Opko Health (OPK) Q2 2023 Earnings Call Transcript

Opko Health (OPK 3.28%)
Q2 2023 Earnings Call
Aug 03, 2023, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the OPKO Health second-quarter 2023 financial results conference call. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Yvonne Briggs.

Yvonne Briggs -- Investor Relations

Thank you, operator. 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 2023.

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. These 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 31st, 2022 and its subsequently filed SEC reports. Conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 3rd, 2023, 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 for today's call.

Dr. Phillip Frost, chairman and chief executive officer will open the call. Dr. Elias Zerhouni, vice chairman and president of OPKO will then provide an overview of OPKO's pharmaceutical business as well as bio reference health.

After that, Adam Logal, OPKO's CFO will review the company's second-quarter financial results and then we'll open the call to questions. Now I'd like to turn the call over to Dr. Frost.

Phillip Frost -- Chairman and Chief Executive Officer

Good afternoon and thank you for joining us today. In June, we were pleased to announce what we had been expecting for more than a year FDA approval of NGENLA, our long acting once weekly human growth hormone analog to treat pediatric patients age three and older. Our global commercial partner Pfizer has indicated it expects to become available this month for prescribing in the U.S. This approval triggered a $90 million milestone payment from Pfizer and leads to a profit sharing arrangement that Adam will discuss in more detail.

That decision by the FDA has to endless approvals in over 40 countries With commercial launches to date in over 18, including the major markets of Japan, Germany, France, Spain and the United Kingdom. Pfizer expects to launch and NGENLA in another 18 or more countries during the remainder of this year covering all priority international markets by year-end. With the U.S. approval, we expect to see significant ramp up in sales for in NGENLA as market penetration continues to expand globally.

With Pfizer's global commercial infrastructure and long standing experience in this particular market segment, we couldn't have a better partner. On another front, we continue to advance the sophisticated science of ModeX unit toward clinical trials. ModeX model approaches are validated by the exclusive worldwide collaboration with Merck that we announced in March to develop our multivalent nanoparticle Epstein-Barr virus vaccine. Our strategy was to secure a large pharmaceutical partner to develop the EBV vaccine and we have a great one in Merck.

Despite the significant prevalence of this virus and its potential to cause head and neck, stomach, and other cancers as well as multiple sclerosis there are currently no FDA-approved vaccines for EBV And by reference health we continue to drive cost control efforts in parallel with work to enhance innovation and productivity. We look forward to our diagnostic segment's return to profitability in the near future. Our international operations continue to perform well with both our Ibero-American and FinTech businesses demonstrating profitability and growth this past quarter. With that brief overview, I'll turn the call over to Elias to provide further discussion and commentary on our pharmaceutical and diagnostic businesses.

Elias?

Elias Zerhouni -- Vice Chairman and President

Thank you, Dr. Frost, and good afternoon, everyone. As Dr. Frost just mentioned, we were extremely proud to announce the approval of NGENLA in the U.S.

This long acting treatment reduces the burden on children with growth hormone deficiency with injection frequency going from daily administration to once weekly. Upon the upcoming launch later this month in the U.S., OPKO will be entitled to a profit sharing arrangement with Pfizer on a worldwide basis, which is based on regional tiered gross profit on both NGENLA and GENOTROPIN, Pfizer's daily human growth hormone. Now turning to ModeX, as mentioned by Dr. Frost, we are advancing our recently announced collaboration with Merck to develop our Epstein-Barr virus multivalent nanoparticle vaccine.

This collaboration is significant and that it addresses an important unmet clinical need, but also validates ModeX innovative multi targeting technologies. Our vaccine targets the four major Epstein-Barr virus proteins known to allow the virus to enter human cells. This multi-targeted approach holds potential to provide complete protection against this virus, which affects up to 95% of the global adult population during their lifetime. With over 200,000 cases of related cancers per year and a strong link to multiple sclerosis, we're now jointly working with Merck on Ind enabling studies to enter the clinic as soon as possible.

