OPKO Health
Annual Report 2016

Plain-text annual report

OPKO HEALTH, INC. FORM 10-K (Annual Report) Filed 03/01/17 for the Period Ending 12/31/16 Address Telephone CIK 4400 BISCAYNE BLVD. MIAMI, FL 33137 305-575-4138 0000944809 Symbol OPK SIC Code Industry 2834 - Pharmaceutical Preparations Pharmaceuticals Sector Healthcare Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2017, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549 FORM 10-K (Mark One)ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016 .ORoTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to .Commission file number 001-33528 OPKO Health, Inc.(Exact Name of Registrant as Specified in Its Charter) Delaware 75-2402409(State or Other Jurisdiction ofIncorporation or Organization) (I.R.S. EmployerIdentification No.)4400 Biscayne Blvd., Miami, FL 33137 (Address of Principal Executive Offices) (Zip Code) (Registrant ’ s Telephone Number, Including Area Code): (305) 575-4100 Securities registered pursuant to section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, $.01 par value per share NASDAQ Global Select MarketSecurities registered pursuant to section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ýIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes ý No ¨ Table of Contents Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes ý No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(in Rule 12b-2 of the Exchange Act) (Check one): Large accelerated filerýAccelerated fileroNon-accelerated filero (Do not check if a smaller reporting company)Smaller reporting companyoIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ýThe aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the commonequity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter was: $3,048,418,845.As of February 20, 2017 , the registrant had 558,221,985 shares of Common Stock outstanding.Documents Incorporated by ReferencePortions of the registrant’s definitive proxy statement for its 2017 Annual Meeting of Stockholders are incorporated by reference in Items 10, 11, 12, 13, and14 of Part III of this Annual Report on Form 10-K. TABLE OF CONTENTS PagePart I. Item 1.Business6Item 1A.Risk Factors25Item 1B.Unresolved Staff Comments54Item 2.Properties54Item 3.Legal Proceedings54Item 4.Mine Safety Disclosures54Part II. Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities55Item 6.Selected Financial Data57Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations58Item 7A.Quantitative and Qualitative Disclosures about Market Risk75Item 8.Financial Statements and Supplementary Data76Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure129Item 9A.Controls and Procedures129Item 9B.Other Information131Part III. Item 10.Directors, Executive Officers and Corporate Governance Item 11.Executive Compensation Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13.Certain Relationships and Related Transactions and Director Independence Item 14.Principal Accounting Fees and Services Part IV. Item 15.Exhibits, Financial Statement Schedules133Signatures 146Certifications 146EX-21 EX-23.1 EX-23.2 EX-31.1 EX-31.2 EX-32.1 EX-32.2 EX-101. INS XBRL Instance Document EX-101.SCH XBRL Taxonomy Extension Schema Document EX-101.CAL XBRL Taxonomy Extension Calculation Linkbase Document EX-101.DEF XBRL Taxonomy Extension Definition Linkbase Document EX-101.LAB XBRL Taxonomy Extension Label Linkbase Document EX-101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 3CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform Act of1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-lookingstatements include statements about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results ofoperations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or currentmatters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual resultsto differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results todiffer materially from the activities and results anticipated in forward-looking statements. These factors include those described below and in “Item 1A-RiskFactors” of this Annual Report on Form 10-K. We do not undertake an obligation to update forward-looking statements. We intend that all forward-lookingstatements be subject to the safe-harbor provisions of thePSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financialperformance.Risks and uncertainties, the occurrence of which could adversely affect our business, include the following:•we have a history of losses and may not generate sustained positive cash flow sufficient to fund our operations and research and development programs;•the risks inherent in developing, obtaining regulatory approvals for and commercializing new, commercially viable and competitive products andtreatments;•our research and development activities may not result in commercially viable products;•that earlier clinical results of effectiveness and safety may not be reproducible or indicative of future results;•that we may fail to obtain regulatory approval for hGH-CTP or successfully commercialize Rayaldee and hGH-CTP;•that we may not generate profits or cash flow from our laboratory operations or substantial revenue from our pharmaceutical and diagnostic products;•that currently available over-the-counter and prescription products, as well as products under development by others, may prove to be as or more effectivethan our products for the indications being studied;•our ability to build a successful pharmaceutical sales and marketing infrastructure;•our ability and our distribution and marketing partners’ ability to comply with regulatory requirements regarding the sales, marketing and manufacturingof our products and product candidates and the operation of our laboratories;•the performance of our third-party distribution partners, licensees and manufacturers over which we have limited control;•our success is dependent on the involvement and continued efforts of our Chairman and Chief Executive Officer;•integration challenges for Transition Therapeutics, Bio-Reference, EirGen and other acquired businesses;•changes in regulation and policies in the United States and other countries, including increasing downward pressure on health care reimbursement;•our ability to manage our growth and our expanded operations;•increased competition, including price competition;•changing relationships with payers, including the various state and multi-state Blues programs, suppliers and strategic partners;•efforts by third-party payors to reduce utilization and reimbursement for clinical testing services;•failure to timely or accurately bill for our services;•failure in our information technology systems, including cybersecurity attacks or other data security incidents;•failure to obtain and retain new clients and business partners, or a reduction in tests ordered or specimens submitted by existing clients;•failure to establish, and perform to, appropriate quality standards to assure that the highest level of quality is observed in the performance of our testingservices;•failure to maintain the security of patient-related information;•our ability to obtain and maintain intellectual property protection for our products;•our ability to defend our intellectual property rights with respect to our products;•our ability to operate our business without infringing the intellectual property rights of others;•our ability to attract and retain key scientific and management personnel;•our need for, and ability to obtain, additional financing;•adverse results in material litigation matters or governmental inquiries;•failure to obtain and maintain regulatory approval outside the U.S.;•legal, economic, political, regulatory, currency exchange, and other risks associated with international operations; and4•our ability to finance and successfully complete construction of a research, development and manufacturing center in Waterford, Ireland.5PART IUnless the context otherwise requires, all references in this Annual Report on Form 10-K to the “Company”, “OPKO”, “we”, “our”, “ours”, and “us” refer toOPKO Health, Inc., a Delaware corporation, including our wholly-owned subsidiaries.ITEM 1.BUSINESSOVERVIEWWe are a diversified healthcare company that seeks to establish industry-leading positions in large and rapidly growing medical markets. Our diagnosticsbusiness includes Bio-Reference Laboratories (“Bio-Reference”), the nation’s third-largest clinical laboratory with a core genetic testing business and a 400-personsales and marketing team to drive growth and leverage new products, including the 4Kscore prostate cancer test and the Claros 1 in-office immunoassay platform(in development). Our pharmaceutical business features Rayaldee , an FDA-approved treatment for secondary hyperparathyroidism (“SHPT”) in adults with stage3 or 4 chronic kidney disease (“CKD”) and vitamin D insufficiency (launched in November 2016), and VARUBI™ for chemotherapy-induced nausea andvomiting (oral formulation launched by partner TESARO in November 2015 and pending approval for IV formulation), TT401, a once or twice weeklyoxyntomodulin for type 2 diabetes and obesity which is a clinically advanced drug candidate among the new class of GLP-1 glucagon receptor dual agonists, andTT701, an androgen receptor modulator for androgen deficiency indications which we intend to study for benign prostate hypertrophy (BPH). Our pharmaceuticalbusiness also features hGH-CTP, a once-weekly human growth hormone injection (in Phase 3 for growth hormone deficiency and partnered with Pfizer), and along-acting Factor VIIa drug for hemophilia (Phase 2a). In addition to our pharmaceutical and diagnostic development programs, we own establishedpharmaceutical platforms in Ireland, Chile, Spain and Mexico which generate revenue and which we expect to facilitate future market entry for our productscurrently in development. We have a development and commercial supply pharmaceutical company, as well as a global supply chain operation and holdingcompany in Ireland, which we expect will play an important role in the development, manufacturing, distribution and approval of a wide variety of drugs with anemphasis on high potency products. We also own a specialty active pharmaceutical ingredients (“APIs”) manufacturer in Israel, which we expect will facilitate thedevelopment of our pipeline of molecules and compounds for our proprietary molecular diagnostic and therapeutic products.We have a highly experienced management team that we believe has demonstrated an ability to successfully build and manage pharmaceutical and healthcarebusinesses. Based on their experience in the industry, we believe that our management team has extensive development, regulatory and commercializationexpertise and relationships that provide access to commercial opportunities.All product or service marks appearing in type form different from that of the surrounding text are trademarks or service marks owned, licensed to, promotedor distributed by OPKO, its subsidiaries or affiliates, except as noted. All other trademarks or services marks are those of their respective owners.GROWTH STRATEGYWe expect our future growth to come from leveraging our commercial infrastructure, proprietary technology and development strengths, and byopportunistically pursuing complementary, accretive, or strategic acquisitions and investments.We launched our first pharmaceutical product, Rayaldee, in the U.S. market in the fourth quarter of 2016. We have under development a broad anddiversified portfolio of diagnostic tests, small molecules, and biologics targeting a broad range of unmet medical needs. We also operate the third largest fullservice clinical laboratory in the U.S. We intend to continue to leverage our proprietary technology and our strengths in all phases of research and development tofurther develop and commercialize our portfolio of proprietary pharmaceutical and diagnostic products. In support of our strategy, we intend to:•continue to enhance our commercialization capability in the U.S. and internationally;•develop and commercialize Rayaldee for new indications, including the treatment of SHPT in patients with vitamin D insufficiency and stage 5 CKDrequiring regular hemodialysis;•obtain requisite regulatory approval and compile clinical data for our most advanced product candidates; and•expand into other medical markets that provide significant opportunities and that we believe are complementary to and synergistic with our business.In addition, we expect to leverage the Bio-Reference business and infrastructure to drive rapid and widespread uptake of our diagnostic products, includingthe 4Kscore test and the Claros 1 in-office immunoassay platform. We also intend to6leverage the genetic and genomic data generated and accumulated through Bio-Reference’s genetic sequencing laboratory to enhance drug discovery and clinicaltrial programs.We have and expect to continue to be opportunistic and to pursue complementary or strategic acquisitions, licenses and investments. Our management teamhas significant experience in identifying, executing and integrating these transactions. We expect to use well-timed, carefully selected acquisitions, licenses andinvestments to continue to drive our growth, including:•Products and technologies. We intend to continue to pursue product and technology acquisitions and licenses that will complement our existingbusinesses and provide new product and market opportunities, enhance our profitability, leverage our existing assets, and contribute to our ownorganic growth.•Commercial businesses. We intend to continue to pursue acquisitions of commercial businesses that will both drive our growth and providegeographically diverse sales and distribution opportunities.•Early stage investments. We have and may continue to make investments in early stage companies that we perceive to have valuable proprietarytechnology and significant potential to create value for OPKO as a shareholder.CORPORATE INFORMATIONWe were originally incorporated in Delaware in October 1991 under the name Cytoclonal Pharmaceutics, Inc., which was later changed to eXegenics, Inc.(“eXegenics”). On March 27, 2007, we were part of a three-way merger with Froptix Corporation (“Froptix”) and Acuity Pharmaceuticals, Inc. (“Acuity”), bothresearch and development companies. On June 8, 2007, we changed our name to OPKO Health, Inc. Our shares are publicly traded on the NASDAQ Stock Marketunder the ticker “OPK” and on the Tel Aviv Stock Exchange. Our principal executive offices are located in leased office space in Miami, Florida.We currently manage our operations in two reportable segments: diagnostics and pharmaceuticals. The pharmaceutical segment consists of thepharmaceutical operations we acquired in Chile, Mexico, Ireland, Israel and Spain and our pharmaceutical research and development operations. The diagnosticssegment primarily consists of the clinical laboratory operations we acquired through the acquisitions of Bio-Reference and our point-of-care operations. There areno significant inter-segment sales. We evaluate the performance of each segment based on operating profit or loss. There is no inter-segment allocation of interestexpense and income taxes. Refer to Note 16 for financial information about the segments and geographic areas.CURRENT PRODUCTS AND SERVICES AND RELATED MARKETSDiagnosticsBio-Reference LaboratoriesThrough Bio-Reference, the third largest full service clinical laboratory in the United States, we now offer comprehensive laboratory testing services utilizedby healthcare providers in the detection, diagnosis, evaluation, monitoring, and treatment of diseases, including esoteric testing, molecular diagnostics, anatomicalpathology, genetics, women’s health and correctional healthcare. We market and sell these services to physician offices, clinics, hospitals, employers andgovernmental units nationally, with the largest concentration of business in the larger metropolitan areas across New York, New Jersey, Maryland, Pennsylvania,Delaware, Washington DC, Florida, California, Texas, Illinois and Massachusetts. Bio-Reference has an approximately 400-person sales and marketing team andoperates a network of approximately 275 patient service centers or in-office phlebotomy stations for collection of patient specimens.Our Bio-Reference laboratory testing business consists of routine testing and esoteric testing. Routine tests measure various health parameters, such as thefunctions of the heart, kidney, liver, thyroid and other organs, including such tests as blood cell counts, cholesterol levels, pregnancy, substance abuse andurinalysis. We typically operate 24 hours per day, 365 days per year and perform and report most routine test results within 24 hours.The esoteric tests we perform require sophisticated equipment and materials, highly skilled personnel and professional attention. Esoteric tests are orderedless frequently than routine tests and typically are priced higher than routine tests. Esoteric tests include tests related to endocrinology, genetics and genomics,immunology, microbiology, HIV tests, molecular diagnostics, next generation sequencing, oncology, serology, and toxicology.Through Bio-Reference, we operate in the following highly specialized laboratory divisions:7•Bio-Reference Laboratories. Bio-Reference constitutes our core clinical testing laboratory offering automated, high volume routine testing services,STAT testing, informatics, HIV, Hep C and other molecular tests.•GenPath (Oncology). National oncology presence with expertise in cancer pathology and diagnostics, as well as molecular diagnostics. Core testsinclude FLOW, IHC, MicroArray, FISH, ISH, Morphology, and full service oncology.•GenPath (Women’s Health). Innovative technology platform for sexually transmitted infections has enabled expansion nationally with specimenscoming from 41 states, including Image Directed Paps analysis, HPV Plus, and STI Testing.•GeneDx. Industry leading national laboratory for testing rare and ultra-rare genetic diseases with international reach, performing testing on specimensfrom more than 50 countries.•Laboratorio Bueno Salud . National testing laboratory dedicated to serving the Spanish-speaking population in the United States, where all businessis conducted in Spanish including patient and physician interaction.We have one of the largest marketing staffs of any laboratory in the country with sales and marketing groups dedicated to urology, oncology, women’shealth, genetic testing and correctional health, as well as cross-over groups selling to large institutions. All of our sales and marketing personnel operate in a dualcapacity, as both marketing and client support representatives, which we believe provides better customer service and a strong connection with our customers.We expect the clinical laboratory testing industry will continue to experience growth in testing volumes due to aging of the population in the U.S., patientawareness of the value of laboratory tests, a decrease in the cost of tests, the development of sophisticated and specialized tests for detection and management ofdisease, increased recognition of early detection and prevention as a means of reducing healthcare costs, and ongoing research and development in genetics andgenomics and personalized medicine. Our mission is to be recognized by our clients as the premier provider of clinical laboratory testing, information and relatedservices.Bio-Reference provides us with a significant diagnostics commercial infrastructure for marketing and sales that reached more than 11 million patients in2016. In addition, its large team of managed care experts complement our efforts to ensure that payors recognize the value of our diagnostic and laboratory tests forreimbursement purposes. We continue to leverage the national marketing, sales and distribution resources of Bio-Reference, along with its 400-person sales andmarketing team, to enhance sales of and reimbursement for our 4Kscore test, a laboratory developed blood test that provides a personalized risk score foraggressive prostate cancer. We plan to continue to leverage the Bio-Reference commercial infrastructure and capabilities, as well as its extensive relationships withpayers, to commercialize OPKO’s other diagnostic products under development, including the Claros 1 .4Kscore TestWe offer the 4Kscore test through our Bio-Reference laboratory located in Elmwood Park, New Jersey. We began selling the 4Kscore test in the U.S. inMarch 2014 and in Europe and Mexico in September 2014 and January 2015, respectively. The 4Kscore test is a laboratory developed test that measures the bloodplasma levels of four different prostate-derived kallikrein proteins: Total PSA, Free PSA, Intact PSA and Human Kallikrein-2 (“hK2”). These biomarkers are thencombined with a patient’s age, DRE status (nodule / no nodule), and prior negative biopsy status (yes / no) using a proprietary algorithm to calculate the risk(probability) of finding a Gleason Score 7 or higher prostate cancer. The four kallikrein panel of biomarkers utilized in the 4Kscore test is based on decades ofresearch conducted by scientists at Memorial Sloan-Kettering Cancer Center and leading European institutions. Investigators at the Lund University, Sweden,University of Turku, Finland and Memorial Sloan Kettering Cancer Center, New York, have also demonstrated that the 4Kscore tes t can predict the 20-year riskfor development of prostate metastases in men who present at age 50 or 60 years old with an elevated PSA.The 4Kscore test was developed by OPKO and validated in 2014 in a prospective, blinded study of 1,012 men in collaboration with 26 urology centers acrossthe U.S. Results showed that the 4Kscore test was highly accurate for predicting the presence of high-grade cancer (Gleason score 7 or higher) prior to prostatebiopsy. The full data from the blinded, prospective U.S. clinical validation study were published in European Urology (Eur Urol. 2015 Sep;68(3):464-70. doi:10.1016/j.eururo.2014.10.021. Epub 2014 Oct 27.).The clinical data demonstrated the ability of the 4Kscore test to discriminate between men with high-grade, aggressive prostate cancer and those men whohad no findings of cancer or had low-grade or indolent form of the disease. The discrimination, measured by Area Under the Curve (“AUC”) analysis, was 0.82and was significantly higher than previously developed tests. Furthermore, the 4Kscore test demonstrated excellent risk calibration, indicating the accuracy of theresult for8an individual patient. The high value of AUC and the excellent risk calibration make the 4Kscore test result valuable information for the shared decision-makingbetween the urologist and patient on whether or not to perform a prostate biopsy.A separate clinical study indicated that the 4Kscore test led to 64.6% fewer biopsies. The study, “ The 4Kscore® Test Reduces Prostate Biopsy Rates inCommunity and Academic Urology Practices”, published in the January 2016 edition of Reviews in Urology, which included 611 patients seen by 35 academicand community urologists across the U.S., evaluated the influence of the 4Kscore test on urologist-patient decisions about whether to perform a biopsy in men whohad an abnormal PSA and or DRE result. Test results for patients were stratified into low risk (< 7.5%), intermediate risk (7.5%-19.9%) and high risk (≥20%) fordeveloping aggressive prostate cancer. Nearly half (49.3%) of the men were categorized as low risk; 25.7% and 25.0% fell into the intermediate-risk and high-riskcategories, respectively. Notably, the 4Kscore test results influenced biopsy decisions in 88.7% of the men. In the three risk groups, a biopsy was avoided in94.0%, 52.9%, and 19.0% of men in the low, intermediate, and high-risk categories, respectively.The value of the 4Kscore test has been demonstrated in 12 peer-reviewed clinical studies involving more than 22,000 patients and we have been granted aCategory I CPT code by the AMA for our 4Kscore test, which was published in August 2016 and effective January 1, 2017. CPT codes are used by insurancecompanies and government payers to describe health care services and procedures, and having a Category I CPT code is critical to facilitate reimbursement ingovernment programs such as Medicare and Medicaid, as well as private insurance programs. We believe having the Category I CPT code will help facilitateobtaining broader coverage from payers for the 4Kscore test and allow greater access to the test for a broader group of patients across the U.S.The National Comprehensive Cancer Network (“NCCN”) included the 4Kscore test as a recommended test in their 2015 and 2016 Guidelines for ProstateCancer Early Detection. The panel making this recommendation concluded that the 4Kscore test is indicated for use prior to a first prostate biopsy, or after anegative biopsy, to assist patients and physicians in further defining the probability of high-grade cancer. In addition, the European Association of Urology (EAU)Prostate Cancer Guidelines Panel included the 4Kscore test in the 2016 EAU Guidelines for Prostate Cancer, concluding that the 4Kscore , as a blood test withgreater specificity over the PSA test, is indicated for use prior to a first prostate biopsy or after a negative biopsy to assist patients and physicians in furtherdefining the probability of high-grade cancer.We have and will continue to commit substantial efforts to obtaining broad reimbursement coverage for the 4Kscore test. We have obtained a positivecoverage decision from at least one national private payer and pricing agreements from several regional payers. Novitas Solutions, the local MedicareAdministrative Contractor, or MAC, for our laboratory in New Jersey, has been and continues to pay for the majority of our 4Kscore Medicare submissions.Although Novitas initially issued a positive draft local coverage determination (LCD) in May 2016, the coverage determination was retired due to a conflictingLCD issued by Palmetto, another MAC. We are working diligently to address concerns raised by Palmetto pertaining primarily to clinical utility and believe wehave supplied sufficient scientific and clinical data to support a positive coverage determination by any Medicare contractor. We expect to significantly expand ourefforts to obtain broad reimbursement for the 4Kscore test throughout 2017 and beyond.Point-of-Care DiagnosticsOPKO Diagnostics, LLC (“OPKO Diagnostics”), formerly Claros Diagnostics, Inc., is developing a novel diagnostic instrument system to provide rapid,high performance blood test results and enable tests to be run in point-of-care settings. The instrument, a microfluidics-based diagnostic test system consisting of acredit card-sized disposable test cassette that works with a small but sophisticated desktop analyzer, provides high performance quantitative blood test resultswithin minutes and permits the transition of complex immunoassays from the centralized reference laboratory to the physician’s office, hospital nurses station, orother decentralized location. The technology only requires a finger stick drop of blood introduced into the test cassette which can then run a quantitative test.We commenced a multi-center clinical trial for the PSA test in January 2017 and expect to submit our application to the FDA for a pre-marketingauthorization (“PMA”) for the PSA test upon completion of the trial. We also intend to commence a clinical trial of a testosterone diagnostic test for our point-of-care system. We expect to fully leverage Bio-Reference’s marketing, sales and distribution resources for the launch of the Claros 1 system and associateddiagnostic tests in the U.S after FDA clearance or approval.We are also presently working to add additional tests for our point-of-care system, including vitamin D, and we believe that there are many moreapplications for the technology, including infectious disease, cardiology, women’s health, and companion diagnostics.Pharmaceutical Business9We currently have one commercial stage pharmaceutical product and several pharmaceutical compounds and technologies in various stages of research anddevelopment for a broad range of indications and conditions, including the following:Renal ProductsWe launched Rayaldee , our lead renal product, in the U.S. market in November 2016. In June 2016, the FDA approved Rayaldee extended release capsulesfor the treatment of secondary hyperparathyroidism (SHPT) in adults with stage 3 or 4 chronic kidney disease (CKD) and serum total 25-hydroxyvitamin D levelsless than 30 ng/mL. Rayaldee is a patented extended release product containing 30 mcg of a prohormone called calcifediol (25-hydroxyvitamin D 3 ).We have a 50-person highly specialized sales and marketing team dedicated to the launch and commercialization of Rayaldee , and we expect to increase oursales and marketing efforts in the second half of 2017. Efforts are underway to obtain broad commercial and Part D insurance coverage for Rayaldee. TheCompany has contracted for commercial and Part D coverage for more than sixty percent (60%) of U.S. covered lives and expects that number to reach seventypercent (70%) by mid-2017.In connection with the launch of Rayaldee , the Company has also engaged in a comprehensive ongoing market education campaign highlighting the unmetneed in treating SHPT, including by leveraging key opinion leaders in community outreach programs such as speakers' bureaus and patient advocacy programs.In May 2016, we entered into a collaboration with Vifor Fresenius Medical Care Renal Pharma (VFMCRP) for the development and commercializationof Rayaldee in Europe, Canada, Mexico, Australia, South Korea and certain other international markets for the treatment of SHPT in patients with stage 3 or 4CKD and vitamin D insufficiency. Under the terms of the agreement, OPKO received an upfront payment of $50 million, and will receive up to $232 million inregulatory and sales based milestones. In addition, VFMCRP will pay OPKO tiered, double digit royalties on sales of the product. OPKO and VFMCRP will alsocollaborate to develop and commercialize a new dosage form of Rayaldee for the treatment of SHPT in hemodialysis patients. OPKO granted VFMCRP an optionto acquire rights to this dosage form for the U.S. market; if exercised, OPKO will receive up to $555 million in additional milestones and double digit royalties.The FDA approval for Rayaldee was supported by successful top-line results from two pivotal phase 3 trials of Rayaldee that were identical randomized,double-blind, placebo-controlled, multi-site studies which established the safety and efficacy of Rayaldee as a new treatment for SHPT in adults with stage 3 or 4CKD and vitamin D insufficiency.Vitamin D insufficiency arises in CKD due to the abnormal upregulation of CYP24A1, an enzyme that destroys vitamin D and its metabolites. Studies inCKD patients have demonstrated that currently available over-the-counter and prescription vitamin D products cannot reliably raise blood vitamin D prohormonelevels and effectively treat SHPT, a condition commonly associated with CKD in which the parathyroid glands secrete excessive amounts of parathyroid hormone(“PTH”). Prolonged elevation of blood PTH causes excessive calcium and phosphorus to be released from bone, leading to elevated serum calcium and phosphoruslevels, softening of the bones (osteomalacia) and calcification of vascular and renal tissues. SHPT affects 40-82% of patients with stage 3 or 4 CKD andapproximately 95% of patients with stage 5 CKD.The completed pivotal trials for Rayaldee successfully met all primary efficacy and safety endpoints. The primary efficacy endpoint was a responder analysisin which “responder” was defined as any treated subject who demonstrated an average 30% decrease in PTH from pre-treatment baseline during the last six weeksof the 26-week treatment period. A significantly higher response rate was observed with Rayaldee which steadily increased with treatment duration. The responserate with Rayaldee was similar in CKD stages 3 and 4. Safety and tolerability data were comparable in both treatment groups. Patients completing the two pivotaltrials were treated, at their election, for an additional six months with Rayaldee during an open-label extension study. Data from the extension study indicated thatthe PTH lowering response rates steadily increased with duration of Rayaldee treatment without deterioration in safety profile. In addition to SHPT in CKDpatients, we also are developing Rayaldee for other indications, including for SHPT in patients with vitamin D insufficiency and stage 5 CKD requiring regularhemodialysis. A phase 2 study is expected to commence in 2017 in hemodialysis patients. In August 2014, we also announced the submission of an IND to theFDA to evaluate Rayaldee as an adjunctive therapy for the prevention of skeletal-related events in patients with bone metastases undergoing anti-resorptivetherapy. We commenced a phase 1 dose escalation study in the fourth quarter of 2014 in breast and prostate cancer patients with bone metastases who are receivinganti-resorptive therapy. The study is evaluating safety, markers of vitamin D and mineral metabolism and tumor progression. We are currently evaluating interimdata from the study.Our second most advanced renal product, Alpharen (Fermagate Tablets), is a new and potent non-absorbed phosphate binder to treat hyperphosphatemia inStage 5 CKD patients requiring regular hemodialysis. Alpharen (Fermagate Tablets) has been shown to be safe and effective in treating hyperphosphatemia inphase 2 and 3 trials in stage 5 CKD patients undergoing10chronic hemodialysis. Hyperphosphatemia, or elevated serum phosphorus, is common in dialysis patients and tightly linked to the progression of SHPT andvascular calcification, both of which drive morbidity and mortality. The kidneys provide the primary route of excretion for excess phosphorus absorbed fromingested food. As kidney function worsens, serum phosphorus levels increase and directly stimulate PTH secretion. Stage 5 CKD patients requiring dialysis mustreduce their dietary phosphate intake and usually require regular treatment with orally administered phosphate binding agents to lower serum phosphorus to meetthe recommendations of the Kidney Disease Improving Global Outcomes ("KDIGO") Clinical Practice Guidelines that elevated serum phosphorus levels should belowered toward the normal range. Hyperphosphatemia contributes to soft tissue mineralization and affects approximately 90% of dialysis patients. Dialysis patientsrequire ongoing phosphate binder treatment to maintain controlled serum phosphorus levels. We are currently preparing to conduct a single additional Phase 3clinical trial intended to support marketing approvals in North America and in Europe.We believe the CKD patient population is large and growing as a result of obesity, hypertension and diabetes; therefore this patient population represents asignificant market opportunity. According to the National Kidney Foundation, CKD afflicts over 26 million people in the U.S., including more than 20 millionpatients with stage 3 or 4 CKD. In stage 5 CKD, kidney function is minimal to absent and most patients require regular dialysis or a kidney transplant for survival.An estimated 71-97% of CKD patients have vitamin D insufficiency which can lead to SHPT and its debilitating consequences. CKD continues to be associatedwith poor outcomes, reflecting the inadequacies of the current standard of care. Vitamin D insufficiency, hyperphosphatemia and SHPT, when inadequatelytreated, are major contributors to poor CKD outcomes. We intend to develop and commercialize Rayaldee and Alpharen to constitute part of the foundation for anew and markedly improved standard of care for CKD patients having SHPT and/or hyperphosphatemia.SARMThrough the acquisition of Transition Therapeutics, a Toronto-based biotechnology company, we acquired TT701, an orally administered selective androgenreceptor modulator (SARM) which we are developing for the treatment of patients who will benefit from its effects on increasing muscle and bone strength anddecreasing body fat mass. The selective and antagonistic properties of TT701 appear to be well suited to provide anabolic therapeutic benefits to specific patientpopulations, while potentially avoiding, or even reducing, prostate hypertrophy.A Phase 2 study of 350 male subjects for another indication showed significantly increased lean body mass and muscle strength and significant fat massreduction with no change in lower PSA levels. TT701 is currently being studied in a Phase 2 study in prostate cancer patients who have undergone radicalprostatectomy, and a Phase 2b study is planned to determine the optimal dose to treat patients with Benign Prostatic Hypertrophy (BPH).BiologicsOur biologics business focuses on developing and commercializing longer-acting proprietary versions of already approved therapeutic proteins. One of ourinnovative platform technologies uses a short, naturally-occurring amino acid sequence (carboxl terminal peptide or “CTP”) that has the effect of slowing theremoval from the body of the therapeutic protein to which it is attached. This CTP can be readily attached to a wide array of existing therapeutic proteins,stabilizing the therapeutic protein in the bloodstream and extending its life span without additional toxicity or loss of desired biological activity. We are using theCTP technology to develop new, proprietary versions of certain existing therapeutic proteins that have longer life spans than therapeutic proteins without CTP. Webelieve that our products will have greatly improved therapeutic profiles and distinct market advantages.There are two existing biopharmaceuticals on the market that currently utilize CTP technology. The first product is human chorionic gonadotropin (“hCG”),of which CTP is naturally a part. Besides being present normally in high amounts during pregnancy, it is also given therapeutically to women or men as a fertilitytreatment (sold by Merck-Serono, Merck & Co. and Ferring). The second product is ELONVA® (FSH-CTP), which is sold by Merck & Co. The data from theclinical and therapeutic use of these products gave us confidence that the CTP technology is able to address the major problems faced by the other attemptedapproaches to increase protein lifespan. Clinical and therapeutic data from these products also reassured us that CTP can be used safely and that it is effective inextending the serum lifetime and activity. We are the exclusive licensee for the utilization of CTP technology in all therapeutic proteins, peptides and theirmodified forms except for human FSH, LH, TSH and hCG.hGH-CTPOur lead product candidate utilizing CTP, hGH-CTP, is a recombinant human growth hormone product under development for the treatment of growthhormone deficiency (“GHD”), which is a pituitary disorder resulting in short stature in children and other physical ailments in both children and adults.In December 2014, we entered into an exclusive worldwide agreement with Pfizer for the development and commercialization of hGH-CTP for the treatmentof GHD in adults and children, as well as for the treatment of growth failure11in children born SGA. In connection with the transaction, we granted Pfizer an exclusive license to commercialize hGH-CTP worldwide, and we received non-refundable and non-creditable upfront payments of $295 million and are eligible to receive up to an additional $275 million upon the achievement of certainregulatory milestones. In addition, we are eligible to receive initial tiered royalty payments associated with the commercialization of hGH-CTP for Adult GHDwith percentage rates ranging from the high teens to mid-twenties. Upon the launch of hGH-CTP for Pediatric GHD in certain major markets, the royalties willtransition to regional, tiered gross profit sharing for both hGH-CTP and Pfizer’s Genotropin®.Pursuant to our agreement with Pfizer, we will lead the clinical development activities for the hGH-CTP program and will be responsible for funding thedevelopment programs for the key indications, which includes Adult and Pediatric GHD and Pediatric SGA. Pfizer will be responsible for all development costsfor additional indications as well as all post-marketing studies. In addition, Pfizer will fund the commercialization activities for all indications and lead themanufacturing activities covered by the global development plan.GHD occurs when the production of growth hormone, secreted by the pituitary gland, is disrupted. Since growth hormone plays a critical role in stimulatingbody growth and development, and is involved in the production of muscle protein and in the breakdown of fats, a decrease in the hormone affects numerous bodyprocesses. hGH is used for the long-term treatment of children and adults with inadequate secretion of endogenous growth hormone. The primary indications ittreats in children are GHD, SGA, kidney disease, Prader-Willi Syndrome and Turner’s Syndrome. In adults, the primary indications are replacement of endogenousgrowth hormone and the treatment of AIDS-induced weight loss. Patients using hGH receive daily injections six or seven times a week. This is particularlyburdensome for pediatric patients. We believe a significant market opportunity exists for a longer-lasting version of hGH that would require fewer injections.In December 2016, we announced preliminary topline data from our Phase 3, double blind, placebo controlled study of hGH-CTP in adults with GHD. Themultinational, multi-center study, which utilized a 2:1 randomization between hGH-CTP and placebo, enrolled 203 subjects, 198 of whom received at least onedose of study treatment. Treatment was administered through a weekly injection. The topline results showed:• The active group had a mean change in trunk fat mass of -0.4kg and placebo group was 0;• There was no statistically significant difference (≤ 0.05 (p value)) between the active and placebo group;• 97% of hGH-CTP vs 6% of placebo group showed IGF-1 normalization; and• The safety profile of hGH-CTP is consistent with that observed with those treated with daily growth hormoneAlthough there was no statistically significant difference between hGH-CTP and placebo on the primary endpoint of change in trunk fat mass from baselineto 26 weeks, after unblinding the study, we identified an exceptional value of trunk fat mass reduction in the placebo group that may have affected the primaryoutcome. We believe the exceptional data point warrants an outlier sensitivity analysis of the primary endpoint and related secondary endpoints. Upon completionof the data sensitivity analysis, we plan to discuss the study results and outlier analysis with the regulatory authorities to determine next steps in obtainingregulatory approval.We are continuing as planned with our development of hGH-CTP, including our Phase 3 trial of hGH-CTP in pediatric patients which we initiated inDecember 2016. The global study is a 220 patient study in pediatric GHD patients designed to evaluate weekly treatment with hGH-CTP versus daily injections ofGenotropin. The hGH-CTP will be delivered in a pen device in this multi-regional study. In addition to the Phase 3 pediatric study, we have continued withoutinterruption our ongoing Phase 3 adult and Phase 2 pediatric open label extension studies for hGH-CTP, for which we plan to switch patients to the disposable pendevice. We also expect to initiate a 44 patient study in pediatric GHD patients in Japan and are planning to commence a global study for SGA. hGH-CTP hasorphan drug designation in the U.S. and Europe for both adults and children with GHD.Factor VIIIn addition to hGH-CTP, we are developing a product to extend the life span of Factor VIIa (hemophilia) using the CTP technology. In February 2013, theFDA granted orphan drug designation to our longer-acting version of clotting Factor VIIa, Factor VIIa-CTP, for the treatment of bleeding episodes in patients withhemophilia A or B with inhibitors to Factor VIII or Factor IX. These patients are currently being treated by commercially-available Factor VIIa, with estimated2013 worldwide sales of $1.7 billion. Currently, Factor VIIa therapy is available only as an intravenous (IV) formulation which, due to Factor VIIa’s short half-life, requires multiple infusions to treat a bleeding episode. In addition, frequent infusions are onerous when used as preventative prophylactic therapy, especiallyfor children.Pre-clinical studies of IV and subcutaneous formulations of our product in hemophilic animal models demonstrated its duration of action and significantlyincreased survival. In February 2016, we commenced a Phase 2a dose escalation study to12determine safety and explore efficacy endpoints of our long acting Factor VIIa-CTP for the treatment of bleeding episodes in hemophilia A or B patients withinhibitors to Factor VIII or Factor IX. Factor VIIa-CTP has been granted orphan designation in Europe as well as the U.S.We believe that the CTP technology may also be broadly applicable to other best-selling therapeutic proteins in the market and provide several keyadvantages over our competitor’s existing products: significant reduction in the number of injections required to achieve the same or superior therapeutic effectfrom the same dosage; faster commercialization with greater chance of success and lower costs than those typically associated with a new therapeutic protein; andmanufacturing using industry-standard biotechnology-based protein production processes.OxyntomodulinIn addition to hGH-CTP and Factor VII-CTP, our internal product development program is currently focused on developing a once weekly administeredoxyntomodulin for type 2 diabetes and obesity. Our most advanced oxyntomodulin product candidate, TT401, a once-weekly administered peptide for thetreatment of type 2 diabetes and associated obesity, is a dual agonist of the GLP-1 (Glucagon-Like Peptide-1) and glucagon receptors. The receptors play anintegral role in regulating appetite, food intake, satiety and energy utilization in the body. Stimulating both of the receptors, TT401 has the potential to regulateblood glucose.TT401 has been evaluated in a Phase 2 study enrolling 420 type 2 diabetes subjects in a 24 week study consisting of a 12-week randomized blinded stagefollowed by a 12-week open-label stage. The study included four once-weekly dose arms of TT401 (10mg, 15mg, 30mg, 50mg), a placebo arm, and an activecomparator arm (exenatide extended release – 2mg). The study was completed in February, 2016. Subjects receiving the highest dose of TT401 peptide onceweekly in the study demonstrated significantly superior weight loss compared with currently approved extended release exenatide and placebo after 12 and 24weeks of treatment. TT401 also provided a reduction in HbA1c, a marker of sugar metabolism, similar to exenatide at weeks 12 and 24. TT401 strengthensOPKO's existing pipeline of oxyntomodulin drug candidates for the treatment of type 2 diabetes and obesity.OPKO's MOD-6031, currently in a phase 1 study, is a once weekly oxyntomodulin with a proprietary delivery system to slowly release the naturaloxyntomodulin, which allows the molecule to penetrate the blood brain barrier. The potential of MOD-6031 to interact with CNS, as well as peripheral receptors, isexpected to mimic the natural effect of oxyntomodulin for its effects on satiety and weight loss. MOD-6031 is a long-acting oxyntomodulin comprisingoxyntomodulin linked at its N-terminus to a polyethylene glycol (“PEG”) linear chain through a proprietary bi-functional hydrolysable linker. Administration ofthe conjugate into the blood results in slow release of the non-modified natural oxyntomodulin. Our preclinical studies have shown that a single weekly injection ofour compound in development significantly inhibited food intake and reduced body weight in obese and diabetic animal models, as well as improving the lipidprofile by reducing cholesterol levels in obese and diabetic mice. We initiated a phase 1 study of MOD-6031 in the first quarter of 2016.We believe oxyntomodulin has potential to be a safe, long term therapy for obese and diabetes type II patients, representing significant market opportunities.More than 380 million are living with diabetes worldwide, of which approximately 90% have type II diabetes. According to the World Health Organization, thereare more than 500 million severely overweight or obese people.APIsFineTech Pharmaceutical, Ltd. (“FineTech”), is our Israeli-based subsidiary that develops and produces high value, high potency specialty APIs. Through itsFDA registered facility in Nesher, Israel, FineTech currently manufactures commercial APIs for sale or license to pharmaceutical companies in the U.S., Canada,Europe and Israel. We believe that FineTech’s significant know-how and experience with analytical chemistry and organic syntheses, together with its productioncapabilities, may play a valuable role in the development of our pipeline of proprietary molecules and compounds for diagnostic and therapeutic products, whileproviding revenues and profits from its existing API business.13Oligonucleotide TherapeuticsOPKO CURNA, LLC (“CURNA”), previously CURNA Inc., is engaged in the discovery of new drugs for the treatment of a wide variety of illnesses,including cancer, heart disease, metabolic disorders and a range of genetic anomalies. CURNA’s broad platform technology utilizes a short, single strandoligonucleotide and is based on the up-regulation of protein production through interference with non-coding RNA’s, or natural antisense. This strategy contrastswith established approaches which down-regulate protein production. CURNA has designed a novel type of therapeutic modality, termed AntagoNAT, and hasinitially demonstrated this approach for up-regulation of several therapeutically relevant proteins in in vitro and animal models. We believe that this short, singlestrand oligonucleotide can be delivered intravenously or subcutaneously without the drug delivery or cell penetration complications typically associated withdouble stranded siRNA therapeutics. CURNA has identified and developed compounds which increase the production of over 80 key proteins involved in a largenumber of individual diseases. We have ongoing pre-clinical studies for several of these compounds, with an initial focus on orphan diseases including DravetSyndrome, Rett Syndrome and MPS-1.NK-1 ProgramWe acquired rolapitant and other neurokinin-1 (“NK-1”) assets from Merck & Co. In December 2010, we exclusively out-licensed the development,manufacture and commercialization of our lead NK-1 candidate, VARUBI™ (rolapitant), to TESARO. VARUBI™, a potent and selective competitive antagonistof the NK-1 receptor, had successfully completed phase 2 clinical testing for prevention of chemotherapy induced nausea and vomiting, or CINV, and post-operative induced nausea and vomiting. TESARO’s NDA for oral VARUBI™ was approved by the FDA in September 2015, and in November 2015, TESAROcommenced the commercial launch of VARUBI™ in the United States. TESARO's IV formulation of VARUBI™ is pending FDA approval.Under the terms of the license, we received a $6.0 million upfront payment from TESARO and are eligible to receive milestone payments of up to $30.0million upon achievement of certain regulatory and commercial sale milestones (of which $20.0 million has been paid to date) and additional commercialmilestone payments of up to $85.0 million if specified levels of annual net sales are achieved. TESARO is also obligated to pay us tiered royalties on annual netsales achieved in the United States and Europe at percentage rates that range from the low double digits to the low twenties, and outside of the United States andEurope at low double-digit percentage rates. TESARO assumed responsibility for clinical development and commercialization of licensed products at its expense.Under the agreement, we will continue to receive royalties on a county-by-country and product-by-product basis until the later of the date that all of the patentsrights licensed from us and covering rolapitant expire, are invalidated or are not enforceable, and 12 years from the date of the first commercial sale of the product.If TESARO elects to develop and commercialize VARUBI™ in Japan through a third-party licensee, TESARO will share equally with us all amounts itreceives in connection with such activities, subject to certain exceptions and deductions. The term of the license will remain in force until the expiration of theroyalty term unless we terminate the license earlier for TESARO’s material breach of the license or bankruptcy. TESARO has a right to terminate the licenseduring the term for any reason on three month’s written notice.We are currently developing an additional NK-1 compound acquired from Merck for pruritis.Asthma and COPDIn May 2010, we acquired worldwide rights to a novel heparin-derived oligosaccharide which has significant potential in treating asthma and chronicobstructive pulmonary disease (“COPD”). Over 22 million people in the U.S. live with asthma, including nearly 6 million children. Additionally, there are morethan 12 million people in the U.S. who have COPD. Currently available therapies often include unwanted side effects and may have limited efficacy. We believethat our product may have an improved efficacy and side effect profile. Our initial studies have demonstrated anti-inflammatory and anti-allergic activity whenadministered orally or inhaled with inhalers or nebulizers in sheep and mice asthma models. We have also successfully completed human feasibility studies inasthma.To complement our portfolio of respiratory products, we acquired Inspiro Medical Ltd., a medical device firm developing a new platform to deliver smallmolecule drugs like corticosteroids and beta agonists or larger molecules to treat respiratory disease. Inspiro’s Inspiromatic is a “smart” easy-to-use dry powderinhaler with several advantages over existing devices. In a First In Man double blinded clinical study conducted in 30 asthmatic children comparing Inspiromatic toa market leading dry powder inhaler, Inspiromatic demonstrated superior pulmonary delivery of the active drug.Commercial OperationsWe also intend to continue to leverage our global commercialization expertise to pursue acquisitions of commercial14businesses that will both drive our growth and provide geographically diverse sales and distribution opportunities. During 2015, we acquired EirGen, a growing,profitable and cash flow positive specialty pharmaceutical company based in Ireland. EirGen is focused on the development and commercial supply of highpotency, high barrier to entry, pharmaceutical products. Through its facility in Waterford, Ireland, EirGen currently manufactures high potency pharmaceuticalproducts and exports to over 40 countries all over the world. High potency drugs such as those used for cancer chemotherapy are typically unsuitable formanufacture in normal multi-product facilities due to cross contamination risks.To date, EirGen and its commercial partners have filed several product applications with the FDA in Europe and in Japan. EirGen has a strong research anddevelopment portfolio of high barrier to entry drugs and we expect to rapidly expand its drug portfolio. We believe EirGen will play an important role in thedevelopment, manufacturing, distribution and approval of a wide variety of drugs in a variety of dosage forms with an emphasis on high potency products.OPKO Health Europe (previously Farmadiet Group Holding, S.L.) operates primarily in Spain and has more than 20 years of experience in the development,manufacture, marketing, and sale of pharmaceutical, nutraceutical, and veterinary products in Europe.OPKO Mexico (previously Pharmacos Exakta S.A. de C.V.), is engaged in the manufacture, marketing, sale, and distribution of ophthalmic and otherpharmaceutical products to private and public customers in Mexico. OPKO Mexico