin as well throughout the territory. And the same goes for Japan, which actually encompasses the rest of the world on our geographic selections. Any other comments?
spk03: I could just add that the combination of Europe and Japan is about equivalent to what the U.S. market is. And then you have the additional countries, such as Australia, Canada, and other jurisdictions.
spk04: Okay, got it. That's very helpful. And then, Adam, back on the projection for 2022 testing volumes. I heard you correctly. Was that 2.2 to 2.6 for the full year?
spk07: Yeah, so, Jeff, we've seen testing volumes come down pretty quickly week after week into this year. So we do have testing continuing through the year, but we've seen a significant drop-off in volumes post-mid-January. Okay.
spk04: So based on your 1.6 number, you're anticipating, from what you all understand now or what we all look at now, that the balance of the year would be less than that first six weeks, conservatively.
spk07: Yeah, so we're using that forecast based on the remaining school years and sports league testings that we have, as well as some of our other leisure activities, but generally seeing significant declines in testing costs.
spk04: Got it. And then lastly for us, any commentary on cost of goods? They appear to a bit high for the quarter, and I'll look forward to any leverage there that can bring that lower.
spk07: Yeah, so we spent a significant amount of time early as part of the fourth quarter taking down our staffing levels. It's hard to believe, but the first case of Omicron occurred December 1st in the U.S., and as a result, we had not anticipated the surge that came in. When we saw the surge come, we had to staff up significantly and had to play a little bit of catch-up over the surge time and had to pay significant wage increases to get people in the seats during that surge time. We've been aggressively taking that capacity back down with the testing volumes coming down. John mentioned our point-of-care business. It comes at a much higher cost to serve, and as a result, you've seen some of the margin basis points declining as well as our retail channel driving where most of the Omicron testing came from, which comes at a lower price point than our traditional testing. So the combination of those two are what drove the decline in overall gross margins.
spk04: Okay, perfect. Thanks for taking the questions. Thanks, Jeff.
spk09: Next question is from Maury Raycroft with Jefferies.
spk01: Hi, this is Kevin on for Maury. Thanks for taking my questions. The first one I had was just about GDX. Could you sort of say what the share of revenue and expenses was for GDX in 2021 and, you know, how the sale impacts your near-term growth and long-term goals for the base business?
spk07: Sure. Thanks. GDX generated about $115 million of revenue during 2021. We reported an operating loss from that business of about $31 million. So it's a small part of the overall piece of the puzzle today. We expect that business to grow significantly, and with Catherine's joining, has expanded out our commercial outreach and capabilities. So we do expect that business to grow meaningfully, and we've set a target of $160 million in revenue for 2022. So meaningful growth on that piece of the business, but overall not a significant component of our reference. I think the important thing is it does allow us to improve the overall profitability of our diagnostic segment by removing those operating losses, which we had forecasted to expand over the near term.
spk01: Okay, great. Thanks. And then just this was sort of mentioned earlier, but in terms of COVID testing for the rest of the year, you mentioned before that it's, for reference, it's different. You have a relatively higher ratio of contracts versus retail. So do you see a scenario where COVID becomes endemic and you still have these contracts going forward or is not a likely scenario?
spk05: um hey it's john so uh thanks kevin you know it's i a little bit this there's a lot of independent factors right now first off um there will be some impact on whether or not uh how many children take the vaccine and then there'll be an impact of whether or not the vaccine is going to be approved for kids under five you know which they've held off on the reason i say that is if this goes into the it's certainly going to be you know up to june Um, my, I would, this is an opinion is I think that the fall, uh, school system will probably still test in certain areas. Um, I don't think they're going to back off that quickly, um, because I don't think there's going to be a unanimous opinion about kids getting vaccinated, going to school. So a lot of schools are going to have to decide what they're going to want to do with unvaccinated kids. So that's the first thing. Um, I think the cruise line, quite honestly, I don't, um, I don't think they're going to back off. I think that they're going to continue to test through the end of the year. But that, again, is a guess. But because they are, you know, sort of floating, you know, petri dishes, whatever you want to call them, and there's a lot of issues on cruises in the past, I think they're going to be, the bigger ones are probably resistant to backing off their protocols right now. The sports leagues are going to go for a while, except for obviously the NFL and some others who have finished. I can't predict what they're going to do right now, but the others go through a good part of the year right now. I didn't mention on the script, but we've opened up multiple, multiple NBA sites for spring training for COVID testing. So it's a long-winded answer to basically tell you I think a lot of it goes through on our contractual surveillance testing through the end of the year, but I can't tell you for sure. Great. Thank you.
spk09: And our next question is from Yi Chen with HC Wainwright.
spk02: Hey, guys. This is Kate on behalf of Yi Chen. I have three questions. The first one being your commercial plan for the 4Ks, the 4Ks core test, following the PMR pool, essentially looking at how reimbursement and any other plans. And I know you've answered this briefly, but maybe also comment on any potential business opportunities for Scarlett moving forward. Obviously, some of the things are dependent on COVID testing, the trends. And finally, I know you spoke about the revenue guidance for testing this year, and my apologies if I missed it, but any guidance on testing volume or any expectations on testing volume and the kinds of testing you see going forward as it relates to asymptomatic, is it even relevant, et cetera. So thank you so much.
spk05: Sure. So I'll take the first two. We have a continued very assertive plan for 4K, quite honestly. You may know we have a designated sales force that sells into urology offices only, which we continue to add to across the country. In addition, we are – you may have heard me – we already – have a significant plan already in market to talk to the commercial payers based on the FDA approval of 4K, which we announced about four weeks ago. And then in addition, we've had an interesting uptake on 4K relative to Scarlet because it makes it much easier for the urologist to order the test and have us do the home draw because Scarlet As you can imagine, a lot of the urology offices, I mean, some do have phlebotomy, but many of them don't. So it provides increased access across the country for 4K. On the scarlet, you know, I mentioned there continues to be multiple, multiple opportunities and multiple segments, including what we refer to as nontraditional clients, which are a lot of people who have interesting home products that need to have blood drawn. So, you know, the scarlet... I think we're entering, hopefully, more than hopefully, into more of a scroll than a hockey stick in terms of its volume for 2022. And then I'll turn over the guidance question to Adam.
spk07: Yeah, so the remaining testing volume that we forecasted is principally coming off the surveillance contracts that John mentioned, you know, between the school sports and leisure contracts that we have in place. We're not expecting... in our guidance anyhow, any meaningful volumes coming from our retail partnerships and the general public testing.
spk02: Thank you so much.
spk09: I am showing no further questions at this time. I would now like to turn the conference back to Dr. Philip Frost.
spk00: I want to thank everybody for participating. And we look forward to communicating with you after the next quarter.
spk09: Ladies and gentlemen, this concludes today's conference. Thank you again for your participation and have a wonderful day. You may all disconnect.
Disclaimer