In addition to the EBV vaccine or antiviral programs focused on other indications, including the treatment and prevention of HIV and COVID-19, we have a partnership with the NIH to develop a tri specific candidate to both prevent and treat HIV. And the NIH is providing funding for this program, which is in phase 1. In addition, we're working on next generation candidates that offer up to ten fold improvements in potency and greater breadth of antiviral activity against the majority of global HIV strains. Current HIV medicines still have limitations including drug toxicity due to lifelong therapy and drug resistance that can impact the efficacy of viral suppression.

Additionally, we're working on a COVID multi specific antibody program to address the emergence of resistant variants on a global basis. We believe the virus will remain in the human population for some time to come and will require novel therapies, especially for at risk patients who have underlying medical conditions or a suppressed immune system. Since our technology platform is modular, it allows for the rational selection of antibodies to optimize potency against current and future strains and prevent the emergence of viral resistance. This program is partially funded by DARPA and we are in late stage preclinical testing.

Recently we applied for further funding from DARPA to support our COVID-19 multi specific antibody program and platform as well as for seasonal influenza therapy and prevention. Now on another side of our programs, oncology program focuses on hard to treat solid tumors, but also the treatment of leukemia and lymphoma. As you know, many cancer therapies still fail to achieve or maintain a positive response with a loss of tumor antigen expression. As one of the main reasons, our multi specific antibody candidates are designed to engage and optimize T cell function while preventing tumor antigen escape.

These programs are in the preclinical stage with plans to enter two programs in the clinic in 2024. Moving now to RAYALDEE, our treatment for secondary hypoparathyroidism in adults with stage three or for chronic disease, chronic kidney disease and low vitamin D levels, the numbers for the quarter breakdown as follows: The total prescriptions for royalty is the second quarter of 2023 as reported by IQVIA, where approximately 13,100 representing an increase of 5.8% from approximately 12,385 in the previous quarter. RAYALDEE are steadily recovering from the impact of pandemic-related challenges in onboarding new patients. Let me go now to our diagnostics segment at Bio Reference Health where our focus remains on improving the performance of the company.

Following the major drop in COVID revenues by driving cost efficiencies by improving revenue cycle management and achieving volume growth and increasing market access with an ultimate goal of improving operating margins toward profitability in the upcoming quarters. Through these initiatives, we've been able to further reduce our workforce by 7% in the second quarter with more than 200 positions eliminated in the laboratories. We have realized further cost reductions by better reagents and supplies pricing and utilization as well as streamlining management structures and operations. In regard to revenue cycle management were improving the actual realization on our build services by increasing payer coverage and access enhancing our pre-authorization procedures, reducing unbilled bills and introducing copay and point of care collections as well as bad debt collections.

For example, our market access team has succeeded in negotiating contracts that will result in more covered lives and improved payer reimbursement. For example, we received the status of preferred lab network by United Health Care for 2023 for the fifth consecutive year. We reached a three-year contract agreement with Humana which includes reimbursement on the 4K score test and negotiated a new amendment with Cigna for additional CPT code coverage. We also reached an agreement with care source which will open up the Ohio, Georgia, Indiana, Kentucky, North Carolina, Arkansas, and West Virginia markets among others.

We have also reorganized our commercial team based on three regions, the Northeast, the Southeast, and the West. The structure will allow us to more effectively address growth opportunities aligned with the local healthcare industry and local market conditions in each region. We continue to focus growth efforts in specialty diagnostics and health systems with growing pipelines in both and begun to develop services for pharmaceutical industry clients. In oncology for example, we've seen volume growth predominantly led by a molecular genomics anchored site and anchored site advanced portfolio, which have been well received and are growing in volume and scope of services.

In Women's Health, last quarter we introduced CINtec PLUS Cytology which is the only FDA approved triage test that uses HPV/Pap dual biomarker technology to triage women with HPV-positive results with test orders steadily increasing in the second quarter. We also continue to see strong volume growth at overall one PLUS off a roll and plus a blood test that detects ovarian cancer risk and in women in women diagnosed with the pelvic mass, we have a planned surgery. Our urology segments remains focused on marketing. Our proprietary fourth K score test, which now is included in the American Urology Association clinical guidelines for urologists.

Our expanded health systems commercial team continues to build our hospital and health system business line by increasing our regional hospital laboratory management outreach and reference work, creating meaningful and collaborative solutions that address the challenges many hospitals and health systems are facing currently. In summary, we keep a disciplined approach to improve margins performance. We are seeing steady progress on our path back toward profitable growth. I will now turn the call over to Adam Lugo to discuss our second-quarter financial results.