manufacturers and sells products primarily in the generics market in Mexico,although it also has some proprietary products as well.OPKO Chile (previously Pharma Genexx, S.A.) markets, sells and distributes pharmaceutical and natural products to the private, hospital, pharmacy andpublic institutional markets in Chile for a wide range of indications, including, cardiovascular products, vaccines, antibiotics, gastro-intestinal products, andhormones, among others. ALS Distribuidora Limitada (“ALS”) is engaged in the business of importation, commercialization and distribution of pharmaceuticalproducts for private markets in Chile. ALS started operations in 2009 as the exclusive product distributor of Arama Laboratorios y Compañía Limitada (“Arama”),a company with more than 20 years of experience in the pharmaceutical products market. In connection with the acquisition of ALS, OPKO acquired all of theproduct registrations and trademarks previously owned by Arama, as well as the Arama name.Strategic InvestmentsWe have and may continue to make investments in other early stage companies that we perceive to have valuable proprietary technology and significantpotential to create value for OPKO as a shareholder.RESEARCH AND DEVELOPMENT EXPENSESDuring the years ended December 31, 2016 , 2015, and 2014, we incurred $111.2 million , $99.5 million , and $83.6 million , respectively, of research anddevelopment expenses related to our various product candidates. During the years ended December 31, 2016 , 2015 and 2014, our research and developmentexpenses primarily consisted of OPKO Biologics and OPKO Renal development programs including, expenses related to the development of hGH-CTP and phase3 clinical trials for Rayaldee .INTELLECTUAL PROPERTYWe believe that technology innovation is driving breakthroughs in healthcare. We have adopted a comprehensive intellectual property strategy which blendsthe efforts to innovate in a focused manner with the efforts of our business development activities to strategically in-license intellectual property rights. Wedevelop, protect, and defend our own intellectual property rights as dictated by the developing competitive environment. We value our intellectual property assetsand believe we have benefited from early and insightful efforts at understanding diagnostics, as well as the disease and the molecular basis of potentialpharmaceutical intervention.We actively seek, when appropriate and available, protection for our products and proprietary information by means of U.S. and foreign patents, trademarks,trade secrets, copyrights, and contractual arrangements. Patent protection in the pharmaceutical and diagnostic fields, however, can involve complex legal andfactual issues. There can be no assurance that any steps taken to protect such proprietary information will be effective.We own or license-in over a thousand U.S. and foreign patents and applications for our products, product candidates and our outlicensed product candidates.These patents cover pharmaceuticals, diagnostics and other products and their uses, pharmaceutical and diagnostic compositions and formulations and productmanufacturing processes. Our patents are filed in various locations worldwide as is appropriate to the particular patent and its use.15RayaldeeWe have multiple U.S. patent families relating to Rayaldee . These patents are also filed in multiple countries worldwide. One patent family claims asustained release oral dosage formulation and a method of treating 25-hydroxy vitamin D insufficiency or deficiency and will not expire until at least February2027. A second patent family claims a method of administering 25-hydroxy vitamin D 3 by controlled release, a formulation for controlled release of a vitamin Dcompound, a controlled release oral dosage formulation of a vitamin D compound and a method of treatment, and will not expire until at least April 2028. We alsohave additional patent applications pending relating to the sustained release formulation and its use which will expire in 2034 and have licensed patents coveringthe capsule shell. The patents issued in the U.S. covering Rayaldee are listed in the Approved Drug Products with Therapeutic Equivalents Evaluations, or theOrange Book.RolapitantThe rolapitant line of patents, licensed to TESARO, includes multiple patent families that cover anti-nausea treatment for chemotherapy patients. These U.S.patents are also filed and granted in many countries around the world. One patent family covers the chemical composition of rolapitant and related compounds andexpires in December 2023 (with the patent term adjustment.) A patent term extension request was submitted to the USPTO in October 2015 to obtain an additional1,716 days which will, upon approval, extend the rolapitant compound patent expiration date to August 2028.The second patent family covers pharmaceuticalformulations, including a capsule formulation with a related method of use and expires in April of 2027. The third patent family covers particular aspects of thechemical composition of rolapitant as well as certain methods of treating delayed onset nausea and expires in April 2027. The fourth patent family covers apowdered pharmaceutical composition of a crystalline salt of rolapitant and expires in March 2028. The current line of rolapitant patents are approved for oraltreatment. Patent applications directed towards IV formulation of rolapitant are currently pending. In addition to the patents covering rolapitant, OPKO has anadditional patent family granted worldwide covering another NK-1 antagonist (SCH900978) that is in development for the treatment of pruritus.hGH-CTPThe hGH-CTP line of patents, which is currently licensed to Pfizer, Inc., includes two main patent families that cover modified human grown hormonetreatment. These U.S. patents are also filed in multiple countries around the world. One patent family covers certain CTP modified hGH polypeptides relating togrowth hormones and their method of use and expires in February of 2027 (with the exception of two US patents, namely US 8304386 and US 8097435, whichexpire in Jan 2028 and April 2027, respectively, due to Patent Term Adjustment for each). The second patent family covers cytokine-based polypeptides relating tohuman growth hormone treatment and expires in 2027. In addition to the CTP patents and applications licensed to Pfizer, OPKO has multiple patent familiescovering similar biologicals with patents and applications pending in the U.S. and internationally.TT401 and TT701In 2016, we acquired Transition Therapeutics, Inc. which is developing multiple drug candidates that include TT401 (a long acting oxyntomodulin) andTT701 (a selective androgen receptor modulator (SARM)), each of which are licensed from Eli Lilly and have granted patents worldwide covering the compoundsand their use in their respective indications. U.S. Pat. No. 8367607 covers TT401 and expires in December 2030, without extension. U.S. Pat. No. 7968587 coversTT701 and expires, without extension, in November 2027. In addition, Transition and its affiliates have patented compounds (scyllo-inositol) in development forthe treatment of Alzheimer’s disease. The patents are pending or granted in many countries of the world. We and/or our affiliates will seek all available patent termextensions for our product candidates and products.Because the patent positions of pharmaceutical, biotechnology, and diagnostics companies are highly uncertain and involve complex legal and factualquestions, the patents owned and licensed by us, or any future patents, may not prevent other companies from developing similar or therapeutically equivalentproducts or ensure that others will not be issued patents that may prevent the sale of our products or require licensing and the payment of significant fees orroyalties. Furthermore, to the extent that any of our future products or methods are not patentable, that such products or methods infringe upon the patents of thirdparties, or that our patents or future patents fail to give us an exclusive position in the subject matter claimed by those patents, we will be adversely affected. Wemay be unable to avoid infringement of third party patents and may have to obtain a license, defend an infringement action, or challenge the validity of the patentsin court. A license may be unavailable on terms and conditions acceptable to us, if at all. Patent litigation is costly and time consuming, and we may be unable toprevail in any such patent litigation or devote sufficient resources to even pursue such litigation.LICENSES AND COLLABORATIVE RELATIONSHIPS16Our strategy is to develop a portfolio of product candidates through a combination of internal development, acquisition, and external partnerships.Collaborations are key to our strategy and we continue to build relationships and forge partnerships in various areas where unmet medical need and commercialopportunities exist. In May 2016, we entered into a license and collaboration with VFMCRP for the development and commercialization of Rayaldee in Europe,Canada, Mexico, Australia, South Korea and certain other international markets for the treatment of SHPT in adults with CKD and vitamin D insufficiency. InDecember 2014, we entered into an exclusive agreement with Pfizer for the development and commercialization of our long-acting hGH-CTP for the treatment ofGHD in adults and children, as well as for the treatment of growth failure in children born small for gestational age. Previously, we (or entities we have acquired)have completed strategic licensing transactions with the University of Texas Southwestern Medical Center at Dallas, the President and Fellows of Harvard College,Academia Sinica, The Scripps Research Institute, TESARO, INEOS Healthcare, and Arctic Partners, among others.COMPETITIONThe pharmaceutical and diagnostic testing industries are highly competitive and require an ongoing, extensive search for technological innovation. Theindustries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. They also require, among otherthings, the ability to effectively discover, develop, test and obtain regulatory approvals for products, as well as the ability to effectively commercialize, market andpromote approved products.Numerous companies, including major pharmaceutical companies, specialty pharmaceutical companies and specialized biotechnology companies, areengaged in the development, manufacture and marketing of pharmaceutical products competitive with those that we are or intend to commercialize ourselves andthrough our partners. Competitors to our diagnostics business include major diagnostic companies, reference laboratories, molecular diagnostic firms, universitiesand research institutions. Most of these companies have substantially greater financial and other resources, larger research and development staffs and moreextensive marketing and manufacturing organizations than ours. This enables them, among other things, to make greater research and development investmentsand efficiently utilize their research and development costs, as well as their marketing and promotion costs, over a broader revenue base. This also provides ourcompetitors with a competitive advantage in connection with the highly competitive product acquisition and product in-licensing process, which may includeauctions in which the highest bidder wins. Our competitors may also have more experience and expertise in obtaining marketing approvals from the FDA and otherregulatory authorities. In addition to product development, testing, approval, and promotion, other competitive factors in the pharmaceutical and diagnosticsindustry include industry consolidation, product quality and price, product technology, reputation, customer service, and access to technical information.In our clinical laboratory operations, we compete with three types of providers in a highly fragmented and competitive industry: hospital laboratories,physician-office laboratories and other independent clinical laboratories. Our major competitors in the New York metropolitan area are two of the largest nationallaboratories, Quest Diagnostics and Laboratory Corporation of America. Although we are much smaller than these national laboratories, we believe that wecompete successfully with them in our region due to our innovative testing services and our level of service. We believe our responses to medical consultation arefaster and more personalized than those of the national laboratories. Our client service staff deals only with basic technical questions and those that have medical orscientific significance are referred directly to our senior scientists and medical staff.We are seeking to commercialize our 4Kscore product in the U.S., Europe and Mexico in a laboratory setting and to capitalize on near-termcommercialization opportunities for our proprietary diagnostic point-of-care system by transitioning laboratory-based tests, including the 4Kscore , PSA,testosterone and other tests to our point-of-care system. We expect to leverage Bio-Reference’s national marketing, sales and distribution resources, along with its400-person sales and marketing team to support commercialization of the 4Kscore and Claros 1 products. Competitors to our diagnostics business are many andinclude major diagnostic companies, molecular diagnostic firms, universities, and research institutions.Our ability to commercialize our pharmaceutical and diagnostic test product candidates and compete effectively will depend, in large part, on:•our ability to meet all necessary regulatory requirements to advance our product candidates through clinical trials and the regulatory approval processin the U.S. and abroad;•the perception by physicians and other members of the health care community of the safety, efficacy, and benefits of our products compared to thoseof competing products or therapies;•our ability to manufacture products we may develop on a commercial scale;•the effectiveness of our sales and marketing efforts;17•the willingness of physicians to adopt a new diagnostic or treatment regimen represented by our technology;•our ability to secure reimbursement for our product candidates;•the price of the products we may develop and commercialize relative to competing products;•our ability to accurately forecast and meet demand for our product candidates if regulatory approvals are achieved;•our ability to develop a commercial scale infrastructure either on our own or with a collaborator, which would include expansion of existing facilities,including our manufacturing facilities, development of a sales and distribution network, and other operational and financial systems necessary tosupport our increased scale;•our ability to maintain a proprietary position in our technologies; and•our ability to rapidly expand the existing information technology infrastructure and configure existing operational, manufacturing, and financialsystems (on our own or with third party collaborators) necessary to support our increased scale, which would include existing or additional facilitiesand or partners.GOVERNMENT REGULATIONThe U.S. government regulates healthcare through various agencies, including but not limited to the following: (i) the FDA, which administers the FederalFood, Drug and Cosmetic Act (“FDCA”), as well as other relevant laws; (ii) the Centers for Medicare & Medicaid Services (“CMS”), which administers theMedicare and Medicaid programs; (iii) the Office of Inspector General (“OIG”), which enforces various laws aimed at curtailing fraudulent or abusive practices,including by way of example, the Anti-Kickback Statute, the Physician Self-Referral Law, commonly referred to as the Stark law, the Civil Monetary Penalty Law(including the beneficiary inducement prohibition) ("CMP"), and the laws that authorize the OIG to exclude healthcare providers and others from participating infederal healthcare programs; and (iv) the Office of Civil Rights, which administers the privacy aspects of the Health Insurance Portability and Accountability Actof 1996. All of the aforementioned are agencies within the Department of Health and Human Services (“HHS”). Healthcare is also provided or regulated, as thecase may be, by the Department of Defense through its TriCare program, the Department of Veterans Affairs, especially through the Veterans Health Care Act of1992, the Public Health Service within HHS under Public Health Service Act § 340B (42 U.S.C. § 256b), the Department of Justice through the Federal FalseClaims Act and various criminal statutes, and state governments under the Medicaid and other state sponsored or funded programs and their internal lawsregulating all healthcare activities.The testing, manufacture, distribution, advertising, and marketing of drug and diagnostic products and medical devices, as well as the performance of clinicaltesting services, are subject to extensive regulation by federal, state, and local governmental authorities in the U.S., including the FDA, and by similar agencies inother countries. Any drug, diagnostic, or device product that we develop must receive all relevant regulatory approvals or clearances, as the case may be, before itmay be marketed in a particular country.Clinical Laboratory OperationsOur clinical laboratory operations are subject to regulations, which are designed to ensure the quality and reliability of clinical laboratories by mandatingspecific standards in the areas of personnel qualifications, administration and participation in proficiency testing, patient test management, quality control, qualityassurance and inspections. Laboratories must undergo on-site surveys at least every two years, which may be conducted by the Federal Clinical LaboratoryImprovement Amendments (“CLIA”) program or by a private CMS approved accrediting agency. The sanction for failure to comply with CLIA requirements maybe suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, as well as significant fines and/or criminalpenalties. We are also subject to regulation of laboratory operations under state clinical laboratory laws. State clinical laboratory laws may require that laboratoriesand/or laboratory personnel meet certain qualifications, specify certain quality controls or require maintenance of certain records. Certain states, such as New York,California, Maryland, Pennsylvania, Rhode Island and Florida, each require that we obtain licenses to test specimens from patients residing in those states andadditional states may require similar licenses in the future. Only Washington and New York State are exempt under CLIA, as these states have establishedlaboratory quality standards at least as stringent as CLIA’s. Potential sanctions for violation of these statutes and regulations include significant fines and thesuspension or loss of various licenses, certificates and authorizations.Our clinical laboratory operations are subject to complex laws, regulations and licensure requirements relating to billing and payment for laboratory services,sales and marketing interactions with ordering physicians and other health care providers, security and confidentiality of health information, and environmental andoccupational safety, among others. Changes in regulations often increase the cost of testing or processing claims. Also, these laws may be interpreted or applied bya18prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our operations, including in our pricing, billing and/ormarketing practices in a manner that could adversely affect operations. Drug DevelopmentThe regulatory process, which includes overseeing preclinical studies and clinical trials of each pharmaceutical compound to establish its safety and efficacyand confirmation by the FDA that good laboratory, clinical, and manufacturing practices were maintained during testing and manufacturing, can take many years,requires the expenditure of substantial resources, and gives larger companies with greater financial resources a competitive advantage over us. Delays orterminations of clinical trials that we undertake would likely impair our development of product candidates. Delays or terminations could result from a number offactors, including stringent enrollment criteria, slow rate of enrollment, size of patient population, having to compete with other clinical trials for eligible patients,geographical considerations, and others.Although accelerated pathways for approval exist for certain drugs, generally, FDA review processes can be lengthy and unpredictable, and we mayencounter delays or rejections of our applications when submitted. Generally, in order to gain FDA approval, we must first conduct preclinical studies in alaboratory and in animal models to obtain preliminary information on a compound and to identify any safety problems. The results of these studies are submitted aspart of an IND application that the FDA must review before human clinical trials of an investigational drug can commence.Clinical trials are normally done in three sequential phases and generally take two to five years or longer to complete. Phase 1 consists of testing the drugproduct in a small number of humans, normally healthy volunteers, to determine preliminary safety and tolerable dose range. Phase 2 usually involves studies in alimited patient population to evaluate the effectiveness of the drug product in humans having the disease or medical condition for which the product is indicated,determine dosage tolerance and optimal dosage, and identify possible common adverse effects and safety risks. Phase 3 consists of additional controlled testing atmultiple clinical sites to establish clinical safety and effectiveness in an expanded patient population of geographically dispersed test sites to evaluate the overallbenefit-risk relationship for administering the product and to provide an adequate basis for product labeling. Phase 4 clinical trials may be conducted- and aresometimes required - after approval to gain additional experience from the treatment of patients in the intended therapeutic indication. There are also certainsituations when drugs and biologics are eligible for one of FDA’s expedited approval programs, designed to shorten review and development time.After completion of clinical trials of a new drug product, FDA and foreign regulatory authority marketing approval must be obtained. Assuming that theclinical data support the product’s safety and effectiveness for its intended use, a Biologics License Application (BLA) or an NDA is submitted to the FDA for itsreview. Generally, it takes one to three years to obtain approval. If questions arise during the FDA review process, approval may take a significantly longer periodof time. The testing and approval processes require substantial time and effort and we may not receive approval on a timely basis, if at all, or the approval that wereceive may be for a narrower indication than we had originally sought, potentially undermining the commercial viability of the product. Even if regulatoryapprovals are obtained, a marketed product is subject to continual review, and later discovery of previously unknown problems or failure to comply with theapplicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil orcriminal sanctions. For marketing outside the U.S., we also will be subject to foreign regulatory requirements governing human clinical trials and marketingapproval for pharmaceutical products. The requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary widely fromcountry to country.Other than Rayaldee , none of our pharmaceutical products under development have been approved for marketing in the U.S. or elsewhere. We may not beable to obtain regulatory approval for any such products under development in a timely manner, if at all. Failure to obtain requisite governmental approvals orfailure to obtain approvals of the scope requested will delay or preclude us, or our licensees or marketing partners, from marketing our products, or limit thecommercial use of our products, and thereby would have a material adverse effect on our business, financial condition, and results of operations. See “Risk Factors— The results of pre-clinical trials and previous clinical trials for our products may not be predictive of future results, and our current and planned clinical trialsmay not satisfy the requirements of the FDA or other non-U.S. regulatory authorities.”Device DevelopmentMedical devices are subject to varying levels of premarket regulatory control, the most comprehensive of which requires human clinical trials be conductedbefore a device receives approval for commercial distribution. The FDA classifies medical devices into one of three classes based upon their risk profile (both tothe patient and provider): Class I devices are relatively simple “low risk” technologies, and can be manufactured and distributed with general controls without apremarket clearance or approval from the FDA; Class II devices are somewhat more complex “moderate risk” devices, and require greater scrutiny from theagency, requiring a premarket clearance from the FDA before market entry; Class III devices are “high risk”19technologies inserted or implanted in the body, intended to treat life sustaining functions. These Class III technologies require a premarket approval from the FDAbefore market entry.In the U.S., a company generally can obtain permission to distribute a new device in one of two ways. The first applies to a Class II device that issubstantially equivalent to a device first marketed prior to May 1976, or to another device marketed after that date, but which was substantially equivalent to a pre-May 1976 device. To obtain FDA permission to distribute the device, a company generally must submit a section 510(k) premarket notification, and receive anFDA order finding substantial equivalence to a predicate device (pre-May 1976 or post-May 1976 device that was substantially equivalent to a pre-May 1976device) and permitting commercial distribution of that device for its intended use. A 510(k) submission must provide information supporting a claim of substantialequivalence to the predicate device. If clinical data from human experience are required to support the 510(k) submission, these data must be gathered incompliance with investigational device exemption (“IDE”), regulations for investigations performed in the U.S. The 510(k) process is normally used for productsof the type that the Company proposes distributing. The FDA review process for premarket notifications submitted pursuant to section 510(k) takes, on average,about 90 days, but it can take substantially longer if the FDA has concerns, and there is no guarantee that the FDA will “clear” the device for marketing, in whichcase the device cannot be distributed in the U.S. There is also no guarantee that the FDA will deem the applicable device subject to the 510(k) process, as opposedto the more time-consuming, resource-intensive and problematic, PMA process described below.The second, more comprehensive, PMA process, which can take a year or longer, applies to a new device that is not substantially equivalent to a pre-1976product or that is to be used in supporting or sustaining life or preventing impairment. These devices are normally Class III devices. For example, most implantabledevices are subject to the approval process. Two steps of FDA approval are generally required before a company can market a product in the U.S. that is subject toapproval, as opposed to clearance. First, a company must comply with IDE regulations in connection with any human clinical investigation of the device. Theseregulations permit a company to undertake a clinical study of a “non-significant risk” device without formal FDA approval. Prior express FDA approval is requiredif the device is a significant risk device. Second, the FDA must review the company’s PMA application, which contains, among other things, clinical informationacquired under the IDE. The FDA will approve the PMA application if it finds there is reasonable assurance that the device is safe and effective for its intendeduse. The PMA process takes substantially longer than the 510(k) process and it is conceivable that the FDA would not agree with our assessment that a device thatwe propose to distribute should be a Class I or Class II device. If that were to occur we would be required to undertake the more complex and costly PMA process.However, for either the 510(k) or the PMA process, the FDA could require us to run clinical trials, which would pose all of the same risks and uncertaintiesassociated with the clinical trials of drugs, described above.Even when a clinical study has been approved by the FDA or deemed approved, the study is subject to factors beyond a manufacturer’s control, including,but not limited to the fact that the institutional review board at a given clinical site might not approve the study, might decline to renew approval which is requiredannually, or might suspend or terminate the study before the study has been completed. Also, the interim results of a study may not be satisfactory, leading thesponsor to terminate or suspend the study on its own initiative or the FDA may terminate or suspend the study. There is no assurance that a clinical study at anygiven site will progress as anticipated; there may be an insufficient number of patients who qualify for the study or who agree to participate in the study or theinvestigator at the site may have priorities other than the study. Also, there can be no assurance that the clinical study will provide sufficient evidence to assure theFDA that the product is safe and effective, a prerequisite for FDA approval of a PMA, or substantially equivalent in terms of safety and effectiveness to a predicatedevice, a prerequisite for clearance under 510(k). Even if the FDA approves or clears a device, it may limit its intended uses in such a way that manufacturing anddistributing the device may not be commercially feasible. For marketing outside the U.S., we also will be subject to foreign regulatory requirements governingclinical trials and marketing approval for medical devices. The requirements governing the conduct of clinical trials, device clearance/approval, pricing, andreimbursement vary widely from country to country. In addition to the regulatory clearance and approval processes described herein, the FDA periodically issuesdraft guidance documents designed to provide additional detail on or reform aspects of the 510(k) and PMA clearance and approval processes. To the extent theFDA finalizes and implements these documents, the average 510(k) and PMA submission requirements and review times may change and devices that mightpreviously have been cleared under the 510(k) process may require approval under the PMA process (and vice-versa). Additionally, the Medical Device User FeeAmendments of 2012 authorized the FDA to collect user fees for the review of certain premarket submissions received on or after October 1, 2012, including510(k) and PMA applications. These fees are intended to improve the device review process, but it is still too early to assess the actual impact on the industry.After clearance or approval to market is given, the FDA and foreign regulatory agencies, upon the occurrence of certain events, are authorized under variouscircumstances to withdraw the clearance or approval or require changes to a device, its manufacturing process or its labeling or additional proof that regulatoryrequirements have been met.20A manufacturer of a device approved through the PMA is not permitted to make changes to the device, which affects its safety or effectiveness without firstsubmitting a supplement application to its PMA and obtaining FDA approval for that supplement. In some instances, the FDA may require clinical trials to supporta supplement application. A manufacturer of a device cleared through the 510(k) process must submit another premarket notification if it intends to make a changeor modification in the device that could significantly affect the safety or effectiveness of the device, such as a significant change or modification in design,material, chemical composition, energy source or manufacturing process. Any change in the intended uses of a PMA device or a 510(k) device requires anapproved PMA supplement or a cleared premarket notification. Exported devices are subject to the regulatory requirements of each country to which the device isexported, as well as certain FDA export requirements.A company that intends to manufacture medical devices is required to register with the FDA before it begins to manufacture the device for commercialdistribution. As a result, we and any entity that manufactures products on our behalf will be subject to periodic inspection by the FDA for compliance with theFDA’s Quality System Regulation requirements and other regulations. In the European Community, we will be required to maintain certain InternationalOrganization for Standardization (“ISO”), certifications in order to sell products and we or our manufacturers undergo periodic inspections by notified bodies toobtain and maintain these certifications. These regulations require us or our manufacturers to manufacture products and maintain documents in a prescribed mannerwith respect to design, manufacturing, testing and control activities. Further, we are required to comply with various FDA and other agency requirements forlabeling and promotion. The Medical Device Reporting regulations require that we provide information to the FDA whenever there is evidence to reasonablysuggest that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or seriousinjury. In addition, the FDA prohibits us from promoting a medical device for unapproved indications.Diagnostic ProductsCertain of our diagnostic products in development are subject to regulation by the FDA and similar international health authorities. For these products, wehave an obligation to adhere to the FDA’s cGMP regulations. Additionally, we are subject to periodic FDA inspections, quality control procedures, and otherdetailed validation procedures. If the FDA finds deficiencies in the validation of our manufacturing and quality control practices, they may impose restrictions onmarketing specific products until corrected.Regulation by governmental authorities in the U.S. and other countries may be a significant factor in how we develop, test, produce and market ourdiagnostic test products. Diagnostic tests like ours may not fall squarely within the regulatory approval process for pharmaceutical or device products as describedabove, and the regulatory pathway is not as clear. Although the FDA regulates in vitro diagnostic devices, some companies have successfully commercializeddiagnostic tests for various conditions and disease states without seeking clearance or approval for such tests through a 510(k) or PMA approval process. Thesetests are known as laboratory developed tests (“LDTs”) and are designed, manufactured, and used within a single laboratory that is certified under the ClinicalLaboratory Improvement Amendments of 1988 (“CLIA”). CLIA is a federal law that regulates clinical laboratories that perform testing on specimens derived fromhumans for the purpose of providing information for diagnostic, preventative or treatment purpose. Such LDT testing is currently under the purview of CMS andstate agencies that provide oversight of the safe and effective use of LDTs.However, the FDA has consistently asserted that it has the regulatory authority to regulate LDTs despite historically exercising enforcement discretion. Infurtherance of that position, the FDA issued two draft guidance documents in October 2014: (1) Framework for Regulatory Oversight of Laboratory DevelopedTests (the “Framework Guidance”); and (2) FDA Notification and Medical Device Reporting for Laboratory Developed Tests (the “Notification Guidance”). TheFramework Guidance outlines the FDA’s plan to adopt over time a risk-based approach to regulating LDTs whereby different classifications of LDTs would besubject to different levels of FDA oversight and enforcement, including, for example, prohibitions on adulteration and misbranding, establishment registration anddevice listing, premarket notification, banned devices, records and reports, good manufacturing practices, adverse event reporting, premarket review of safety,effectiveness, and clinical validity, and quality system requirements. The Notification Guidance is intended to explain how clinical laboratories should notify theFDA of the LDTs they develop and how to satisfy Medical Device Reporting requirements. However, the FDA indicated in November 2016 that it would delayimplementation of the Framework Guidance and the Notification Guidance, and seek additional input from industry. In addition, on January 13, 2017, the FDApublished a synthesis of feedback on the Framework Guidance and Notification Guidance titled, Discussion Paper on Laboratory Developed Tests (the “DiscussionPaper”). The Discussion Paper provided notice that the FDA would not issue a final guidance on the oversight of LDTs to allow for further public discussion onappropriate oversight approach, and to give congressional authorizing committees the opportunity to develop a legislative solution.21If finalized in the October 2014 format, the Framework Guidance and the Notification Guidance may have a materially adverse effect on the time, cost, andrisk associated with the Company’s development and commercialization of LDTs for the U.S. market, and there can be no assurance that clearances or approvalssought by the Company will be granted and maintained. However, the FDA’s authority to regulate LDTs continues to be challenged, the FDA has indicated that itwill continue dialogue with the industry, and the timeline and process for finalizing the draft guidance documents is unknown. We will continue to monitorchanges to all domestic and international LDT regulatory policy so as to ensure compliance with the current regulatory scheme.Impact of RegulationThe FDA in the course of enforcing the FDCA may subject a company to various sanctions for violating FDA regulations or provisions of the FDCA,including requiring recalls, issuing Warning Letters, seeking to impose civil money penalties, seizing devices that the agency believes are non-compliant, seekingto enjoin distribution of a specific type of device or other product, seeking to revoke a clearance or approval, seeking disgorgement of profits and seeking tocriminally prosecute a company and its officers and other responsible parties.The levels of revenues and profitability of biopharmaceutical companies may be affected by the continuing efforts of government and third party payers tocontain or reduce the costs of health care through various means. For example, in certain foreign markets, pricing or profitability of therapeutic and otherpharmaceutical products is subject to governmental control. In the U.S., there have been, and we expect that there will continue to be, a number of federal and stateproposals to implement similar governmental control. In addition, in the U.S. and elsewhere, sales of therapeutic and other pharmaceutical products are dependentin part on the availability and adequacy of reimbursement from third party payers, such as the government or private insurance plans. Third party payers areincreasingly challenging established prices, and new products that are more expensive than existing treatments may have difficulty finding ready acceptance unlessthere is a clear therapeutic benefit. On April 1, 2014, the Protecting Access to Medicare Act of 2014 (“PAMA”) was enacted into law. Under PAMA, Medicarepayment for clinical diagnostic laboratory tests will be established by calculating a weighted mean of private payer rates with new rates to be effective January 1,2018. Further, applicable laboratories will be required to report payment rates for covered tests starting in 2016 (to establish the payment rates that will be effectiveJanuary 1, 2018). Failure to report such data may result in a civil money penalty in an amount of up to $10,000 per day. It is anticipated that the market-basedpayment system will result in lower reimbursement rates for clinical diagnostic laboratory tests. Even though the permitted annual decrease will be capped through2023, the cap does not apply to new tests or new advanced diagnostic tests. We cannot assure you that any of our products will be considered cost effective, or thatreimbursement will be available or sufficient to allow us to sell them competitively and profitably.State and Federal Security and Privacy RegulationsThe privacy and security regulations under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health InformationTechnology for Economic and Clinical Health Act of 2009 ( the “HITECH Act”, and collectively, “HIPAA”), establish comprehensive federal standards withrespect to the uses and disclosures of protected health information, or PHI, by health plans and health care providers, in addition to setting standards to protect theconfidentiality, integrity and availability of electronic PHI. The regulations establish a complex regulatory framework on a variety of subjects, including:•the circumstances under which uses and disclosures of PHI are permitted or required without a specific authorization by the patient, including but notlimited to treatment purposes, to obtain payments for services and health care operations activities;•a patient’s rights to access, amend and receive an accounting of certain disclosures of PHI;•the content of notices of privacy practices for PHI; and•administrative, technical and physical safeguards required of entities that use or receive PHI electronically.The final omnibus rule implementing the HITECH Act took effect on March 26, 2013. The rule is broad in scope, but certain provisions are particularlysignificant in light of our business operations. For example, the final “omnibus” rule implementing the HITECH Act:•Makes clear that situations involving impermissible access, acquisition, use or disclosure of protected health information are now presumed to be abreach unless the covered entity or business associate is able to demonstrate that there is a low probability that the information has beencompromised;•Defines the term “business associate” to include subcontractors and agents that receive, create, maintain or transmit protected health information onbehalf of the business associate;22•Establishes new parameters for covered entities and business associates on uses and disclosures of PHI for fundraising and marketing; and•Establishes clear restrictions on the sale of PHI without patient authorization.As a provider of clinical laboratory services and as we launch commercial diagnostic tests, we must continue to implement policies and procedures related tocompliance with the HIPAA privacy and security regulations, as required by law. The privacy and security regulations provide for significant fines and otherpenalties for wrongful use or disclosure of PHI, including potential civil and criminal fines and penalties.Anti-Kickback Laws, Physician Self-Referral Laws, False Claims Act, Civil Monetary PenaltiesWe are also subject to various federal, state, and international laws pertaining to health care “fraud and abuse,” including anti-kickback laws and false claimslaws. The federal Anti-Kickback Statute prohibits anyone from knowingly and willfully soliciting, receiving, offering, or paying any remuneration with the intentto refer, or to arrange for the referral or order of, services or items payable under a federal health care program, including the purchase or prescription of aparticular drug or the use of a service or device. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficialarrangements, Congress authorized the U.S. Department of Health and Human Services Office of Inspector General, or OIG, to issue a series of regulations, knownas “safe harbors.” These safe harbors set forth requirements that, if met in their entirety, will assure health care providers and other parties that they will not beprosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily meanthat it is illegal, or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result inincreased scrutiny by government enforcement authorities, such as the OIG.Violations of the Anti-Kickback Statute are punishable by the imposition of criminal fines, civil money penalties, treble damages, and/or exclusion fromparticipation in federal health care programs. Many states have also enacted similar anti-kickback laws. The Anti-Kickback Statute and similar state laws andregulations are expansive. If the government were to allege against or convict us of violating these laws, there could be a material adverse effect on our business,results of operations, financial condition, and our stock price. Even an unsuccessful challenge could cause adverse publicity and be costly to respond to, whichcould have a materially adverse effect on our business, results of operations and financial condition. We will consult counsel concerning the potential applicationof these and other laws to our business and our sales, marketing and other activities and will make good faith efforts to comply with them. However, given thebroad reach of federal and state anti-kickback laws and the increasing attention given by law enforcement authorities, we are unable to predict whether any of ouractivities will be challenged or deemed to violate these laws.We are also subject to the physician self-referral laws, commonly referred to as the Stark law, which is a strict liability statute that generally prohibitsphysicians from referring Medicare patients to providers of “designated health services,” including clinical laboratories, with whom the physician or thephysician’s immediate family member has an ownership interest or compensation arrangement, unless an applicable exception applies. Moreover, many states haveadopted or are considering adopting similar laws, some of which extend beyond the scope of the Stark law to prohibit the payment or receipt of remuneration forthe prohibited referral of patients for designated healthcare services and physician self-referrals, regardless of the source of the payment for the patient’s care. If itis determined that certain of our practices or operations violate the Stark law or similar statutes, we could become subject to civil and criminal penalties, includingexclusion from the Medicare programs and loss of government reimbursement. The imposition of any such penalties could harm our business.Another development affecting the health care industry is the increased use of the federal civil False Claims Act and, in particular, actions brought pursuantto the False Claims Act’s “whistleblower” or “qui tam” provisions. The False Claims Act, as amended by the Fraud Enforcement and Recovery Act of 2009 andthe Patient Protection and Affordable Care Act of 2010 (“Affordable Care Act”), imposes liability on any person or entity who, among other things, knowinglypresents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program. We submit claims for services performed at ourlaboratories. The qui tam provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government alleging that thedefendant has submitted a false claim to the federal government, and to share in any monetary recovery. In recent years, the number of suits brought by privateindividuals has increased dramatically. In addition, various states have enacted false claim laws analogous to the False Claims Act. Many of these state laws applywhere a claim is submitted to any third-party payor and not merely a federal health care program. When an entity is determined to have violated the False ClaimsAct, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. There are manypotential bases for liability under the False Claims Act. Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim forreimbursement to the federal government. The False Claims Act has been used to assert liability on the basis of inadequate care, kickbacks and other improperreferrals, improper use of Medicare numbers when detailing the provider of services, and allegations as to misrepresentations with respect to the services rendered.Our activities relating to the sale and marketing of23our products may be subject to scrutiny under these laws. We are unable to predict whether we would be subject to actions under the False Claims Act or a similarstate law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed, could significantly adversely affect ourfinancial performance.Further, the beneficiary inducement prohibition of the federal Civil Monetary Penalty Law prohibits any entity from offering or transferring to a Medicare orMedicaid beneficiary any remuneration that the entity knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioneror supplier of Medicare or Medicaid payable items or services, including waivers of copayments and deductible amounts (or any part thereof) and transfers ofitems or services for free or for other than fair market value. On December 7, 2016, the OIG released amendments to the CMP. Some of the amendments mayimpact our business, such as allowing certain remuneration to financially needy individuals. Entities found in violation may be liable for civil monetary penalties ofup to $10,000 for each wrongful act. Although we believe that our sales and marketing practices are in material compliance with all applicable federal and statelaws and regulations, relevant regulatory authorities may disagree and violation of these laws, or, our exclusion from such programs as Medicaid and othergovernmental programs as a result of a violation of such laws, could have a material adverse effect on our business, results of operations, financial condition andcash flows.Sunshine ActWith the launch of Rayaldee , we are now subject to the federal Physician Payments Sunshine Act under the Affordable Care Act, and its implementingregulations (the “Sunshine Act”). The Sunshine Act requires manufacturers of drugs, devices, biological and medical supplies covered by Medicare, Medicaid orthe Children’s Health Insurance Program, to report information related to certain payments or other transfers of value made or distributed to physicians andteaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals. Manufacturers must also report,on an annual basis, certain ownership and investment interests held by physicians and their immediate family members and payments or other “transfers of value”made to such physician owners. A failure to report each payment, other transfer of value, or ownership/investment interest in a timely, accurate, and completemanner may result in civil monetary penalties of up to $150,000 annually. Further, the “knowing” failure to report each payment, other transfer of value, orownership/investment interest may result in a one million dollar annual penalty. Several other states and a number of countries worldwide have adopted or areconsidering the adoption of similar transparency laws. Any failure by us to implement proper procedures to track and report on a timely basis transfers of value tophysicians and teaching hospitals could result in substantial penalties.Foreign Corrupt Practices ActWe are also subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits corporations and individuals from paying, offering to pay, orauthorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt toobtain or retain business or to otherwise influence a person working in an official capacity. The FCPA also requires public companies to make and keep books andrecords that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls. Our internationalactivities create the risk of unauthorized payments or offers of payments by our employees, consultants, sales agents or distributors, even though they may notalways be subject to our control. We discourage these practices by our employees and agents. However, our existing safeguards and any future improvements mayprove to be less than effective, and our employees, consultants, sales agents or distributors may engage in conduct for which we might be held responsible. Anyfailure by us to adopt appropriate compliance procedures and ensure that our employees and agents comply with the FCPA and applicable laws and regulations inforeign jurisdictions could result in substantial penalties or restrictions on our ability to conduct business in certain foreign jurisdictions.MANUFACTURING AND QUALITYOther than our facilities in Waterford, Ireland, Guadalajara, Mexico, Nesher, Israel, and Banyoles, Spain, we currently have no pharmaceuticalmanufacturing facilities. We have entered into agreements with various third parties for the formulation and manufacture of our pharmaceutical clinical supplies.These suppliers and their manufacturing facilities must comply with FDA regulations, current good laboratory practices (“cGLPs”) and current goodmanufacturing practices (“cGMPs”). We plan to outsource the manufacturing and formulation of our clinical supplies.The FDA and similar regulatory bodies may inspect our facilities and the facilities of those who manufacture on our behalf worldwide. If the FDA or similarregulatory bodies inspecting our facilities or the facilities of our suppliers find regulatory violations in manufacturing and quality control practices or proceduresthey may require us to cease partial or complete manufacturing operations until the violations are corrected. They may also impose restrictions on distribution ofspecific products until the violations are corrected.24Our point-of-care diagnostic system consists of a disposable test cassette and an analyzer. We prepare all necessary test reagents and assemble and packagethe disposable cassettes at our facility in Woburn, Massachusetts. We rely on third parties for the manufacture of the analyzer.We are committed to providing high quality products to our customers, and we plan to meet this commitment by working diligently to continueimplementing updated and improved quality systems and concepts throughout our organization.SALES & MARKETINGOur diagnostics business includes Bio-Reference’s 400-person sales and marketing team in the U.S. to drive growth and leverage new products, including the4Kscore prostate cancer test and the Claros 1 in-office immunoassay platform. We have a highly specialized, field based 50-person sales and marketing team in theU.S. dedicated to the launch and commercialization of Rayaldee . We also have limited sales and marketing personnel in Ireland, Chile, Spain, Mexico and Israel.EMPLOYEESAs of December 31, 2016 , we had 6,041 full-time employees worldwide. None of our employees are represented by a collective bargaining agreement.Code of EthicsWe have adopted a Code of Business Conduct and Ethics. We require all employees, including our principal executive officer and principal accountingofficer and other senior officers and our employee directors, to read and to adhere to the Code of Business Conduct and Ethics in discharging their work-relatedresponsibilities. Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of the Code of Business Conductand Ethics. The Code of Business Conduct and Ethics is available on our website at http://www.OPKO.com.Available InformationWe make available free of charge on or through our web site, at www.opko.