Adam?

Adam Logal -- Chief Financial Officer

Thank you, Elias. Starting with our pharmaceutical segment, revenue increased to $138.4 million for the second quarter of 2023 from $123.1 million for the comparable period of 2022. This increase reflects the $90 million milestone payment due from Pfizer related to the approval in the U.S. for NGENLA during the second quarter of 2023 versus $85 million in milestone payments from Pfizer for the approvals of NGENLA in Japan and the European Union during the 2022 quarter as well as higher gross profit share payments from Pfizer.

During the quarter, revenue from royalty and our international pharmaceutical businesses increased by $7.6 million, reflecting improvements in overall prescriptions and net price as well as gains from currency exchange in Chile and Mexico. Costs and expenses for our pharmaceutical segment were $74.7 million for the second quarter of 2023, compared to $67.7 million for the 2022 period. Research and development expense for the second quarter of 2023 where $17.5 million, compared with $14.8 million for the 2022 period. This increase reflects activities from our ModeX development programs, partially offset by decreased spending for NGENLA development activities.

The resulting operating income for the quarter ended June 30th, 2023 was $63.6 million and $8.2 million improvement from operating income of $55.4 million for the second quarter of 2022. Amortization expense related to intangible assets was $16.5 million and $16.7 million respectively for the 2023 and 2022 quarters. Moving to our diagnostics segment, we reported revenue for the second quarter of 2023 of $127 million compared to 186.8 million for the 2022 period. This decline primarily reflects lower COVID testing volumes as Elias discussed are focused at bio.

Reference remains to identify profitable growth verticals and to maximize operating efficiency with strategically invested in additional commercial resources in our higher growth specialty verticals and expect to begin yielding returns on those investments during the second half of 2023. We continue to execute our reach expense reduction program at bio reference and as Elias discussed we have also identified a number of near and medium-term growth programs that we continue to expect through the balance of the year. Operating expense for our diagnostics segment was $44.3 million for the quarter compared to 57.5 million for the prior year. Amortization and depreciation expense included in operating loss were $8.6 million and $10.2 million respectively for the '23 and 2022 periods.

Turning to consolidated financial results for the second quarter we reported an operating income of $7 million compared with an operating loss of $10.7 million for the 2022 quarter. Net loss for the second quarter of 2023 was $19.6 million or $0.03 per share. This compares to a net loss of $101.7 million or $0.14 per share for the 2020 two quarter. Net loss for both periods was negatively impacted by the mark-to-market losses from gene stock price declines of $19.9 million and $71.2 million respectively for the '22 and '23 periods.

As we look at the current quarter, we are providing financial guidance with the following assumptions for our pharmaceutical segment have assumed the U.S. region for NGENLA will be in the gross profit share commencing in September as Pfizer's US launch is expected to begin in late August. During the first quarter of 2023, the European region shifted to a gross profit share, and going forward, both the European region and Japanese regions will result in gross profit share consisting of GENOTROPIN and NGENLA. For the first six months of 23, Pfizer reported approximately $222 million of GENOTROPIN sales.

We assume a stable foreign currency exchange for our U.S. pharmaceutical businesses. We have seen a 10% favorable impact on our businesses over the last 12 months for costs and expenses related to R&D. We expect to wind down the clinical operations of NGENLA for the pediatric indication as quickly as possible with final clinical site closure visits occurring now through the first half of 2024.

The decreases are expected to be offset. By increased R&D activities related to our ModeX development programs that Elias discussed regarding the assumptions for our diagnostics segment, we assume COVID testing volumes remain an insignificant portion of our overall testing volumes. We have also assumed consistent core testing volumes with growth in our higher margin oncology and urology specialty lines as well as a slight slight increase in the average per patient collection amounts due to our revenue cycle management initiatives. As a result, we expect the following for the third-quarter 2023 total revenues between $165 and $180 million.

This includes revenue from services between $126 and $135 million, revenue from product sales between $32 and $36 million, and other revenue between $5 and $10 million, inclusive of the estimated Pfizer gross profit share. We expect the Q3 '23 costs and expenses to be between $240 and $250 million, including R&D expense of $21 to $24 million and depreciation and amortization expense of approximately $26 million. That concludes our prepared remarks. Thank you all for your attention.

And now, operator, let's open the call for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Maury Raycroft from Jefferies. Please go, please go ahead.

Unknown speaker

Hi. This is Kevin on for Maury. Congrats on the quarter and thanks for taking my questions. First question on the Nigel profit share, I know you mentioned that this would come about likely in September.

Do you know when we could get more details on the agreement there And then also your latest thoughts on when we could break out the Nagano revenue? Thank you.

Adam Logal -- Chief Financial Officer

Thanks, Kevin for the question. So we guided the total revenue coming from the profit share lines to be between $5 and $10 million for the third quarter, which is pretty conservative given that the -- the Pfizer is really just going to start launching in the US region in the next couple of weeks here, so as that continues to develop will provide some -- some better previews into that. But I think from our overall guide, we've -- we've talked about the total potential opportunity is significant just in these early days. It's difficult for us to be very specific on how -- how Pfizer is going to launch the product.

Unknown speaker

OK, yeah, thanks, Adam. And then just one on the diagnostics business. So you mentioned returning to profitability in the near future. Are you guiding more specifically in that regard in terms of maybe by the end of this year or by early next year? And then also in terms of returning to profitability, are you also guiding to return to growth as well? Thanks.

Adam Logal -- Chief Financial Officer

At least I don't know if you want any to go with any comments that I can add in.

Elias Zerhouni -- Vice Chairman and President

Well, yeah, sure, I mean our plans are to basically reach breakeven by the end of the year of the beginning of the -- of 2024 and then have profitable growth in 2024. The question you asked about growth is obviously the key to the success here is continuous growth. So, yeah, we're not depending on just on cost reductions. We are also, as Adam mentioned, we have made investments actually in the commercial realm and in focused new verticals like the pharmaceutical industry, which I know well, which is a large potential I believe and we're working on it as well as the health systems business line.

Adam Logal -- Chief Financial Officer

So maybe I'll just add on our guide here, we -- we got a 126 to 135 against the second quarter which reported $127 million. So, so from that perspective, Kevin, we do see there's some upside here in the near term and hope to continue to build on that into the future quarters.

Unknown speaker

Makes sense. Great. Thanks for answering my questions.

Operator

Our next question comes from Jeffrey Cohen from Ladenburg Thalmann. Please go ahead.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

OK. Thank you all for taking our questions. Firstly, Adam, could you break out for us service revenue, the cost of service revenue, and the cost of product revenue? I actually see your -- your Q just hit momentarily.

Adam Logal -- Chief Financial Officer

Yeah. So the Q out there, I can -- I can break it down for you Jeff, if you need.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

But it's in the Q, yes.

Adam Logal -- Chief Financial Officer

Yeah. It's in the Q.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

OK. Perfect and could you talk anyone there a little bit about the -- the oval plus test and perhaps some of the traction or pricing or geographical presence that you're generating thus far?

Adam Logal -- Chief Financial Officer

Yeah. O Plus you know is growing quite a bit and basically in our catchment area at this point where our Salesforce is present in our women's health presence is strong. I cannot give you specific numbers, but I can certainly follow up with you on that.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

OK. That's helpful. Any commentary specific to RAYALDEE? I saw 7.7 for the quarter, any outlook or guidance there on revenues or prescriptions, or growth?

Adam Logal -- Chief Financial Officer

So we didn't get go specific, but it has continue. Elias did call out the -- the year over year prescription growth of just below 6%. So I think we're continuing to see that that build consistent with prior years. We see the net reimbursement improve throughout the year.

For RAYALDEE, so we should see continued growth sequentially. But we didn't -- we didn't call it out Any -- any specific guide there, just a little.

Elias Zerhouni -- Vice Chairman and President

Clarification, it was 6% quarter on previous quarter Q2 over Q1, right, not previous year, yeah.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

OK. Got it. That's helpful. I see it in the Q.

The revenue from services and products broken out, that's helpful. And any commentary on margins, should we expect for some cost reductions to see margins improve on the service side over the balance of this year or that's more of a 24 issue.