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the SEC.Additionally, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington,D.C., 20549. Information regarding operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. Information that we file with theSEC is also available at the SEC’s Web-site at www.sec.gov.ITEM 1A. RISK FACTORS.You should carefully consider the risks described below, as well as other information contained in this report, including the consolidated financial statementsand the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the eventsdiscussed below could significantly and adversely affect our business, prospects, results of operations, financial condition, and cash flows.RISKS RELATED TO OUR BUSINESSWe have a history of operating losses and may not become profitable in the near future.We are not profitable and have incurred losses since our inception. We may not generate substantial revenue from the sale of proprietary pharmaceuticalproducts or certain of our diagnostic products for some time and we have generated only limited revenue from our pharmaceutical operations in the United States,Chile, Mexico, Israel, Spain, and Ireland, and from sale of the 4Kscore test. We may not successfully leverage the national marketing, sales and distributionresources of Bio-Reference to enhance sales of, and reimbursement for, our 4Kscore test and our other diagnostic products under development, which wouldadversely impact our ability to generate substantial revenue from the sale of these products for some time. Rayaldee is our only pharmaceutical product that hasbeen approved for marketing, other than those products sold by our Chilean, Mexican, Israeli, Spanish, and Irish subsidiaries. We continue to incur substantialresearch and development and general and administrative expenses related to our operations and, to date, we have devoted most of our financial resources toresearch and development, including our pre-clinical development activities and clinical trials. We may incur losses from our operations for the foreseeable futureand these losses could increase as we continue our research activities and conduct development of, and seek regulatory approvals and clearances for, our productcandidates, and prepare for and begin to commercialize any approved or cleared products, particularly if we are unable to generate profits and cash flow fromBio‑Reference and our other commercial businesses. If we are unable to generate profits and cash flow from Bio-Reference and our other commercial businesses,our product candidates fail in clinical trials or do not gain regulatory approval or clearance, or if our approved products and product candidates do not achievemarket acceptance, we may never become profitable. In particular, if we are unable to successfully commercialize Rayaldee , we may never generate substantialrevenues from Rayaldee or achieve profitability. In addition, if we are required by the U.S. Food and Drug Administration (“FDA”), to perform studies in additionto those we currently anticipate, our expenses will increase beyond current expectations and the timing of any potential product approval may be delayed. Even ifwe achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.We may require substantial additional funding, which may not be available to us on acceptable terms, or at all.As of December 31, 2016 , we have cash and cash equivalents of $168.7 million . We believe we have sufficient cash and cash equivalents on hand oravailable to us from operations or through lines of credit to meet our anticipated cash requirements for operations and debt service beyond the next 12 months. Wehave based this estimate on assumptions that may prove to be wrong or subject to change, and we may be required to use our available capital resources soonerthan we currently expect or curtail aspects of our operations in order to preserve our capital. Because of the numerous risks and uncertainties associated with thedevelopment and commercialization of our products and product candidates, the success of our relationship with Pfizer and VFMCRP and the success of ourintegration of Bio-Reference and Transition Therapeutics, we are unable to estimate the amounts of increased capital outlays and operating expenditures associatedwith our current and anticipated clinical trials and our expanded commercial operations. Our future capital requirements will depend on a number of factors,including the successful commercialization of Rayaldee , our relationship with Pfizer and VFMCRP, cash flow generated by Bio-Reference and costs associatedwith the integration of the Bio-Reference and Transition Therapeutics operations, the continued progress of our research and development of product candidates,the timing and outcome of clinical trials and regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patentclaims and other intellectual property rights, the status of competitive products, the availability of financing, and our success in developing markets for ourproducts and product candidates.Until we can generate a sufficient amount of product and service revenue to finance our cash requirements for research, development and operations, we willneed to finance future cash needs primarily through public or private equity offerings, debt financings, or strategic collaborations. Our ability to obtain additionalcapital may depend on prevailing economic conditions and financial, business and other factors beyond our control. Disruptions in the U.S. and global financialmarkets may adversely impact the availability and cost of credit, as well as our ability to raise money in the capital markets. Economic conditions have been, andcontinue to be, volatile. Continued instability in these market conditions may limit our ability to25replace, in a timely manner, maturing liabilities and access the capital necessary to fund and grow our business. There can be no assurance that additional capitalwill be available to us on acceptable terms, or at all, which could adversely impact our business, results of operations, liquidity, capital resources and financialcondition. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials orresearch and development programs. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience additionalsignificant dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through collaboration andlicensing arrangements, it may be necessary to relinquish some rights to our technologies or our products and product candidates or grant licenses on terms thatmay not be favorable to us. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediateneed for additional capital at that time.Our research and development activities may not result in commercially viable products.Many of our product candidates are in the early stages of development and are prone to the risks of failure inherent in drug, diagnostic, and medical deviceproduct development. These risks further include the possibility that such products would:•be found to be ineffective, unreliable, or otherwise inadequate or otherwise fail to receive regulatory approval;•be difficult or impossible to manufacture on a commercial scale;•be uneconomical to market or otherwise not be effectively marketed;•fail to be successfully commercialized if adequate reimbursement from government health administration authorities, private health insurers, andother organizations for the costs of these products is unavailable;•be impossible to commercialize because they infringe on the proprietary rights of others or compete with products marketed by others that aresuperior; or•fail to be commercialized prior to the successful marketing of similar products by competitors.The results of pre-clinical trials and previous clinical trials for our products may not be predictive of future results, and our current and planned clinical trialsmay not satisfy the requirements of the FDA or other non-U.S. regulatory authorities.Positive results from pre-clinical studies and early clinical trial experience should not be relied upon as evidence that later-stage or large-scale clinical trialswill succeed. Likewise, there can be no assurance that the results of studies conducted by collaborators or other third parties will be viewed favorably or areindicative of our own future study results. We may be required to demonstrate with substantial evidence through well-controlled clinical trials that our productcandidates are either (i) with respect to drugs or Class III devices, safe and effective for use in a diverse population of their intended uses or (ii) with respect toClass I or Class II devices, are substantially equivalent in terms of safety and effectiveness to devices that are already marketed under section 510(k) of the Food,Drug and Cosmetic Act. Success in early clinical trials does not mean that future clinical trials will be successful because product candidates in later-stage clinicaltrials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and other non-U.S. regulatory authorities despite having progressedthrough initial clinical trials.Further, our drug candidates may not be approved or cleared even if they achieve their primary endpoints in phase 3 clinical trials or registration trials. Inaddition our diagnostic test candidates may not be approved or cleared, as the case may be, even though clinical or other data are, in our view, adequate to supportan approval or clearance. The FDA or other non-regulatory authorities may disagree with our trial design and our interpretation of data from pre-clinical studiesand clinical trials. In addition, any of these regulatory authorities may change requirements for the approval or clearance of a product candidate even afterreviewing and providing comment on a protocol for a pivotal clinical trial that has the potential to result in FDA and other non-U.S. regulatory authorities’approval. Any of these regulatory authorities may also approve or clear a product candidate for fewer or more limited indications or uses than we request or maygrant approval or clearance contingent on the performance of costly post-marketing clinical trials. The FDA or other non-U.S. regulatory authorities may notapprove the labeling claims necessary or desirable for the successful commercialization of our product candidates.The results of our clinical trials may show that our product candidates may cause undesirable side effects, which could interrupt, delay or halt clinical trials,resulting in the denial of regulatory approval by the FDA and other non-U.S. regulatory authorities.In light of widely publicized events concerning the safety risk of certain drug products, regulatory authorities, members of Congress, the GovernmentAccounting Office, medical professionals, and the general public have raised concerns about potential drug safety issues. These events have resulted in thewithdrawal of drug products, revisions to drug labeling that26further limit use of the drug products, and establishment of risk management programs that may, for instance, restrict distribution of drug products. The increasedattention to drug safety issues may result in a more cautious approach by the FDA to clinical trials. Data from clinical trials may receive greater scrutiny withrespect to safety, which may make the FDA or other regulatory authorities more likely to terminate clinical trials before completion, or require longer or additionalclinical trials that may result in substantial additional expense and a delay or failure in obtaining approval or approval for a more limited indication than originallysought.The failure to successfully commercialize Rayaldee would have a material adverse effect on our business.In June 2016, the FDA approved the Company’s New Drug Application for Rayaldee (calcifediol) extended release capsules for the treatment of secondaryhyperparathyroidism (SHPT) in adults with stage 3 or 4 chronic kidney disease (CKD) and serum total 25-hydroxyvitamin D levels less than 30 ng/mL. Thecommercial launch for Rayaldee began in November 2016. Rayaldee is our only pharmaceutical product approved for marketing in the U.S. and our ability togenerate revenue from product sales and achieve profitability is substantially dependent on our ability to effectively commercialize Rayaldee . Our failure tosuccessfully commercialize Rayaldee would have a material adverse effect on our business, financial condition, cash flows and results of operations.Additionally, the market perception and reputation of Rayaldee and its safety and efficacy are important to our business and the continued acceptance of ourproduct candidates and products. Any negative publicity about Rayaldee , such as the discovery of safety issues, adverse events, or even public rumors about suchevents, could have a material adverse effect on our business. Levels of market acceptance for Rayaldee could be impacted by several factors, some of which are notwithin our control, including but not limited to the:•safety, efficacy, convenience and cost-effectiveness of our products compared to products of our competitors;•scope of approved uses and marketing approval;•availability of patent or regulatory exclusivity;•timing of market approvals and market entry;•ongoing regulatory obligations following approval;•any restrictions or “black box” warnings required on the labeling of such products:•availability of alternative products from our competitors;•acceptance of the price of our products;•effectiveness of our sales forces and promotional efforts;•the level of reimbursement of our products;•acceptance of our products on government and private formularies;•ability to market our products effectively at the retail level or in the appropriate setting of care; and•the reputation of our products.If Rayaldee fails to gain, or loses, market acceptance, our revenues would be adversely impacted and we may be required to take material impairmentcharges, all of which could have a material adverse effect on our business, financial condition, cash flows and results of operations.We rely on a licensing agreement with Vifor Fresenius Medical Renal Care Pharma Ltd (“VFMCRP”) for the international development and marketing ofRayaldee. Failure to maintain this license agreement could prevent us from successfully developing and commercializing Rayaldee worldwide.In May 2016, EirGen, our wholly-owned subsidiary, partnered with VFMCRP through a Development and License Agreement for the development andmarketing of Rayaldee in Europe, Canada, Mexico, Australia, South Korea and certain other international markets. The license to VFMCRP potentially covers alltherapeutic and prophylactic uses of the product in human patients, provided that initially the license is for the use of the product for the treatment or prevention ofsecondary27hyperparathyroidism related to patients with stage 3 or 4 chronic kidney disease and vitamin D insufficiency/deficiency. We received a non-refundable and non-creditable upfront payment of $50 million and are eligible to receive up to an additional $232 million upon the achievement of certain regulatory and sales-basedmilestones. In addition, we are eligible to receive tiered, double digit royalty payments or a minimum royalty, whichever is greater, upon commencement of salesof the product. The success of the Development and License Agreement with VFMCRP is dependent in part on, among other things, the skills, experience andefforts of VFMCRP’s employees responsible for the project, VFMCRP’s commitment to the arrangement, and the financial condition of VFMCRP, all of whichare beyond our control. In the event that VFMCRP, for any reason, including but not limited to early termination of the agreement, fails to devote sufficientresources to successfully develop and market Rayaldee internationally, our ability to earn milestone payments or receive royalty payments would be adverselyaffected, which would have a material adverse effect on our financial condition and prospects.Our exclusive worldwide agreement with Pfizer Inc. is important to our business. If we do not successfully develop hGH- CTP and/or Pfizer Inc. does notsuccessfully commercialize hGH-CTP, our business could be adversely affected.In December 2014, we entered into a development and commercialization agreement with Pfizer relating to our long-acting hGH- CTP for the treatment ofgrowth hormone deficiency in adults and children. Under the terms of the agreements with Pfizer, we received non-refundable and non-creditable upfrontpayments of $295 million and are eligible to receive up to an additional $275 million upon the achievement of certain regulatory milestones. In addition, we areeligible to receive initial royalty payments associated with the commercialization of hGH-CTP for Adult GHD. Upon the launch of hGH-CTP for Pediatric GHD,the royalties will transition to a regional, tiered gross profit sharing for both hGH-CTP and Pfizer’s Genotropin®. We are also responsible for the developmentprogram and are obligated to pay for the development up to an agreed cap, which may be exceeded under certain circumstances. If we are required to exceed theagreed cap, it could have a material adverse impact on the expected benefits to us from the Pfizer transaction and our overall financial condition. In the event thatthe parties are able to obtain regulatory approvals to market a product covered by the agreement, we will be substantially dependent on Pfizer for the successfulcommercialization of such product. The success of the collaboration arrangement with Pfizer is dependent in part on, among other things, the skills, experience andefforts of Pfizer’s employees responsible for the project, Pfizer’s commitment to the arrangement, and the financial condition of Pfizer, all of which are beyond ourcontrol. In the event that Pfizer, for any reason, including but not limited to early termination of the agreement, fails to devote sufficient resources to successfullydevelop and commercialize any product resulting from the collaboration arrangement, our ability to earn milestone payments or receive royalty or profit sharingpayments would be adversely affected, which would have a material adverse effect on our financial condition and prospects.Our business is substantially dependent on the success of clinical trials for hGH-CTP and our ability to achieve regulatory approval for the marketing of thisproduct.There is no assurance that clinical trials for hGH-CTP will be successful or support marketing approval, or that we will be able to obtain marketing approvalfor the product, or any other product candidate we are developing. Before they can be marketed, our products in development must be approved by the FDA orsimilar foreign governmental agencies. The process for obtaining FDA approval is both time-consuming and costly, with no certainty of a successful outcome.Before obtaining regulatory approval for the sale of any drug candidate, we must conduct extensive preclinical tests and clinical trials to demonstrate the safety andefficacy in humans of our product candidates. Although the safety profile for hGH-CTP has been consistent with that observed with those treated with daily growthhormone, further testing or patient use may undermine those determinations or unexpected side effects may arise. A failure of any preclinical study or clinical trialcan occur at any stage of testing. The results of preclinical and initial clinical testing of these products may not necessarily indicate the results that will be obtainedfrom later or more extensive testing. It also is possible to suffer significant setbacks in advanced clinical trials, even after obtaining promising results in earliertrials. In December 2016, we announced preliminary topline data from our Phase 3, double blind, placebo controlled study of hGH-CTP in adults with GHD.Although there was no statistically significant difference between hGH-CTP and placebo on the primary endpoint of change in trunk fat mass from baseline to 26weeks, after unblinding the study, we identified an exceptional value of trunk fat mass reduction in the placebo group that may have affected the primary outcome.We believe the exceptional data point warrants an outlier sensitivity analysis of the primary endpoint and related secondary endpoints. Upon completion of the datasensitivity analysis, we plan to discuss the study results and outlier analysis with the regulatory authorities to determine next steps in obtaining regulatory approval.There can be no assurance that the statistical analysis will be favorable or that the FDA will consider the sensitivity analysis. If phase 3 clinical trials for hGH-CTPare not successful or we are unable to achieve regulatory approval for this product, our business will be significantly adversely impacted, which could have amaterially adverse effect on our business, financial condition and results of operations.Our business is substantially dependent on our ability to develop, launch and generate revenue from our diagnostic products.28Our business is dependent on our ability to successfully commercialize the 4Kscore test and other diagnostic products, including the Claros 1. We arecommitting significant resources to the development and commercialization of these products, and there is no guarantee that we will be able to successfullycommercialize these tests. We have limited experience in developing, manufacturing, selling, marketing and distributing diagnostic tests. If we fail to leverage thenational marketing, sales and distribution resources of Bio-Reference to enhance sale of, and reimbursement for, the 4Kscore test and other diagnostic productsincluding the Claros 1 , our ability to generate substantial revenue from the sale of these products will be adversely impacted. If we are not able to successfullydevelop, market or sell diagnostic tests we develop for any reason, including the failure to obtain any required regulatory approvals, obtain reimbursement for, orsuccessfully integrate Bio-Reference, we will not generate any meaningful revenue from the sale of such tests. Even if we are able to develop effective diagnostictests for sale in the marketplace, a number of factors could impact our ability to sell such tests or generate any significant revenue from the sale of such tests,including without limitation:▪our ability to establish and maintain adequate infrastructure to support the commercial launch and sale of our diagnostic tests, including establishingadequate laboratory space, information technology infrastructure, sample collection and tracking systems, electronic ordering and reporting systemsand other infrastructure and hiring adequate laboratory and other personnel;▪the success of the validation studies for our diagnostic tests under development and our ability to publish study results in peer-reviewed journals;▪the availability of alternative and competing tests or products and technological innovations or other advances in medicine that cause ourtechnologies to be less competitive;▪the accuracy rates of such tests, including rates of false-negatives and/or false-positives;▪concerns regarding the safety or effectiveness or clinical utility of our diagnostic tests;▪changes in the regulatory environment affecting health care and health care providers, including changes in laws regulating laboratory testing and/ordevice manufacturers;▪the extent and success of our sales and marketing efforts and ability to drive adoption of our diagnostic tests;▪coverage and reimbursement levels by government payors and private insurers;▪pricing pressures and changes in third-party payor reimbursement policies; and▪intellectual property rights held by others or others infringing our intellectual property rights.Our business is substantially dependent on our ability to generate profits and cash flow from our laboratory operations.We have made a significant investment in our laboratory operations through the acquisition of Bio-Reference. We compete in the clinical laboratory marketprimarily on the basis of the quality of testing, reporting and information systems, reputation in the medical community, the pricing of services and ability toemploy qualified personnel. Our failure to successfully compete on any of these factors could result in the loss of clients and a reduction in our revenues andprofits. To offset efforts by payors to reduce the cost and utilization of clinical laboratory services, we will need to obtain and retain new clients and businesspartners and grow the laboratory operations. A reduction in tests ordered or specimens submitted by existing clients, without offsetting growth in our client base,could impact our ability to successfully grow our business and could have a material adverse impact on our ability to generate profits and cash flow from thelaboratory operations.Discontinuation or recalls of existing testing products, failure to develop, or acquire, licenses for new or improved testing technologies; or our clients usingnew technologies to perform their own tests could adversely affect our business.From time to time, manufacturers discontinue or recall reagents, test kits or instruments used by us to perform laboratory testing. Such discontinuations orrecalls could adversely affect our costs, testing volume and revenue.The clinical laboratory industry is subject to changing technology and new product introductions. Our success in maintaining a leadership position ingenomic and other advanced testing technologies will depend, in part, on our ability to develop, acquire or license new and improved technologies on favorableterms and to obtain appropriate coverage and reimbursement for these technologies. We may not be able to negotiate acceptable licensing arrangements and itcannot be certain that such arrangements will yield commercially successful diagnostic tests. If we are unable to license these testing methods at competitive rates,our research and development costs may increase as a result. In addition, if we are unable to license new or improved technologies to expand our esoteric testingoperations, our testing methods may become outdated when compared with our competition and testing volume and revenue may be materially and adverselyaffected.29Currently, most clinical laboratory testing is categorized as “high” or “moderate” complexity, and thereby is subject to extensive and costly regulation underCLIA. The cost of compliance with CLIA makes it impractical for most physicians to operate clinical laboratories in their offices, and other laws limit the abilityof physicians to have ownership in a laboratory and to refer tests to such a laboratory. Manufacturers of laboratory equipment and test kits could seek to increasetheir sales by marketing point-of-care laboratory equipment to physicians and by selling test kits approved for home or physician office use to both physicians andpatients. Diagnostic tests approved for home use are automatically deemed to be “waived” tests under CLIA and may be performed in physician office laboratoriesas well as by patients in their homes with minimal regulatory oversight. Other tests meeting certain FDA criteria also may be classified as “waived” for CLIApurposes. The FDA has regulatory responsibility over instruments, test kits, reagents and other devices used by clinical laboratories and has taken responsibilityfrom the Centers for Disease Control for classifying the complexity of tests for CLIA purposes. Increased approval of “waived” test kits could lead to increasedtesting by physicians in their offices or by patients at home, which could affect our market for laboratory testing services and negatively impact our revenues. If ourcompetitors develop and market products that are more effective, safer or less expensive than our products and product candidates, our net revenues, profitabilityand commercial opportunities will be negatively impacted.If our competitors develop and market products or services that are more effective, safer or less expensive than our current and future products or services, ourrevenues, profitability and commercial opportunities will be negatively impacted.The pharmaceutical, diagnostic, and laboratory testing industries are highly competitive and require an ongoing, extensive search for technologicalinnovation. The industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. They alsorequire, among other things, the ability to effectively discover, develop, test and obtain regulatory approvals for products, as well as the ability to effectivelycommercialize, market and promote approved products.Numerous companies, including major pharmaceutical companies, specialty pharmaceutical companies and specialized biotechnology companies, areengaged in the development, manufacture and marketing of pharmaceutical products competitive with those that we intend to commercialize ourselves and throughour partners. Competitors to our diagnostics business include major diagnostic companies, reference laboratories, molecular diagnostic firms, universities andresearch institutions. Most of these companies have substantially greater financial and other resources, larger research and development staffs and more extensivemarketing and manufacturing organizations than ours. This enables them, among other things, to make greater research and development investments andefficiently utilize their research and development costs, as well as their marketing and promotion costs, over a broader revenue base. This also provides ourcompetitors with a competitive advantage in connection with the highly competitive product acquisition and product in-licensing process, which may includeauctions in which the highest bidder wins. Our competitors may also have more experience and expertise in obtaining marketing approvals from the FDA and otherregulatory authorities. We cannot predict with accuracy the timing or impact of the introduction of potentially competitive products or their possible effect on oursales. In addition to product development, testing, approval, and promotion, other competitive factors in the pharmaceutical and diagnostics industry includeindustry consolidation, product quality and price, product technology, reputation, customer service, and access to technical information.In our clinical laboratory operations, we compete with three types of providers in a highly fragmented and competitive industry: hospital laboratories,physician-office laboratories and other independent clinical laboratories. Our major competitors in the New York metropolitan area are two of the largest nationallaboratories, Quest Diagnostics and Laboratory Corporation of America. We are much smaller than these national laboratories.The clinical laboratory business is intensely competitive both in terms of price and service. Pricing of laboratory testing services is often one of the mostsignificant factors used by health care providers and third-party payors in selecting a laboratory. As a result of the clinical laboratory industry undergoingsignificant consolidation, larger clinical laboratory providers are able to increase cost efficiencies afforded by large-scale automated testing. This consolidationresults in greater price competition. We may be unable to increase cost efficiencies sufficiently, if at all, and as a result, our net earnings and cash flows could benegatively impacted by such price competition. Additionally, we may also face changes in fee schedules, competitive bidding for laboratory services or otheractions or pressures reducing payment schedules as a result of increased or additional competition.If our competitors market products that are more effective, safer, easier to use or less expensive than our current products and product candidates, or thatreach the market sooner than our products and product candidates, we may not achieve commercial success. In addition, the biopharmaceutical, diagnostic, medicaldevice, and laboratory industries are characterized by rapid technological change. Because our research approach integrates many technologies, it may be difficultfor us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively.Technological advances or products developed by our competitors may render our technologies, products or product candidates obsolete or less competitive.30Our product development activities could be delayed or stopped.We do not know whether our current or planned pre-clinical and clinical studies will be completed on schedule, or at all. Furthermore, we cannot guaranteethat our planned pre-clinical and clinical studies will begin on time or at all. The commencement of our planned clinical trials could be substantially delayed orprevented by several factors, including:▪a limited number of, and competition for, suitable patients with the particular types of disease required for enrollment in our clinical trials or thatotherwise meet the protocol’s inclusion criteria and do not meet any of the exclusion criteria;▪a limited number of, and competition for, suitable serum or other samples from patients with particular types of disease required for our validationstudies;▪a limited number of, and competition for, suitable sites to conduct our clinical trials;▪delay or failure to obtain FDA or other non-U.S. regulatory authorities’ approval or agreement to commence a clinical trial;▪delay or failure to obtain sufficient supplies of the product candidate for our clinical trials;▪requirements to provide the drugs, diagnostic tests, or medical devices required in our clinical trial protocols or clinical trials at no cost or cost, whichmay require significant expenditures that we are unable or unwilling to make;▪delay or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or investigators; and▪delay or failure to obtain institutional review board (“IRB”) approval to conduct or renew a clinical trial at a prospective site.The completion of our clinical trials could also be substantially delayed or prevented by several factors, including:▪slower than expected rates of patient recruitment and enrollment;▪failure of patients to complete the clinical trial;▪unforeseen safety issues;▪lack of efficacy evidenced during clinical trials;▪termination of our clinical trials by one or more clinical trial sites;▪inability or unwillingness of patients or medical investigators to follow our clinical trial protocols; and▪inability to monitor patients adequately during or after treatment.Our clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities, the IRB for any given site, or us. Additionally,changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes with appropriate regulatoryauthorities. Amendments may require us to resubmit our clinical trial protocols to IRBs for re-examination, which may impact the costs, timing, or successfulcompletion of a clinical trial. Any failure or significant delay in commencing or completing clinical trials for our product candidates could materially harm ourresults of operations and financial condition, as well as the commercial prospects for our product candidates.We currently have a fifty person specialized sales and marketing team for Rayaldee in the U.S. If we are unable to develop or maintain a strong sales,marketing and distribution capability on our own or through collaborations with marketing partners, we will not be successful in commercializing Rayaldee orour other pharmaceutical products or product candidates in the U.S.Other than our 50 person specialized sales and marketing team dedicated to Rayaldee , we currently have no pharmaceutical marketing, sales or distributioncapabilities in the U.S. Any failure or inability to maintain adequate sales, marketing, and distribution capabilities would adversely impact the commercializationof Rayaldee or our other pharmaceutical products or candidates. If we are not successful in commercializing our existing and future pharmaceutical products andproduct candidates, either on our own or through collaborations with one or more third parties, our product revenue will suffer and we may incur significantadditional losses.Our approved products or product candidates may have undesirable side effects and cause our products to be taken off the market.31If we or others identify undesirable side effects caused by our products:•regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication, or field alerts to physicians andpharmacies;•regulatory authorities may withdraw their approval of the product and require us to take our approved product off the market;•we may be required to change the way the product is administered, conduct additional clinical trials, or change the labeling of the product;•we may have limitations on how we promote our products;•sales of products may decrease significantly;•we may be subject to litigation or product liability claims; and•our reputation may suffer.Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase ourcommercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from its sale.Our inability to meet regulatory quality standards applicable to our manufacturing and quality processes and to address quality control issues in a timelymanner could delay the production and sale of our products or result in recalls of products.Manufacturing or design defects, unanticipated use of our products, or inadequate disclosure of risks relating to the use of our products could lead to injuryor other adverse events. These events could lead to recalls or safety alerts relating to our products (either voluntary or required by governmental authorities) andcould result, in certain cases, in the removal of a product from the market. Any recall could result in significant costs as well as negative publicity that could reducedemand for our products. Personal injuries relating to the use of our products can also result in product liability claims being brought against us. In somecircumstances, such adverse events could also cause delays in new product approvals.We are committed to providing high quality products to our customers, and we plan to meet this commitment by working diligently to continueimplementing updated and improved quality systems and concepts throughout our organization. We cannot assure you that we will not have quality control issuesin the future, which may result in warning letters and citations from the FDA. If we receive any warning letters from the FDA in the future, there can be noassurances regarding the length of time or cost it will take us to resolve such quality issues to our satisfaction and to the satisfaction of the FDA. If our remedialactions are not satisfactory to the FDA, we may have to devote additional financial and human resources to our efforts, and the FDA may take further regulatoryactions against us including, but not limited to, assessing civil monetary penalties or imposing a consent decree on us, which could result in further regulatoryconstraints, including the governance of our quality system by a third party. Our inability to resolve these issues or the taking of further regulatory action by theFDA may weaken our competitive position and have a material adverse effect on our business, results of operations and financial condition.We manufacture pharmaceutical products in Ireland, Mexico, Spain, and Israel. We also prepare necessary test reagents and assemble and package thecassettes for our point-of-care diagnostic system at our facility in Woburn, Massachusetts. Any quality control issues at our facilities may weaken our competitiveposition and have a material adverse effect on our business results of operations and financial condition.As a medical device manufacturer, we are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with itsQuality System Regulation (“QSR”) requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, qualitycontrol and documentation procedures. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously throughperiodic inspections by the FDA. In addition, most international jurisdictions have adopted regulatory approval and periodic renewal requirements for medicaldevices, and we must comply with these requirements in order to market our products in these jurisdictions. In the European Community, we are required tomaintain certain ISO certifications in order to sell our products and must undergo periodic inspections by notified bodies to obtain and maintain thesecertifications. Further, some emerging markets rely on the FDA’s Certificate for Foreign Government (“CFG”) in lieu of their own regulatory approvalrequirements. Our failure, or our manufacturers’ failure to meet QSR, ISO, or any other regulatory requirements or industry standards could delay production ofour products and lead to fines, difficulties in obtaining regulatory clearances, recalls or other consequences, which could, in turn, have a material adverse effect onour business, results of operations, and our financial condition.32Failure to establish, and perform to, appropriate quality standards to assure that the highest level of quality is observed in the performance of our testingservices could adversely affect the results of our operations and adversely impact our reputation.The provision of clinical testing services, including anatomic pathology services, and related services, and the design, manufacture and marketing ofdiagnostic products involve certain inherent risks. The services that we provide and the products that we design, manufacture and market are intended to provideinformation for healthcare providers in providing patient care. Therefore, users of our services and products may have a greater sensitivity to errors than the usersof services or products that are intended for other purposes.Similarly, negligence in performing our services can lead to injury or other adverse events. We may be sued under physician liability or other liability law foracts or omissions by our pathologists, laboratory personnel and hospital employees who are under the supervision of our hospital-based pathologists. We aresubject to the attendant risk of substantial damages awards and risk to our reputation.Even after we receive regulatory approval or clearance to market our product candidates, the market may not be receptive to our products.Our products may not gain market acceptance among physicians, patients, health care payors and/or the medical community. We believe that the degree ofmarket acceptance will depend on a number of factors, including:•timing of market introduction of competitive products;•safety and efficacy of our product compared to other products;•prevalence and severity of any side effects;•potential advantages or disadvantages over alternative treatments;•strength of marketing and distribution support;•price of our products, both in absolute terms and relative to alternative treatments;•availability of coverage and reimbursement from government and other third-party payors;•potential product liability claims;•limitations or warnings contained in a product’s regulatory authority-approved labeling; and•changes in the standard of care for the targeted indications for any of our products or product candidates, which could reduce the marketing impact ofany claims that we could make following applicable regulatory authority approval.In addition, our efforts to educate the medical community and health care payors on the benefits of our products and product candidates may requiresignificant resources and may never be successful. If our products do not gain market acceptance, it would have a material adverse effect on our business, results ofoperations, and financial condition.If our products are not covered and eligible for reimbursement from government and third party payors, we may not be able to generate significant revenue orachieve or sustain profitability.The coverage and reimbursement status of newly approved or cleared drugs, diagnostic and laboratory tests is uncertain, and failure of our pharmaceuticalproducts, diagnostic tests or laboratory to be adequately covered by insurance and eligible for adequate reimbursement could limit our ability to market any futureproduct candidates we may develop and decrease our ability to generate revenue from any of our existing and future product candidates that may be approved orcleared. The commercial success of our existing and future products in both domestic and international markets will depend in part on the availability of coverageand adequate reimbursement from third-party payors, including government payors, such as the Medicare and Medicaid programs, managed care organizations,and other third-party payors. The government and other third-party payors are increasingly attempting to contain health care costs by limiting both insurancecoverage and the level of reimbursement for new drugs and diagnostic tests and, as a result, they may not cover or provide adequate payment for our productcandidates. These payors may conclude that our products are less safe, less effective, or less cost-effective than existing or later-introduced products. These payorsmay also conclude that the overall cost of the procedure using one of our devices exceeds the overall cost of the competing procedure using another type of device,and third-party payors may not approve our products for insurance coverage and adequate reimbursement.The failure to obtain coverage and adequate or any reimbursement for our products, or health care cost containment initiatives that limit or restrictreimbursement for our products, may reduce any future product revenue. Even though a drug33(not administered by a physician) may be approved by the FDA, this does not mean that a Prescription Drug Plan (“PDP”), a private insurer operating underMedicare Part D, will list that drug on its formulary or will set a reimbursement level. PDPs are not required to make every FDA-approved drug available on theirformularies. If our drug products are not listed on sufficient number of PDP formularies or if the PDPs’ levels of reimbursement are inadequate, our business,results of operations, and financial condition could be materially adversely affected.Additionally, our failure to comply with applicable Medicare, Medicaid and other governmental payor rules could result in our inability to participate in agovernmental payor program, our returning funds already paid to us, civil monetary penalties, criminal penalties and/or limitations on the operational function ofour laboratory. If we were unable to receive reimbursement under a governmental payor program, a substantial portion of our revenues would be lost, which wouldadversely affect our results of operations and financial condition.As we evolve from a company primarily involved in development to a company also involved in commercialization of our pharmaceutical and diagnosticproducts as well as our laboratory testing services, we may encounter difficulties in managing our growth and expanding our operations successfully.As we advance our product candidates and expand our business, we will need to expand our development, regulatory and commercial infrastructure. As ouroperations expand, we expect that we will need to manage additional relationships with various third parties, collaborators and suppliers. Maintaining theserelationships and managing our future growth will impose significant added responsibilities on members of our management. We must be able to: manage ourdevelopment efforts and operations effectively; manage our clinical trials effectively; hire, train and integrate additional management, administrative and sales andmarketing personnel; improve our managerial, development, operational and finance systems; implement and manage an effective marketing strategy; and expandour facilities, all of which may impose a strain on our administrative and operational infrastructure.Furthermore, we may acquire additional businesses, products or product candidates that complement or augment our existing business. Integrating any newlyacquired business or product could be expensive and time-consuming. We may not be able to integrate any acquired business or product successfully or operateany acquired business profitably. Our future financial performance will depend, in part, on our ability to manage any future growth effectively and our ability tointegrate any acquired businesses. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfullygrowing our company, which would have a material adverse effect on our business, results of operations and financial condition.Our success is dependent to a significant degree upon the involvement and efforts of our Chairman and Chief Executive Officer, Phillip Frost, M.D.Our success is dependent to a significant degree upon the efforts of our Chairman and Chief Executive Officer, Phillip Frost, M.D., who is essential to ourbusiness. The departure of our CEO for whatever reason or the inability of our CEO to continue to serve in his present capacity could have a material adverseeffect upon our business, financial condition, and results of operations. Our CEO has a highly regarded reputation in the pharmaceutical and medical industry andattracts business opportunities and assists both in negotiations with acquisition targets, investment targets, and potential joint venture partners. Our CEO has alsoprovided financing to the Company, both in terms of a credit agreement and equity investments. If we lost his services, our relationships with acquisition andinvestment targets, joint ventures, and investors may suffer and could cause a material adverse impact on our operations, financial condition, and the value of ourCommon Stock.If we fail to attract and retain key management and scientific personnel, we may be unable to successfully operate our business and develop or commercializeour products and product candidates.We will need to expand and effectively manage our managerial, operational, sales, financial, development, and other resources in order to successfullyoperate our business and pursue our research, development, and commercialization efforts for our products and product candidates. Our success depends on ourcontinued ability to attract, retain, and motivate highly qualified management and pre-clinical and clinical personnel. The loss of the services or support of any ofour senior management, particularly Dr. Phillip Frost, our Chairman of the Board and CEO, could delay or prevent the development and commercialization of ourproducts and product candidates.If the FDA or other applicable regulatory authorities approve generic products that compete with any of our products or product candidates, the sale of ourproducts or product candidates may be adversely affected.Once an NDA is approved, the product covered thereby becomes a “listed drug” which, in turn can be relied upon by potential competitors in support of anapproval of an abbreviated new drug application, or ANDA, or 505(b)(2) application. U.S. laws and other applicable policies provide incentives to manufacturersto create modified, non-infringing versions of a34drug to facilitate the approval of an ANDA or other application for a generic substitute. These manufacturers might only be required to conduct a relativelyinexpensive study to show that their product has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use, or labeling, asour product or product candidate and that the generic product is bioequivalent to ours, meaning it is absorbed in the body at the same rate and to the same extent asour product or product candidate. These generic equivalents, which must meet the same quality standards as branded pharmaceuticals, would be significantly lesscostly than ours to bring to market and companies that produce generic equivalents are generally able to offer their products at lower prices. Thus, after theintroduction of a generic competitor, a significant percentage of sales of any branded product is typically lost to the generic product. Accordingly, competitionfrom generic equivalents to our products or product candidates would materially adversely impact our revenues, profitability and cash flows and substantially limitour ability to obtain a return on the investments that we have made in our products and product candidates.If we fail to acquire and develop other products or product candidates at all or on commercially reasonable terms, we may be unable to diversify or grow ourbusiness.We intend to continue to rely on acquisitions and in-licensing as a source of our products and product candidates for development and commercialization.The success of this strategy depends upon our ability to identify, select, and acquire pharmaceutical and diagnostic products, drug delivery technologies, andmedical device product candidates. Proposing, negotiating, and implementing an economically viable product acquisition or license is a lengthy and complexprocess. We compete for partnering arrangements and license agreements with pharmaceutical, biotechnology and medical device companies, and academicresearch institutions. Our competitors may have stronger relationships with third parties with whom we are interested in collaborating and/or may have moreestablished histories of developing and commercializing products.Most of our competitors also have substantially greater financial and other resources than us. As a result, our competitors may have a competitive advantagein entering into partnering arrangements with such third parties, as such partnering arrangements are often decided in an auction process in which the highestbidder wins. In addition, even if we find promising products and product candidates, and generate interest in a partnering or strategic arrangement to acquire suchproducts or product candidates, we may not be able to acquire rights to additional product candidates or approved products on terms that we find acceptable, or atall.We expect that any product candidate to which we acquire rights will require additional development efforts prior to commercial sale, including extensiveclinical testing and approval or clearance by the FDA and other non-U.S. regulatory authorities. All product candidates are subject to the risks of failure inherent inpharmaceutical, diagnostic test or medical device product development, including the possibility that the product candidate will not be shown to be sufficiently safeand effective for approval by regulatory authorities. Even if the product candidates are approved or cleared for marketing, we cannot be sure that they would becapable of economically feasible production or commercial success. If we fail to acquire or develop other product candidates that are capable of economicallyfeasible production and commercial success, our business, results of operations and financial condition and cash flows may be materially adversely affected.We rely on third parties to manufacture and supply our pharmaceutical and diagnostic products and product candidates.If our manufacturing partners are unable to produce our products in the amounts that we require, we may not be able to establish a contract and obtain asufficient alternative supply from another supplier on a timely basis and in the quantities we require. We expect to continue to depend on third-party contractmanufacturers for the foreseeable future.Our products and product candidates require precise, high quality manufacturing. Any of our contract manufacturers will be subject to ongoing periodicunannounced inspection by the FDA and other non-U.S. regulatory authorities to ensure strict compliance with QSR regulations for devices or cGMPs for drugs,and other applicable government regulations and corresponding standards relating to matters such as testing, quality control, and documentation procedures. If ourcontract manufacturers fail to achieve and maintain high manufacturing standards in compliance with QSR or cGMPs, we may experience manufacturing errorsresulting in patient injury or death, product recalls or withdrawals, delays or interruptions of production or failures in product testing or delivery, delay orprevention of filing or approval of marketing applications for our products, cost overruns, or other problems that could seriously harm our business.Any performance failure on the part of our contract manufacturers could delay clinical development or regulatory approval or clearance of our productcandidates or commercialization of our products and product candidates, depriving us of potential product revenue and resulting in additional losses. In addition,our dependence on a third party for manufacturing may adversely affect our future profit margins. Our ability to replace an existing manufacturer may be difficultbecause the number of potential manufacturers is limited and the FDA must approve any