Elias Zerhouni -- Vice Chairman and President

We're working on improving the margins this year. I mean, as you know, I just mentioned we've reduced the headcount by 7%. We're looking at multiple areas where margins need to be improved. We have a know renegotiations with payers as well and pricing review as well as contribution margins review.

So my expectation is to narrow the margins, improve the margins to narrow and get to break even. Hopefully at the end of the year, beginning of first quarter or first quarter 2024.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

OK, and then lastly, Adam, OK for us to use on the cash, the 101 plus the 90 expected this month I think?

Adam Logal -- Chief Financial Officer

Yeah. That's right.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

OK. Perfect. That does it for us. Thank you very much for taking the questions.

Adam Logal -- Chief Financial Officer

Thanks, Jeff.

Elias Zerhouni -- Vice Chairman and President

Thank you, Jeff.

Operator

Our next question comes from Yi Chen from H.C. Wainwright. Please go ahead.

Unknown speaker

Hey. This is [Inaudible] on behalf of you Chen. Congrats on all the progress. My first question is on ModeX any color on the type of cancer indications that you would like to target next year in the phase 1?

Elias Zerhouni -- Vice Chairman and President

So we have two programs that are the most advanced one is for solid tumors and it's going to be tested against the basket of solid tumors to try to see where we get the most response. So you know the solid tumors, you know prostate cancer, gastric cancer, pancreatic cancer and you know non-small cell lung cancer. So I can tell you which one will emerge or which ones will emerge, but that's the -- the thrust of the program on solid tumors. And then we have a program on more liquid tumors, leukemias, and lymphomas, which is a parallel program that also will emerge in the clinic hopefully as early as possible in the 2024.

But we think by the end of 2024, we'll have two programs -- two cancer programs in the clinic?

Unknown speaker

Thank you. And the other thing on your diagnostics business, I know you mentioned some of the cost cutting steps in your prepared remarks and I'm sorry if I missed it, but could you highlight some of the other growth initiatives that you have planned for that business unit? I know you mentioned a few, but is there any important ones that we need to know?

Elias Zerhouni -- Vice Chairman and President

So I mean basically. We're doing a full review of the business and its mechanisms. So in addition to cost reduction, we're also looking at revenue improvements on the business we have. All right.

So that's the revenue cycle management initiative and that actually is quite promising because it turns out that if you look at the way we were capturing revenues, we had quite a significant loss in terms of billable due to incomplete CPT codes, ICD9, ICD10 codes and reauthorization which is a common strategy that payers are using. So we put countermeasures to that and it's paying off. In addition, the company never really focused on point of care collections like copay. And if you look at the number of accessions we do, just capturing a few dollars makes a huge difference.

So that's if you will and on rightsizing the -- the spend versus collections that we make, OK? The second major thrust is obviously growth. When you look at growth, we've grown in oncology, we've grown in, in women's health and we continue to focus on these specialty services. One of that's emerging and we make some announcements I hope over the next few weeks is large systems that really are facing very difficult margins. And we, for example, manage now the Westchester Medical Center Laboratories and capture an increasing share of the outreach business with that.

And we are essentially increasing the funnel. We increase our salesforce in that category from one, two salespeople before to five, six today. And we're focusing on the regional approach because as you probably know, the situation of hospitals and the need for laboratory management outreach services reference is very different from region to region. And so we are definitely looking at growth in the specialty businesses and the health systems and that's ongoing.

And we started a new line of potential revenue, which is the pharmaceutical business, given the fact that we have a laboratory which can do actually biomarker research as well as data that is very valuable to pharmaceutical biotech companies. We're exploring that. Obviously, I cannot quantify it at this point, but it's certainly a promising line based on my knowledge of having been a head of R&D in the major pharma company. I know that there is a huge need for that of having a reliable laboratory that supports clinical trials and development as well as research.

So those are the multiple lines of activities we're pursuing on a large front. And I would say so far so good.

Unknown speaker

Excellent. Thank you and congrats again.

Operator

Our next question comes from Edward Tenthoff from Piper Sandler. Please go ahead.

Edward Tenthoff -- Piper Sandler -- Analyst

Great. Thank you very much and congratulations on again the approval, very exciting and I know it's been a long, long past coming, so that's great to see. My question, I just had a real quick housekeeping one. Adam, I missed what you said, I think it was about R&D, maybe '24 to the top end of the guidance.

Adam Logal -- Chief Financial Officer

It's '21 to '24.

Edward Tenthoff -- Piper Sandler -- Analyst

'21 to '24 Awesome. And then also just a quick accounting question, I don't believe so from the guidance that you mentioned, but the $90 million milestone won't be recognized in the PNL in any way. It's really just going to go straight to the balance sheet. Is that correct?

Adam Logal -- Chief Financial Officer

So it was in the PNL in Q2 and so we have a receivable recorded for it, we'll get the cash.

Edward Tenthoff -- Piper Sandler -- Analyst

Of course, I didn't see that yet. Awesome, great, very exciting and looking forward to seeing growth from that product and also great progress from the -- from the work. So thank you.

Adam Logal -- Chief Financial Officer

Thanks.

Operator

Our next question comes from Michael Petusky from Barrington Research. Please go ahead.

Mike Petusky -- Barrington Research -- Analyst

Question, so, Adam and I may have missed this if you -- if you reminded people earlier, but what's the cost take out so far at BRL to this point?

Adam Logal -- Chief Financial Officer

Yeah. So far this year, it's -- it's -- we had set a target of about $40 million and we're -- we're about at the halfway point for that, probably a little little bit ahead. I don't know if you have this specific number, but I know as last week we tracked it, it was -- was just beyond the halfway point there with -- with more to go for throughout the rest of the year.

Elias Zerhouni -- Vice Chairman and President

That's correct? And remember we took out 100 million before that.

Mike Petusky -- Barrington Research -- Analyst

OK. All right, so given that and I just flipped through the Q, I mean it looks like you lost $44 million at the operating line in that business, which was actually sequentially worse than Q1. And it just feels like you're nowhere close to being, you know, sort of on track to get to break even in that business by year-end. Can you sort of bridge and I'm hearing the growth programs and the continuing expense reductions, but like where does that -- how does that happen? Thanks.

Elias Zerhouni -- Vice Chairman and President

Well, I think that, you know, maybe I could tell you some of the numbers in Q2 have one time expenses due to reduction in people and you know you have the One Act, you have to have one time cost accounted at the time you do that. So the figure that you're mentioning is a little bit inflated because of these one time actions that we took to reduce costs which are costly in themselves but it's a one time item. So if you really correct for that, you'll see that the progress is much greater than that. And then when you look at the Q3, Q4, and Q1 '24, because I can't tell you where we will land it, we basically have to achieve a $10 to $12 million gap closing gap closing between the revenue line and the expense line.

And we think we can reach that. We both on the reduction of costs, which we have clear line of sight, we need what we need to do plus increasing capture of revenues of the existing business as we speak. And the third is obviously the growth, the profitable growth that we are trying to not only grow, but also refine and direct toward higher contribution margins business lines.

Mike Petusky -- Barrington Research -- Analyst

OK. Yeah.

Adam Logal -- Chief Financial Officer

So I'll just add in, Mike, if you don't mind. So there's a couple of additional things to think about. So Elias has talked about some of the revenue cycle management initiatives that are going on by reference. And -- and those -- those are, of course, dropped straight to the bottom line.

So there's not a significant cost takeout associated with those. So as we make good progress on those, we've initiated the significant number of the programs in the first half of the year and expect to start to realize the benefits from that as the year continues to progress. The early days, as Elias mentioned have shown promise. So assuming we continue to execute there, that's one area.

The volume growth that we're targeting to, to also bring us in line is needed, you know as well as I do that by reference in any lab business is very, very fixed cost in nature and you've got to bring volumes in to the absorbed those fixed costs. So the incremental contribution for an additional dollar of revenue, it absorbs you know, 0.80 or so cents is absorbed into the fixed cost structure and the only 20% variable costs. So meaningful contributions from the growth initiatives that Elias walked through earlier. And then finally, you know the -- as we also talked about the non-recurring costs that occurred during the second quarter and really in the first half of the year, as we rightsize the organization, we're going to see those benefits as we continue on a monthly basis throughout the remainder of the year.