replacement manufacturer before it can begin manufacturing our productsor product candidates. Such approval would result in additional non-clinical testing and compliance inspections. It may be difficult or impossible for us to identifyand engage a replacement manufacturer on acceptable terms in a timely manner, or at all.35Independent clinical investigators and contract research organizations that we engage to conduct our clinical trials may not be diligent, careful or timely.We depend on independent clinical investigators to conduct our clinical trials. Contract research organizations may also assist us in the collection andanalysis of data. These investigators and contract research organizations will not be our employees, and we will not be able to control, other than by contract, theamount of resources, including time, that they devote to products that we develop. If independent investigators fail to devote sufficient resources to thedevelopment of product candidates or clinical trials, or if their performance is substandard, it will delay the marketing approval or clearance and commercializationof any products that we develop. Further, the FDA requires that we comply with standards, commonly referred to as good clinical practice, for conducting,recording and reporting clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and confidentiality of trialsubjects are protected. If our independent clinical investigators and contract research organizations fail to comply with good clinical practice, the results of ourclinical trials could be called into question and the clinical development of our product candidates could be delayed.Failure of clinical investigators or contract research organizations to meet their obligations to us or comply with federal regulations and good clinical practiceprocedures could adversely affect the clinical development of our product candidates and harm our business, results of operations, and financial condition.If the validity of an informed consent from a subject was to be challenged, it may negatively impact our product development efforts.We take steps to ensure that all clinical data and genetic and other biological samples are collected from subjects who provide informed consent for the dataand samples and we work to ensure that the subjects from whom our data and samples are collected do not retain any proprietary or commercial rights to the dataor samples or any discoveries derived from them. However, because we may collect data and samples from countries that are governed by a number of differentregulatory regimes, there are many complex legal questions relating to the adequacy of informed consent that we must continually address. The adequacy of anygiven subject’s informed consent may be challenged in the future, and any given informed consent may prove unlawful or otherwise inadequate for our purposes.Any findings against us, or our clinical collaborators, could obligate us to stop using some of our clinical samples, which in turn may hinder our productdevelopment efforts. Such a result would also likely involve legal challenges that may consume our management and financial resources.Failure to timely or accurately bill for our services could have a material adverse effect on our business.Billing for laboratory testing services is extremely complicated and is subject to extensive and non-uniform rules and administrative requirements. Dependingon the billing arrangement and applicable law, we bill various payors, such as patients, insurance companies, Medicare, Medicaid, physicians, hospitals andemployer groups. Changes in laws and regulations could increase the complexity and cost of our billing process. Additionally, in the U.S., third-party payorsgenerally require billing codes on claims for reimbursement that describe the services provided. For laboratory services, the American Medical Associationestablishes most of the billing codes using a data code set called Current Procedural Terminology, or CPT, codes. Each third-party payor generally developspayment amounts and coverage policies for their beneficiaries or members that ties to the CPT code established for the laboratory test and, therefore, coverage andreimbursement may differ by payor even if the same billing code is reported for claims filing purposes. For laboratory tests without a specific billing code, payorsoften review claims on a claim-by-claim basis and there are increased uncertainties as to coverage and eligibility for reimbursement.We implemented a new billing system for our laboratory business in the third quarter of 2016. The adoption of the new billing system, which replaced the oldbilling system, poses several challenges relating to, among other things, training of personnel, communication of new rules and procedures, changes in corporateculture, migration of data, and the potential instability of the new system.Incorrect or incomplete documentation and billing information could result in non-payment for services rendered or having to pay back amounts incorrectlybilled and collected. Further, the failure to timely or correctly bill could lead to various penalties, including: (1) exclusion from participation in CMS and othergovernment programs; (2) asset forfeitures; (3) civil and criminal fines and penalties; and (4) the loss of various licenses, certificates and authorizations necessaryto operate our business, any of which could have a material adverse effect on our results of operations or cash flows.Failure in our information technology systems, including by cybersecurity attacks or other data security incidents, could significantly increase testing turn-around time or billing processes and otherwise disrupt our operations.Our operations depend, in part, on the continued performance of our information technology systems. Our information technology systems are potentiallyvulnerable to physical or electronic break-ins, computer viruses and similar disruptions. In36addition, we are in the process of integrating the information technology systems of our recently acquired subsidiaries, and we may experience system failures orinterruptions as a result of this process. Sustained system failures or interruption of our systems in one or more of our laboratory operations could disrupt ourability to process laboratory requisitions, perform testing, provide test results in a timely manner and/or bill the appropriate party. Failure of our informationtechnology systems could adversely affect our business, profitability and financial condition.A successful cybersecurity attack or other data security incident could result in the misappropriation and/or loss of confidential or personal information,create system interruptions, or deploy malicious software that attacks our systems. It is possible that a cybersecurity attack might not be noticed for some period oftime. The occurrence of a cybersecurity attack or incident could result in business interruptions from the disruption of our information technology systems, ornegative publicity resulting in reputational damage with our customers, shareholders and other stakeholders and/or increased costs to prevent, respond to ormitigate cybersecurity events. In addition, the unauthorized dissemination of sensitive personal information or proprietary or confidential information could exposeus or other third-parties to regulatory fines or penalties, litigation and potential liability, or otherwise harm our business.Healthcare plans have taken steps to control the utilization and reimbursement of healthcare services, including clinical test services.We also face efforts by non-governmental third-party payors, including healthcare plans, to reduce utilization and reimbursement for clinical testing services.The healthcare industry has experienced a trend of consolidation among healthcare insurance plans, resulting in fewer but larger insurance plans withsignificant bargaining power to negotiate fee arrangements with healthcare providers, including clinical testing providers. These healthcare plans, and independentphysician associations, may demand that clinical testing providers accept discounted fee structures or assume all or a portion of the financial risk associated withproviding testing services to their members through capped payment arrangements. In addition, some healthcare plans have been willing to limit the PPO or POSlaboratory network to only a single national laboratory to obtain improved fee-for-service pricing. There are also an increasing number of patients enrolling inconsumer driven products and high deductible plans that involve greater patient cost-sharing.The increased consolidation among healthcare plans also has increased the potential adverse impact of ceasing to be a contracted provider with any suchinsurer. The 2010 Health Care Reform Legislation includes provisions, such as the creation of healthcare exchanges, which may encourage healthcare insuranceplans to increase exclusive contracting.We expect continuing efforts to reduce reimbursements, to impose more stringent cost controls and to reduce utilization of clinical test services. Theseefforts, including future changes in third-party payor rules, practices and policies, or ceasing to be a contracted provider to a healthcare plan, may have a materialadverse effect on our business.The success of our business may be dependent on the actions of our collaborative partners.We have entered into and expect in the future to enter into collaborative arrangements with established multi-national pharmaceutical, diagnostic, andmedical device companies, which will finance or otherwise assist in the development, manufacture and marketing of products incorporating our technology. Weanticipate deriving some revenues from research and development fees, license fees, milestone payments, and royalties from collaborative partners. Our prospects,therefore, may depend to some extent upon our ability to attract and retain collaborative partners and to develop technologies and products that meet therequirements of prospective collaborative partners. In addition, our collaborative partners may have the right to abandon research projects, guide strategy regardingprosecution of relevant patent applications and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed-uponresearch terms. There can be no assurance that we will be successful in establishing collaborative arrangements on acceptable terms or at all, that collaborativepartners will not terminate funding before completion of projects, that our collaborative arrangements will result in successful product commercialization, or thatwe will derive any revenues from such arrangements. To the extent that we are unable to develop and maintain collaborative arrangements, we would needsubstantial additional capital to undertake research, development, and commercialization activities on our own.If we are unable to obtain and enforce patent protection for our products, our business could be materially harmed.Our success depends, in part, on our ability to protect proprietary methods and technologies that we develop or license under the patent and other intellectualproperty laws of the U.S. and other countries, so that we can prevent others from unlawfully using our inventions and proprietary information. However, we maynot hold proprietary rights to some patents required for us to commercialize our products and product candidates. Because certain U.S. patent applications areconfidential, third parties may have filed patent applications for technology covered by our pending patent applications without37our being aware of those applications, and our patent applications may not have priority over those applications. For this and other reasons, we or our third-partycollaborators may be unable to secure desired patent rights, thereby losing desired exclusivity. If licenses are not available to us on acceptable terms, we may notbe able to market the affected products or conduct the desired activities, unless we challenge the validity, enforceability, or infringement of the third-party patent orotherwise circumvent the third-party patent.Our strategy depends on our ability to rapidly identify and seek patent protection for our discoveries. In addition, we will rely on third-party collaborators tofile patent applications relating to proprietary technology that we develop jointly during certain collaborations. The process of obtaining patent protection isexpensive and time-consuming. If our present or future collaborators fail to file and prosecute all necessary and desirable patent applications at a reasonable costand in a timely manner, our business will be adversely affected. Unauthorized parties may be able to obtain and use information that we regard as proprietary.The issuance of a patent does not guarantee that it is valid or enforceable. Any patents we have obtained, or obtain in the future, may be challenged,invalidated, unenforceable, or circumvented. Moreover, the U.S. Patent and Trademark Office (“USPTO”) may commence interference proceedings involving ourpatents or patent applications. In addition, court decisions may introduce uncertainty in the enforceability or scope of patents owned by biotechnology,pharmaceutical, and medical device companies. Any challenge to, finding of unenforceability or invalidation or circumvention of, our patents or patent applicationswould be costly, would require significant time and attention of our management, and could have a material adverse effect on our business, results of operationsand financial condition.Our pending patent applications may not result in issued patents. The patent position of pharmaceutical, biotechnology, diagnostic, and medical devicecompanies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the USPTO and its foreign counterpartsuse to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter andscope of claims granted or allowable in pharmaceutical, biotechnology, diagnostic, or medical device patents. Accordingly, we do not know the degree of futureprotection for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us or to others. The legal systems of certain countries donot favor the aggressive enforcement of patents, and the laws of foreign countries may not protect our rights to the same extent as the laws of the U.S. Therefore,the enforceability or scope of our owned or licensed patents in the U.S. or in foreign countries cannot be predicted with certainty, and, as a result, any patents thatwe own or license may not provide sufficient protection against competitors. We may not be able to obtain or maintain patent protection for our pending patentapplications, those we may file in the future, or those we may license from third parties.We cannot assure you that any patents that have issued, that may issue, or that may be licensed to us will be enforceable or valid, or will not expire prior tothe commercialization of our products and product candidates, thus allowing others to more effectively compete with us. Therefore, any patents that we own orlicense may not adequately protect our products and product candidates or our future products, which could have a material adverse effect on our business, resultsof operations, and financial condition.If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adverselyaffected.In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, know-how, and confidential and proprietaryinformation. To maintain the confidentiality of trade secrets and proprietary information, we will seek to enter into confidentiality agreements with our employees,consultants, and collaborators upon the commencement of their relationships with us. These agreements generally require that all confidential informationdeveloped by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosedto third parties. Our agreements with employees also generally provide that any inventions conceived by the individual in the course of rendering services to usshall be our exclusive property.However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms.In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningfulprotection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants, or contractors use technology orknow-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions.Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets wouldimpair our competitive position and may materially harm our business, financial condition, and results of operations.38We will rely heavily on licenses from third parties. Failure to comply with the provisions of these licenses could result in the loss of our rights under the licenseagreements.Many of the patents and patent applications in our patent portfolio are not owned by us, but are licensed from third parties. Such license agreements give usrights for the commercial exploitation of the patents resulting from the respective patent applications, subject to certain provisions of the license agreements.Failure to comply with these provisions could result in the loss of our rights under these license agreements. Our inability to rely on these patents and patentapplications, which are the basis of our technology, would have a material adverse effect on our business, results of operations and financial condition.We license patent rights to certain of our technology from third-party owners. If such owners do not properly maintain or enforce the patents underlying suchlicenses, our competitive position and business prospects will be harmed.We have obtained licenses from, among others, INEOS Healthcare, UT Southwestern, the President and Fellows of Harvard College, The Scripps ResearchInstitute, Arctic Partners, TESARO, and Academia Sinica, among others, that are necessary or useful for our business. In addition, we intend to enter intoadditional licenses of third-party intellectual property in the future. We cannot guarantee that no third parties will step forward and assert inventorship orownership in our in-licensed patents. In some cases, we may rely on the assurances of our licensors that all ownership rights have been secured and that allnecessary agreements are intact or forthcoming.Our success will depend in part on our ability or the ability of our licensors to obtain, maintain, and enforce patent protection for our licensed intellectualproperty and, in particular, those patents to which we have secured exclusive rights in our field. We or our licensors may not successfully prosecute the patentapplications which are licensed to us. Even if patents issue in respect of these patent applications, we or our licensors may fail to maintain these patents or maydetermine not to pursue litigation against other companies that are infringing these patents. Without protection for the intellectual property we have licensed, othercompanies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business,results of operations and financial condition.Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.Other entities may have or obtain patents or proprietary rights that could limit our ability to develop, manufacture, use, sell, offer for sale or import products,or impair our competitive position. In addition, other entities may have or obtain patents or proprietary rights that cover our current research and preclinical studies.The U.S. case law pertaining to statutory exemptions to patent infringement for those who are using third party patented technology in the process of pursuingFDA regulatory approval changes over time. Lawsuits involving such exemptions are very fact intensive and it is currently unclear under U.S. case law whetherpreclinical studies would always qualify for such an exemption, and whether such exemptions would apply to research tools. To the extent that our current researchand preclinical studies may be covered by the patent rights of others, the risk of suit may continue after such patents expire because the statute of limitations forpatent infringement runs for six years. To the extent that a third party develops and patents technology that covers our products, we may be required to obtainlicenses to that technology, which licenses may not be available or may not be available on commercially reasonable terms, if at all. If licenses are not available tous on acceptable terms, we will not be able to market the affected products or conduct the desired activities, unless we challenge the validity, enforceability orinfringement of the third-party patent, or circumvent the third-party patent, which would be costly and would require significant time and attention of ourmanagement. Third parties may have or obtain by license or assignment valid and enforceable patents or proprietary rights that could block us from developingproducts using our technology. Our failure to obtain a license to any technology that we require may materially harm our business, financial condition, and resultsof operations.If we become involved in patent litigation or other proceedings related to a determination of rights, we could incur substantial costs and expenses, substantialliability for damages or be required to stop our product development and commercialization efforts.Third parties may sue us for infringing their patent rights. Likewise, we may need to resort to litigation to enforce a patent issued or licensed to us or todetermine the scope and validity of proprietary rights of others. In addition, a third-party may claim that we have improperly obtained or used its confidential orproprietary information. Furthermore, in connection with our third-party license agreements, we generally have agreed to indemnify the licensor for costs incurredin connection with litigation relating to intellectual property rights. The cost to us of any litigation or other proceeding relating to intellectual property rights, evenif resolved in our favor, could be substantial, and the litigation would divert our management’s efforts. Some of our competitors may be able to sustain the costs ofcomplex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from the initiation andcontinuation of any litigation could39limit our ability to continue our operations. Our involvement in patent litigation and other proceedings could have a material adverse effect on our business, resultsof operations, and financial condition.If any parties successfully claim that our creation or use of proprietary technologies infringes upon their intellectual property rights, we might be forced topay damages, potentially including treble damages, if we are found to have willfully infringed on such parties’ patent rights. In addition to any damages we mighthave to pay, a court could require us to stop the infringing activity or obtain a license. Any license required under any patent may not be made available oncommercially acceptable terms, if at all. In addition, such licenses are likely to be non-exclusive and, therefore, our competitors may have access to the sametechnology licensed to us. If we fail to obtain a required license and are unable to design around a patent, we may be unable to effectively market some of ourtechnology and products, which could limit our ability to generate revenues or achieve profitability and possibly prevent us from generating revenue sufficient tosustain our operations.We have faced, and may in the future face, intellectual property infringement claims that could be time-consuming and costly to defend, and could result inour loss of significant rights and the assessment of treble damages.We may from time to time receive notices of claims of infringement and misappropriation or misuse of other parties’ proprietary rights. Some of theseadditional claims may also lead to litigation. We cannot assure you that we will prevail in such actions, or that other actions alleging misappropriation or misuse byus of third-party trade secrets, infringement by us of third-party patents and trademarks or the validity of our patents, will not be asserted or prosecuted against us.We may also initiate claims to defend our intellectual property or to seek relief on allegations that we use, sell, or offer to sell technology that incorporatesthird party intellectual property. Intellectual property litigation, regardless of outcome, is expensive and time-consuming, could divert management’s attentionfrom our business and have a material negative effect on our business, operating results or financial condition. If there is a successful claim of infringement againstus, we may be required to pay substantial damages (including treble damages if we were to be found to have willfully infringed a third party’s patent) to the partyclaiming infringement, develop non-infringing technology, stop selling our tests or using technology that contains the allegedly infringing intellectual property orenter into royalty or license agreements that may not be available on acceptable or commercially practical terms, if at all. Our failure to develop non-infringingtechnologies or license the proprietary rights on a timely basis could harm our business.It is possible that a third party or patent office might take the position that one or more patents or patent applications constitute prior art in the field ofgenomic-based diagnostics. In such a case, we might be required to pay royalties, damages and costs to firms who own the rights to these patents, or we might berestricted from using any of the inventions claimed in those patents.We may become subject to product liability for our diagnostic tests, clinical trials, pharmaceutical products and medical device products.Our success depends on the market’s confidence that we can provide reliable, high-quality pharmaceuticals, medical devices, and diagnostics tests. Ourreputation and the public image of our products or technologies may be impaired if our products fail to perform as expected or our products are perceived asdifficult to use. Our products are complex and may develop or contain undetected defects or errors. Furthermore, if product or future product candidate harmspeople, or is alleged to be harmful, we may be subject to costly and damaging product liability claims brought against us by clinical trial participants, consumers,health care providers, corporate partners or others. We have product liability insurance covering commercial sales of current products and our ongoing clinicaltrials. Any defects or errors could lead to the filing of product liability claims, which could be costly and time-consuming to defend and result in substantialdamages. If we experience a sustained material defect or error, this could result in loss or delay of revenues, delayed market acceptance, damaged reputation,diversion of development resources, legal claims, increased insurance costs or increased service and warranty costs, any of which could materially harm ourbusiness. We cannot assure you that our product liability insurance would protect our assets from the financial impact of defending a product liability claim. Aproduct liability claim could have a serious adverse effect on our business, financial condition and results of operations.Adverse results in material litigation matters or governmental inquiries could have a material adverse effect upon our business and financial condition.We may from time to time become subject in the ordinary course of business to material legal action related to, among other things, intellectual propertydisputes, professional liability, contractual and employee-related matters, as well as inquiries from governmental agencies and Medicare or Medicaid carriersrequesting comment and information on allegations of billing irregularities and other matters that are brought to their attention through billing audits, third partiesor other sources. The health care industry is subject to substantial federal and state government regulation and audit. Legal actions could result in40substantial monetary damages as well as damage to the Company’s reputation with customers, which could have a material adverse effect upon our results ofoperations and financial position.Significant developments stemming from the recent U.S. federal elections could have a material adverse effect on us.Under the new Presidential administration and U.S. Congress, we expect that there will be many changes to existing U.S. laws, regulations, and standards, aswell as to existing international agreements. These changes in U.S. social, political, regulatory and economic conditions may lead to conditions, both domesticallyand abroad where we conduct international operations, that will have an adverse effect on our business. Because of this uncertainty regarding existing law, wecannot quantify or predict with any certainty the likely impact of such change on our business model, prospects, financial condition or results of operations. Wecannot assure you as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact of any such potential legislation.RISKS RELATED TO REGULATORY COMPLIANCEOur ability to successfully operate our laboratories and develop and commercialize certain of our diagnostic tests and LDTs will depend on our ability tomaintain required regulatory licensures and comply with all the CLIA requirements.In order to successfully operate our laboratory business and offer certain of our diagnostic tests and LDTs, we must maintain our CLIA certification andcomply with all the CLIA requirements. CLIA is designed to ensure the quality and reliability of clinical laboratories by mandating specific standards in the areasof personnel qualifications, administration and participation in proficiency testing, patient test management, quality control, quality assurance and inspections. Thesanction for failure to comply with CLIA requirements may be suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary toconduct business, as well as significant fines and/or criminal penalties. Laboratories must undergo on-site surveys at least every two years, which may beconducted by the Federal CLIA program or by a private CMS approved accrediting agency such as CAP, among others. Our laboratories are also subject toregulation of laboratory operations under state clinical laboratory laws as will be any new CLIA-certified laboratory that we establish or acquire. State clinicallaboratory laws may require that laboratories and/or laboratory personnel meet certain qualifications, specify certain quality controls or require maintenance ofcertain records. Certain states, such as California, Florida, Maryland, New York, Pennsylvania and Rhode Island, require that laboratories obtain licenses to testspecimens from patients residing in those states and additional states may require similar licenses in the future. If we are unable to obtain and maintain licensesfrom states where required, we will not be able to process any samples from patients located in those states. Only Washington and New York States are exemptunder CLIA, as these states have established laboratory quality standards at least as stringent as CLIA’s. Potential sanctions for violation of these statutes andregulations include significant fines and the suspension or loss of various licenses, certificates and authorizations, which could adversely affect our business andresults of operations.If we fail to comply with CLIA requirements, HHS or state agencies could require us to cease diagnostic testing. Even if it were possible for us to bring ourlaboratories back into compliance after failure to comply with such requirements, we could incur significant expenses and potentially lose revenues in doing so.Moreover, new interpretations of current regulations or future changes in regulations under CLIA may make it difficult or impossible for us to comply with theCLIA classification, which would significantly harm our business and materially adversely affect our financial condition.The regulatory approval process is expensive, time consuming and uncertain and may prevent us or our collaboration partners from obtaining approvals forthe commercialization of some or all of our product candidates.The research, testing, manufacturing, labeling, approval, selling, marketing, and distribution of drug products, diagnostic products, or medical devices aresubject to extensive regulation by the FDA and other non-U.S. regulatory authorities, which regulations differ from country to country. In general, we are notpermitted to market our product candidates in the U.S. until we receive approval of a Biologics License Application (BLA), an approval of a NDA, a clearanceletter under the premarket notification process, or 510(k) process, or an approval of a PMA from the FDA. To date, we have only submitted one NDA which wasapproved in June 2016. We have not received marketing approval or clearance for any of our diagnostic product candidates, other than a CE Mark for our point-of-care PSA test and a CE Mark for our 4Kscore test. Obtaining approval of a NDA or PMA can be a lengthy, expensive, and uncertain process. With respect tomedical devices, while the FDA reviews and clears a premarket notification in as little as three months, there is no guarantee that our products will qualify for thismore expeditious regulatory process, which is reserved for Class I and II devices, nor is there any assurance that even if a device is reviewed under the 510(k)process that the FDA will review it expeditiously or determine that the device is substantially equivalent to a lawfully marketed non-PMA device. If the FDA failsto make this finding, then we cannot market the device. In lieu of acting on a premarket notification, the FDA may seek additional information or additional datawhich would further delay our ability to market the product. Furthermore, we are not permitted to make changes to a device approved through the PMA or 510(k)which affects the safety or efficacy of the device without first submitting a supplement application to the PMA and obtaining FDA approval or cleared premarketnotification for that supplement. In some cases, the FDA may require41clinical trials to support a supplement application. In addition, failure to comply with FDA, non-U.S. regulatory authorities, or other applicable U.S. and non-U.S.regulatory requirements may, either before or after product approval or clearance, if any, subject our company to administrative or judicially imposed sanctions,including, but not limited to the following:▪restrictions on the products, manufacturers, or manufacturing process;▪adverse inspectional observations (Form 483), warning letters, or non-warning letters incorporating inspectional observations;▪civil and criminal penalties;▪injunctions;▪suspension or withdrawal of regulatory approvals or clearances;▪product seizures, detentions, or import bans;▪voluntary or mandatory product recalls and publicity requirements;▪total or partial suspension of production;▪imposition of restrictions on operations, including costly new manufacturing requirements; and▪refusal to approve or clear pending NDAs or supplements to approved NDAs, applications or pre-market notifications.Regulatory approval of an NDA or NDA supplement, PMA, PMA supplement or clearance pursuant to a pre-market notification is not guaranteed, and theapproval or clearance process, as the case may be, is expensive and may, especially in the case of an NDA or PMA application, take several years. The FDA alsohas substantial discretion in the drug and medical device approval and clearance process. Failure can occur at any stage, and we could encounter problems thatcause us to abandon clinical trials or to repeat or perform additional pre-clinical studies and clinical trials. The number of pre-clinical studies and clinical trials thatwill be required for FDA approval or clearance varies depending on the drug or medical device candidate, the disease or condition that the drug or medical devicecandidate is designed to address, and the regulations applicable to any particular drug or medical device candidate. The FDA can delay, limit or deny approval orclearance of a drug or medical device candidate for many reasons, including:▪a drug candidate may not be deemed safe or effective;▪a medical device candidate may not be deemed to be substantially equivalent to a lawfully marketed non-PMA device, in the case of a premarketnotification;▪the FDA may not find the data from pre-clinical studies and clinical trials sufficient;▪the FDA may not approve our or our third-party manufacturer’s processes or facilities; or▪the FDA may change its approval or clearance policies or adopt new regulations.Beyond these risks, there is also a possibility that our licensees or collaborators could decide to discontinue a study at any time for commercial, scientific orother reasons.Regulation by governmental authorities in the U.S. and other countries may be a significant factor in how we develop, test, produce and market ourdiagnostic test products. Diagnostic tests like ours may not fall squarely within the regulatory approval process for pharmaceutical or device products as describedabove, and the regulatory pathway is not as clear. It is possible that the diagnostic products developed by us or our collaborators will be regulated as medicaldevices by the FDA and comparable agencies of other countries and require either PMA or 510(k) clearance from the FDA prior to marketing. Some companiesthat have successfully commercialized diagnostic tests for various conditions and disease states have not sought clearance or approval for such tests through thetraditional 510(k) or PMA processes, and have instead utilized a process involving LDTs through a CLIA- certified laboratory. CLIA is a federal law that regulatesclinical laboratories that perform testing on specimens derived from humans for the purpose of providing information for diagnostic, preventative or treatmentpurpose. In such instances, the CLIA lab is solely responsible for the development, validation and commercialization of the assay.Such LDT testing is currently under the purview of CMS and state agencies that provide oversight of the safe and effective use of LDTs. However, the FDAhas consistently asserted that it has the regulatory authority to regulate LDTs despite historically exercising enforcement discretion. In furtherance of that position,the FDA issued two draft guidance documents in October 2014: Framework for Regulatory Oversight of Laboratory Developed Tests (the “FrameworkGuidance”); and (2) FDA Notification and Medical Device Reporting for Laboratory Developed Tests (the “Notification Guidance”). The Framework42Guidance outlines the FDA’s plan to adopt over time a risk-based approach to regulating LDTs whereby different classifications of LDTs would be subject todifferent levels of FDA oversight and enforcement, including, for example, prohibitions on adulteration and misbranding, establishment registration and devicelisting, premarket notification, banned devices, records and reports, good manufacturing practices, adverse event reporting, premarket review of safety,effectiveness, and clinical validity, and quality system requirements. The Notification Guidance is intended to explain how clinical laboratories should notify theFDA of the LDTs they develop and how to satisfy Medical Device Reporting requirements. On January 13, 2017, the FDA published a synthesis of feedback onthe Framework Guidance and Notification Guidance titled, Discussion Paper on Laboratory Developed Tests (the “Discussion Paper”). The Discussion Paperprovided notice that the FDA would not issue a final guidance on the oversight of LDTs to allow for further public discussion on appropriate oversight approach,and to give congressional authorizing committees the opportunity to develop a legislative solution. The outcome and ultimate impact of such proposals on thebusiness is difficult to predict at this time. However, the FDA’s authority to regulate LDTs continues to be challenged, and the timeline and process for finalizingthe draft guidance documents is unknown. We will continue to monitor changes to all domestic and international LDT regulatory policy so as to ensure compliancewith the current regulatory scheme.The terms of approvals and ongoing regulation of our products may limit how we manufacture and market our products and product candidates, which couldmaterially impair our ability to generate anticipated revenues.We, our approved or cleared products, and the manufacturers of our products are subject to continual review. Our approved or cleared products may only bepromoted for its indicated uses. Marketing, labeling, packaging, adverse event reporting, storage, advertising, and promotion for our approved products will besubject to extensive regulatory requirements. We train our marketing and sales force against promoting our products for uses outside of the cleared or approvedindications for use, known as “off-label uses.” If the FDA determines that our promotional materials or training constitute promotion of unsupported claims or anoff-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of anuntitled letter, a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authoritiesmight take action if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but notlimited to, criminal, civil and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs, and thecurtailment of our operations.We and the manufacturers of our products are also required to comply with current Good Manufacturing Practices (“cGMP”) regulations or the FDA’s QSRregulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation.Moreover, device manufacturers are required to report adverse events by filing Medical Device Reports with the FDA, which reports are publicly available.Further, regulatory agencies must approve manufacturing facilities before they can be used to manufacture our products, and these facilities are subject toongoing regulatory inspection. If we fail to comply with the regulatory requirements of the FDA and other non-U.S. regulatory authorities, or if previouslyunknown problems with our products, manufacturers, or manufacturing processes are discovered, we could be subject to administrative or judicially imposedsanctions. Furthermore, any limitation on indicated uses for a product or product candidate or our ability to manufacture and promote a product or productcandidate could significantly and adversely affect our business, results of operations, and financial condition.In addition, the FDA and other non-U.S. regulatory authorities may change their policies and additional regulations may be enacted that could prevent ordelay marketing approval or clearance of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise fromfuture legislation or administrative action, either in the U.S. or abroad. If we are not able to maintain regulatory compliance, we would likely not be permitted tomarket our products or product candidates and we may not achieve or sustain profitability, which would materially impair our ability to generate anticipatedrevenues.If we fail to comply with complex and rapidly evolving laws and regulations, we could suffer penalties, be required to pay substantial damages or makesignificant changes to our operations.We are subject to numerous federal and state regulations, including, but not limited to:•federal and state laws applicable to billing and claims payment;•federal and state laboratory anti-mark-up laws;•federal and state anti-kickback laws;•physician self-referral law;•federal and state false claims laws;43•federal self-referral and financial inducement prohibition laws, commonly known as the Stark Law, and the state equivalents;•federal and state laws governing laboratory licensing and testing, including CLIA;•federal and state laws governing the development, use and distribution of LDTs;•HIPAA, along with the revisions to HIPAA as a result of the HITECH Act, and analogous state laws;•federal, state and foreign regulation of privacy, security, electronic transactions and identity theft;•federal, state and local laws governing the handling, transportation and disposal of medical and hazardous waste;•Occupational Safety and Health Administration rules and regulations;•changes to laws, regulations and rules as a result of the Health Care Reform Law; and•changes to other federal, state and local laws, regulations and rules, including tax laws.If we fail to comply with existing or future applicable laws and regulations, we could suffer civil or criminal penalties, including the loss of our licenses tooperate our laboratories and our ability to participate in federal and state healthcare programs. Different interpretations and enforcement policies of existingstatutes and regulations applicable to our business could subject our current practices to allegations of impropriety or illegality, or could require us to makesignificant changes to our operations. In addition, we cannot predict the impact of future legislation and regulatory changes on our business or assure that we willbe able to obtain or maintain the regulatory approvals required to operate our business.As a result of political, economic, and regulatory influences, the healthcare delivery industry in the U.S. is under intense scrutiny and subject to fundamentalchanges. We cannot predict which reform proposals will be adopted, when they may be adopted, or what impact they may have on us. The costs associated withcomplying with federal and state regulations could be significant and the failure to comply with any such legal requirements could have a material adverse effecton our financial condition, results of operations, and liquidity.Failure to maintain the security of patient-related information or compliance with security requirements could damage our reputation with customers, causeus to incur substantial additional costs and become subject to litigation.Pursuant to HIPAA, and certain similar state laws, we must comply with comprehensive privacy and security standards with respect to the use and disclosureof protected health information. If the Company does not comply with existing or new laws and regulations related to protecting privacy and security of personal orhealth information, it could be subject to monetary fines, civil penalties, or criminal sanctions. Under the HITECH amendments to HIPAA, HIPAA was expandedto require certain data breach notification, to extend certain HIPAA privacy and security standards directly to business associates, to heighten penalties fornoncompliance, and enhance enforcement efforts.In March 2014, CareEvolve, Bio-Reference’s wholly-owned connectivity subsidiary, became aware that there had been a HIPAA breach with regard to oneof its servers managed at an internet service provider site called XAND, where the server was inadvertently configured so that it was accessible to the Internet for abrief period. Upon becoming aware of the matter, CareEvolve immediately took the server offline and removed all indexed files that could be located on theinternet. In the meantime, an Internet data collection “robot” operated by Google, Inc. had briefly acquired data from a server and made it available to Internetsearches. To the best of our knowledge, there were no known disclosures of this Patient Health Information (“PHI”) to unauthorized parties. Bio-Reference self-reported this incident to the appropriate government agency, the Office of Civil Rights (“OCR”) and is awaiting further discussions, investigation and action byOCR. Since March 2014, Bio-Reference has taken meaningful steps to further improve its HIPAA and cybersecurity platform, including hiring a dedicated ChiefInformation Security Officer, engaging independent and specialized IT consultants to conduct HIPAA and cybersecurity assessments, reviewing data security andinternal safeguards, and continuously implementing enhanced security measures to minimize the risk of similar occurrences in the future.In February 2016, Bio-Reference discovered that some of its phlebotomists had taken pictures of lab test requests with their personal smartphones at severalnursing homes in Florida in order to transmit test information to the Bio-Reference laboratory. The records photographed did not contain any passwords, securitycodes or financial information and BRLI has no evidence that any PHI was improperly used or accessed. After becoming aware of this situation, Bio-Referenceimmediately undertook an internal investigation, reviewed and modified its data security and internal safeguards, and notified the breach to potentially affectedindividuals and OCR. Bio-Reference is awaiting further discussions, investigation and action by OCR.We have and will continue to receive certain personal and financial information about our clients and their patients. In addition, we depend upon the securetransmission of confidential information over public networks. While we take all44reasonable and prudent steps to protect this protected information, a compromise in our security systems that results in client or patient personal information beingobtained by unauthorized persons or our failure to comply with security requirements for financial transactions could adversely affect our reputation with ourclients and result in litigation against us or the imposition of penalties, all of which may adversely impact our results of operations, financial condition andliquidity.Failure to comply with environmental, health and safety laws and regulations, including the Federal Occupational Safety and Health Administration Act, theNeedlestick Safety and Prevention Act and the Comprehensive Medical Waste Management Act, could result in fines and penalties and loss of licensure, andhave a material adverse effect upon our business.We are subject to licensing and regulation under federal, state and local laws and regulations relating to the protection of the environment and human healthand safety, including laws and regulations relating to the handling, transportation and disposal of medical specimens, infectious and hazardous waste andradioactive materials, as well as regulations relating to the safety and health of laboratory employees. The Federal Occupational Safety and Health Administrationhas established extensive requirements relating to workplace safety for health care employers, including clinical laboratories, whose workers may be exposed toblood-borne pathogens such as HIV and the hepatitis B virus. These requirements, among other things, require work practice controls, protective clothing andequipment, training, medical follow-up, vaccinations and other measures designed to minimize exposure to, and transmission of, blood-borne pathogens. Inaddition, the Needlestick Safety and Prevention Act requires, among other things, that we include in our safety programs the evaluation and use of engineeringcontrols such as safety needles if found to be effective at reducing the risk of needlestick injuries in the workplace.Waste management is subject to federal and state regulations governing the transportation and disposal of medical waste including bodily fluids. Federalregulations require licensure of interstate transporters of medical waste. In New Jersey, we are subject to the Comprehensive Medical Waste Management Act(“CMWMA”), which requires us to register as a generator of special medical waste. All of our medical waste is disposed of by a licensed interstate hauler. Thehauler provides a manifest of the disposition of the waste products as well as a certificate of incineration, which is retained by us. These records are audited by theState of New Jersey on a yearly basis. We are also subject to the Federal Hazardous materials transportation law, 49 U.S.C. 5101 et seq., and the HazardousMaterials Regulations (“HMR”), 49 CFR parts 171-180. The federal government has classified hazardous medical waste as hazardous materials for the purpose ofregulation. These regulations preempt state regulation, which must be “substantively the same,” “the non-federal requirement must conform “in every significantrespect to the federal requirement. Editorial and other similar de minimis changes are permitted,” 49 CFR 107.202(d).Failure to comply with such federal, state and local laws and regulations could subject us to denial of the right to conduct business, fines, criminal penaltiesand/or other enforcement actions, any of which could have a material adverse effect on our business. In addition, compliance with future legislation could imposeadditional requirements us, which may be costly.Our failure or the failure of third-party payors or physicians to comply with ICD-10-CM Code Set, and our failure to comply with other emerging electronictransaction standards could adversely impact our business.Compliance with the ICD-10-CM Code Set was required to be in place by October 1, 2015. The Company will continue its assessment of informationsystems, applications and processes for compliance with these requirements. Clinical laboratories are typically required to submit health care claims with diagnosiscodes to third party payors. The diagnosis codes must be obtained from the ordering physician. Our failure or the failure of third party payors or physicians tocomply with these requirements could have an adverse impact on reimbursement, days sales and cash collections.Also, the failure of our IT systems to keep pace with technological advances may significantly reduce our revenues or increase our expenses. Public andprivate initiatives to create healthcare information technology (“HCIT”) standards and to mandate standardized clinical coding systems for the electronic exchangeof clinical information, including test orders and test results, could require costly modifications to our existing HCIT systems. If we fail to adopt or delay inimplementing HCIT standards, we could lose customers and business opportunities.Failure to comply with complex federal and state laws and regulations related to submission of claims for clinical laboratory services could result in significantmonetary damages and penalties and exclusion from the Medicare and Medicaid programs.We are subject to extensive federal and state laws and regulations relating to the submission of claims for payment for clinical laboratory services, includingthose that relate to coverage of our services under Medicare, Medicaid and other governmental health care programs, the amounts that may be billed for ourservices and to whom claims for services may be submitted. These rules may also affect the Company in light of the practice management products that we market,to the extent that these products are considered to affect the manner in which our customers’ submit their own claims for services. Submission of our claims isparticularly complex because we provide both anatomic pathology services and clinical laboratory45tests, which generally are paid using different reimbursement principles. The clinical laboratory tests are often paid under a clinical laboratory fee schedule, and theanatomic pathology services are often paid under a physician fee schedule.Our failure to comply with applicable laws and regulations could result in our inability to receive payment for our services or result in attempts by third-partypayors, such as Medicare and Medicaid, to recover payments from us that have already been made. Submission of claims in violation of certain statutory orregulatory requirements can result in penalties, including substantial civil money penalties for each item or service billed to Medicare in violation of the legalrequirement, and exclusion from participation in Medicare and Medicaid. Government authorities may also assert that violations of laws and regulations related tosubmission or causing the submission of claims violate the federal False Claims Act (“FCA”) or other laws related to fraud and abuse, including submission ofclaims for services that were not medically necessary. Violations of the FCA could result in enormous economic liability. The FCA provides that all damages aretrebled, and each false claim submitted is subject to a penalty of up to $21,563. For example, we could be