Mike Petusky -- Barrington Research -- Analyst

So could I -- could I just ask you so on sort of that one time non-recurring stuff, I mean if you were to give yourselves full credit for that, like is the 44 really something closer to 30 or 35 or like the loss of the operating line? I mean what -- what -- what magnitude are we talking about in terms of non-recurring?

Adam Logal -- Chief Financial Officer

And during the second quarter, we didn't get the benefits from the non-recurring costs because most of them came in late in the second quarter, but it's in the magnitude of about $8 million on a gross basis.

Mike Petusky -- Barrington Research -- Analyst

So that takes you down to 36. I guess let me -- let me ask this question. What level of revenue do you have to be at based on what you think you take out in terms of costs and the benefits of revenue cycle management? What level of revenue do you have to be at at the end of this year or early next year in that business to sort of be break even? What's -- what's the line growth assumption that gets you there?

Adam Logal -- Chief Financial Officer

Yeah. So it -- it comes again, it's not just volume like so volume growth has got to come, but the dollar is associated with the growth is probably more important to get us to break even. So it's going to depend on how successful we are on each of those programs. You know, we -- we would sit back and say if we can achieve our guidance that we've provided at the top end of our guidance that we provided in this quarter and continue to see that level of growth.

It'll -- it'll get us to break even. As Elias mentioned late fourth quarter, early first quarter.

Mike Petusky -- Barrington Research -- Analyst

Have to be sort of a $600 million annual run rate?

Adam Logal -- Chief Financial Officer

That's right.

Mike Petusky -- Barrington Research -- Analyst

OK. All right. Thank you so much. That's helpful.

I really appreciate it. Thanks.

Operator

Our next question comes from Yale Jen from Laidlaw and Company. Please go ahead.

Yale Jen -- Laidlaw and Company -- Analyst

Good afternoon and thanks for taking the questions. And I apologize I came in late, so if some of the question has been answered. I apologize for reasking that. So my first question is in terms of NGENLA in terms of the revenue going forward, when you guys may be able to start to break it, break it to a separate line in reporting from the PNL?

Elias Zerhouni -- Vice Chairman and President

Yeah. So, Yale, thanks for the question. Again, we -- we -- once it becomes material, we're going to start talking about it. It's in the $5 to $10 million guide that we had for our other revenue lines.

So it's included in there. So you can get the scale. We -- we think with Pfizer's launch coming in the next couple of weeks, it could be as early next quarter that we start breaking it out. But at this point, we haven't.

Yale Jen -- Laidlaw and Company -- Analyst

OK. Great. And maybe just one more question here. In terms of ModeX, the collaboration with the -- with the Merck or the vaccine, could you give us a little bit update in terms of where things are? And is there any projections as when this may saw the human studies and the things?

Elias Zerhouni -- Vice Chairman and President

Thank you. So with Merck, we're working very well and collaborating I would say in a very effective way. As you know, we received an upfront payment and Merck covers the cost of our current work, which is designed to bring the idea to the product IND together. There are some unknowns that relate o the choice of adjuvant for the vaccine that we need to test out, those can be short or it can be six months.

I don't know. That's the unknown. But clearly, if you look at the natural evolution of such a program, we should be in the clinic by next year. For sure in my mind, but this is you know, plus minus six months or plus, minus three months depending on how things are going.

But it's going well. So that's what we're hoping for to get it to the clinic as soon as we can.

Yale Jen -- Laidlaw and Company -- Analyst

OK. Great. Well, I appreciate it and again congrats on the progress and look forward to speaking with you guys soon.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Philip Frost for any closing remarks.

Phillip Frost -- Chairman and Chief Executive Officer

I'd like to thank you all for attending the conference. We look forward to meeting with you again at the end of next quarter. Thank you again.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Yvonne Briggs -- Investor Relations

Phillip Frost -- Chairman and Chief Executive Officer

Elias Zerhouni -- Vice Chairman and President

Adam Logal -- Chief Financial Officer

Unknown speaker

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

Edward Tenthoff -- Piper Sandler -- Analyst

Mike Petusky -- Barrington Research -- Analyst

Yale Jen -- Laidlaw and Company -- Analyst

More OPK analysis

All earnings call transcripts