subject to FCA liability if it was determined that theservices we provided were not medically necessary and not reimbursable, particularly if it were asserted that we contributed to the physician’s referrals ofunnecessary services to us. It is also possible that the government could attempt to hold us liable under fraud and abuse laws for improper claims submitted by anentity for services that we performed if we were found to have knowingly participated in the arrangement that resulted in submission of the improper claims.Changes in regulation and policies, including increasing downward pressure on health care reimbursement, may adversely affect reimbursement fordiagnostic services and could have a material adverse impact on our business.Reimbursement levels for health care services are subject to continuous and often unexpected changes in policies, and we face a variety of efforts bygovernment payors to reduce utilization and reimbursement for diagnostic testing services. Changes in governmental reimbursement may result from statutory andregulatory changes, retroactive rate adjustments, administrative rulings, competitive bidding initiatives, and other policy changes.The U.S. Congress has considered, at least yearly in conjunction with budgetary legislation, changes to one or both of the Medicare fee schedules underwhich we receive reimbursement, which include the physician fee schedule for anatomical pathology services, and the clinical laboratory fee schedule for ourclinical laboratory services. For example, currently there is no copayment or coinsurance required for clinical laboratory services, although there is for ourphysician services. However, Congress has periodically considered imposing a 20 percent coinsurance on laboratory services. If enacted, this would require us toattempt to collect this amount from patients, although in many cases the costs of collection would exceed the amount actually received. In April 2015, changes tothe physician fee schedule were enacted under the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”).Our reimbursement for our pathology services is paid primarily under the physician fee schedule of Medicare and Medicaid. Historically, the physician feeschedule was governed by a complex formula, referred to as the Sustainable Growth Rate, or SGR. However, in April 2015, MACRA was passed, whichpermanently replaces the SGR formula with a value-based payment system. The passage of MACRA also repealed the 21.1% reduction of the physician feeschedule that was scheduled for April 1, 2015. Under MACRA, the physician fee schedule conversion factor increases of 0.5% from July 1, 2015 to December 31,2015, and 0.5% in each of years 2016-2019, followed by 0.0% updates for 2020-2025. Subsequent years will vary based on participation in alternative paymentmodels. Beginning in 2019, rates will also be adjusted under the new Merit-based Incentive Payment System.The Center for Medicare and Medicaid Services (“CMS”) pays laboratories on the basis of a fee schedule that is reviewed and re-calculated on an annualbasis. CMS may change the fee schedule upward or downward on billing codes that we submit for reimbursement on a regular basis. Our revenue and businessmay be adversely affected if the reimbursement rates associated with such codes are reduced. Even when reimbursement rates are not reduced, policy changes addto our costs by increasing the complexity and volume of administrative requirements. Medicaid reimbursement, which varies by state, is also subject toadministrative and billing requirements and budget pressures. Recently, state budget pressures have caused states to consider several policy changes that mayimpact our financial condition and results of operations, such as delaying payments, reducing reimbursement, restricting coverage eligibility and service coverage,and imposing taxes on our services.Change in the billing and/or reimbursement procedures by the federal government could affect our ability to be paid as we have in the past for servicesrendered.CMS has changed or discussed making changes to certain types of reimbursement which could affect our rate of reimbursement. Certain cases are comprisedof both a technical component (“TC”) and a professional component (“PC”). In certain specified areas of testing, primarily in the area of anatomic pathology, CMShas determined that some providers have46over-utilized these testing procedures and CMS has introduced changes in reimbursement policies to discourage over-utilization. While we do not currently over-utilize services for self-gain, we are always subject to review by CMS and cannot be certain that CMS won’t interpret our practices differently than we do.Third party payers are increasingly challenging established prices, and new products that are more expensive than existing treatments may have difficultyfinding ready acceptance unless there is a clear therapeutic benefit. On April 1, 2014, the Protecting Access to Medicare Act of 2014 (“PAMA”) was enacted intolaw. Under PAMA, Medicare payment for clinical diagnostic laboratory tests will be established by calculating a weighted mean of private payer rates, with newrates to be effective January 1, 2018. Further, applicable laboratories will be required to report payment rates for covered tests starting in 2016 (to establish thepayment rates that will be effective January 1, 2018). Failure to report such data may result in a civil money penalty in an amount of up to $10,000 per day. It isanticipated that the market-based payment system will result in lower reimbursement rates for clinical diagnostic laboratory tests. Even though the permittedannual decrease will be capped through 2023, the cap does not apply to new tests or new advanced diagnostic tests. We cannot assure you that any of our productswill be considered cost effective, or that reimbursement will be available or sufficient to allow us to sell them competitively and profitably.The federal government is faced with significant economic decisions in the coming years. Some solutions being offered in the government could substantiallychange the way laboratory testing is reimbursed by government entities. We cannot be certain what or how any such government changes may affect our business.Medicare legislation and future legislative or regulatory reform of the health care system may affect our ability to sell our products profitably.In the U.S., there have been a number of legislative and regulatory initiatives, at both the federal and state government levels, to change the healthcare systemin ways that, if approved, could affect our ability to sell our products and provide our laboratory services profitably. As such, we cannot assure you thatreimbursement payments under governmental and private third party payor programs will remain at levels comparable to present levels or will be sufficient tocover the costs allocable to patients eligible for reimbursement under these programs. Any changes that lower reimbursement rates under Medicare, Medicaid orprivate payor programs could negatively affect our business.Most significantly, on March 23, 2010, President Obama signed into law both the Affordable Care Act and the reconciliation law known as Health Care andEducation Affordability Reconciliation Act (the “Reconciliation Act”) and, combined we refer to both Acts as the “2010 Health Care Reform Legislation.” Theconstitutionality of the 2010 Health Care Reform Legislation was confirmed on June 28, 2012 by the Supreme Court of the United States. Extending coverage to alarge population could substantially change the structure of the health insurance system and the methodology for reimbursing medical services, drugs and devices.These structural changes could entail modifications to the existing system of third-party payors and government programs, such as Medicare and Medicaid, thecreation of a government-sponsored healthcare insurance source, or some combination of both, as well as other changes. Additionally, restructuring the coverage ofmedical care in the U.S. could impact the reimbursement for diagnostic tests. If reimbursement for our diagnostic tests is substantially less than we or our clinicallaboratory customers expect, or rebate obligations associated with them are substantially increased, our business could be materially and adversely impacted.Beyond coverage and reimbursement changes, the 2010 Health Care Reform Legislation subjects manufacturers of medical devices to an excise tax of 2.3%on certain U.S. sales of medical devices in January 2013. However, a two-year moratorium on the tax was issued on December 18, 2015. As such, the excise taxdoes not apply to sales in 2016 or 2017. The return of the tax in 2018 will likely increase our expense in the future.Additionally, the 2010 Health Care Reform Legislation includes significant new fraud and abuse measures, including required disclosures under PhysicianPayments Sunshine Act described above, lower thresholds for violations and increasing potential penalties for such violations. Federal funding available forcombating health care fraud and abuse generally has increased. Many of the laws and regulations applicable to our business, particularly those relating to billingand reimbursement of tests and those relating to relationships with physicians, hospitals and patients, contain language that has not been interpreted by courts. Wemust rely on our interpretation of these laws and regulations based on the advice of our counsel and regulatory or law enforcement authorities may not agree withour interpretation of these laws and regulations and may seek to enforce legal remedies or penalties against us for violations. From time to time we may need tochange our operations, particularly pricing or billing practices, in response to changing interpretations of these laws and regulations or regulatory or judicialdeterminations with respect to these laws and regulations. These occurrences, regardless of their outcome, could damage our reputation and harm importantbusiness relationships that we have with healthcare providers, payors and others. Furthermore, if a regulatory or judicial authority finds that we have not compliedwith applicable laws and regulations, we could be required to refund amounts that were billed and collected in violation of such laws and regulations. In addition,we may voluntarily47refund amounts that were alleged to have been billed and collected in violation of applicable laws and regulations. In either case, we could suffer civil and criminaldamages, fines and penalties, exclusion from participation in governmental healthcare programs and the loss of licenses, certificates and authorizations necessaryto operate our business, as well as incur liabilities from third-party claims, all of which could harm our operating results and financial condition. Moreover,regardless of the outcome, if we or physicians or other third parties with whom we do business are investigated by a regulatory or law enforcement authority wecould incur substantial costs, including legal fees, and our management may be required to divert a substantial amount of time to an investigation.To enhance compliance with applicable health care laws, and mitigate potential liability in the event of noncompliance, regulatory authorities, such as theUnited States Health and Human Services Department Office of Inspector General (“OIG”), have recommended the adoption and implementation of acomprehensive health care compliance program that generally contains the elements of an effective compliance and ethics program described in Section 8B2.1 ofthe United States Sentencing Commission Guidelines Manual, and for many years the OIG has made available a model compliance program targeted to the clinicallaboratory industry. In addition, certain states, such as New York, requires that health care providers, such as clinical laboratories, that engage in substantialbusiness under the state Medicaid program have a compliance program that generally adheres to the standards set forth in the Model Compliance Program. Also,under the 2010 Health Care Reform Legislation, the U.S. Department of Health and Human Services, or HHS, requires suppliers, such as the Company, to adopt,as a condition of Medicare participation, compliance programs that meet a core set of requirements. While we have adopted U.S. healthcare compliance and ethicsprograms that generally incorporate the OIG’s recommendations and train our employees in such compliance, having such a program can be no assurance that wewill avoid any compliance issues.Prior to the 2016 U.S. elections (including the new Presidential administration), regulations under the 2010 Health Care Reform Legislation were expected tocontinue being drafted, released and finalized throughout the next several years. Under the current U.S. Presidential administration and U.S. Congress, it is possibleand expected that legislation will be introduced to repeal the 2010 Health Care Reform Legislation in whole or in part. Because of the continued uncertainty aboutthe implementation of the 2010 Health Care Reform Legislation, including the potential for further legal challenges or repeal of that legislation, we cannot quantifyor predict with any certainty the likely impact of the 2010 Health Care Reform Legislation or its repeal on our business model, prospects, financial condition orresults of operations. We also anticipate that Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcare deliveryand payment systems and may in the future propose and adopt legislation or policy changes or implementations effecting additional fundamental changes in thehealthcare delivery system. We cannot assure you as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact of anysuch potential legislation.RISKS RELATED TO INTERNATIONAL OPERATIONSFailure to obtain regulatory approval outside the U.S. will prevent us from marketing our products and product candidates abroad.We intend to market certain of our products and product candidates in non-U.S. markets. In order to market our products and product candidates in theEuropean Union and many other non-U.S. jurisdictions, we must obtain separate regulatory approvals. We have had limited interactions with non-U.S. regulatoryauthorities, the approval procedures vary among countries and can involve additional testing, and the time required to obtain approval may differ from that requiredto obtain FDA approval or clearance. Approval or clearance by the FDA does not ensure approval by regulatory authorities in other countries, and approval by oneor more non-U.S. regulatory authority does not ensure approval by other regulatory authorities in other countries or by the FDA. The non-U.S. regulatory approvalprocess may include all of the risks associated with obtaining FDA approval or clearance. We may not obtain non-U.S. regulatory approvals on a timely basis, if atall. We may not be able to file for non-U.S. regulatory approvals and may not receive necessary approvals to commercialize our products and product candidates inany market, which would have a material adverse effect on our business, results of operations and financial condition.Non-U.S. governments often impose strict price controls, which may adversely affect our future profitability.We intend to seek approval to market certain of our products and product candidates in both the U.S. and in non‑U.S. jurisdictions. If we obtain approval inone or more non-U.S. jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product. In some countries, particularlycountries of the European Union, each of which has developed its own rules and regulations, pricing is subject to governmental control. In these countries, pricingnegotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug or medical device candidate. To obtainreimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product and productcandidates to other available products. If reimbursement of our products and product candidates is unavailable or limited in scope or amount, or if pricing is set atunsatisfactory levels, we48may be unable to generate revenues and achieve or sustain profitability, which would have a material adverse effect on our business, results of operations andfinancial condition.Potential political, economic and military instability in the State of Israel, where we have office, laboratory and manufacturing operations, may adverselyaffect our results of operations.We maintain office, laboratory and manufacturing facilities in the State of Israel. Political, economic and military conditions in Israel may directly affect ourability to conduct business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and its neighbors. Anyhostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or a significant downturn in the economic orfinancial condition of Israel, could affect adversely our operations. Ongoing and revived hostilities or other Israeli political or economic factors could harm ouroperations and product development and cause our revenues to decrease.Due to the international scope of our business activities, our results of operations may be significantly affected by currency fluctuations.We derive a significant portion of our consolidated net revenues from international sales, subjecting us to risks relating to fluctuations in currency exchangerates. Currency variations can adversely affect margins on sales of our products in countries outside of the U.S. and margins on sales of products that includecomponents obtained from suppliers located outside of the U.S. Through our subsidiaries, we operate in a wide variety of jurisdictions. Certain countries in whichwe operate or may operate have experienced geopolitical instability, economic problems and other uncertainties from time to time. To the extent that world eventsor economic conditions negatively affect our future sales to customers in these and other regions of the world, or the collectability of receivables, our future resultsof operations, liquidity and financial condition may be adversely affected. Although we do not speculate in the foreign exchange market, we may manageexposures arising in the normal course of business related to fluctuations in foreign currency exchange rates by entering into offsetting positions through the use offoreign exchange forward contracts. Certain firmly committed transactions are hedged with foreign exchange forward contracts whereby exchange rates change,gains and losses on the exposed transactions are partially offset by gains and losses related to the hedging contracts. However, our subsidiaries receive their incomeand pay their expenses primarily in their local currencies. To the extent that transactions of these subsidiaries are settled in their local currencies, a devaluation ofthose currencies versus the U.S. dollar could reduce the contribution from these subsidiaries to our consolidated results of operations as reported in U.S. dollars.For financial reporting purposes, such depreciation will negatively affect our reported results of operations since earnings denominated in foreign currencies wouldbe converted to U.S. dollars at a decreased value. While we have employed economic cash flow and fair value hedges to minimize the risks associated with theseexchange rate fluctuations, the hedging activities may be ineffective or may not offset more than a portion of the adverse financial impact resulting from currencyvariations. Accordingly, we cannot assure you that fluctuations in the values of the currencies of countries in which we operate will not materially adversely affectour future results of operations.We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act couldhave a material adverse effect on our business.We are subject to the Foreign Corrupt Practice Act (“FCPA”) and other laws that prohibit U.S. companies or their agents and employees from providinganything of value to a foreign official or political party for the purposes of influencing any act or decision of these individuals in their official capacity to helpobtain or retain business, direct business to any person or corporate entity or obtain any unfair advantage. We have operations and agreements with third partiesand we generate sales internationally. Our international activities create the risk of unauthorized and illegal payments or offers of payments by our employees,consultants, sales agents or distributors, even though they may not always be subject to our control. We discourage these practices by our employees and agents.However, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants, sales agents or distributorsmay engage in conduct for which we might be held responsible. Any failure by us to adopt appropriate compliance procedures and ensure that our employees andagents comply with the FCPA and applicable laws and regulations in foreign jurisdictions could result in substantial penalties or restrictions on our ability toconduct business in certain foreign jurisdictions.Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business,operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committedby companies in which we invest or that we acquire.We are subject to risks associated with doing business globally.Our operations, both within and outside the U.S., are subject to risks inherent in conducting business globally and under the laws, regulations and customs ofvarious jurisdictions and geographies. These risks differ in some respects from those49associated with our U.S. business and our exposure to such risks may increase if our international business continues to grow. These risks include fluctuations incurrency exchange rates, changes in exchange controls, loss of business in government tenders that are held annually in many cases, nationalization, increasinglycomplex labor environments, expropriation and other governmental actions, changes in taxation, including legislative changes in U.S. and international taxation ofincome earned outside of the U.S., importation limitations, export control restrictions, violations of U.S. or local laws, including the FCPA, dependence on a fewgovernment entities as customers, pricing restrictions, economic destabilization, political and economic instability, disruption or destruction in a significantgeographic region - due to the location of manufacturing facilities, distribution facilities or customers - regardless of cause, including war, terrorism, riot, civilinsurrection or social unrest, or natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease.Our international business is subject to both U.S. and foreign laws and regulations, including, without limitation, regulations relating to import-exportcontrols, technology transfer restrictions, repatriation of earnings, data privacy and protection, investment, exchange rates and controls, the FCPA and other anti-corruption laws, the anti-boycott provisions of the U.S. Export Administration Act, labor and employment, works councils and other labor groups, taxes,environment, security restrictions, intellectual property, changes in taxation, including legislative changes in U.S. and international taxation of income earnedoutside of the U.S., handling of regulated substances, and other commercial activities. Failure by us, our employees, affiliates, partners or others with whom wework to comply with these laws and regulations could result in administrative, civil or criminal liabilities. New regulations and requirements, or changes to existingones in the various countries in which we operate can significantly increase our costs and risks of doing business internationally. Failure to comply with the lawsand regulations that affect our global operations, could have an adverse effect on our business, financial condition or results of operations.Changes in regulations, political leadership and environment, or security risks may dramatically affect our ability to conduct or continue to conduct businessin international markets. Our international business may also be impacted by changes in foreign national policies and priorities, which may be influenced bychanges in the threat environment, geopolitical uncertainties, government budgets, and economic and political factors more generally, any of which could impactfunding for programs or delay purchasing decisions or customer payments. We also could be affected by the legal, regulatory and economic impacts of Britain’sexit from the European Union, the impact of which is not known at this time. The occurrence and impact of these factors is difficult to predict, but one or more ofthem could have a material adverse effect on our financial position, results of operations and/or cash flows.RISKS RELATED TO ACQUISITIONS AND INVESTMENTSAcquisitions, investments and strategic alliances that we have made or may make in the future may use significant resources, result in disruptions to ourbusiness or distractions of our management, may not proceed as planned, and could expose us to unforeseen liabilities. We intend to continue to expand ourbusiness through the acquisition of, investments in and strategic alliances with companies, technologies, products and services. Acquisitions, investments andstrategic alliances involve a number of special problems and risks, including, but not limited to:•difficulty integrating acquired technologies, products, services, operations, and personnel with the existing businesses;•diversion of management’s attention in connection with both negotiating the acquisitions and integrating the businesses;•strain on managerial and operational resources as management tries to oversee larger operations and investments;•difficulty implementing and maintaining effective internal control over financial reporting at businesses that we acquire or invest in, particularly ifthey are not located near our existing operations;•exposure to unforeseen liabilities of acquired companies or companies in which we invest;•potential costly and time-consuming litigation, including stockholder lawsuits;•potential issuance of securities to equity holders of the company being acquired with rights that are superior to the rights of holders of our CommonStock, or which may have a dilutive effect on our stockholders;•the need to incur additional debt or use cash; and•the requirement to record potentially significant additional future operating costs for the amortization of intangible assets.As a result of these or other problems and risks, businesses we acquire or invest in may not produce the revenues, earnings, or business synergies that weanticipated, and acquired products, services, or technologies might not perform as we50expected. As a result, we may incur higher costs and realize lower revenues than we had anticipated. We may not be able to successfully address these problemsand we cannot assure you that the acquisitions or investments will be successfully identified and completed or that, if completed, the acquired businesses,investments, products, services, or technologies will generate sufficient revenue to offset the associated costs or other negative effects on our business.Any of these risks can be greater if an acquisition or investment is large relative to our size. Failure to manage effectively our growth through acquisitionscould adversely affect our growth prospects, business, results of operations, financial condition and cash flows.We may fail to realize the anticipated benefits of the mergers with Bio-Reference, Transition Therapeutics, and other acquisitions.The success of the mergers will depend on, among other things, our ability to combine our business with that of Bio-Reference and Transition in a mannerthat facilitates growth opportunities and realizes synergies and cost savings. We believe that the mergers will provide an opportunity for revenue growth. However,we must successfully combine our business with that of Bio-Reference and Transition in a manner that permits these benefits to be realized. In addition, we mustachieve the anticipated growth and cost savings without adversely affecting current revenues and investments in future growth. If we are not able to successfullyachieve these objectives, the anticipated benefits of the mergers may not be realized fully, or at all, or may take longer to realize than expected.The failure to integrate successfully the business and operations of Bio-Reference in the expected time frame may adversely affect our future results.Historically, we and Bio-Reference have operated as independent companies. There can be no assurances that our and Bio-Reference’s businesses can beintegrated successfully. It is possible that the integration process could result in the loss of our or Bio-Reference’s key employees, the loss of customers, thedisruption of either company’s or both companies’ ongoing businesses or in unexpected integration issues, higher than expected integration costs and an overallpost-completion integration process that takes longer than originally anticipated. Specifically, the following issues, among others, must be addressed in integratingour operations with Bio-Reference’s operations in order to realize the anticipated benefits of the merger so we perform as expected:•combining the companies’ operations and corporate functions, as well as obtaining anticipated synergies;•combining our business with Bio-Reference’s business and meeting the capital requirements of the combined company, in a manner that permits usto achieve the cost savings or revenue synergies anticipated to result from the merger, the failure of which would result in the anticipated benefits ofthe merger not being realized in the time frame currently anticipated or at all;•integrating the companies’ technologies;•integrating and unifying the offerings and services available to customers;•identifying and eliminating redundant and underperforming functions and assets;•harmonizing and/or addressing differences in the companies’ operating practices, employee development and compensation programs, internalcontrols and other policies, procedures and processes;•maintaining existing agreements with customers, distributors, providers and vendors and avoiding delays in entering into new agreements withprospective customers, distributors, providers and vendors;•addressing possible differences in business backgrounds, corporate cultures and management philosophies;•consolidating the companies’ administrative and information technology infrastructure;•coordinating distribution and marketing efforts;•managing the movement of certain positions to different locations;•coordinating geographically dispersed organizations; and•effecting actions that may be required in connection with obtaining regulatory approvals.In addition, at times the attention of our management and resources may be focused on the integration of the businesses of the two companies and divertedfrom day-to-day business operations, which may disrupt our ongoing business.Funding may not be available for us to continue to make acquisitions, investments and strategic alliances in order to grow our business.51We have made and anticipate that we may continue to make acquisitions, investments and strategic alliances with complementary businesses, technologies,products and services to expand our business. Our growth plans rely, in part, on the successful completion of future acquisitions. At any particular time, we mayneed to raise substantial additional capital or to issue additional equity to finance such acquisitions, investments, and strategic alliances. There is no assurance thatwe will be able to secure additional funding on acceptable terms, or at all, or obtain the stockholder approvals necessary to issue additional equity to finance suchacquisitions, investments, and strategic alliances. If we are unsuccessful in obtaining the financing, our business would be adversely impacted.We have a large amount of goodwill and other intangible assets as a result of acquisitions and a significant write-down of goodwill and/or other intangibleassets would have a material adverse effect on our reported results of operations and net worth.We have a large amount of goodwill and other intangible assets and we are required to perform an annual, or in certain situations a more frequent, assessmentfor possible impairment for accounting purposes. At December 31, 2016 , we have goodwill and other intangible assets of $2.1 billion , or approximately 76% ofour total assets. If we do not achieve our planned operating results, we may be required to incur a non-cash impairment charge. Any impairment charges in thefuture will adversely affect our results of operations. A significant write down of goodwill and/or other intangible assets would have a material adverse effect onour reported results of operations and net worth.RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCKThe market price of our Common Stock may fluctuate significantly.The market price of our Common Stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as:•the announcement of new products or product enhancements by us or our competitors;•results of our clinical trials and other development efforts;•developments concerning intellectual property rights and regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our Common Stock is covered by analysts;•developments in the biotechnology, pharmaceutical, diagnostic, and medical device industry;•the results of product liability or intellectual property lawsuits;•future issuances of our Common Stock or other securities, including debt;•purchases and sales of our Common Stock by our officers, directors or affiliates;•the addition or departure of key personnel;•announcements by us or our competitors of acquisitions, investments, or strategic alliances; and•general market conditions and other factors, including factors unrelated to our operating performance.Further, the stock market in general, and the market for biotechnology, pharmaceutical, diagnostic, and medical device companies in particular, hasexperienced extreme price and volume fluctuations in recent years. Continued market fluctuations could result in extreme volatility in the price of our CommonStock, which could cause a decline in the value of our Common Stock.Directors, executive officers, principal stockholders and affiliated entities own a substantial amount of our capital stock, and they may make decisions that youdo not consider to be in the best interests of our stockholders.As of February 27, 2017, our directors, executive officers, principal stockholders, and affiliated entities beneficially owned, in the aggregate 40.19% of ouroutstanding voting securities. Frost Gamma Investments Trust (“Gamma Trust”), of which Phillip Frost, M.D., the Company’s Chairman and CEO, is the soletrustee, is deemed to beneficially own in the aggregate approximately 32.36% of our Common Stock as of February 27, 2017. As a result, Dr. Frost acting withother members of management, would have the ability to significantly impact the election of our Board of Directors, the adoption or amendment of provisions inthe Company’s Certificate of Incorporation, the approval of mergers and other significant corporate transactions, and the outcome of issues requiring approval byour stockholders. This concentration of ownership may al52so have the effect of delaying or preventing a change in control of our company that may be favored by other stockholders. This could prevent transactions inwhich stockholders might otherwise recover a premium for their shares over current market prices.A significant short position in our stock could have a substantial impact on the trading price of our stock.Historically, there has been a significant “short” position in our common stock. As of February 15, 2017, investors held a short position of approximately74,955,031 million shares of our common stock which represented approximately 13.4% of our outstanding common stock. The anticipated downward pressure onour stock price due to actual or anticipated sales of our stock by some institutions or individuals who engage in short sales of our common stock could cause ourstock price to decline. Such stock price decrease could encourage further short-sales that could place additional downward pressure on our stock price. This couldlead to further increases in the already large short position in our common stock and cause volatility in our stock price.The volatility of our stock may cause the value of a stockholder’s investment to decline rapidly. Additionally, if our stock price declines, it may be moredifficult for us to raise capital and may have other adverse effects on our business.Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act, including with respect to companies we acquire,could have a material adverse effect on our business and operating results. In addition, current and potential stockholders could lose confidence in ourfinancial reporting, which could have a material adverse effect on the price of our Common Stock.Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of our internal control over financial reportingand a report by our independent registered public accounting firm on the effectiveness of internal control over financial reporting as of year end. We are required toreport, among other things, control deficiencies that constitute material weaknesses or changes in internal control that, or that are reasonably likely to, materiallyaffect internal control over financial reporting. A “material weakness” is a significant deficiency or combination of significant deficiencies that results in more thana remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.We have identified and remediated control deficiencies in the past, and we cannot assure you that we will at all times in the future be able to report that ourinternal controls are effective. In addition, material weaknesses in the design and operation of the internal control over financial reporting of companies that weacquire could have a material adverse effect on our business and operating results. Our acquisition of Bio-Reference and Transition Therapeutics and possiblefuture acquisitions may increase this risk by expanding the scope and nature of operations over which we must develop and maintain internal control over financialreporting. If we cannot provide reliable financial reports or prevent fraud, our results of operation could be harmed. Our failure to maintain the effective internalcontrol over financial reporting could cause the cost related to remediation to increase and could cause our stock price to decline. In addition, we may not be able toaccurately report our financial results, may be subject to regulatory sanction, and investors may lose confidence in our financial statements.Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses.There have been changing laws, regulations, and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002,the Dodd-Frank Act, regulations promulgated by the Securities and Exchange Commission and rules promulgated by the NYSE and the other national securitiesexchanges. These new or changed laws, regulations, and standards are subject to varying interpretations in many cases due to their lack of specificity, and, as aresult, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuinguncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts tocomply with evolving laws, regulations, and standards are likely to continue to result in increased general and administrative expenses and a diversion ofmanagement time and attention from revenue-generating activities to compliance activities. Our board members, Chief Executive Officer, Chief Financial Officer,and Principal Accounting Officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may havedifficulty attracting and retaining qualified board members and executive officers, which could harm our business. If our efforts to comply with new or changedlaws, regulations, and standards differ from the activities intended by regulatory or governing bodies, we could be subject to liability under applicable laws or ourreputation may be harmed, which could materially adversely affect our business, results of operations and financial condition.The conversion and redemption features of our 2033 Senior Notes are classified as embedded derivatives and may continue to result in volatility in ourfinancial statements, including having a material impact on our results of operations and the derivative liability recorded.53The conversion rights and redemption options of our 2033 Senior Notes are classified as embedded derivatives and as a result, are marked-to-market toreflect their fair value at each reporting period. The fair value of the embedded derivatives is influenced by a variety of factors, including the actual and anticipatedbehavior of the holders of the 2033 Senior Notes, the expected volatility of our Common Stock price and our Common Stock price as of the fair valuemeasurement date. Some of these factors are outside of our control. As a result, changes in these factors may have a material impact on our results of operationsand the derivative liability recorded in our Consolidated Balance Sheets. Consequently, our financial statements may vary periodically, based on factors other thanour revenues and expenses.ITEM 1B. UNRESOLVED STAFF COMMENTS.None.ITEM 2. PROPERTIES.Our principal corporate office is located at 4400 Biscayne Blvd, Miami, Florida. We lease this space from Frost Real Estate Holdings, LLC (“Frost RealEstate”), an entity which is controlled by Dr. Phillip Frost, our Chairman of the Board and Chief Executive Officer. Pursuant to the lease agreement with Frost RealEstate Holdings, we lease approximately 25,000 square feet, which encompasses space for our corporate offices and administrative services. Effective May 28,2015, we entered into an amendment to our lease agreement with Frost Real-Estate Holdings. The lease, as amended, is for a five-year term. The lease provides forpayments of approximately $66 thousand per month in the first year increasing annually to $75 thousand per month in the fifth year, plus applicable sale tax.The table below summarizes certain information as to our significant physical properties as of December 31, 2016 :Location Segment and Purpose Type of OccupancyMiami, FL Diagnostics & Pharmaceutical: Corporate Headquarters Leased Elmwood Park, NJ Diagnostics: Main Laboratory LeasedGaithersburg, MD Diagnostics: Genetics Laboratory LeasedKiryat Gat, Israel Pharmaceutical: Research and Development, CTP LeasedWoburn, MA Diagnostics LeasedNesher, Israel Pharmaceuticals: API Manufacturing LeasedGuadalajara, Mexico Pharmaceuticals: Pharmaceutical Manufacturing OwnedBanyoles, Spain Pharmaceuticals: Pharmaceutical Manufacturing OwnedPalol de Revardit, Spain Warehouse LeasedBarcelona, Spain Pharmaceuticals: Research and Development LeasedWaterford, Ireland Pharmaceuticals: Pharmaceutical Manufacturing LeasedSantiago, Chile Pharmaceuticals: Office; Warehouse LeasedITEM 3. LEGAL PROCEEDINGS.None.ITEM 4. MINE SAFETY DISCLOSURES.Not applicable.54PART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES.Our Common Stock is traded publicly on the NASDAQ Stock Market (“NASDAQ”) and the Tel Aviv Stock Exchange under the symbol “OPK”. On June24, 2016, we moved our stock exchange listing to NASDAQ from the New York Stock Exchange (“NYSE”).The following table sets forth for the periods indicated the high and low sales prices per share of our Common Stock during each of the quarters set forthbelow as reported on the NASDAQ or NYSE, as applicable: High Low2016 First Quarter11.85 7.12Second Quarter11.39 8.71Third Quarter11.31 8.91Fourth Quarter12.15 8.922015 First Quarter$15.23 $9.81Second Quarter19.20 13.71Third Quarter17.51 8.23Fourth Quarter11.49 8.20As of February 20, 2017 , there were approximately 595 holders of record of our Common Stock.We have not declared or paid any cash dividends on our Common Stock. No cash dividends have been previously paid on our Common Stock and none areanticipated in fiscal 2017.Stock Performance GraphThe following graph compares the five-year cumulative total return of our Common Stock with the S&P 500 Index and the NASDAQ Biotechnology Index.The graph assumes $100 invested on December 31, 2011 in our Common Stock and in each of the foregoing indices. The stock price performance reflected in thegraph below is not necessarily indicative of future price performance. 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016OPKO Health, Inc.$100.00 $98.16 $172.24 $203.88 $205.10 $189.80S&P 500100.00 116.00 153.58 174.60 177.01 198.18NASDAQ Biotechnology100.00 134.68 232.37 307.67 328.76 262.08Recent Sales of Unregistered SecuritiesNone.56ITEM 6. SELECTED FINANCIAL DATA.The following selected historical consolidated statement of operations data for the years ended December 31, 2016, 2015, 2014, 2013 and 2012 and theconsolidated balance sheet data as of December 31, 2016, 2015, 2014, 2013 and 2012, below are derived from our audited consolidated financial statements andrelated notes thereto. This data should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operation”and our consolidated financial statements and the related notes thereto. For the years ended December 31,(In thousands, except share and per share information) 2016 2015 2014 2013 2012Statement of operations data: Revenues $1,221,661 $491,738 $91,125 $96,530 $47,044Costs and expenses: Cost of revenue 611,482 235,239 48,009 48,860 27,878Operating expenses 683,454 354,980 188,931 127,302 56,435Total costs and expenses 1,294,936 590,219 236,940 176,162 84,313Operating loss (73,275) (98,481) (145,815) (79,632) (37,269)Other income and (expense), net (271) (39,517) (25,212) (24,586) 165Income tax benefit (provision) 56,115 113,675 (24) (1,672) 9,626Net loss (25,083) (31,428) (174,638) (117,346) (29,540)Net loss attributable to common shareholders $(25,083) $(30,028) $(171,666) $(114,827) $(31,288)Loss per share, basic and diluted: Net loss per share $(0.05) $(0.06) $(0.41) $(0.32) $(0.11)Weighted average number of common sharesoutstanding basic and diluted: 550,846,553 488,065,908 422,014,039 355,095,701 295,750,077Balance sheet data: Total assets $2,766,619 $2,799,188 $1,267,664 $1,391,516 $289,830Long-term liabilities $411,515 $567,492 $348,812 $426,687 $34,168Series D Preferred Stock $— $— $— $— $24,386Total shareholders’ equity $2,091,808 $1,979,794 $835,741 $872,979 $178,89457ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995(“PSLRA”), Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended,(the “Exchange Act”), about our expectations, beliefs, or intentions regarding our product development efforts, business, financial condition, results of operations,strategies, or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather,forward-looking statements relate to anticipated or expected events, activities, trends, or results as of the date they are made. Because forward-looking statementsrelate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differmaterially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differmaterially from the activities and results anticipated in forward-looking statements. These factors include those contained in “Item 1A — Risk Factors” of thisAnnual Report on Form 10-K. We do not undertake any obligation to update forward-looking statements. We intend that all forward-looking statements be subjectto the safe harbor provisions of PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect tofuture events and financial performance.OVERVIEWWe are a diversified healthcare company that seeks to establish industry-leading positions in large and rapidly growing medical markets. Our diagnosticsbusiness includes Bio-Reference Laboratories (“Bio-Reference”), the nation’s third-largest clinical laboratory with a core genetic testing business and a 400-personsales and marketing team to drive growth and leverage new products, including the 4Kscore prostate cancer test and the Claros 1 in-office immunoassay platform(in development). Our pharmaceutical business features Rayaldee , an FDA-approved treatment for secondary hyperparathyroidism (“SHPT”) in adults with stage3 or 4 chronic kidney disease (“CKD”) and vitamin D insufficiency (launched in November 2016), and VARUBI™ for chemotherapy-induced nausea andvomiting (oral formulation launched by partner TESARO in November 2015 and pending approval for IV formulation), TT401, a once or twice weeklyoxyntomodulin for type 2 diabetes and obesity which is a clinically advanced drug candidate among the new class of GLP-1 glucagon receptor dual agonists (Phase2b) , and TT701, an androgen receptor modulator for androgen deficiency indications. Our pharmaceutical business also features hGH-CTP, a once-weekly humangrowth hormone injection (in Phase 3 and partnered with Pfizer), a once-daily Factor VIIa drug for hemophilia (Phase 2a), and long-acting oxyntomodulin(“OXM”) for diabetes and obesity (Phase 1).We operate established pharmaceutical platforms in Spain, Ireland, Chile and Mexico, which are generating revenue and from which we expect to generatepositive cash flow and facilitate future market entry for our products currently in development. EirGen, our specialty pharmaceutical manufacturing anddevelopment site in Ireland, is focused on the development and commercial supply of high potency, high barrier to entry pharmaceutical products. In addition, weoperate a specialty active pharmaceutical ingredients (“APIs”) manufacturer in Israel, which we expect will facilitate the development of our pipeline of moleculesand compounds for our proprietary products. RECENT DEVELOPMENTSIn November 2016, we launched commercial sales for Rayaldee in the U.S. market. The FDA approved Rayaldee extended release capsules in June 2016 forthe treatment of secondary hyperparathyroidism (SHPT) in adults with stage 3 or 4 chronic kidney disease (CKD) and serum total 25-hydroxyvitamin D levels lessthan 30 ng/mL. We have a highly specialized sales and marketing team dedicated to the launch and commercialization of Rayaldee , and we expect to increase thesales and marketing team in the second half of 2017.RESULTS OF OPERATIONSFor The Years Ended December 31, 2016 and December 31, 2015Revenues . Revenues for the year ended December 31, 2016 increased $729.9 million compared to the prior year. Revenues for the years ended December 31,2016 and 2015 were as follows:58RevenuesFor the year ended December 31, (In thousands)2016 2015 ChangeRevenue from services$1,012,129 $329,739 $682,390Revenue from products83,467 80,146 3,321Revenue from transfer of intellectual property and other126,065 81,853 44,212Total revenues$1,221,661 $491,738 $729,923The increase in Revenue from services is attributable to the acquisition of Bio-Reference in August 2015. The increase in Revenue from products principallyreflects an increase in revenue from EirGen, which we acquired in May 2015, and an increase in revenue from OPKO Chile. Revenue from transfer of intellectualproperty for the year ended December 31, 2016 principally reflects $50.0 million of revenue from the initial payment in the VFMCRP Agreement and $70.6million of revenue from the transfer of intellectual property related to the Pfizer Transaction. Revenue from transfer of intellectual property for the year endedDecember 31, 2015 principally reflects $65.5 million of revenue from the transfer of intellectual property related to the Pfizer Transaction and $15.0 million ofrevenue from a milestone payment from our licensee, TESARO, in the fourth quarter of 2015. We are recognizing the non-refundable $295.0 million upfrontpayments received in the Pfizer Transaction on a straight-line basis over the expected performance period. The performance period is expected to continue through2019, when we anticipate completing the various research and development services that are specified in the Pfizer Transaction.Costs of revenue . Costs of revenue for the year ended December 31, 2016 increased $376.2 million compared to the prior year. Our acquisition of Bio-Reference in August 2015 accounted for $375.9 million of the increase in cost of service revenue. The increase in cost of product revenue is attributable to anincrease in cost of revenue from EirGen and OPKO Chile, which was partially offset by the deconsolidation of SciVac Therapeutics Inc. (“STI”) in July 2015. Costof revenue for the years ended December 31, 2016 and 2015 were as follows:Cost of RevenueFor the year ended December 31, (In thousands)2016 2015 ChangeCost of service revenue$564,103 $193,305 $370,798Cost of product revenue47,379 41,934 5,445Total cost of revenue$611,482 $235,239 $376,243Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2016 and 2015 were $490.9million and $196.6 million , respectively. The increase in selling, general and administrative expenses for the year ended December 31, 2016 was primarily due tothe acquisition of Bio-Reference in August 2015, which accounted for $382.4 million of selling, general and administrative expenses in the 2016 period comparedto $118.1 million for the comparable period of 2015. In addition, the year ended December 31, 2016 included costs related to the launch of Rayaldee . Included inselling, general and administrative expenses for the year ended December 31, 2016 are $17.9 million of severance costs for certain Bio-Reference executives.Selling, general and administrative expenses during the years ended December 31, 2016 and 2015 , include equity-based compensation expense of $33.4million and $17.4 million , respectively. The increase in equity-based compensation expense is due to additional options grants made in 2016 and $8.9 million ofexpense related to the acceleration of stock option vesting for certain Bio-Reference executives.Research and development expenses . Research and development expenses for the years ended December 31, 2016 and 2015 were $111.2 million and $99.5million , respectively. Research and development costs include external and internal expenses, partially offset by third-party grants and funding arising fromcollaboration agreements. External expenses include clinical and non-clinical activities performed by contract research organizations, lab services, purchases ofdrug and diagnostic product materials and manufacturing development costs. We track external research and development expenses by individual program forphase 3 clinical trials for drug approval and PMA’s (pre-market approval) for diagnostics tests, if any. Internal expenses include employee-related expensesincluding salaries, benefits and stock-based compensation expense. Other internal research and development expenses are incurred to support overall research anddevelopment activities and include expenses related to general overhead and facilities.59The following table summarizes the components of our research and development expenses: For the years ended December 31, 2016 2015External expenses: Phase 3 clinical trials$12,161 $12,178Manufacturing expense for biological products35,985 31,202Earlier-stage programs6,297 6,900Research and development employee-related expenses28,676 27,363Other internal research and development expenses30,752 24,161Third-party grants and funding from collaboration agreements(2,666) (2,316)Total research and development expenses$111,205 $99,488The increase in research and development expenses during the year ended December 31, 2016 , is due to an increase in research and development expensesrelated to hGH-CTP, a long acting human growth hormone which was outlicensed to Pfizer in 2015, and to an increase in research and development expenses forFactor VIIa-CTP. Research and development expenses for the year ended December 31, 2016 also include $8.8 million from the acquisitions of Bio-Reference andEirGen in August 2015 and May 2015, respectively, compared to $4.1 million for the comparable period of 2015. This was partially offset by decreased expensesincurred by OPKO Renal related to the development of Rayaldee . In addition, during the years ended December 31, 2016 and 2015 , we recorded, as an offset toresearch and development expenses, $2.7 million and $2.3 million , respectively, related to research and development grants received from our collaboration andfunding agreements. Research and development expenses for the year ended December 31, 2016 and 2015 include equity-based compensation expenses of $7.5million and $7.9 million , respectively. We expect our research and development expenses to increase as we continue to expand our research and development ofpotential future products.Contingent consideration . Contingent consideration expense for the years ended December 31, 2016 and 2015 , were $17.0 million and $5.1 million ,respectively. The increase in contingent consideration is attributable to OPKO Renal resulting from an increase in the fair value of our contingent obligations dueto changes in assumptions regarding the timing of successful achievement of future milestones driven by the FDA approval of Rayaldee in June 2016. Thecontingent consideration liabilities at December 31, 2016 relate to potential amounts payable to former stockholders of CURNA, OPKO Diagnostics, OPKOHealth Europe and OPKO Renal pursuant to our acquisition agreements in January 2011, October 2011, August 2012 and March 2013, respectively.Amortization of intangible assets . Amortization of intangible assets was $64.4 million and $28.0 million , respectively, for the years ended December 31,2016 and 2015 . Amortization expense reflects the amortization of acquired intangible assets with defined useful lives. Amortization of intangible assets for theyear ended December 31, 2016 also includes $8.0 million of amortization expense related to intangible assets for Rayaldee. Upon the FDA’s approval of Rayaldeein June 2016, we reclassified $187.6 million of IPR&D related to Rayaldee from In-process research and development to Intangible assets, net in our ConsolidatedBalance Sheet and began to amortize that asset. Amortization of intangible assets for the year ended December 31, 2016 includes $43.2 million and $2.5 millionfrom Bio-Reference and EirGen which we acquired in August 2015 and May 2015, respectively, compared to $14.6 million and $1.7 million, respectively, for thecomparable period of 2015. Our IPR&D assets will not be amortized until the underlying development programs are completed. Upon obtaining regulatoryapproval by the U.S. FDA, the IPR&D assets will be accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated usefullife.Grant repayment. During the year ended December 31, 2015 , we made a payment of $25.9 million to the Office of the Chief Scientist of the Israeli Ministryof Economy (“OCS”) in connection with repayment obligations resulting from grants previously made by the OCS to OPKO Biologics to support development ofhGH-CTP and the outlicense of the technology outside of Israel. We did not have any such activity for the year ended December 31, 2016 .Interest income. Interest income for the years ended December 31, 2016 and 2015 , was not significant as our cash investment strategy emphasizes thesecurity of the principal invested and fulfillment of liquidity needs.Interest expense. Interest expense for the years ended December 31, 2016 and 2015 , was $7.4 million and $8.4 million , respectively. Interest expense isprincipally related to interest incurred on the 2033 Senior Notes including amortization of related deferred financing costs and to the interest incurred on Bio-Reference's outstanding debt under its credit facility. The decrease in interest expense for the year ended December 31, 2016 is due to a decrease in the averageprincipal amount of the 2033 Senior Notes outstanding in 2016 compared to 2015. Interest expense for the year ended December 31, 2015 also reflects60a non-cash write-off of deferred financing costs of $1.0 million as interest expense related to the exchange of $55.4 million principal of 2033 Senior Notes in 2015.This was partially offset by interest incurred on Bio-Reference’s outstanding debt under its credit facility for the year ended December 31, 2016 .Fair value changes of derivative instruments, net. Fair value changes of derivative instruments, net for the years ended December 31, 2016 and 2015 , were$2.8 million of income and $39.1 million of expense, respectively. Fair value changes of derivative instruments, net related to non-cash income (expense) reflectsthe changes in the fair value of the embedded derivatives in the 2033 Senior Notes of $7.0 million and $(36.6) million for the years ended December 31, 2016 and2015 , respectively. Fair value changes of derivative instruments, net for the year ended December 31, 2016 also reflects $4.2 million of expense related to thechange in the fair value of warrants and options to purchase additional shares of Neovasc, Cocrystal Pharma, Inc., ARNO Therapeutics, Inc. and MabVaxTherapeutics Holdings, Inc.Other income and (expense), net. Other income and (expense), net for the years ended December 31, 2016 and 2015 , were $3.9 million and $7.7 million ofincome, respectively. Other income (expense), net for the year ended December 31, 2016 primarily consists of a $2.5 million gain recognized in connection withthe merger of STI and VBI Vaccines Inc., a $5.0 million gain recognized in connection with the settlement of a legal matter and foreign currency transaction gainsrecognized during the period, which was partially offset by a $4.8 million other-than-temporary impairment charge to write our investments in Xenetic, ARNO andRXi down to their respective fair values. Other income (expense), net for the year ended December 31, 2015 primarily consists of a $15.9 million gain recognizedon the deconsolidation of STI in 2015 which was partially offset by a $7.3 million other-than-temporary impairment charge to write our investment in RXiPharmaceuticals Corporation down to its fair value.Income tax benefit (provision) . Our income tax benefit for the years ended December 31, 2016 and 2015 was $56.1 million , and $113.7 million ,respectively. The change in income taxes is primarily due to a $93.4 million release of OPKO’s valuation allowance in 2015 on our U.S. deferred tax assets as aresult of the merger with Bio-Reference and to changes in the geographic mix of revenues and expenses. In addition, income taxes in 2016 benefited from afavorable corporate tax rate reduction in Israel.Loss from investments in investees . We have made investments in other early stage companies that we perceive to have valuable proprietary technology andsignificant potential to create value for us as a shareholder or member. We account for these investments under the equity method of accounting, resulting in therecording of our proportionate share of their losses until our share of their loss exceeds our investment. Until the investees’ technologies are commercialized, ifever, we anticipate they will continue to report a net loss. Loss from investments in investees was $7.7 million and $7.1 million for the years ended December 31,2016 and 2015 , respectively.For The Years Ended December 31, 2015 and December 31, 2014Revenues . Revenues for the year ended December 31, 2015 increased $400.6 million compared to the prior year. Our acquisition of Bio-Reference in August2015 accounted for $321.9 million of the year-over-year revenue growth. Revenues for the years ended December 31, 2015 and 2014 were as follows:RevenuesFor the year ended December 31, (In thousands)2015 2014 ChangeRevenue from services$329,739 $8,666 $321,073Revenue from products80,146 76,983 3,163Revenue from transfer of intellectual property and other81,853 5,476 76,377Total revenues$491,738 $91,125 $400,613The increase in Revenue from services was attributable to the acquisition of Bio-Reference in August 2015. The increase in Revenue from productsprincipally reflected $12.1 million of revenue from EirGen, which we acquired in May 2015, which was partially offset by the unfavorable impact of foreignexchange rates of approximately $8.7 million, and decreased revenue from STI, a VIE we deconsolidated in July 2015. The increase in Revenue from transfer ofintellectual property principally reflected $65.5 million of revenue from the transfer of intellectual property related to the Pfizer Transaction and $15.0 million ofrevenue from a milestone payment from our licensee TESARO in the fourth quarter of 2015 compared to $5.0 million of revenue from a milestone payment fromour licensee TESARO in 2014.61Costs of revenue . Costs of revenue for the year ended December 31, 2015 increased $187.2 million compared to the prior year. Our acquisition of Bio-Reference in August 2015 accounted for $183.3 million of the year-over-year cost of revenue growth. Cost of revenue for the years ended December 31, 2015 and2014 were as follows:Cost of RevenueFor the year ended December 31, (In thousands)2015 2014 ChangeCost of service revenue$193,305 $9,372 $183,933Cost of product revenue41,934 38,637 3,297Total cost of revenue$235,239 $48,009 $187,230The increase in cost of service revenue was attributable to the acquisition of Bio-Reference in August 2015. The increase in cost of product revenueprincipally reflected cost of revenue of $6.8 million from EirGen, which we acquired in May 2015, which was partially offset by the impact of foreign exchangerates of approximately $5.2 million and the deconsolidation of STI in July 2015.Selling, general and administrative expenses . Selling, general and administrative expenses for the years ended December 31, 2015 and 2014 were $196.6million and $57.9 million, respectively. The increase in selling, general and administrative expenses for the year ended December 31, 2015 was primarily due tothe acquisitions of Bio-Reference and EirGen in 2015, which recognized $118.1 million and $1.8 million of selling, general and administrative expenses in 2015,respectively, increased personnel expenses as we expand our sales, marketing and administrative staff and add infrastructure, and an increase in professional feesattributable to our acquisitions of Bio-Reference and EirGen. Selling, general and administrative expenses during the years ended December 31, 2015 and 2014,included bad debt expense of $24.6 million and $0.7 million, respectively, and equity-based compensation expense of $17.4 million and $9.7 million, respectively.The increase in bad debt expense was due to the acquisition of Bio-Reference. The increase in equity-based compensation expense was due to additional optionsgrants made in 2015 and fluctuations in the price of our common stock.Research and development expenses . Research and development expenses for the years ended December 31, 2015 and 2014 were $99.5 million and $83.6million, respectively. Research and development costs included external and internal expenses, partially offset by third-party grants and funding arising fromcollaboration agreements. External expenses included clinical and non-clinical activities performed by contract research organizations, lab services, purchases ofdrug and diagnostic product materials and manufacturing development costs. We tracked external research and development expenses by individual program forphase 3 clinical trials for drug approval and PMA’s (pre-market approval) for diagnostics tests, if any. Internal expenses include employee-related expensesincluding salaries, benefits and stock-based compensation expense. Other internal research and development expenses were incurred to support overall researchand development activities and included expenses related to general overhead and facilities.62The following table summarizes the components of our research and development expenses: For the years ended December 31, 2015 2014External expenses: Phase 3 clinical trials$12,178 $14,512Manufacturing expense for biological products31,202 18,692Earlier-stage programs6,900 9,093Research and development employee-related expenses27,363 21,642Other internal research and development expenses24,161 21,982Third-party grants and funding from collaboration agreements(2,316) (2,350)Total research and development expenses$99,488 $83,571The increase in research and development expenses during the year ended December 31, 2015, was primarily due to a $16.7 million increase in research anddevelopment expenses related to hGH-CTP, a long acting human growth hormone which was outlicensed to Pfizer in 2015, including manufacturing expense forbiological products, and the recognition of $2.3 million of expense for our NDA submission to the FDA for oral Rayaldee in May 2015. Research and developmentexpenses for the year ended December 31, 2015 also included $4.1 million from the acquisitions of Bio-Reference and EirGen in August 2015 and May 2015,respectively. This was partially offset by decreased expenses incurred by OPKO Renal related to phase 3 clinical trials for Rayaldee , which were completed in2014. In addition, during the year ended December 31, 2015 and 2014, we recorded, as an offset to research and development expenses, $2.3 million and $2.4million, respectively, related to research and development grants received from our collaboration and funding agreements. Research and development expenses forthe year ended December 31, 2015 and 2014 included equity-based compensation expense of $7.9 million and $5.0 million, respectively.In-Process Research and Development. In May 2014, we acquired Inspiro in a stock for stock transaction. We recorded the transaction as an asset acquisitionand recorded the assets and liabilities at fair value, and as a result, we recorded $10.1 million of acquired in-process research and development expense. Inaddition, pursuant to our agreement with Merck & Co. (“Merck”), we were required to make a $2.0 million payment upon the achievement of a milestone forVARUBI™ which was achieved in the fourth quarter of 2014. The agreement was accounted for as an asset acquisition and the entire $2.0 million milestonepayment was allocated to in-process research and development expense. No In-process research and development expense was incurred during the year endedDecember 31, 2015.Contingent consideration . Contingent consideration expenses for the years ended December 31, 2015 and 2014, were $5.1 million and $24.4 million,respectively. The decrease in contingent consideration expense was attributable to OPKO Renal resulting from an increase in the fair value of our contingentobligations to OPKO Renal in 2014 due to changes in assumptions regarding probabilities of successful achievement of future milestones driven by the twosuccessful phase 3 trials of Rayaldee in 2014. The contingent consideration liabilities at December 31, 2015 related to potential amounts payable to formerstockholders of CURNA, OPKO Diagnostics, OPKO Health Europe and OPKO Renal pursuant to our acquisition agreements in January 2011, October 2011,August 2012 and March 2013, respectively.Amortization of intangible assets . Amortization of intangible assets was $28.0 million and $10.9 million, respectively, for the years ended December 31,2015 and 2014. Amortization expense reflected the amortization of acquired intangible assets with defined useful lives. Amortization of intangible assets for theyear ended December 31, 2015 included $14.6 million and $1.7 million from Bio-Reference and EirGen which we acquired in August 2015 and May 2015,respectively. Our IPR&D assets will not be amortized until the underlying development programs are completed. Upon obtaining regulatory approval by the U.S.FDA, the IPR&D assets will then be accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life.Grant repayment. During the year ended December 31, 2015, we made a payment of $25.9 million to the Office of the Chief Scientist of the Israeli Ministryof Economy (“OCS”) in connection with repayment obligations resulting from grants previously made by the OCS to OPKO Biologics to support development ofhGH-CTP and the outlicense of the technology outside of Israel.Interest income. Interest income for the years ended December 31, 2015 and 2014, was not significant as our cash investment strategy emphasizes thesecurity of the principal invested and fulfillment of liquidity needs.63Interest expense. Interest expense for the years ended December 31, 2015 and 2014, was $8.4 million and $12.3 million, respectively. Interest expense wasprincipally related to interest incurred on the 2033 Senior Notes and the amortization of related deferred financing costs. The decrease in interest expense for theyear ended December 31, 2015 compared to 2014 was due to a decrease in the principal amount of 2033 Senior Notes outstanding from $87.6 million at December31, 2014 to $32.2 million as of December 31, 2015. This was partially offset by interest expense of $1.9 million from Bio-Reference due to outstanding debt undertheir credit facility. Interest expense for the years ended December 31, 2015 and 2014 also reflected non-cash write-offs of deferred financing costs of $1.0 millionand $1.5 million as interest expense related to exchange or conversion of $55.4 million and $70.4 million principal of 2033 Senior Notes during the years endedDecember 31, 2015 and 2014, respectively.Fair value changes of derivative instruments, net. Fair value changes of derivative instruments, net for the years ended December 31, 2015 and 2014, were$39.1 million and $10.6 million of expense, respectively. Fair value changes of derivative instruments, net principally related to non-cash expense related to thechanges in the fair value of the embedded derivatives in the 2033 Senior Notes of $36.6 million and $12.2 million for the years ended December 31, 2015 and2014, respectively.Other income and (expense), net. Other income and (expense), net for the years ended December 31, 2015 and 2014, were $7.7 million of income and $3.1million of expense, respectively. The increase in other income and (expense), net for the year ended December 31, 2015 compared to 2014 was primarily due to a$15.9 million gain recognized on the deconsolidation of STI in the third quarter of 2015. This was partially offset by a $7.3 million other-than-temporaryimpairment charge to write our investment in RXi Pharmaceuticals Corporation down to its fair value of $0.9 million as of December 31, 2015 compared to a $1.4million other-than-temporary impairment charge to our investment in ARNO Therapeutics in 2014.Income tax benefit (provision) . Our income tax benefit was due to a $93.4 million release of OPKO’s valuation allowance on our U.S. deferred tax assets asa result of the merger with Bio-Reference. This was partially offset by expense recognized on taxable income from the Pfizer Transaction during the year endedDecember 31, 2015. In addition, our income tax benefit (provision) reflected the projected income tax payable in the U.S., Ireland, Israel, Chile, Spain, Mexico,and Luxembourg.Loss from investments in investees . We have made investments in other early stage companies that we perceive to have valuable proprietary technology andsignificant potential to create value for us as a shareholder or member. We accounted for these investments under the equity method of accounting, resulting in therecording of our proportionate share of their losses until our share of their loss exceeds our investment. Until the investees’ technologies are commercialized, ifever, we anticipated they would continue to report a net loss. Loss from investments in investees was $7.1 million and $3.6 million for the years ended December31, 2015 and 2014, respectively. In the third quarter of 2015, we deconsolidated STI, and account for our retained interest in STI as an equity method investment.64LIQUIDITY AND CAPITAL RESOURCESAt December 31, 2016 , we had cash and cash equivalents of approximately $168.7 million . Cash provided by operations during 2016 principally reflects a$50.0 million upfront payment received from the VFMCRP Agreement, our operations at Bio-Reference, and a $39.4 million payment received from the InternalRevenue Service for a change in accounting method, partially offset by expenses related to general and administrative activities related to our corporate operations,research and development activities and our launch activities related to Rayaldee . Cash used in investing activities primarily reflects capital expenditures of $18.5million , investments of $14.4 million and acquisitions of intangible assets of $5.0 million , partially offset by cash acquired in the acquisition of TransitionTherapeutics of $15.9 million . Cash used in financing activities primarily reflects net repayments on lines of credit of $43.8 million , partially offset by $8.6million received from Common Stock option and Common Stock warrant exercises. We have not generated sustained positive cash flow sufficient to offset ouroperating and other expenses and our primary source of cash has been from the public and private placement of stock, the issuance of the 2033 Senior Notes andcredit facilities available to us.In November 2016, we launched commercial sales for Rayaldee in the U.S. market. The FDA approved Rayaldee extended release capsules in June 2016 forthe treatment of SHPT in adults with stage 3 or 4 CKD and serum total 25-hydroxyvitamin D levels less than 30 ng/mL. We have a highly specialized sales andmarketing team dedicated to the launch and commercialization of Rayaldee , and we expect to increase the sales and marketing team in the second half of 2017 asmarket access improves and prescription trends increase.In August 2016, we completed the acquisition of Transition Therapeutics, a clinical stage biotechnology company. Holders of Transition Therapeuticscommon stock received 6,431,899 shares of OPKO Common Stock. The transaction was valued at approximately $58.5 million, based on a closing price per shareof our Common Stock of $9.10 as reported by NASDAQ on the closing date.In May 2016, EirGen, our wholly-owned subsidiary, partnered with VFMCRP through a Development and License Agreement for the development andmarketing of Rayaldee in Europe, Canada, Mexico, Australia, South Korea and certain other international markets. The license to VFMCRP potentially covers alltherapeutic and prophylactic uses of the product in human patients, provided that initially the license is for the use of the product for the treatment or prevention ofsecondary hyperparathyroidism related to patients with stage 3 or 4 chronic kidney disease and vitamin D insufficiency/deficiency ("Initial Indication"). Wereceived a non-refundable and non-creditable upfront payment of $50 million and are eligible to receive up to an additional $232 million upon the achievement ofcertain regulatory and sales-based milestones. In addition, we are eligible to receive tiered, double digit royalty payments or a minimum royalty, whichever isgreater, upon commencement of sales of the product.As part of the arrangement, the companies will share responsibility for the conduct of trials specified within an agreed-upon development plan, with eachcompany leading certain activities within the plan. For the initial development plan , the companies have agreed to certain cost sharing arrangements. VFMCRPwill be responsible for all other development costs that VFMCRP considers necessary to develop the product for the Initial Indication in the Territory except asotherwise provided in the VFMCRP Agreement. EirGen also granted to VFMCRP an option to acquire an exclusive license to use, import, offer for sale, sell,distribute and commercialize the product in the United States for treatment of SHPT in dialysis patients with stage 5 CKD and vitamin D insufficiency (the"Dialysis Indication") Upon exercise of the Option, VFMCRP will reimburse EirGen for all of the development costs incurred by EirGen with respect to theproduct for the Dialysis Indication in the United States. VFMCRP would also pay EirGen up to an additional aggregate amount of $555 million upon theachievement of certain milestones and would be obligated to pay double digit royalties on VFMCRP’s sales in the United States for the Dialysis Indication.In January 2015, we partnered with Pfizer through a worldwide agreement for the development and commercialization of our long-acting hGH-CTP for thetreatment of GHD in adults and children, as well as for the treatment of growth failure in children born SGA. Under the terms of the agreements with Pfizer, wereceived non-refundable and non-creditable upfront payments of $295.0 million in the first quarter of 2015 and are eligible to receive up to an additional $275million upon the achievement of certain regulatory milestones. Pfizer received the exclusive license to commercialize hGH-CTP worldwide. In addition, we areeligible to receive initial tiered royalty payments associated with the commercialization of hGH-CTP for Adult GHD with percentage rates ranging from the highteens to mid-twenties. Upon the launch of hGH-CTP for Pediatric GHD in certain major markets, the royalties will transition to regional, tiered gross profit sharingfor both hGH-CTP and Pfizer’s Genotropin®.We will lead the clinical activities and will be responsible for funding the development programs for the key indications, which includes Adult and PediatricGHD and Pediatric SGA. Pfizer will be responsible for all development costs for additional indications as well as all post-marketing studies. In addition, Pfizer willfund the commercialization activities for all65indications and lead the manufacturing activities covered by the global development plan. In December 2016, we announced preliminary topline data from ourPhase 3, double blind, placebo controlled study of hGH-CTP in adults with GHD. Although there was no statistically significant difference between hGH-CTP andplacebo on the primary endpoint of change in trunk fat mass from baseline to 26 weeks, after unblinding the study, we identified an exceptional value of trunk fatmass reduction in the placebo group that may have affected the primary outcome. We believe the exceptional data point warrants an outlier sensitivity analysis ofthe primary endpoint and related secondary endpoints. Upon completion of the data sensitivity analysis, we plan to discuss the study results and outlier analysiswith the regulatory authorities to determine next steps in obtaining regulatory approval.In August 2015, we completed the acquisition of Bio-Reference, the third largest full service clinical laboratory in the United States, known for its innovativetechnological solutions and pioneering leadership in the areas of genomics and genetic sequencing. Holders of Bio-Reference common stock received 76,566,147shares of OPKO Common Stock for the outstanding shares of Bio-Reference common stock. The transaction was valued at approximately $950.1 million , basedon a closing price per share of our Common Stock of $12.38 as reported by the New York Stock Exchange, or $34.05 per share of Bio-Reference common stock.Included in the transaction value is $2.3 million related to the value of replacement stock option awards attributable to pre-merger service.In May 2015, we entered into a series of purchase agreements to acquire all of the issued and outstanding shares of EirGen, a specialty pharmaceuticalcompany incorporated in Ireland focused on the development and commercial supply of high potency, high barrier to entry pharmaceutical products, for $133.8million . We acquired the outstanding shares of EirGen for approximately $100.2 million in cash and delivered 2,420,487 shares of our Common Stock valued atapproximately $33.6 million based on the closing price per share of our Common Stock as reported by the New York Stock Exchange on the closing date of theacquisition, $13.88 per share.We plan to construct a research, development and manufacturing center in Waterford, Ireland, for which we expect to incur between $30 million and $40million for the construction and validation of the facility with expenditures beginning in the fourth quarter of 2016 and expected completion in 2019. Currently, weplan to fund the project from cash on hand or from third party funding sources that may be available to us. Our licensee, TESARO, received approval by the U.S. FDA in September 2015 for oral VARUBI™, a neurokinin-1 receptor antagonist for the prevention ofchemotherapy-induced nausea and vomiting. In November 2015, TESARO announced the commercial launch of VARUBI™ in the United States. We are eligibleto receive milestone payments of up to $30.0 million (of which $20.0 million has been received to date) upon achievement of certain regulatory and commercialsale milestones and additional commercial milestone payments of up to $85.0 million if specified levels of annual net sales are achieved. TESARO is alsoobligated to pay us tiered royalties on annual net sales achieved in the United States and Europe at percentage rates that range from the low double digits to the lowtwenties, and outside of the United States and Europe at low double-digit percentage rates.2033 Senior Notes. In January 2013, we issued $175.0 million of the 2033 Senior Notes. The 2033 Senior Notes were sold in a private placement in relianceon exemptions from registration under the Securities Act. At December 31, 2016 , $31.9 million principal amount of 2033 Senior Notes was outstanding.On January 3, 2017, we announced that our 2033 Senior Notes continue to be convertible by holders of such 2033 Senior Notes through March 31, 2017. Wehave elected to satisfy the conversion obligation in shares of our Common Stock. This conversion right has been extended because the closing price per share ofour Common Stock has exceeded $9.19 , or 130% of the applicable conversion price of $7.07 , for at least 20 of 30 consecutive trading days during the quarterended on December 31, 2016 . The 2033 Senior Notes will continue to be convertible until March 31, 2017, and may be convertible thereafter, if one or more ofthe conversion conditions specified in the Indenture is satisfied during future measurement periods. Pursuant to the Indenture, a holder who elects to convert the2033 Senior Notes will receive 141.4827 shares of our Common Stock plus such number of additional shares as is applicable on the conversion date per $1,000principal amount of 2033 Senior Notes based on the early conversion provisions in the Indenture.In connection with our acquisitions of CURNA, OPKO Diagnostics, OPKO Health Europe and OPKO Renal, we agreed to pay future consideration to thesellers upon the achievement of certain events, including up to an additional $19.1 million in shares of our Common Stock to the former stockholders of OPKODiagnostics upon and subject to the achievement of certain milestones; and up to an additional $125.0 million in either shares of our Common Stock or cash, at ouroption subject to the achievement of certain milestones, to the former shareholders of OPKO Renal.During the year ended December 31, 2016 , we also satisfied a $25.0 million contingent payment to the former owners of OPKO Renal through the issuanceof 2,611,648 shares of our common stock in 2016.66On November 5, 2015, Bio-Reference and certain of its subsidiaries entered into a credit agreement with JPMorgan Chase Bank, N.A. (“CB”), as lender andadministrative agent, as amended (the “Credit Agreement”). The Credit Agreement provides for a $175.0 million secured revolving credit facility and includes a$20.0 million sub-facility for swingline loans and a $20.0 million sub-facility for the issuance of letters of credit. Bio-Reference may increase the credit facility toup to $275.0 million on a secured basis, subject to the satisfaction of specified conditions. The Credit Agreement matures on November 5, 2020 and is guaranteedby all of Bio-Reference’s domestic subsidiaries. The Credit Agreement is also secured by substantially all assets of Bio-Reference and its domestic subsidiaries, aswell as a non-recourse pledge by us of our equity interest in Bio-Reference. Availability under the Credit Agreement is based on a borrowing base comprised ofeligible accounts receivables of Bio-Reference and certain of its subsidiaries, as specified therein. The proceeds of the new credit facility were used to refinanceexisting indebtedness, to finance working capital needs and for general corporate purposes of Bio-Reference and its subsidiaries.As of December 31, 2016 , the total availability under our Credit Agreement with CB and our lines of credit with financial institutions in Chile and Spain was$151.9 million , of which $47.3 million was used and outstanding at December 31, 2016 . The weighted average interest rate on these lines of credit isapproximately 4.7% . These lines of credit are short-term and are used primarily as a source of working capital. The highest balance at any time during the yearended December 31, 2016 , was $83.5 million . We intend to continue to enter into these lines of credit as needed. There is no assurance that these lines of credit orother funding sources will be available to us on acceptable terms, or at all, in the future.We expect to continue to incur substantial research and development expenses, including expenses related to the hiring of personnel and additional clinicaltrials. We expect that selling, general and administrative expenses will also increase as we expand our sales, marketing and administrative staff and addinfrastructure.We believe that the cash and cash equivalents on hand at December 31, 2016 , and the amounts available to be borrowed under our lines of credit aresufficient to meet our anticipated cash requirements for operations and debt service beyond the next 12 months. We based this estimate on assumptions that mayprove to be wrong or are subject to change, and we may be required to use our available cash resources sooner than we currently expect. If we acquire additionalassets or companies, accelerate our product development programs or initiate additional clinical trials, we will need additional funds. Our future cash requirementswill depend on a number of factors, including our relationship with Pfizer, success of the commercial launch of Rayaldee , Bio-Reference's financial performance,possible acquisitions, the continued progress of research and development of our product candidates, the timing and outcome of clinical trials and regulatoryapprovals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims and other intellectual property rights, the statusof competitive products, the availability of financing, and our success in developing markets for our product candidates. If we are not able to secure additionalfunding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials or research and development programs or possibleacquisitions.67The following table provides information as of December 31, 2016 , with respect to the amounts and timing of our known contractual obligation paymentsdue by period.Contractual obligations(In thousands) 2017 2018 2019 2020 2021 Thereafter TotalOpen purchase orders $86,262 $2,955 $1,032 $9 $— $— $90,258Operating leases 16,751 12,396 9,967 4,761 2,964 6,173 53,012Capital leases 3,006 2,633 2,137 1,409 485 571 10,2412033 Senior Notes — — 31,850 — — — 31,850Deferred payments 5,000 5,000 5,000 — — — 15,000Mortgages and other debts payable 3,310 406 362 356 356 981 5,771Lines of credit 8,512 — — 38,809 — — 47,321Severance payments 6,327 — — — — — 6,327Interest commitments 1,082 1,011 205 34 53 — 2,385Total $130,250 $24,401 $50,553 $45,378 $3,858 $7,725 $262,165The preceding table does not include information where the amounts of the obligations are not currently determinable, including the following:- Contractual obligations in connection with clinical trials, which span over two years, and that depend on patient enrollment. The total amount ofexpenditures is dependent on the actual number of patients enrolled and as such, the contracts do not specify the maximum amount we may owe.- Product license agreements effective during the lesser of 15 years or patent expiration whereby payments and amounts are determined by applying aroyalty rate on uncapped future sales.- Contingent consideration that includes payments upon achievement of certain milestones including meeting development milestones such as thecompletion of successful clinical trials, NDA approvals by the FDA and revenue milestones upon the achievement of certain revenue targets all of whichare anticipated to be paid within the next seven years and are payable in either shares of our Common Stock or cash, at our option, and that may aggregateup to $159.4 million .68CRITICAL ACCOUNTING POLICIES AND ESTIMATESAccounting estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from theseestimates.Goodwill and intangible assets. Goodwill and other intangible assets, including IPR&D, acquired in business combinations, licensing and other transactionsat December 31, 2016 and 2015 was $2.1 billion and $2.2 billion , respectively, representing approximately 76% and 78% of total assets, respectively.Assets acquired and liabilities assumed in business combinations, licensing and other transactions are generally recognized at the date of acquisition at theirrespective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recognized as goodwill. We determined the fairvalue of intangible assets, including IPR&D, using the “income method.” This method starts with a forecast of net cash flows, risk adjusted for estimatedprobabilities of technical and regulatory success (for IPR&D) and adjusted to present value using an appropriate discount rate that reflects the risk associated withthe cash flow streams. All assets are valued from a market participant view which might be different than our specific views. The valuation process is verycomplex and requires significant input and judgment using internal and external sources. Although a valuation is required to be finalized within a one-year period,it must consider all and only those facts and evidence which existed at the acquisition date. The most complex and judgmental matters applicable to the valuationprocess are summarized below:•Unit of account – Most intangible assets are valued as single global assets rather than multiple assets for each jurisdiction or indication afterconsidering the development stage, expected levels of incremental costs to obtain additional approvals, risks associated with further development,amount and timing of benefits expected to be derived in the future, expected patent lives in various jurisdictions and the intention to promote theasset as a global brand.•Estimated useful life – The asset life expected to contribute meaningful cash flows is determined after considering all pertinent matters associatedwith the asset, including expected regulatory approval dates (if unapproved), exclusivity periods and other legal, regulatory or contractual provisionsas well as the effects of any obsolescence, demand, competition, and other economic factors, including barriers to entry.•Probability of Technical and Regulatory Success (“PTRS”) Rate – PTRS rates are determined based upon industry averages considering therespective program’s development stage and disease indication and adjusted for specific information or data known at the acquisition date.Subsequent clinical results or other internal or external data obtained could alter the PTRS rate and materially impact the estimated fair value of theintangible asset in subsequent periods leading to impairment charges.•Projections – Future revenues are estimated after considering many factors such as initial market opportunity, pricing, sales trajectories to peak saleslevels, competitive environment and product evolution. Future costs and expenses are estimated after considering historical market trends, marketparticipant synergies and the timing and level of additional development costs to obtain the initial or additional regulatory approvals, maintain orfurther enhance the product. We generally assume initial positive cash flows to commence shortly after the receipt of expected regulatory approvalswhich typically may not occur for a number of years. Actual cash flows attributed to the project are likely to be different than those assumed sinceprojections are subjected to multiple factors including trial results and regulatory matters which could materially change the ultimate commercialsuccess of the asset as well as significantly alter the costs to develop the respective asset into commercially viable products.•Tax rates – The expected future income is tax effected using a market participant tax rate. In determining the tax rate, we consider the jurisdiction inwhich the intellectual property is held and location of research and manufacturing infrastructure. We also consider that any repatriation of earningswould likely have U.S. tax consequences.•Discount rate – Discount rates are selected after considering the risks inherent in the future cash flows; the assessment of the asset’s life cycle and thecompetitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry, as well as expectedchanges in standards of practice for indications addressed by the asset.Goodwill was $704.6 million and $743.3 million , respectively, at December 31, 2016 and 2015 . Goodwill is tested at least annually for impairment or whenevents or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing aquantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value. Examples of qualitative factors include ourshare price, our69financial performance compared to budgets, long-term financial plans, macroeconomic, industry and market conditions as well as the substantial excess of fairvalue over the carrying value of net assets from the annual impairment test previously performed. No goodwill impairment was recorded for the year endedDecember 31, 2016 as a result of our testing. We recorded $87 thousand of goodwill impairment during the year ended December 31, 2015 as a result of ourtesting.The estimated fair value of a reporting unit is highly sensitive to changes in projections and assumptions; therefore, in some instances changes in theseassumptions could potentially lead to impairment. We perform sensitivity analyses around our assumptions in order to assess the reasonableness of the assumptionsand the results of our testing. Ultimately, future potential changes in these assumptions may impact the estimated fair value of a reporting unit and cause the fairvalue of the reporting unit to be below its carrying value. We believe that our estimates are consistent with assumptions that marketplace participants would use intheir estimates of fair value. However, if actual results are not consistent with our estimates and assumptions, we may be exposed to an impairment charge thatcould be material.Intangible assets, net were $1.4 billion and $1.4 billion , including IPR&D of $644.7 million and $792.3 million , respectively, at December 31, 2016 and2015 . Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not berecoverable, although IPR&D is required to be tested at least annually until the project is completed or abandoned. Upon obtaining regulatory approval, the IPR&Dasset is then accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. If the project is abandoned, theIPR&D asset is charged to expense.Intangible assets are highly vulnerable to impairment charges, particularly newly acquired assets for recently launched products and IPR&D. These assets areinitially measured at fair value and therefore any reduction in expectations used in the valuations could potentially lead to impairment. Some of the more commonpotential risks leading to impairment include competition, earlier than expected loss of exclusivity, pricing pressures, adverse regulatory changes or clinical trialresults, delay or failure to obtain regulatory approval and additional development costs, inability to achieve expected synergies, higher operating costs, changes intax laws and other macro-economic changes. The complexity in estimating the fair value of intangible assets in connection with an impairment test is similar to theinitial valuation.Considering the high risk nature of research and development and the industry’s success rate of bringing developmental compounds to market, IPR&Dimpairment charges are likely to occur in future periods. IPR&D is closely monitored and assessed each period for impairment.We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from 3 to 20 years. We use the straight-linemethod of amortization as there is no reliably determinable pattern in which the economic benefits of our intangible assets are consumed or otherwise used up.Amortization expense was $64.4 million and $28.0 million for the years ended December 31, 2016 and 2015 , respectively.Revenue recognition. Revenue for laboratory services is recognized at the time test results are reported, which approximates when services are provided.Services are provided to patients covered by various third-party payer programs including various managed care organizations, as well as the Medicare andMedicaid programs. Billings for services under third-party payer programs are included in revenue net of allowances for contractual discounts and allowances fordifferences between the amounts billed and estimated program payment amounts. Adjustments to the estimated payment amounts based on final settlement withthe programs are recorded upon settlement as an adjustment to revenue. For the years ended December 31, 2016 and 2015, approximately 16% and 9% ,respectively, of our revenues from services were derived directly from the Medicare and Medicaid programs. The increase in revenues from laboratory services,including revenue from Medicare and Medicaid programs, is due to the acquisition of Bio-Reference in August 2015.We recognize revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, collectability is reasonably assured, andthe price to the buyer is fixed or determinable, which is generally when goods are shipped and title and risk of loss transfer to our customers. Our estimates forsales returns and allowances are based upon the historical patterns of product returns and allowances taken, matched against the sales from which they originated,and our evaluation of specific factors that may increase or decrease the risk of product returns. Product revenues are recorded net of estimated rebates,chargebacks, discounts, co-pay assistance and other deductions (collectively, "Sales Deductions") as well as estimated product returns. Allowances are recorded asa reduction of revenue at the time product revenues are recognized.We launched Rayaldee in the U.S. through our dedicated renal sales force in November 2016. Rayaldee is distributed in the U.S. principally through theretail pharmacy channel, which initiates with the largest wholesalers in the U.S. (collectively, " Rayaldee Customers"). In addition to distribution agreements withRayaldee Customers, we have entered into arrangements with many health care providers and payers that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of Rayaldee .70We lack the experiential data which would allow us to estimate Sales Deductions and returns. Therefore, as of December 31, 2016 , we have determined thatwe do not yet meet the criteria for the recognition of revenue for shipments of Rayaldee at the time of shipment to Rayaldee Customers as allowances for SalesDeductions and returns are not known or cannot be reasonably estimated. We will not recognize revenue upon shipment until such time as we can reasonablyestimate and record provisions for Sales Deductions and returns utilizing historical information and market research projections.During the year ended December 31, 2016 , we did not recognize any product revenues related to Rayaldee sales. Payments received from RayaldeeCustomers in advance of recognition of revenue are recorded as deferred revenue included in Accrued expenses in our Consolidated Balance Sheet. The relateddeferred revenue balance as of December 31, 2016 was $1.6 million . The corresponding costs of product revenues for which we have not recognized productrevenue have similarly not yet been reflected in our Consolidated Statement of Operations.Revenue from transfer of intellectual property includes revenue related to the sale, license or transfer of intellectual property such as upfront licensepayments, license fees, milestone and royalty payments received through our license, and collaboration and commercialization agreements. We analyze ourmultiple-element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting.Non-refundable license fees for the out-license of our technology are recognized depending on the provisions of each agreement. We recognize non-refundable upfront license payments as revenue upon receipt if the license has standalone value and qualifies for treatment as a separate unit of accounting undermultiple-element arrangement guidance. License fees with ongoing involvement or performance obligations that do not have standalone value are recorded asdeferred revenue, included in Accrued expenses or Other long-term liabilities, when received and generally are recognized ratably over the period of suchperformance obligations only after both the license period has commenced and we have delivered the technology.The assessment of our obligations and related performance periods requires significant management judgment. If an agreement contains research anddevelopment obligations, the relevant time period for the research and development phase is based on management estimates and could vary depending on theoutcome of clinical trials and the regulatory approval process. Such changes could materially impact the revenue recognized, and as a result, management reviewsthe estimates related to the relevant time period of research and development on a periodic basis.Revenue from milestone payments related to arrangements under which we have continuing performance obligations are recognized as Revenue fromtransfer of intellectual property upon achievement of the milestone only if all of the following conditions are met: the milestone payments are non-refundable; therewas substantive uncertainty at the date of entering into the arrangement that the milestone would be achieved; the milestone payment is commensurate with eitherour performance to achieve the milestone or the enhancement of the value of the delivered item by us; the milestone relates solely to past performance; and theamount of the milestone payment is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone. If any of theseconditions are not met, the milestone payments are not considered to be substantive and are, therefore, deferred and recognized as Revenue from transfer ofintellectual property over the term of the arrangement as we complete our performance obligations.Concentration of credit risk and allowance for doubtful accounts . Financial instruments that potentially subject us to concentrations of credit risk consistprimarily of accounts receivable. Substantially all of our accounts receivable are with either companies in the health care industry or patients. However, credit riskis limited due to the number of our clients as well as their dispersion across many different geographic regions.While we have receivables due from federal and state governmental agencies, we do not believe that such receivables represent a credit risk since the relatedhealth care programs are funded by federal and state governments, and payment is primarily dependent upon submitting appropriate documentation. Accountsreceivable balances (net of contractual adjustments) from Medicare and Medicaid were $50.5 million and $26.1 million at December 31, 2016 and 2015 ,respectively.The portion of our accounts receivable due from individual patients comprises the largest portion of credit risk. At December 31, 2016 and 2015 , receivablesdue from patients represent approximately 7.3% and 7.5% , respectively, of our consolidated accounts receivable (prior to allowance for doubtful accounts).We assess the collectability of accounts receivable balances by considering factors such as historical collection experience, customer credit worthiness, theage of accounts receivable balances, regulatory changes and current economic conditions and trends that may affect a customer’s ability to pay. Actual resultscould differ from those estimates. Our reported net income (loss) is directly affected by our estimate of the collectability of accounts receivable. The allowance fordoubtful accounts was $36.3 million and $25.2 million at December 31, 2016 and 2015 , respectively.Income taxes. Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are71recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and therespective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply totaxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in operations in the period that includes the enactment date. We periodically evaluate the realizability of our net deferred taxassets. Our tax accruals are analyzed periodically and adjustments are made as events occur to warrant such adjustment.Equity-based compensation. We measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fairvalue of the award. That cost is recognized in the Consolidated Statement of Operations over the period during which an employee is required to provide service inexchange for the award. We record excess tax benefits, realized from the exercise of stock options as a financing cash inflow and as a reduction of taxes paid incash flow from operations. Equity-based compensation arrangements to non-employees are recorded at their fair value on the measurement date. The measurementof equity-based compensation to non-employees is subject to periodic adjustment as the underlying equity instruments vest. We estimate the grant-date fair valueof our stock option grants using a valuation model known as the Black-Scholes-Merton formula or the “Black-Scholes Model.” The Black-Scholes Model requiresthe use of several variables to estimate the grant-date fair value of stock options including expected term, expected volatility, expected dividends and risk-freeinterest rate. We perform analyses to calculate and select the appropriate variable assumptions used in the Black-Scholes Model and to estimate forfeitures ofequity-based awards. We are required to adjust our forfeiture estimates on at least an annual basis based on the number of share-based awards that ultimately vest.The selection of assumptions and estimated forfeiture rates is subject to significant judgment and future changes to our assumptions and estimates which may havea material impact on our Consolidated Financial Statements.Inventories. Inventories are valued at the lower of cost or market (net realizable value). Cost is determined by the first-in, first-out method. We consider suchfactors as the amount of inventory on hand, estimated time required to sell such inventories, remaining shelf-life, and current market conditions to determinewhether inventories are stated at the lower of cost or market. Inventories at our diagnostics segment consist primarily of purchased laboratory supplies, which isused in our testing laboratories.Pre-launch inventories. We may accumulate commercial quantities of certain product candidates prior to the date we anticipate that such products willreceive final U.S. FDA approval. The accumulation of such pre-launch inventories involves the risk that such products may not be approved for marketing by theFDA on a timely basis, or ever. This risk notwithstanding, we may accumulate pre-launch inventories of certain products when such action is appropriate inrelation to the commercial value of the product launch opportunity. In accordance with our policy, this pre-launch inventory is expensed. Contingent consideration. Each period we revalue the contingent consideration obligations associated with certain prior acquisitions to their fair value andrecord increases in the fair value as contingent consideration expense and decreases in the fair value as a reduction in contingent consideration expense. Changes incontingent consideration result from changes in the assumptions regarding probabilities of successful achievement of related milestones, the estimated timing inwhich the milestones are achieved and the discount rate used to estimate the fair value of the liability. Contingent consideration may change significantly as ourdevelopment programs progress, revenue estimates evolve and additional data is obtained, impacting our assumptions. The assumptions used in estimating fairvalue require significant judgment. The use of different assumptions and judgments could result in a materially different estimate of fair value which may have amaterial impact on our results from operations and financial position.72RECENT ACCOUNTING PRONOUNCEMENTSRecent accounting pronouncements . In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts withCustomers.” ASU 2014-09 clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International FinancialReporting Standards that removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues,improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, provides more useful information to users offinancial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements towhich an entity must refer. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Companies canchoose to apply the ASU using either the full retrospective approach or a modified retrospective approach. We are currently evaluating both methods of adoptionand the impact that the adoption of this ASU will have on our Consolidated Financial Statements.In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance TargetCould Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force).” ASU 2014-12 requires that a performance targetthat affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 was effective for the Companybeginning after January 1, 2016. Our adoption of ASU 2014-12 in the first quarter of 2016 using the prospective application did not have a material impact on ourConsolidated Financial Statements.In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” to provideguidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to providerelated footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 with early adoption permitted. Our adoption of ASU2014-15 in the fourth quarter of 2016 did not have an impact on our Consolidated Financial Statements.In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which amends currentconsolidation guidance including changes to both the variable and voting interest models used by companies to evaluate whether an entity should be consolidated.The requirements from ASU 2015-02 were effective for the Company beginning January 1, 2016. Our adoption of ASU 2015-02 in the first quarter of 2016 did nothave a material impact on our Consolidated Financial Statements.In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt IssuanceCosts,” which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carryingamount of that debt liability, consistent with debt discounts. ASU 2015-03 was effective for the Company beginning January 1, 2016. Our adoption of ASU 2015-03 in the first quarter of 2016 did not have a material impact on our Consolidated Financial Statements.In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which changes the measurementprinciple for entities that do not measure inventory using the last-in, first-out (“LIFO”) or retail inventory method from the lower of cost or market to lower of costand net realizable value. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, withearly adoption permitted. We are currently evaluating the impact of this new guidance on our Consolidated Financial Statements.In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-PeriodAdjustments,” which replaces the requirement that an acquirer in a business combination account for measurement period adjustments retrospectively with arequirement that an acquirer recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in whichthe adjustment amounts are determined. ASU 2015-16 requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changesin depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had beencompleted at the acquisition date. Our early adoption of ASU 2015-16 in 2015 did not have a significant impact on our Consolidated Financial Statements.In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which requiresdeferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. We early adopted the provisions of this ASUprospectively in the fourth quarter of 2015, and did not retrospectively adjust the prior periods. The adoption of this ASU simplifies the presentation of deferredincome taxes and reduces complexity without decreasing the usefulness of information provided to users of financial statements. The adoption of ASU 2015-17did not have a significant impact on our Consolidated Financial Statements.73In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10),” which addresses certain aspects of recognition,measurement, presentation, and disclosure of financial instruments. The ASU requires equity investments (except those accounted for under the equity method ofaccounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 willbe effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are currentlyevaluating the impact of this new guidance on our Consolidated Financial Statements.In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which will require organizations that lease assets with lease terms of more than12 months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets. The ASU will also require newqualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flowsarising from leases. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, withearly adoption permitted. We are currently evaluating the impact of this new guidance on our Consolidated Financial Statements.In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718),” which simplifies several aspects of the accountingfor share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on thestatement of cash flows and accounting for forfeitures. ASU 2016-09 will be effective for fiscal years beginning after December 15, 2016, including interimperiods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of this new guidance on our Consolidated FinancialStatements.In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230),” which addresses the classification of eight specific cash flowissues with the objective of reducing the existing diversity in practice. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, includinginterim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of this new guidance on our Consolidated FinancialStatements.In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350),” which simplifies how an entity is required to test forgoodwill impairment. ASU 2017-04 will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with earlyadoption permitted after January 1, 2017. We are currently evaluating the impact of this new guidance on our Consolidated Financial Statements.74ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates.Foreign Currency Exchange Rate Risk – We operate globally and, as such, we are subject to foreign exchange risk in our commercial operations as asignificant portion of our revenues are exposed to changes in foreign currency exchange rates, primarily the Chilean peso, the Mexican peso, the Euro and the NewIsraeli shekel.Although we do not speculate in the foreign exchange market, we may from time to time manage exposures that arise in the normal course of businessrelated to fluctuations in foreign currency exchange rates by entering into offsetting positions through the use of foreign exchange forward contracts. Certain firmlycommitted transactions may be hedged with foreign exchange forward contracts. As exchange rates change, gains and losses on the exposed transactions arepartially offset by gains and losses related to the hedging contracts. Both the exposed transactions and the hedging contracts are translated and fair valued,respectively, at current spot rates, with gains and losses included in earnings.Our derivative activities, which consist of foreign exchange forward contracts, are initiated to economically hedge forecasted cash flows that are exposed toforeign currency risk. The foreign exchange forward contracts generally require us to exchange local currencies for foreign currencies based on pre-establishedexchange rates at the contracts’ maturity dates. As exchange rates change, gains and losses on these contracts are generated based on the change in the exchangerates that are recognized in the Consolidated Statement of Operations and offset the impact of the change in exchange rates on the foreign currency cash flows thatare hedged. If the counterparties to the exchange contracts do not fulfill their obligations to deliver the contracted currencies, we could be at risk for currencyrelated fluctuations. Our foreign exchange forward contracts primarily hedge exchange rates on the Chilean peso to the U.S. dollar. If Chilean pesos were tostrengthen or weaken in relation to the U.S. dollar, our loss or gain on hedged foreign currency cash-flows would be offset by the derivative contracts, with a neteffect of zero.We do not engage in trading market risk sensitive instruments or purchasing hedging instruments or “other than trading” instruments that are likely to exposeus to significant market risk, whether interest rate, foreign currency exchange, commodity price, or equity price risk.Interest Rate Risk – Our exposure to interest rate risk relates to our cash and investments and to our borrowings. We maintain an investment portfolio ofmoney market funds and marketable securities. The securities in our investment portfolio are not leveraged, and are, due to their very short-term nature, subject tominimal interest rate risk. We currently do not hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that achange in market interest rates would have a significant negative impact on the value of our investment portfolio except for reduced income in a low interest rateenvironment.At December 31, 2016 , we had cash and cash equivalents of $168.7 million . The weighted average interest rate related to our cash and cash equivalents forthe year ended December 31, 2016 was less than 1%. As of December 31, 2016 , the principal outstanding balance under our Credit Agreement with JPMorganChase Bank, N.A. and our Chilean and Spanish credit lines was $47.3 million in the aggregate at a weighted average interest rate of approximately 4.7% .Our $31.9 million aggregate principal amount of our 2033 Senior Notes has a fixed interest rate, and therefore is not subject to fluctuations in market interestrates.The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. Toachieve this objective, we may invest our excess cash in debt instruments of the U.S. Government and its agencies, bank obligations, repurchase agreements andhigh-quality corporate issuers, and money market funds that invest in such debt instruments, and, by policy, restrict our exposure to any single corporate issuer byimposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of generally lessthan three months.Equity Price Risk – We are subject to equity price risk related to the (i) rights to convert into shares of our Common Stock, including upon a fundamentalchange; and (ii) a coupon make-whole payment in the event of a conversion by the holders of the 2033 Senior Notes on or after February 1, 2017 but prior toFebruary 1, 2019. These terms are considered to be embedded derivatives. On a quarterly basis, we are required to record these embedded derivatives at fair valuewith the changes being recorded in our Consolidated Statement of Operations. Accordingly, our results of operations are subject to exposure associated withincreases or decreases in the estimated fair value of our embedded derivatives.75ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PageReports of Independent Registered Certified Public Accounting Firm77Consolidated Balance Sheets79Consolidated Statements of Operations80Consolidated Statements of Comprehensive Loss81Consolidated Statements of Equity82Consolidated Statements of Cash Flows85Notes to Consolidated Financial Statements8676Report of Independent Registered Certified Public Accounting FirmThe Board of Directors and Shareholders of OPKO Health, Inc. and subsidiariesWe have audited the accompanying consolidated balance sheets of OPKO Health, Inc. and subsidiaries as of December 31, 2016 and 2015 , and the relatedconsolidated statements of operations, comprehensive loss, equity and cash flows for each of the three years in the period ended December 31, 2016 . Our auditsalso included the financial statement schedule listed in the index at Item 15(a)(1). These financial statements and schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basisfor our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of OPKO Health, Inc. andsubsidiaries at December 31, 2016 and 2015 , and the consolidated results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2016 , in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, whenconsidered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), OPKO Health, Inc. and subsidiaries’internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal Control-Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2017 expressed an unqualified opinion thereon./s/ Ernst & Young LLPMiami, FloridaMarch 1, 201777Report of Independent Registered Certified Public Accounting FirmThe Board of Directors and Shareholders of OPKO Health, Inc. and subsidiariesWe have audited OPKO Health, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2016 , based on criteria established in InternalControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). OPKOHealth, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of theeffectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over FinancialReporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on theeffectiveness of internal control over financial reporting did not include the internal controls of Transition Therapeutics, Inc., which is included in the December31, 2016 consolidated financial statements of OPKO Health, Inc. and subsidiaries and constituted 2% of consolidated total assets, as of December 31, 2016 and 0%of consolidated revenues, for the year then ended. Our audit of internal control over financial reporting of OPKO Health, Inc. and subsidiaries also did not includean evaluation of the internal control over financial reporting of Transition Therapeutics, Inc.In our opinion, OPKO Health, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets ofOPKO Health, Inc. and subsidiaries as of December 31, 2016 and 2015 , and the related consolidated statements of operations, comprehensive loss, equity and cashflows for each of the three years in the period ended December 31, 2016 of OPKO Health, Inc. and subsidiaries and our report dated March 1, 2017 expressed anunqualified opinion thereon./s/ Ernst & Young LLPMiami, FloridaMarch 1, 201778OPKO Health, Inc. and SubsidiariesCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data) December 31, 2016 2015ASSETS Current assets: Cash and cash equivalents$168,733 $193,598Accounts receivable, net220,284 193,875Inventory, net47,228 39,681Other current assets and prepaid expenses47,356 26,904Total current assets483,601 454,058Property, plant and equipment, net122,831 131,798Intangible assets, net763,976 638,152In-process research and development644,713 792,275Goodwill704,603 743,348Investments41,139 34,716Other assets5,756 4,841Total assets$2,766,619 $2,799,188LIABILITIES AND EQUITY Current liabilities: Accounts payable$53,360 $72,535Accrued expenses197,955 167,899Current portion of lines of credit and notes payable11,981 11,468Total current liabilities263,296 251,9022033 Senior Notes and estimated fair value of embedded derivatives, net of discount43,701 48,986Deferred tax liabilities, net165,331 226,036Other long-term liabilities, principally deferred revenue and line of credit202,483 292,470Total long-term liabilities411,515 567,492Total liabilities674,811 819,394Equity: Common Stock - $0.01 par value, 750,000,000 shares authorized; 558,576,051 and 546,188,516 shares issued at December 31, 2016 and 2015, respectively5,586 5,462Treasury Stock - 586,760 and 1,120,367 shares at December 31, 2016 and 2015, respectively(1,911) (3,645)Additional paid-in capital2,845,096 2,705,385Accumulated other comprehensive loss(27,009) (22,537)Accumulated deficit(729,954) (704,871)Total shareholders’ equity2,091,808 1,979,794Total liabilities and equity$2,766,619 $2,799,188The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.79OPKO Health, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except share and per share data) For the years ended December 31, 2016 2015 2014Revenues: Revenue from services$1,012,129 $329,739 $8,666Revenue from products83,467 80,146 76,983Revenue from transfer of intellectual property and other126,065 81,853 5,476Total revenues1,221,661 491,738 91,125Costs and expenses: Cost of service revenue564,103 193,305 9,372Cost of product revenue47,379 41,934 38,637Selling, general and administrative490,888 196,576 57,940Research and development111,205 99,488 83,571In-process research and development— — 12,055Contingent consideration16,954 5,050 24,446Amortization of intangible assets64,407 27,977 10,919Grant repayment— 25,889 —Total costs and expenses1,294,936 590,219 236,940Operating loss(73,275) (98,481) (145,815)Other income and (expense), net: Interest income478 255 771Interest expense(7,430) (8,419) (12,263)Fair value changes of derivative instruments, net2,778 (39,083) (10,632)Other income (expense), net3,903 7,730 (3,088)Other income and (expense), net(271) (39,517) (25,212)Loss before income taxes and investment losses(73,546) (137,998) (171,027)Income tax benefit (provision)56,115 113,675 (24)Net loss before investment losses(17,431) (24,323) (171,051)Loss from investments in investees(7,652) (7,105) (3,587)Net loss(25,083) (31,428) (174,638)Less: Net loss attributable to noncontrolling interests— (1,400) (2,972)Net loss attributable to common shareholders$(25,083) $(30,028) $(171,666)Loss per share, basic and diluted: Net loss per share$(0.05) $(0.06) $(0.41)Weighted average number of common shares outstanding, basic and diluted550,846,553 488,065,908 422,014,039The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.80OPKO Health, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands) For the years ended December 31, 2016 2015 2014Net loss$(25,083) $(31,428) $(174,638)Other comprehensive income (loss), net of tax: Change in foreign currency translation and other comprehensive income (loss)(4,955) (15,074) (8,088)Available for sale investments: Change in unrealized gain (loss), net of tax(3,810) (2,378) (8,044)Less: reclassification adjustments for losses included in net loss, net of tax4,293 7,307 322Comprehensive loss(29,555) (41,573) (190,448)Less: Comprehensive loss attributable to noncontrolling interest— (1,400) (2,972)Comprehensive loss attributable to common shareholders$(29,555) $(40,173) $(187,476)The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.81OPKO Health, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF EQUITY(In thousands, except share and per share data)For the years ended December 31, 2016 , 2015 , 2014 (continued) Common Stock Treasury AdditionalPaid-InCapital AccumulatedOtherComprehensiveIncome (Loss) AccumulatedDeficit NoncontrollingInterests Total Shares Dollars Shares Dollars Balance at December 31, 2013414,818,195 $4,148 (2,264,063) $(7,362) $1,379,383 $3,418 $(503,177) $(3,431) $872,979Equity-based compensation expense— — — — 14,737 — — — 14,737Exercise of Common Stock options andwarrants5,392,841 54 — — 12,874 — — — 12,928Issuance of Treasury Stock for OPKOUruguay— — 19,140 61 98 — — — 159Issuance of Common Stock upon exchange of 2033 Senior Notes10,974,431 110 — — 95,555 — — — 95,665Issuance of Treasury Stock for Inspiro at $8.57— — 999,556 3,250 5,316 — — — 8,566Issuance of Common Stock for OPKO Renal earnout2,236,210 22 — — 21,133 — — — 21,155Net loss attributable to common shareholders— — — — — — (171,666) — (171,666)Net loss attributable to noncontrolling interests— — — — — — — (2,972) (2,972)Other comprehensive loss— — — — — (15,810) — — (15,810)Balance at December 31, 2014433,421,677 $4,334 (1,245,367) $(4,051) $1,529,096 $(12,392) $(674,843) $(6,403) $835,741The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.82OPKO Health, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF EQUITY(In thousands, except share and per share data)For the years ended December 31, 2016 , 2015 , 2014 (continued) Common Stock Treasury AdditionalPaid-InCapital AccumulatedOtherComprehensiveLoss AccumulatedDeficit NoncontrollingInterests Total Shares Dollars Shares Dollars Balance at December 31, 2014433,421,677 $4,334 (1,245,367) $(4,051) $1,529,096 $(12,392) $(674,843) $(6,403) $835,741Equity-based compensation expense— — — — 26,074 — — — 26,074Exercise of Common Stock options andwarrants24,467,806 245 — — 25,675 — — — 25,920Issuance of Common Stock for EirGen purchase2,420,487 24 — — 33,572 — — — 33,596Issuance of Common Stock for BRL purchase76,566,147 766 — — 949,244 — — — 950,010Issuance of Common Stock upon exchange of 2033 Senior Notes8,118,062 81 — — 120,218 — — — 120,299Issuance of Treasury Stock in connection with OPKO Health Europe’s Contingent Consideration— — 125,000 406 1,406 — — — 1,812Issuance of Common Stock for OPKO Renal earnout1,194,337 12 — — 20,100 — — — 20,112Net loss attributable to common shareholders— — — — — — (30,028) — (30,028)Deconsolidation of SciVac— — — — — — — 6,403 6,403Other comprehensive loss— — — — — (10,145) — — (10,145)Balance at December 31, 2015546,188,516 $5,462 (1,120,367) $(3,645) $2,705,385 $(22,537) $(704,871) $— $1,979,794The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.83OPKO Health, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF EQUITY(In thousands, except share and per share data)For the years ended December 31, 2016 , 2015 , 2014 (continued) Common Stock Treasury AdditionalPaid-InCapital AccumulatedOtherComprehensiveLoss AccumulatedDeficit Total Shares Dollars Shares Dollars Balance at December 31, 2015546,188,516 $5,462 (1,120,367) $(3,645) $2,705,385 $(22,537) $(704,871) $1,979,794Equity-based compensation expense— — — — 42,693 — — 42,693Exercise of Common Stock options andwarrants3,292,753 33 — — 8,575 — — 8,608Issuance of Common Stock upon exchange of 2033 Senior Notes51,235 1 — — 582 — — 583Issuance of Treasury Stock in connection with OPKO Health Europe’s Contingent Consideration— — 39,145 127 186 — — 313Issuance of Treasury Stock for investment inXenetic— — 494,462 1,607 3,249 — — 4,856Issuance of Common Stock for OPKO Renal earnout2,611,648 26 — — 25,960 — — 25,986Issuance of Common Stock for Transition Therapeutics purchase6,431,899 64 — — 58,466 — — 58,530Net loss attributable to common shareholders— — — — — — (25,083) (25,083)Other comprehensive loss— — — — — (4,472) — (4,472)Balance at December 31, 2016558,576,051 $5,586 (586,760) $(1,911) $2,845,096 $(27,009) $(729,954) $2,091,808The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.84Table of ContentsOPKO Health, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) For the years ended December 31, 2016 2015 2014Cash flows from operating activities: Net loss$(25,083) $(31,428) $(174,638)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization96,576 42,248 14,927Non-cash interest2,699 2,612 5,662Amortization of deferred financing costs237 1,212 2,007Losses from investments in investees7,652 7,105 3,587Equity-based compensation – employees and non-employees42,693 26,074 14,779Revenue from receipt of equity— (140) (240)Realized loss on equity securities and disposal of fixed assets2,321 7,091 167Loss (gain) on conversion of 3.00% convertible senior notes284 (943) (2,668)Change in fair value of derivative instruments(2,778) 39,083 10,632In-process research and development— — 12,055Change in fair value of contingent consideration16,954 5,050 24,446Gain on deconsolidation of SciVac— (15,940) —Deferred income tax (benefit) provision(66,300) (123,536) 1,017Changes in assets and liabilities, net of the effects of acquisitions: Accounts receivable, net(25,637) (4,845) (3,273)Inventory, net(6,607) (4,953) (670)Other current assets and prepaid expenses17,262 (4,391) 3,182Other assets(1,899) (305) (3,378)Accounts payable(19,819) (18,122) (3,852)Foreign currency measurement(376) 979 945Deferred revenue(74,169) 227,671 —Accrued expenses and other liabilities68,036 9,502 4,934Net cash provided by (used in) operating activities32,046 164,024 (90,379)Cash flows from investing activities: Investments in investees(14,424) (4,375) (589)Proceeds from sale of equity securities— — 1,331Acquisition of businesses, net of cash acquired15,878 (79,000) (1,683)Acquisition of intangible assets(5,000) (5,000) —Purchase of marketable securities(15,644) — —Maturities of short-term marketable securities15,634 — —Proceeds from the sale of property, plant and equipment1,401 — —Capital expenditures(18,547) (10,846) (4,734)Net cash used in investing activities(20,702) (99,221) (5,675)Cash flows from financing activities: Proceeds from the exercise of Common Stock options and warrants8,576 25,921 12,928Cash from non-controlling interest— 100 2,696Contingent consideration payments— — (6,435)Borrowings on lines of credit22,407 261,339 26,443Repayments of lines of credit(66,178) (254,355) (28,369)Net cash (used in) provided by financing activities(35,195) 33,005 7,263Effect of exchange rate changes on cash and cash equivalents(1,014) (1,117) (100)Net (decrease) increase in cash and cash equivalents(24,865) 96,691 (88,891)Cash and cash equivalents at beginning of period193,598 96,907 185,798Cash and cash equivalents at end of period$168,733 $193,598 $96,907SUPPLEMENTAL INFORMATION: Interest paid$2,890 $4,572 $6,276Income taxes paid, net$(27,122) $4,879 $954Pharmsynthez common stock received$— $— $6,264Non-cash financing: Shares issued upon the conversion of: 2033 Senior Notes$583 $120,299 $95,665Common Stock options and warrants, surrendered in net exercise$350 $14,369 $3,494Issuance of capital stock to acquire or contingent consideration settlement: Transition Therapeutics, Inc.$58,530 $— $—Bio-Reference Laboratories, Inc.$— $950,148 $—EirGen Pharma Limited$— $33,569 $—OPKO Renal$25,986 $20,113 $21,155OPKO Health Europe$313 $1,813 $—OPKO Uruguay Ltda.$— $— $159Inspiro$— $— $8,566Issuance of stock for investment in Xenetic$4,856 $— $—The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.85OPKO Health, Inc. and SubsidiariesNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1 Business and OrganizationWe are a diversified healthcare company that seeks to establish industry-leading positions in large and rapidly growing medical markets. Our diagnosticsbusiness includes Bio-Reference Laboratories, Inc. (“Bio-Reference”), the nation’s third-largest clinical laboratory with a core genetic testing business and a 400 -person sales and marketing team to drive growth and leverage new products, including the 4Kscore prostate cancer test and the Claros 1 in-office immunoassayplatform (in development). Our pharmaceutical business features Rayaldee , an FDA-approved treatment for secondary hyperparathyroidism (“SHPT”) in adultswith stage 3 or 4 chronic kidney disease (“CKD”) and vitamin D insufficiency and VARUBI™ for chemotherapy-induced nausea and vomiting (oral formulationlaunched by partner TESARO in November 2015 and pending approval for IV formulation), TT401, a once or twice weekly oxyntomodulin for type 2 diabetes andobesity which is a clinically advanced drug candidate among the new class of GLP-1 glucagon receptor dual agonists (Phase 2b), and TT701, an androgen receptormodulator for androgen deficiency indications. Our pharmaceutical business also includes OPKO Biologics, which features hGH-CTP, a once-weekly humangrowth hormone injection (in Phase 3 and partnered with Pfizer), a once-daily Factor VIIa drug for hemophilia (Phase 2a), and long-acting oxyntomodulin(“OXM”) for diabetes and obesity (Phase 1). We are incorporated in Delaware and our principal executive offices are located in leased offices in Miami, Florida.In August 2016, we completed the acquisition of Transition Therapeutics, Inc. (“Transition Therapeutics”), a clinical stage biotechnology companydeveloping TT401, a once or twice weekly oxyntomodulin for type 2 diabetes and obesity, and TT701, an androgen receptor modulator for androgen deficiencyindications. Holders of Transition Therapeutics common stock received 6,431,899 shares of OPKO Common Stock. The transaction was valued at approximately$58.5 million , based on a closing price per share of our Common Stock of $9.10 as reported by NASDAQ on the closing date.In August 2015, we completed the acquisition of Bio-Reference, the third largest full service clinical laboratory in the United States, known for its innovativetechnological solutions and pioneering leadership in the areas of genomics and genetic sequencing. Holders of Bio-Reference common stock received 76,566,147shares of OPKO Common Stock for the outstanding shares of Bio-Reference common stock. The transaction was valued at approximately $950.1 million , basedon a closing price per share of our Common Stock of $12.38 as reported by the New York Stock Exchange, or $34.05 per share of Bio-Reference common stock.Included in the transaction value is $2.3 million related to the value of replacement stock option awards attributable to pre-merger service.Through our acquisition of Bio-Reference, we provide laboratory testing services, primarily to customers in the larger metropolitan areas across New York,New Jersey, Maryland, Pennsylvania, Delaware, Washington DC, Florida, California, Texas, Illinois and Massachusetts as well as to customers in a number ofother states. We offer a comprehensive test menu of clinical diagnostics for blood, urine, and tissue analysis. This includes hematology, clinical chemistry,immunoassay, infectious diseases, serology, hormones, and toxicology assays, as well as Pap smear, anatomic pathology (biopsies) and other types of tissueanalysis. We market our laboratory testing services directly to physicians, geneticists, hospitals, clinics, correctional and other health facilities.In May 2015, we acquired all of the issued and outstanding shares of EirGen Pharma Limited (“EirGen”), a specialty pharmaceutical company incorporatedin Ireland focused on the development and commercial supply of high potency, high barrier to entry pharmaceutical products, for $133.8 million . We acquired theoutstanding shares of EirGen for approximately $100.2 million in cash and delivered 2,420,487 shares of our Common Stock valued at approximately $33.6million based on the closing price per share of our Common Stock as reported by the New York Stock Exchange on the closing date of the acquisition, $13.88 pershare.We operate established pharmaceutical platforms in Ireland, Chile, Spain, and Mexico, which are generating revenue and which we expect to facilitate futuremarket entry for our products currently in development. In addition, we have a development and commercial supply pharmaceutical company and a global supplychain operation and holding company in Ireland. We own a specialty active pharmaceutical ingredients (“APIs”) manufacturer in Israel, which we expect willfacilitate the development of our pipeline of molecules and compounds for our molecular diagnostic and therapeutic products.Our research and development activities are primarily performed at leased facilities in Miramar, FL, Woburn, MA, Waterford, Ireland, Kiryat Gat, Israel, andBarcelona, Spain.86Note 2 Summary of Significant Accounting PoliciesBasis of presentation. The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally acceptedin the U.S. and with the instructions to Form 10-K and of Regulation S-X.Principles of consolidation. The accompanying Consolidated Financial Statements include the accounts of OPKO Health, Inc. and of our wholly-ownedsubsidiaries. All intercompany accounts and transactions are eliminated in consolidation.Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from theseestimates.Cash and cash equivalents. Cash and cash equivalents include short-term, interest-bearing instruments with original maturities of 90 days or less at the dateof purchase. We also consider all highly liquid investments with original maturities at the date of purchase of 90 days or less as cash equivalents. Theseinvestments include money markets, bank deposits, certificates of deposit and U.S. treasury securities.Inventories. Inventories are valued at the lower of cost or market (net realizable value). Cost is determined by the first-in, first-out method. We consider suchfactors as the amount of inventory on hand, estimated time required to sell such inventories, remaining shelf-life, and current market conditions to determinewhether inventories are stated at the lower of cost or market. Inventories at our diagnostics segment consist primarily of purchased laboratory supplies, which isused in our testing laboratories. The provision for inventory obsolescence for the years ended December 31, 2016 and 2015 was $0.0 million and $0.9 million ,respectively.Pre-launch inventories. We may accumulate commercial quantities of certain product candidates prior to the date we anticipate that such products willreceive final U.S. FDA approval. The accumulation of such pre-launch inventories involves the risk that such products may not be approved for marketing by theFDA on a timely basis, or ever. This risk notwithstanding, we may accumulate pre-launch inventories of certain products when such action is appropriate inrelation to the commercial value of the product launch opportunity. In accordance with our policy, this pre-launch inventory is expensed. Goodwill and intangible assets. Goodwill represents the difference between the purchase price and the estimated fair value of the net assets acquiredaccounted for by the acquisition method of accounting and arose from our acquisitions. Refer to Note 5. Goodwill, in-process research and development(“IPR&D”) and other intangible assets acquired in business combinations, licensing and other transactions at December 31, 2016 and 2015 , were $2.1 billion and$2.2 billion , respectively.Assets acquired and liabilities assumed in business combinations, licensing and other transactions are generally recognized at the date of acquisition at theirrespective fair values. We determined the fair value of intangible assets, including IPR&D, using the “income method.”Goodwill is tested at least annually for impairment, or when events or changes in circumstances indicate that the carrying amount of such assets may not berecoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds thecarrying value.Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not berecoverable, although IPR&D is required to be tested at least annually until the project is completed or abandoned. Upon obtaining regulatory approval, the IPR&Dasset is then accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. If the project is abandoned, theIPR&D asset is charged to expense.We reclassified $187.6 million of IPR&D related to Rayaldee from In-process research and development to Intangible assets, net in our Consolidated BalanceSheet upon the FDA’s approval of Rayaldee in June 2016. The assets will be amortized on a straight-line basis over their estimated useful life of approximately 12years.We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from 3 to 20 years. We use the straight-linemethod of amortization as there is no reliably determinable pattern in which the economic benefits of our intangible assets are consumed or otherwise used up.Amortization expense was $64.4 million , $28.0 million and $10.9 million for the years ended December 31, 2016 , 2015 and 2014, respectively. Amortizationexpense from operations for our intangible assets is expected to be $69.2 million, $66.5 million, $64.2 million, $57.8 million and $51.8 million for the years endedDecember 2017 , 2018 , 2019 , 2020 and 2021 , respectively.87Fair value measurements . The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximatetheir fair value due to the short-term maturities of these instruments. Investments that are considered available for sale as of December 31, 2016 and 2015 arecarried at fair value. Our debt under the credit agreement with JPMorgan Chase Bank, N.A. approximates fair value due to the variable rate of interest.In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of differentmarket assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts. Accordingly, the estimates of fair valuepresented herein may not be indicative of the amounts that could be realized in a current market exchange. Refer to Note 17.Contingent consideration . Each period we revalue the contingent consideration obligations associated with certain prior acquisitions to their fair value andrecord increases in the fair value as contingent consideration expense and decreases in the fair value as a reduction in contingent consideration expense. Changes incontingent consideration result from changes in the assumptions regarding probabilities of successful achievement of related milestones, the estimated timing inwhich the milestones are achieved and the discount rate used to estimate the fair value of the liability. Contingent consideration may change significantly as ourdevelopment programs progress, revenue estimates evolve and additional data is obtained, impacting our assumptions. The assumptions used in estimating fairvalue require significant judgment. The use of different assumptions and judgments could result in a materially different estimate of fair value which may have amaterial impact on our results from operations and financial position.Derivative financial instruments. We record derivative financial instruments on our Consolidated Balance Sheet at their fair value and recognize the changesin the fair value in our Consolidated Statement of Operations when they occur, the only exception being derivatives that qualify as hedges. For the derivativeinstrument to qualify as a hedge, we are required to meet strict hedge effectiveness and contemporaneous documentation requirements at the initiation of the hedgeand assess the hedge effectiveness on an ongoing basis over the life of the hedge. At December 31, 2016 and 2015 , our foreign currency forward contracts held toeconomically hedge inventory purchases did not meet the documentation requirements to be designated as hedges. Accordingly, we recognize all changes in thefair values of our derivatives instruments, net, in our Consolidated Statement of Operations. Refer to Note 18.Property, plant and equipment. Property, plant and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimateduseful lives of the assets and includes amortization expense for assets capitalized under capital leases. The estimated useful lives by asset class are as follows:software - 3 years , machinery, medical and other equipment - 5 - 8 years , furniture and fixtures - 5 - 10 years , leasehold improvements - the lesser of their usefullife or the lease term, buildings and improvements - 10 - 40 years , automobiles and aircraft - 3 - 15 years . Expenditures for repairs and maintenance are charged toexpense as incurred. Depreciation expense was $33.3 million , $14.2 million and $4.0 million for the years ended December 31, 2016 , 2015 and 2014,respectively. Assets held under capital leases are included within Property, plant and equipment, net in our Consolidated Balance Sheet and are amortized over theshorter of their useful lives or the expected term of their related leases.Impairment of long-lived assets. Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison ofthe carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds itsestimated future cash flows, then an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.Income taxes. Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases and foroperating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the yearsin which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognizedin operations in the period that includes the enactment date.We operate in various countries and tax jurisdictions globally. For the year ended December 31, 2016 , the tax rate differed from the U.S. federal statutoryrate of 35% primarily due to the relative mix in earnings and losses in the U.S. versus foreign tax jurisdictions, the impact of certain discrete tax events andoperating results in tax jurisdictions which do not result in a tax benefit.Income tax benefit for the year ended December 31, 2015 was primarily due to a $93.4 million release of a valuation allowance on our U.S. deferred taxassets due to a change in the assessment of recoverability following the merger with Bio-Reference in August 2015.88We periodically evaluate the realizability of our net deferred tax assets. Our tax accruals are analyzed periodically and adjustments are made as events occurto warrant such adjustment. On January 5, 2016, the Israeli Parliament officially published the Law for the Amendment of the Israeli Tax Ordinance (Amendment216), that reduces the standard corporate income tax rate from 26.5% to 25% . The amendment was entered into force on January 1, 2016 and the 25% corporatetax rate will apply to income that was generated from that day onwards. On December 29, 2016, the Israeli parliament further reduced the standard corporateincome tax rate to 24% , effective January 1, 2017 and 23% effective January 1, 2018. The new rates have been used in determining Income tax benefit in 2016.Included in Other long-term liabilities is an accrual of $2.5 million related to uncertain tax positions involving income recognition. We recognize that localtax law is inherently complex and the local taxing authorities may not agree with certain tax positions taken. Consequently, it is reasonably possible that theultimate resolution of tax matters in any jurisdiction may be significantly more or less than estimated. We evaluated the estimated tax exposure for a range ofcurrent likely outcomes to be from $0 to approximately $50.0 million and recorded our accrual to reflect our best expectation of ultimate resolution.Revenue recognition . Revenue for laboratory services is recognized at the time test results are reported, which approximates when services are provided.Services are provided to patients covered by various third-party payer programs including various managed care organizations, as well as the Medicare andMedicaid programs. Billings for services under third-party payer programs are included in revenue net of allowances for contractual discounts and allowances fordifferences between the amounts billed and estimated program payment amounts. Adjustments to the estimated payment amounts based on final settlement withthe programs are recorded upon settlement as an adjustment to revenue. For the years ended December 31, 2016 and 2015 , approximately 16% and 9% ,respectively, of our revenues from services were derived directly from the Medicare and Medicaid programs. The increase in revenues from laboratory services,including revenue from Medicare and Medicaid programs, is due to the acquisition of Bio-Reference in August 2015.We recognize revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, collectability is reasonably assured, andthe price to the buyer is fixed or determinable, which is generally when goods are shipped and title and risk of loss transfer to our customers. Our estimates forsales returns and allowances are based upon the historical patterns of product returns and allowances taken, matched against the sales from which they originated,and our evaluation of specific factors that may increase or decrease the risk of product returns. Product revenues are recorded net of estimated rebates,chargebacks, discounts, co-pay assistance and other deductions (collectively, "Sales Deductions") as well as estimated product returns. Allowances are recorded asa reduction of revenue at the time product revenues are recognized.We launched Rayaldee in the U.S. through our dedicated renal sales force in November 2016. Rayaldee is distributed in the U.S. principally through theretail pharmacy channel, which initiates with the largest wholesalers in the U.S. (collectively, " Rayaldee Customers"). In addition to distribution agreements withRayaldee Customers, we have entered into arrangements with many health care providers and payers that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of Rayaldee .We lack the experiential data which would allow us to estimate Sales Deductions and returns. Therefore, as of December 31, 2016 , we have determined thatwe do not yet meet the criteria for the recognition of revenue for shipments of Rayaldee at the time of shipment to Rayaldee Customers as allowances for SalesDeductions and returns are not known or cannot be reasonably estimated. We will not recognize revenue upon shipment until such time as we can reasonablyestimate and record provisions for Sales Deductions and returns utilizing historical information and market research projections.During the year ended December 31, 2016 , we did not recognize any product revenues related to Rayaldee sales. Payments received from RayaldeeCustomers in advance of recognition of revenue are recorded as deferred revenue included in Accrued expenses in our Consolidated Balance Sheet. The relateddeferred revenue balance as of December 31, 2016 was $1.6 million . The corresponding costs of product revenues for which we have not recognized productrevenue have similarly not yet been reflected in our Consolidated Statement of Operations.Revenue from transfer of intellectual property includes revenue related to the sale, license or transfer of intellectual property such as upfront licensepayments, license fees, milestone and royalty payments received through our license, and collaboration and commercialization agreements. We analyze ourmultiple-element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting.Non-refundable license fees for the out-license of our technology are recognized depending on the provisions of each agreement. We recognize non-refundable upfront license payments as revenue upon receipt if the license has standalone value and qualifies for treatment as a separate unit of accounting undermultiple-element arrangement guidance. License fees with ongoing involvement or performance obligations that do not have standalone value are recorded asdeferred revenue, included in Accrued expenses or Other long-term liabilities, when received and generally are recognized ratably over the period of suchperformance obligations only after both the license period has commenced and we have delivered the technology.89The assessment of our obligations and related performance periods requires significant management judgment. If an agreement contains research anddevelopment obligations, the relevant time period for the research and development phase is based on management estimates and could vary depending on theoutcome of clinical trials and the regulatory approval process. Such changes could materially impact the revenue recognized, and as a result, management reviewsthe estimates related to the relevant time period of research and development on a periodic basis. For the years ended December 31, 2016 , 2015 and 2014 werecorded $126.1 million , $81.9 million and $5.5 million of revenue from the transfer of intellectual property, respectively. For the year ended December 31, 2016 ,revenue from the transfer of intellectual property included $50.0 million related to the VFMCRP Agreement and $70.6 million related to the Pfizer Transaction.Refer to Note 14. For the year ended December 31, 2015 , revenue from the transfer of intellectual property included $15.0 million related to a milestone paymentthat TESARO, Inc. (“TESARO”) paid us under our license agreement with them and $65.5 million related to the Pfizer Transaction. For the year ended December31, 2014, $5.0 million related to a milestone payment that TESARO paid us under our license agreement with them.Revenue from milestone payments related to arrangements under which we have continuing performance obligations are recognized as Revenue fromtransfer of intellectual property upon achievement of the milestone only if all of the following conditions are met: the milestone payments are non-refundable; therewas substantive uncertainty at the date of entering into the arrangement that the milestone would be achieved; the milestone payment is commensurate with eitherour performance to achieve the milestone or the enhancement of the value of the delivered item by us; the milestone relates solely to past performance; and theamount of the milestone payment is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone. If any of theseconditions are not met, the milestone payments are not considered to be substantive and are, therefore, deferred and recognized as Revenue from transfer ofintellectual property over the term of the arrangement as we complete our performance obligations.Total deferred revenue included in Accrued expenses and Other long-term liabilities was $162.4 million and $232.9 million at December 31, 2016 and 2015 ,respectively. The deferred revenue balance at December 31, 2016 and 2015 relates primarily to the Pfizer Transaction. Refer to Note 14.Concentration of credit risk and allowance for doubtful accounts . Financial instruments that potentially subject us to concentrations of credit risk consistprimarily of accounts receivable. Substantially all of our accounts receivable are with either companies in the health care industry or patients. However, credit riskis limited due to the number of our clients as well as their dispersion across many different geographic regions.While we have receivables due from federal and state governmental agencies, we do not believe that such receivables represent a credit risk since the relatedhealth care programs are funded by federal and state governments, and payment is primarily dependent upon submitting appropriate documentation. Accountsreceivable balances (net of contractual adjustments) from Medicare and Medicaid were $50.5 million and $26.1 million at December 31, 2016 and 2015 ,respectively.The portion of our accounts receivable due from individual patients comprises the largest portion of credit risk. At December 31, 2016 and 2015 , receivablesdue from patients represent approximately 7.3% and 7.5% , respectively, of our consolidated accounts receivable (prior to allowance for doubtful accounts).We assess the collectability of accounts receivable balances by considering factors such as historical collection experience, customer credit worthiness, theage of accounts receivable balances, regulatory changes and current economic conditions and trends that may affect a customer’s ability to pay. Actual resultscould differ from those estimates. Our reported net income (loss) is directly affected by our estimate of the collectability of accounts receivable. The allowance fordoubtful accounts was $36.3 million and $25.2 million at December 31, 2016 and 2015 , respectively. The provision for bad debts for the years ended December31, 2016 and 2015 was $83.5 million and $24.5 million , respectively.Equity-based compensation. We measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fairvalue of the award. That cost is recognized in the Consolidated Statement of Operations over the period during which an employee is required to provide service inexchange for the award. We record excess tax benefits, realized from the exercise of stock options as a financing cash inflow and as a reduction of taxes paid incash flow from operations. Equity-based compensation arrangements to non-employees are recorded at their fair value on the measurement date. The measurementof equity-based compensation to non-employees is subject to periodic adjustment as the underlying equity instruments vest. During the years ended December 31,2016 , 2015 and 2014, we recorded $42.7 million , $26.1 million and $14.8 million , respectively, of equity-based compensation expense.Research and development expenses . Research and development expenses include external and internal expenses, partially offset by third-party grants andfundings arising from collaboration agreements. External expenses include clinical and non-clinical activities performed by contract research organizations, labservices, purchases of drug and diagnostic product materials and manufacturing development costs. Research and development employee-related expenses includesalaries,90benefits and equity-based compensation expense. Other internal research and development expenses are incurred to support overall research and developmentactivities and include expenses related to general overhead and facilities. We expense these costs in the period in which they are incurred. We estimate ourliabilities for research and development expenses in order to match the recognition of expenses to the period in which the actual services are received. As such,accrued liabilities related to third party research and development activities are recognized based upon our estimate of services received and degree of completionof the services in accordance with the specific third party contract.We record expense for in-process research and development projects acquired as asset acquisitions which have not reached technological feasibility andwhich have no alternative future use. For in-process research and development projects acquired in business combinations, the in-process research anddevelopment project is capitalized and evaluated for impairment until the development process has been completed. Once the development process has beencompleted the asset will be amortized over its remaining useful life.Segment reporting. Our chief operating decision-maker (“CODM”) is Phillip Frost, M.D., our Chairman and Chief Executive Officer. Our CODM reviewsour operating results and operating plans and makes resource allocation decisions on a Company-wide or aggregate basis. We manage our operations in tworeportable segments, pharmaceutical and diagnostics. The pharmaceutical segment consists of our pharmaceutical operations we acquired in Chile, Mexico,Ireland, Israel and Spain and our pharmaceutical research and development. The diagnostics segment primarily consists of clinical laboratory operations weacquired through the acquisition of Bio-Reference and point-of-care operations. There are no significant inter-segment sales. We evaluate the performance of eachsegment based on operating profit or loss. There is no inter-segment allocation of interest expense and income taxes. Refer to Note 16.Shipping and handling costs. We do not charge customers for shipping and handling costs. Shipping and handling costs are classified as Cost of revenues inthe Consolidated Statement of Operations.Foreign currency translation . The financial statements of certain of our foreign operations are measured using the local currency as the functional currency.The local currency assets and liabilities are generally translated at the rate of exchange to the United States (“U.S.”) dollar on the balance sheet date and the localcurrency revenues and expenses are translated at average rates of exchange to the U.S. dollar during the reporting periods. Foreign currency transaction gains(losses) have been reflected as a component of Other income (expense), net within the Consolidated Statement of Operations and foreign currency translation gains(losses) have been included as a component of the Consolidated Statement of Comprehensive Loss. During the years ended December 31, 2016 , 2015 and 2014,we recorded $0.8 million , $(2.4) million and $(4.8) million , respectively of transaction gains (losses).Variable interest entities. The consolidation of variable interest entities (“VIE”) is required when an enterprise has a controlling financial interest. Acontrolling financial interest in a VIE will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impactthe VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE. In July 2015, we deconsolidatedSciVac Therapeutics Inc. (“STI”), and account for our retained interest in STI as an equity method investment. Refer to Note 4.Investments. We have made strategic investments in development stage and emerging companies. We record these investments as equity method investmentsor investments available for sale based on our percentage of ownership and whether we have significant influence over the operations of the investees. Investmentsfor which it is not practical to estimate fair value and which we do not have significant influence are accounted for as cost method investments. For investmentsclassified under the equity method of accounting, we record our proportionate share of their losses in Losses from investments in investees in our ConsolidatedStatement of Operations. Refer to Note 4. For investments classified as available for sale, we record changes in their fair value as unrealized gain or loss in Othercomprehensive income (loss) based on their closing price per share at the end of each reporting period. Refer to Note 4.Recent accounting pronouncements . In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts withCustomers.” ASU 2014-09, as amended, clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and InternationalFinancial Reporting Standards that removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenueissues, improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, provides more useful information tousers of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number ofrequirements to which an entity must refer. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.Companies can choose to apply the ASU using either the full retrospective approach or a modified retrospective approach. We continue to evaluate both methodsof adoption and the impact that the adoption of this ASU will have on our Consolidated Financial Statements.In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award91Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force).” ASU 2014-12requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU2014-12 was effective for the Company beginning after January 1, 2016. Our adoption of ASU 2014-12 in the first quarter of 2016 using the prospectiveapplication did not have a material impact on our Consolidated Financial Statements.In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” to provideguidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to providerelated footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 with early adoption permitted. Our adoption of ASU2014-15 in 2016 did not have an impact on our Consolidated Financial Statements.In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which amends currentconsolidation guidance including changes to both the variable and voting interest models used by companies to evaluate whether an entity should be consolidated.The requirements from ASU 2015-02 were effective for the Company beginning January 1, 2016. Our adoption of ASU 2015-02 in the first quarter of 2016 did nothave a material impact on our Consolidated Financial Statements.In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt IssuanceCosts,” which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carryingamount of that debt liability, consistent with debt discounts. ASU 2015-03, as amended, was effective for the Company beginning January 1, 2016. Our adoption ofASU 2015-03 in the first quarter of 2016 did not have a material impact on our Consolidated Financial Statements.In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which changes the measurementprinciple for entities that do not measure inventory using the last-in, first-out (“LIFO”) or retail inventory method from the lower of cost or market to lower of costand net realizable value. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, withearly adoption permitted. We do not expect the adoption of this new guidance to have a material impact on our Consolidated Financial Statements.In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-PeriodAdjustments,” which replaces the requirement that an acquirer in a business combination account for measurement period adjustments retrospectively with arequirement that an acquirer recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in whichthe adjustment amounts are determined. ASU 2015-16 requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changesin depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had beencompleted at the acquisition date. Our early adoption of ASU 2015-16 in 2015 did not have a significant impact on our Consolidated Financial Statements.In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which requiresdeferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. We early adopted the provisions of this ASUprospectively in the fourth quarter of 2015, and did not retrospectively adjust the prior periods. The adoption of this ASU simplifies the presentation of deferredincome taxes and reduces complexity without decreasing the usefulness of information provided to users of financial statements. The adoption of ASU 2015-17did not have a significant impact on our Consolidated Financial Statements.In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10),” which addresses certain aspects of recognition,measurement, presentation, and disclosure of financial instruments. The ASU requires equity investments (except those accounted for under the equity method ofaccounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 willbe effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are currentlyevaluating the impact of this new guidance on our Consolidated Financial Statements.In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which will require organizations that lease assets with lease terms of more than12 months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets. The ASU will also require newqualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flowsarising from leases. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, withearly adoption permitted. We are currently evaluating the impact of this new guidance on our Consolidated Financial Statements.92In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718),” which simplifies several aspects of the accountingfor share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on thestatement of cash flows and accounting for forfeitures. ASU 2016-09 will be effective for fiscal years beginning after December 15, 2016, including interimperiods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of this new guidance on our Consolidated FinancialStatements.In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230),” which addresses the classification of eight specific cash flowissues with the objective of reducing the existing diversity in practice. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, includinginterim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of this new guidance on our Consolidated FinancialStatements.In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350),” which simplifies how an entity is required to test forgoodwill impairment. ASU 2017-04 will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with earlyadoption permitted after January 1, 2017. We are currently evaluating the impact of this new guidance on our Consolidated Financial Statements.Note 3 Loss Per ShareBasic loss per share is computed by dividing our net loss by the weighted average number of shares outstanding during the period. For diluted earnings pershare, the dilutive impact of stock options, warrants and conversion options of the 2033 Senior Notes is determined by applying the “treasury stock” method. In theperiods in which their effect would be antidilutive, no effect has been given to outstanding options, warrants or the potentially dilutive shares issuable pursuant tothe 2033 Senior Notes (defined in Note 6) in the dilutive computation.A total of 9,494,999 , 14,269,717 and 28,456,149 potential shares of Common Stock have been excluded from the calculation of diluted net loss per share forthe years ended December 31, 2016 , 2015 and 2014, respectively, because their inclusion would be antidilutive.During the year ended December 31, 2016 , 3,420,697 Common Stock options and Common Stock warrants to purchase shares of our Common Stock wereexercised, resulting in the issuance of 3,292,753 shares of Common Stock. Of the 3,420,697 Common Stock options and Common Stock warrants exercised,127,944 shares of Common Stock were surrendered in lieu of a cash payment via the net exercise feature of the agreements.During the year ended December 31, 2015 , 25,686,153 Common Stock options and Common Stock warrants to purchase shares of our Common Stock wereexercised, resulting in the issuance of 24,466,106 shares of Common Stock. Of the 25,686,153 Common Stock options and Common Stock warrants exercised,1,220,047 shares of Common Stock were surrendered in lieu of a cash payment via the net exercise feature of the agreements.During the year ended December 31, 2014, 5,787,983 Common Stock options and Common Stock warrants to purchase shares of our Common Stock wereexercised, resulting in the issuance of 5,392,741 shares of Common Stock. Of the 5,787,983 Common Stock options and Common Stock warrants exercised, 426shares of Common Stock were surrendered in lieu of a cash payment via the net exercise feature of the agreements.Note 4 Acquisitions, Investments and LicensesTransition Therapeutics acquisitionIn August 2016, we completed the acquisition of Transition Therapeutics, a clinical stage biotechnology company. Holders of Transition Therapeuticscommon stock received 6,431,899 shares of OPKO Common Stock. The transaction was valued at approximately $58.5 million , based on a closing price per shareof our Common Stock of $9.10 as reported by NASDAQ on the closing date.93The following table summarizes the preliminary purchase price allocation and the estimated fair value of the net assets acquired and liabilities assumed at the dateof acquisition. The purchase price allocation for Transition Therapeutics is preliminary pending completion of the fair value analysis of acquired assets andliabilities:(In thousands) Transition TherapeuticsCurrent assets Cash and cash equivalents $15,878IPR&D assets 41,000Goodwill 3,453Other assets 634Accounts payable and other liabilities (1,035)Deferred tax liability (1,400)Total purchase price $58,530Goodwill from the acquisition of Transition Therapeutics principally relates to intangible assets that do not qualify for separate recognition (for instance,Transition Therapeutics' assembled workforce) and the deferred tax liability generated as a result of the transaction. Goodwill is not tax deductible for income taxpurposes and was assigned to the pharmaceutical reporting segment.Revenue and Net income (loss) in the Consolidated Statement of Operations for the year ended December 31, 2016 includes revenue and net loss ofTransition Therapeutics from the date of acquisition to December 31, 2016 of $0.0 million and $(2.6) million , respectively.Our IPR&D assets will not be amortized until the underlying development programs are completed. Upon obtaining regulatory approval, the IPR&D assetsare then accounted for as finite-lived intangible assets and amortized on a straight-line basis over its estimated useful life.Pro forma disclosure for Transition Therapeutics acquisition (unaudited)The following table includes the pro forma results for the years ended December 31, 2016 and 2015 and combines the results of operations of OPKO andTransition Therapeutics as though the acquisition of Transition Therapeutics had occurred on January 1, 2015. For the year ended December 31,(In thousands) 20162015Revenues $1,221,661$491,738Net loss (31,807)(50,660)Net loss attributable to common shareholders (31,807)(49,260)The unaudited pro forma financial information is presented for information purposes only. The unaudited pro forma financial information may notnecessarily reflect our future results of operations or what the results of operations would have been had we owned and operated Transition Therapeutics as of thebeginning of the period presented.Bio-Reference acquisitionIn August 2015, we completed the acquisition of Bio-Reference, the third largest full service clinical laboratory in the United States, known for its innovativetechnological solutions and pioneering leadership in the areas of genomics and genetic sequencing. Holders of Bio-Reference common stock received 76,566,147shares of OPKO Common Stock for the outstanding shares of Bio-Reference common stock. The transaction was valued at approximately $950.1 million , basedon a closing price per share of our Common Stock of $12.38 as reported by the New York Stock Exchange, or $34.05 per share of Bio-Reference common stock.Included in the transaction value is $2.3 million related to the value of replacement stock option awards attributable to pre-merger service.94The following table summarizes the purchase price allocation and the fair value of the net assets acquired and liabilities assumed in the acquisition of Bio-Reference at the date of acquisition finalized during the year ended December 31, 2016:(In thousands) Bio-ReferencePurchase price: Value of OPKO Common Stock issued to Bio-Reference shareholders $947,889Value of replacement stock options awards to holders of Bio-Reference stock options 2,259Total purchase price $950,148 Preliminary value of assets acquired and liabilities assumed: Current assets Cash and cash equivalents $15,800Accounts receivable 168,164Inventory 19,674Other current assets, principally deferred tax assets 105,765Total current assets 309,403Property, plant and equipment 112,457Intangible assets: Trade name 47,100Customer relationships 389,800Technology 100,600Other intangible assets 7,750Total intangible assets 545,250Goodwill 401,821Investments 5,326Other assets 13,265Total assets 1,387,522Accounts payable and accrued expenses (108,217)Income taxes payable (2,921)Lines of credit and notes payable (65,701)Capital lease obligations (18,293)Deferred tax liability (non-current) (235,904)Other long-term liabilities (6,338)Total purchase price $950,148During the year ended December 31, 2016 , we finalized our purchase price allocation during the measurement period and obtained new fair valueinformation related to certain assets acquired and liabilities assumed of Bio-Reference. As a result, for the year ended December 31, 2016 we adjusted the purchaseprice allocation by increasing Other current assets by $44.6 million , decreasing customer relationships by $5.4 million , increasing Other intangible assets by $7.8million , decreasing Goodwill by $39.3 million , decreasing Accrued expenses by $0.5 million , increasing Income taxes payable by $2.5 million , decreasingDeferred tax liability (non-current) by $0.6 million and increasing Other long-term liabilities by $6.3 million . As a result of these adjustments, Amortization ofintangible assets in our Consolidated Statement of Operations for the year ended December 31, 2016 increased $3.1 million .The purchase price allocation adjustments are largely due to an approval we received from the Internal Revenue Service during 2016 on an application for achange in accounting method. As a result of the change, we recognized an additional $51.7 million of income tax benefits, of which $39.4 million was recognizedas taxes recoverable in Other current assets and $12.3 million was recognized as a reduction of our Deferred tax liability (non-current). In addition, Goodwill wasreduced by $51.7 million . OPKO received payment for the $39.4 million taxes recoverable balance during the year ended December 31, 2016 .95Goodwill from the acquisition of Bio-Reference principally relates to intangible assets that do not qualify for separate recognition (for instance, Bio-Reference’s assembled workforce), our expectation to develop and market new products, 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 diagnostics reporting segment.Revenue and Net income (loss) in the Consolidated Statement of Operations for the year ended December 31, 2015 includes revenue and net income of Bio-Reference from the date of acquisition to December 31, 2015 of $321.9 million and $3.2 million , respectively.The weighted average amortization periods for intangible assets recognized in the Bio-Reference acquisition are 5 years for trade name, 19.3 years forcustomer relationships, 10.2 years for technology and 13.0 years in total.EirGen Pharma Limited acquisitionIn May 2015, we acquired all of the issued and outstanding shares of EirGen, a specialty pharmaceutical company incorporated in Ireland focused on thedevelopment and commercial supply of high potency, high barrier to entry pharmaceutical products, for $133.8 million . We acquired the outstanding shares ofEirGen for approximately $100.2 million in cash and delivered 2,420,487 shares of our Common Stock valued at approximately $33.6 million based on the closingprice per share of our Common Stock as reported by the New York Stock Exchange on the closing date of the acquisition, $13.88 per share.The following table summarizes the final purchase price allocation and the fair value of the net assets acquired and liabilities assumed in the acquisition ofEirGen at the date of acquisition:(In thousands) EirGenCurrent assets (1) $11,795Intangible assets: IPR&D assets 560Customer relationships 34,155Currently marketed products 3,919Total intangible assets 38,634Goodwill 83,373Property, plant and equipment 8,117Other assets 1,232Accounts payable and other liabilities (6,254)Deferred tax liability (3,131)Total purchase price $133,766(1) Current assets include cash, accounts receivable, inventory and other assets of $5.5 million , $2.7 million , $2.2 million and $1.4 million , respectively,related to the EirGen acquisition. The fair value of the accounts receivable equals the gross contractual amount at the date of acquisition.Goodwill from the acquisition of EirGen principally relates to intangible assets that do not qualify for separate recognition (for instance, EirGen’s assembledworkforce), our expectation to develop and market new products, and the deferred tax liability generated as a result of this being a partial stock transaction.Goodwill is not tax deductible for income tax purposes and was assigned to the pharmaceutical reporting segment.Revenue and Net income (loss) in the Consolidated Statement of Operations for the year ended December 31, 2015 includes revenue and net income ofEirGen from the date of acquisition to December 31, 2015 of $13.5 million and $1.4 million , respectively.Our IPR&D assets will not be amortized until the underlying development programs are completed. Upon obtaining regulatory approval, the IPR&D assetsare then accounted for as finite-lived intangible assets and amortized on a straight-line basis over its estimated useful life. The weighted average amortizationperiods for amortizing intangible assets recognized in the EirGen acquisition are 15.8 years for customer relationships, 10.0 years for currently marketed productand 15.0 years in total.96InvestmentsThe following table reflects the accounting method, carrying value and underlying equity in net assets of our unconsolidated investments as of December 31,2016 :(in thousands) Investment type Investment Carrying Value Underlying Equity in Net AssetsEquity method investments $31,471 $30,195Variable interest entity, equity method 516 —Available for sale investments 4,528 Cost method investment 607 Warrants and options 4,017 Total carrying value of investments $41,139 Equity method investmentsOur equity method investments consist of investments in Pharmsynthez (ownership 17% ), Cocrystal Pharma, Inc. (“COCP”) ( 8% ), Sevion Therapeutics,Inc. (“Sevion”) ( 3% ), Non-Invasive Monitoring Systems, Inc. ("NIMS") ( 1% ), Neovasc Inc. ( 4% ), VBI ( 15% ), InCellDx, Inc. ( 27% ), and BioCardia, Inc.("BioCardia") ( 5% ). The total assets, liabilities, and net losses of our equity method investees as of and for the year ended December 31, 2016 were $430.9million , $205.1 million , and $208.1 million , respectively. We have determined that we and/or our related parties can significantly influence the success of ourequity method investments through our board representation and/or voting power. Accordingly, we account for our investment in these entities under the equitymethod and record our proportionate share of their losses in Loss from investments in investees in our Consolidated Statement of Operations. The aggregate valueof our equity method investments based on the quoted market price of their common stock and the number of shares held by us as of December 31, 2016 is $80.1million .Available for sale investmentsOur available for sale investments consist of investments in RXi Pharmaceuticals Corporation (“RXi”) (ownership 5% ), ChromaDex Corporation ( 2% ),MabVax Therapeutics Holdings, Inc. (“MabVax”) ( 4% ), ARNO Therapeutics, Inc. (“ARNO”) ( 5% ) and Xenetic BioSciences, Inc. ("Xenetic") ( 4% ). We havedetermined that our ownership, along with that of our related parties, does not provide us with significant influence over the operations of our available for saleinvestments. Accordingly, we account for our investment in these entities as available for sale, and we record changes in these investments as an unrealized gain orloss in Other comprehensive income (loss) each reporting period.Based on our evaluation of the value of our investments in RXi, including RXi’s decreasing stock price during the year ended December 31, 2016 , wedetermined that the decline in fair value of our RXi common shares was other-than-temporary and recorded an impairment charge of $0.4 million in Other income(expense), net in our Consolidated Statement of Operations for the year ended December 31, 2016 to write our investment in RXi common shares down to its fairvalue of $0.3 million as of December 31, 2016 . Based on our evaluation of the value of our investments in Xenetic, including Xenetic’s decreasing stock priceduring the year ended December 31, 2016 , we determined that the decline in fair value of our Xenetic common shares was other-than-temporary and recorded animpairment charge of $3.5 million in Other income (expense), net in our Consolidated Statement of Operations for the year ended December 31, 2016 to write ourinvestment in Xenetic common shares down to its fair value of $1.3 million as of December 31, 2016 . Based on our evaluation of the value of our investments inARNO, including ARNO's decreasing stock price during the year ended December 31, 2016 , we determined that the decline in fair value of our ARNO commonshares was other-than-temporary and recorded an impairment charge of $0.8 million in Other income (expense), net in our Consolidated Statement of Operationsfor the year ended December 31, 2016 to write our investment in ARNO common shares down to zero as of December 31, 2016.Based on our evaluation of the value of our investments in RXi, including RXi’s decreasing stock price during the year ended December 31, 2015 , wedetermined that the decline in fair value of our RXi common shares was other-than-temporary and recorded an impairment charge of $7.3 million in Other income(expense), net in our Consolidated Statement of Operations for the year ended December 31, 2015 to write our investment in RXi common shares down to its fairvalue of $0.9 million as of December 31, 2015 . Based on our evaluation of the value of our investment in ARNO, including ARNO’s decreasing stock priceduring the year ended December 31, 2014, we determined that the decline in fair value of our ARNO common shares was other-than-temporary and recorded animpairment charge of $1.4 million in Other income (expense), net in our Consolidated Statement of Operations for the year ended December 31, 2014 to write ourinvestment in ARNO common shares down to its fair value of $0.6 million as of December 31, 2014. Refer to Note 17 for further discussion of the fair value of ouravailable for sale investments.97Sales of investmentsGains (losses) included in earnings from sales of our investments for the years ended December 31, 2016 , 2015 and 2014 were $0.0 million , $0.0 millionand $1.3 million , respectively, and were recorded in Other income (expense), net in our Consolidated Statement of Operations. The cost of securities sold is basedon the specific identification method. Refer to Investment in SciVac below.Warrants and optionsIn addition to our equity method investments and available for sale investments, we hold options to purchase 1.0 million additional shares of Neovasc, whichare fully vested as of December 31, 2016 , options to purchase 5.0 million additional shares of BioCardia, none of which are vested as of December 31, 2016 , and1.0 million , 2.3 million , 0.3 million , 0.7 million , 0.7 million , 0.5 million and 0.2 million of warrants to purchase additional shares of COCP, ARNO, Sevion,MabVax, InCellDx, Inc., Xenetic and RXi, respectively. We recorded the changes in the fair value of the options and warrants in Fair value changes of derivativeinstruments, net in our Consolidated Statement of Operations. We also recorded the fair value of the options and warrants in Investments, net in our ConsolidatedBalance Sheet. See further discussion of the Company’s options and warrants in Note 17 and Note 18.Investments in variable interest entitiesWe have determined that we hold variable interests in Zebra Biologics, Inc. (“Zebra”). We made this determination as a result of our assessment that Zebradoes not have sufficient resources to carry out its principal activities without additional financial support.We own 1,260,000 shares of Zebra Series A-2 Preferred Stock and 900,000 shares of Zebra restricted common stock (ownership 28% at December 31, 2016). 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 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 combinedwith the related party group’s 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 directthe activities that most significantly impact Zebra’s economic performance and no obligation to fund expected losses. We did determine, however, that we cansignificantly influence the success of Zebra through our board representation and voting power. Therefore, we have the ability to exercise significant influence overZebra’s operations and account for our investment in Zebra under the equity method.Investment in SciVacIn June 2012, we acquired a 50% stock ownership in SciVac from FDS Pharma LLP (“FDS”). SciVac was a privately-held Israeli company that produced athird-generation hepatitis B-vaccine. From November 2012 through June 2015, we loaned to SciVac a combined $7.9 million for working capital purposes. Wedetermined that we held variable interests in SciVac based on our assessment that SciVac did not have sufficient resources to carry out its principal activitieswithout financial support. We had also determined we were the primary beneficiary of SciVac through our representation on SciVac’s board of directors. As aresult of this conclusion, we consolidated the results of operations and financial position of SciVac through June 2015 and recorded a reduction of equity for theportion of SciVac we do not own.On July 9, 2015, SciVac Therapeutics Inc., formerly Levon Resources Ltd. (“STI”) completed a reverse takeover transaction (the “Arrangement”) pursuantto which STI acquired all of the issued and outstanding securities of SciVac. As a result of this transaction, OPKO’s ownership in STI decreased to 24.5% .Upon completion of the Arrangement, we determined that STI was not a VIE. We also determined that we do not have the power to direct the activities thatmost significantly impact the economic performance of STI that would require us to consolidate STI. We recorded a $15.9 million gain on the deconsolidation ofSciVac in Other income (expense), net in our Consolidated Statement of Operations for the year ended December 31, 2015. The recognized gain was primarily dueto the fair value of the retained interest in STI based on Levon’s cash contribution of approximately $21.2 million under the Arrangement.Following the deconsolidation, we account for our investment in STI under the equity method as we have determined that we and/or our related parties cansignificantly influence STI through our voting power and board representation. STI is98considered a related party as a result of our board representation in STI and executive management’s ownership interests in STI.In May 2016, STI completed a merger transaction pursuant to which a wholly-owned subsidiary of STI merged with and into VBI Vaccines Inc. with VBIVaccines Inc. surviving the merger as a wholly-owned subsidiary of STI, and STI changed its name to VBI Vaccines Inc. (“VBI”) . We recorded a $2.5 milliongain in connection with the merger transaction in Other income (expense), net in our Consolidated Statement of Operations for the year ended December 31, 2016.In June 2016, we invested an additional $5.7 million in VBI for 1,362,370 shares of its common stock. As a result of these two transactions, OPKO’s ownership inVBI changed to 15% .We account for our investment in VBI under the equity method as we have determined that we can significantly influence VBI through our boardrepresentation.OtherOn January 5, 2016, we completed a stock exchange agreement (the “Exchange Agreement”) with Relative Core Cyprus Limited (“Relative Core”) pursuantto which Relative Core agreed to transfer and sell to us $5.0 million of Xenetic shares in exchange for $5.0 million shares of our common stock. We issued494,462 shares of our common stock to Relative Core and received 10,204,082 shares of Xenetic common stock from Relative Core. The number of sharesexchanged in the transaction was calculated based on the average closing sale price for our common stock on the NYSE for the ten ( 10 ) consecutive trading dayperiod ending on the second day prior to the closing and the average closing sale price for Xenetic’s common stock on the OTC “Pink Sheet” for the ten ( 10 )consecutive trading day period ending on the second day prior to the closing. We account for investment in Xenetic as an available for sale investment.In March 2016, we entered into an agreement with Relative Core pursuant to which we delivered $5.0 million cash to Relative Core in exchange for a $5.0million promissory note (“Relative Note”) which bears interest at 10% and is due in March 2017. The Relative Note is secured by 4,000,000 shares of commonstock of Xenetic and 494,462 shares of OPKO common stock. We recorded the Relative Note within Other current assets and prepaid expenses in our ConsolidatedBalance Sheet.99Note 5 Composition of Certain Financial Statement Captions For the years ended December 31,(In thousands)2016 2015Accounts receivable, net Accounts receivable$256,552 $219,043Less: allowance for doubtful accounts(36,268) (25,168) $220,284 $193,875Inventories, net Consumable supplies$23,448 $22,265Finished products16,143 13,404Work in-process3,896 1,215Raw materials4,686 3,848Less: inventory reserve(945) (1,051) $47,228 $39,681Other current assets and prepaid expenses Other receivables$13,021 $11,946Taxes recoverable16,187 3,076Prepaid supplies6,952 8,773Prepaid insurance3,688 2,206Other7,508 903 $47,356 $26,904Property, plant and equipment, net: Machinery, medical and other equipment$100,100 $89,936Leasehold improvements30,122 27,949Furniture and fixtures11,247 11,403Automobiles and aircraft13,342 10,271Software10,990 10,497Building5,696 5,965Land2,264 2,394Construction in process5,848 425Less: accumulated depreciation(56,778) (27,042) $122,831 $131,798Intangible assets, net: Customer relationships$443,560 $449,972Technologies340,397 151,709Trade names50,442 50,416Covenants not to compete16,348 8,612Licenses23,506 23,432Product registrations7,641 7,512Other5,289 5,600Less: accumulated amortization(123,207) (59,101) $763,976 $638,152Accrued expenses: Deferred revenue$73,434 $70,246Employee benefits43,792 29,751Taxes payable4,430 7,605Contingent consideration259 22,164100 For the years ended December 31,(In thousands)2016 2015Clinical trials5,935 2,505Capital leases short-term3,025 5,373Milestone payment4,865 5,000Professional fees4,035 1,506Other58,180 23,749 $197,955 $167,899 Other long-term liabilities: Deferred revenue$89,016 $162,634Line of credit38,809 72,107Contingent consideration44,817 32,258Capital leases long-term7,216 9,285Mortgages and other debts payable717 2,523Other21,908 13,663 $202,483 $292,470The following table summarizes the fair values assigned to our major intangible asset classes upon each acquisition:(In thousands)Technologies In-processresearch anddevelopment Customerrelationships Productregistrations Covenants notto compete Trade names Other Total identifiedintangibleassets GoodwillBio-Reference$100,600 $— $389,800 $— $7,750 $47,100 $— $545,250 $401,821CURNA— 10,000 — — — — 290 10,290 4,827EirGen— 560 34,155 — — — 3,919 38,634 83,373FineTech2,700 — 14,200 — 1,500 400 — 18,800 11,623OPKO Biologics— 590,200 — — — — — 590,200 139,784OPKOChile— — 3,945 5,829 — 1,032 — 10,806 5,441OPKODiagnostics44,400 — — — — — — 44,400 17,977OPKO HealthEurope3,017 1,459 436 2,930 187 349 — 8,378 8,062OPKO Lab1,370 — 3,860 — 6,900 1,830 70 14,030 29,629OPKO Renal— 191,530 — — — — 210 191,740 2,411TransitionTherapeutics— 41,000 — — — — —41,000 3,453Weightedaverageamortizationperiod8-12 years Indefinite 6-20 years 9 years 5 years 4-5 years 3-10 years IndefiniteAll of the intangible assets and goodwill acquired relate to our acquisitions of principally OPKO Renal, OPKO Biologics, EirGen and Bio-Reference. We donot anticipate capitalizing the cost of product registration renewals, rather we expect to expense these costs, as incurred. Our goodwill is not tax deductible forincome tax purposes in any jurisdiction we operate in.We reclassified $187.6 million of IPR&D related to Rayaldee from In-process research and development to Intangible assets, net in our ConsolidatedBalance Sheet upon the FDA’s approval of Rayaldee in June 2016. In addition, we made certain purchase price allocation adjustments related to the Bio-Referenceacquisition during the year ended December 31, 2016 . Refer to Note 4. Other changes in value of the intangible assets and goodwill during 2016 are primarily dueto foreign currency fluctuations between the Chilean and Mexican pesos, the Euro and the Shekel against the U.S. dollar. For the year ended December 31, 2015 ,the changes in value of the intangible assets and goodwill are primarily due to the acquisitions of Bio-Reference and EirGen and foreign currency fluctuationsbetween the Chilean and Mexican pesos, the Euro and the Shekel against the U.S. dollar.101The following table reflects the changes in the allowance for doubtful accounts, provision for inventory reserve and tax valuation allowance accounts: (In thousands)Beginningbalance Chargedtoexpense Written-off Chargedto other Endingbalance2016 Allowance for doubtful accounts$(25,168) (83,463) 68,840 3,523 $(36,268)Inventory reserve$(1,051) (20) 296 (170) $(945)Tax valuation allowance$(42,147) 7,726 — (20,994) $(55,415)2015 Allowance for doubtful accounts$(1,906) (24,548) 928 358 $(25,168)Inventory reserve$(639) (926) 435 79 $(1,051)Tax valuation allowance$(131,931) — — 89,784 $(42,147)The following table summarizes the changes in Goodwill during the years ended December 31, 2016 and 2015 . 2016 2015(In thousands)Balance atJanuary 1st Purchaseaccountingadjustments Foreignexchange Balance atDecember 31st Balance atJanuary 1 Purchaseaccountingadjustments Foreignexchange Balance atDecember 31Pharmaceuticals CURNA$4,827 $— $— $4,827 $4,827 $— $— $4,827EirGen81,139 — (2,781) 78,358 — 83,373 (2,234) 81,139FineTech11,698 — — 11,698 11,698 — — 11,698OPKOBiologics139,784 — — 139,784 139,784 — — 139,784OPKO Chile4,517 — 268 4,785 5,283 — (766) 4,517OPKO HealthEurope7,191 — (255) 6,936 8,013 — (822) 7,191OPKO Mexico— — — — 100 — (100) —OPKO Renal2,069 — — 2,069 2,069 — — 2,069SciVac— — — — 1,553 — (1,553) —TransitionTherapeutics— 3,453 (93) 3,360 — — — — Diagnostics Bio-Reference441,158 (39,337) — 401,821 — 441,158 — 441,158OPKODiagnostics17,977 — — 17,977 17,977 — — 17,977OPKO Lab32,988 — — 32,988 32,988 — — 32,988 $743,348 $(35,884) $(2,861) $704,603 $224,292 $524,531 $(5,475) $743,348102Note 6 Debt In January 2013, we entered into note purchase agreements (the “2033 Senior Notes”) with qualified institutional buyers and accredited investors(collectively, the “Purchasers”) in a private placement in reliance on exemptions from registration under the Securities Act of 1933, (the “Securities Act”). The2033 Senior Notes were issued on January 30, 2013 . The 2033 Senior Notes, which totaled $175.0 million in original principal amount, bear interest at the rate of3.00% per year, payable semiannually on February 1 and August 1 of each year. The 2033 Senior Notes will mature on February 1, 2033 , unless earlierrepurchased, redeemed or converted. Upon a fundamental change as defined in the Indenture, dated as of January 30, 2013, by and between the Company andWells Fargo Bank N.A., as trustee, governing the 2033 Senior Notes (the "Indenture"), subject to certain exceptions, the holders may require us to repurchase all orany portion of their 2033 Senior Notes for cash at a repurchase price equal to 100% of the principal amount of the 2033 Senior Notes being repurchased, plus anyaccrued and unpaid interest to but not including the fundamental change repurchase date.The following table sets forth information related to the 2033 Senior Notes which is included in our Consolidated Balance Sheet as of December 31, 2016 :(In thousands)Embeddedconversionoption 2033 SeniorNotes Discount Debt IssuanceCost TotalBalance at December 31, 2015$23,737$32,200$(6,525)$(426) $48,986Amortization of debt discount——1,913153 2,066Change in fair value of embedded derivative(7,001)——— (7,001)Conversion—(350)—— (350)Balance at December 31, 2016$16,736$31,850$(4,612)$(273) $43,701The following table sets forth information related to the 2033 Senior Notes which is included in our Consolidated Balance Sheet as of December 31, 2015 :(In thousands)Embeddedconversionoption 2033 SeniorNotes Discount Debt IssuanceCost TotalBalance at December 31, 2014$65,947 $87,642 $(22,135) $(1,638) $129,816Amortization of debt discount— — 2,613 233 2,846Change in fair value of embedded derivative36,587 — — — 36,587Conversion(78,797) (55,442) 12,997 979 (120,263)Balance at December 31, 2015$23,737 $32,200 $(6,525) $(426) $48,986The 2033 Senior Notes will be convertible at any time on or after November 1, 2032, through the second scheduled trading day immediately preceding thematurity date, at the option of the holders. Additionally, holders may convert their 2033 Senior Notes prior to the close of business on the scheduled trading dayimmediately preceding November 1, 2032, under the following circumstances: (1) conversion based upon satisfaction of the trading price condition relating to the2033 Senior Notes; (2) conversion based on the Common Stock price; (3) conversion based upon the occurrence of specified corporate events; or (4) if we call the2033 Senior Notes for redemption. The 2033 Senior Notes will be convertible into cash, shares of our Common Stock, or a combination of cash and shares ofCommon Stock, at our election unless we have made an irrevocable election of net share settlement. The initial conversion rate for the 2033 Senior Notes will be141.48 shares of Common Stock per $1,000 principal amount of 2033 Senior Notes (equivalent to an initial conversion price of approximately $7.07 per share ofCommon Stock), and will be subject to adjustment upon the occurrence of certain events. In addition, we will, in certain circumstances, increase the conversionrate for holders who convert their 2033 Senior Notes in connection with a make-whole fundamental change (as defined in the Indenture) and holders who convertupon the occurrence of certain specific events prior to February 1, 2017 (other than in connection with a make-whole fundamental change). Holders of the 2033Senior Notes may require us to repurchase the 2033 Senior Notes for 100% of their principal amount, plus accrued and unpaid interest, on February 1, 2019,February 1, 2023 and February 1, 2028, or following the occurrence of a fundamental change as defined in the indenture governing the 2033 Senior Notes.We may not redeem the 2033 Senior Notes prior to February 1, 2017. On or after February 1, 2017 and before February 1, 2019, we may redeem for cash anyor all of the 2033 Senior Notes but only if the last reported sale price of our Common Stock exceeds 130% of the applicable conversion price for at least 20 tradingdays during the 30 consecutive trading day period ending on the trading day immediately prior to the date on which we deliver the redemption notice. Theredemption103price will equal 100% of the principal amount of the 2033 Senior Notes to be redeemed, plus any accrued and unpaid interest to but not including the redemptiondate. On or after February 1, 2019, we may redeem for cash any or all of the 2033 Senior Notes at a redemption price of 100% of the principal amount of the 2033Senior Notes to be redeemed, plus any accrued and unpaid interest up to but not including the redemption date.The terms of the 2033 Senior Notes, include, among others: (i) rights to convert into shares of our Common Stock, including upon a fundamental change;and (ii) a coupon make-whole payment in the event of a conversion by the holders of the 2033 Senior Notes on or after February 1, 2017 but prior to February 1,2019. We have determined that these specific terms are considered to be embedded derivatives. Embedded derivatives are required to be separated from the hostcontract, the 2033 Senior Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closelyrelated to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument.We have concluded that the embedded derivatives within the 2033 Senior Notes meet these criteria and, as such, must be valued separate and apart from the 2033Senior Notes and recorded at fair value each reporting period.For accounting and financial reporting purposes, we combine these embedded derivatives and value them together as one unit of accounting. At eachreporting period, we record these embedded derivatives at fair value which is included as a component of the 2033 Senior Notes on our Consolidated BalanceSheet.In August 2013, one of the conversion rights in the 2033 Senior Notes was triggered. Holders of the 2033 Senior Notes converted $16.9 million principalamount into 2,396,145 shares of the Company’s Common Stock. In June 2014, we entered into an exchange agreement with a holder of the Company’s 2033Senior Notes pursuant to which such holder exchanged $70.4 million in aggregate principal amount of 2033 Senior Notes for 10,974,431 shares of the Company’sCommon Stock and approximately $0.8 million in cash representing accrued interest through the date of completion of the exchange. During 2015, pursuant to aconversion right or through exchange agreements we entered with certain holders of our 2033 Senior Notes, holders of our 2033 Senior Notes converted orexchanged $55.4 million in aggregate principal amount of 2033 Senior Notes for 8,118,062 shares of the Company’s Common Stock.On April 1, 2015, we initially announced that our 2033 Senior Notes were convertible through June 2015 by holders of such notes. This conversion right wastriggered because the closing price per share of our Common Stock exceeded $9.19 , or 130% of the initial conversion price of $7.07 , for at least 20 of 30consecutive trading days during the applicable measurement period. We have elected to satisfy our conversion obligation under the 2033 Senior Notes in shares ofour Common Stock. Our 2033 Senior Notes continued to be convertible by holders of such notes for the remainder of 2015 and 2016 and continue to be convertiblefor the first quarter of 2017, and may be convertible thereafter, if one or more of the conversion conditions specified in the Indenture is satisfied during futuremeasurement periods. Pursuant to the Indenture, a holder who elects to convert the 2033 Senior Notes will receive 141.4827 shares of our Common Stock plussuch number of additional shares as is applicable on the conversion date per $1,000 principal amount of 2033 Senior Notes based on the early conversionprovisions in the Indenture. See further discussion in Note 14.We used a binomial lattice model in order to estimate the fair value of the embedded derivative in the 2033 Senior Notes. A binomial lattice model generatestwo probable outcomes — one up and another down —arising at each point in time, starting from the date of valuation until the maturity date. A lattice model wasinitially used to determine if the 2033 Senior Notes would be converted, called or held at each decision point. Within the lattice model, the following assumptionsare made: (i) the 2033 Senior Notes will be converted early if the conversion value is greater than the holding value; or (ii) the 2033 Senior Notes will be called ifthe holding value is greater than both (a) the redemption price (as defined in the Indenture) and (b) the conversion value plus the coupon make-whole payment atthe time. If the 2033 Senior Notes are called, then the holders will maximize their value by finding the optimal decision between (1) redeeming at the redemptionprice and (2) converting the 2033 Senior Notes.Using this lattice model, we valued the embedded derivatives using the “with-and-without method,” where the value of the 2033 Senior Notes including theembedded derivatives is defined as the “with,” and the value of the 2033 Senior Notes excluding the embedded derivatives is defined as the “without.” Thismethod estimates the value of the embedded derivatives by looking at the difference in the values between the 2033 Senior Notes with the embedded derivativesand the value of the 2033 Senior Notes without the embedded derivatives.The lattice model requires the following inputs: (i) price of our Common Stock; (ii) Conversion Rate (as defined in the Indenture); (iii) Conversion Price (asdefined in the Indenture); (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; and (vii) estimated credit spread for the Company.104The following table sets forth the inputs to the lattice model used to value the embedded derivative: December 31, 2016 December 31, 2015 December 31, 2014Stock price$9.30 $10.05 $9.99Conversion Rate141.4827 141.4827 141.4827Conversion Price$7.07 $7.07 $7.07Maturity dateFebruary 1, 2033 February 1, 2033 February 1, 2033Risk-free interest rate1.22% 1.33% 1.40%Estimated stock volatility47% 50% 39%Estimated credit spread765 basis points 1,142 basis points 1,081 basis pointsThe following table sets forth the fair value of the 2033 Senior Notes with and without the embedded derivatives, and the fair value of the embeddedderivatives at December 31, 2016 , 2015 and 2014 . At December 31, 2016 , 2015 and 2014 , the principal amount of the 2033 Senior Notes was $31.9 million ,$32.2 million and $87.6 million , respectively:(In thousands)December 31, 2016 December 31, 2015 December 31, 2014Fair value of 2033 Senior Notes: With the embedded derivatives$45,204 $48,384 $129,009Without the embedded derivatives$28,468 $24,647 $63,062Estimated fair value of the embedded derivatives$16,736 $23,737 $65,947Changes in certain inputs into the lattice model can have a significant impact on changes in the estimated fair value of the embedded derivatives. Forexample, a decrease in our estimated credit spread results in an increase in the estimated value of the embedded derivatives. Conversely, a decrease in the price ofour Common Stock results in a decrease in the estimated fair value of the embedded derivatives. For the year ended December 31, 2016 , we observed a decreasein the market price of our Common Stock which primarily resulted in a $7.0 million decrease in the estimated fair value of our embedded derivatives recorded inFair value changes of derivative instruments, net in our Consolidated Statement of Operations. For the year ended December 31, 2015 , we observed an increase inthe market price of our Common Stock which primarily resulted in a $36.6 million increase in the estimated fair value of our embedded derivatives recorded inFair value changes of derivative instruments, net in our Consolidated Statement of Operations.On November 5, 2015, Bio-Reference and certain of its subsidiaries entered into a credit agreement with JPMorgan Chase Bank, N.A. (“CB”), as lender andadministrative agent, as amended (the “Credit Agreement”), which replaced Bio-Reference’s prior credit facility. The Credit Agreement provides for a $175.0million secured revolving credit facility and includes a $20.0 million sub-facility for swingline loans and a $20.0 million sub-facility for the issuance of letters ofcredit. Bio-Reference may increase the credit facility to up to $275.0 million on a secured basis, subject to the satisfaction of specified conditions. The CreditAgreement matures on November 5, 2020 and is guaranteed by all of Bio-Reference’s domestic subsidiaries. The Credit Agreement is also secured by substantiallyall assets of Bio-Reference and its domestic subsidiaries, as well as a non-recourse pledge by us of our equity interest in Bio-Reference. Availability under theCredit Agreement is based on a borrowing base comprised of eligible accounts receivables of Bio-Reference and certain of its subsidiaries, as specified therein.Principal under the Credit Agreement is due upon maturity on November 5, 2020.At Bio-Reference’s option, borrowings under the Credit Agreement (other than swingline loans) will bear interest at (i) the CB floating rate (defined as thehigher of (a) the prime rate and (b) the LIBOR rate (adjusted for statutory reserve requirements for Eurocurrency liabilities) for an interest period of one monthplus 2.50% ) plus an applicable margin of 0.35% for the first 12 months and 0.50% thereafter or (ii) the LIBOR rate (adjusted for statutory reserve requirements forEurocurrency liabilities) plus an applicable margin of 1.35% for the first 12 months and 1.50% thereafter. Swingline loans will bear interest at the CB floating rateplus the applicable margin. The Credit Agreement also calls for other customary fees and charges, including an unused commitment fee of 0.25% of the lendingcommitments.The Credit Agreement contains customary covenants and restrictions, including, without limitation, covenants that require Bio-Reference and its subsidiariesto maintain a minimum fixed charge coverage ratio if availability under the new credit facility falls below a specified amount and to comply with laws andrestrictions on the ability of Bio-Reference and its subsidiaries to incur additional indebtedness or to pay dividends and make certain other distributions to theCompany, subject to certain exceptions as specified therein. Failure to comply with these covenants would constitute an event of default under the CreditAgreement, notwithstanding the ability of Bio-Reference to meet its debt service obligations. The Credit Agreement also includes various customary remedies forthe lenders following an event of default, including the acceleration of repayment105of outstanding amounts under the Credit Agreement and execution upon the collateral securing obligations under the Credit Agreement. Substantially all the assetsof Bio-Reference and its subsidiaries are restricted from sale, transfer, lease, disposal or distributions to the Company, subject to certain exceptions. Bio-Referenceand its subsidiaries net assets as of December 31, 2016 were approximately $1.0 billion , which includes goodwill of $401.8 million and intangible assets of $488.7million .In addition to the Credit Agreement with CB, we have line of credit agreements with ten other financial institutions as of December 31, 2016 and ten otherfinancial institutions as of December 31, 2015 in United States, Chile and Spain. These lines of credit are used primarily as a source of working capital forinventory purchases.The following table summarizes the amounts outstanding under the Bio-Reference, Chilean and Spanish lines of credit:(Dollars in thousands) Balance OutstandingLender Interest rate onborrowings at December 31,2016 Credit linecapacity December 31, 2016 December 31,2015JP Morgan Chase 3.75% $175,000 $38,809 $72,107Itau Bank 5.50% 1,450 419 282Bank of Chile 6.60% 2,500 1,619 2,313BICE Bank 5.50% 2,000 1,538 1,502BBVA Bank 5.50% 2,300 1,063 1,825Security Bank N/A — — 145Estado Bank 5.50% 2,400 1,870 2,210Santander Bank 5.50% 3,000 1,196 1,345Scotiabank 5.00% 1,300 789 939Corpbanca 5.00% 500 18 —Banco Bilbao Vizcaya 2.90% 263 — —Total $190,713 $47,321 $82,668At December 31, 2016 and 2015 , the weighted average interest rate on our lines of credit was approximately 4.7% and 4.3% , respectively.At December 31, 2016 and 2015 , we had notes payable and other debt (excluding the 2033 Senior Notes, the Credit Agreement and amounts outstandingunder lines of credit) as follows:(In thousands)December 31, 2016 December 31,2015Current portion of notes payable$3,681 $1,054Other long-term liabilities2,090 1,963Total$5,771 $3,017The notes and other debt mature at various dates ranging from 2017 through 2024 bearing variable interest rates from 1.8% up to 6.3% . The weightedaverage interest rate on the notes and other debt at December 31, 2016 and 2015 , was 3.2% and 4.3% , respectively. The notes are secured by our office space inBarcelona.106Note 7 Shareholders’ EquityOur authorized capital stock consists of 750,000,000 shares of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred Stock, parvalue $0.01 per share.Common StockSubject to the rights of the holders of any shares of Preferred Stock currently outstanding or which may be issued in the future, the holders of the CommonStock are entitled to receive dividends from our funds legally available when, as and if declared by our Board of Directors, and are entitled to share ratably in all ofour assets available for distribution to holders of Common Stock upon the liquidation, dissolution or winding-up of our affairs subject to the liquidation preference,if any, of any then outstanding shares of Preferred Stock. Holders of our Common Stock do not have any preemptive, subscription, redemption or conversionrights. Holders of our Common Stock are entitled to one vote per share on all matters which they are entitled to vote upon at meetings of stockholders or uponactions taken by written consent pursuant to Delaware corporate law. The holders of our Common Stock do not have cumulative voting rights, which means thatthe holders of a plurality of the outstanding shares can elect all of our directors. All of the shares of our Common Stock currently issued and outstanding are fully-paid and nonassessable. No dividends have been paid to holders of our Common Stock since our incorporation, and no cash dividends are anticipated to bedeclared or paid on our Common Stock in the reasonably foreseeable future.In addition to our equity-based compensation plans, we have issued warrants to purchase our Common Stock. Refer to Note 9 for additional information onour share-based compensation plans. The table below provides additional information for warrants outstanding as of December 31, 2016 .WarrantsNumber ofwarrants Weightedaverageexercise price Expiration dateOutstanding at December 31, 20152,173,723 $0.86 Various from January 2017 through March 2017Exercised(1,534,125) 0.86 Expired— — Outstanding and Exercisable at December 31, 2016639,598 $0.86 Various from January 2017 through March 2017Of the 1,534,125 Common Stock warrants exercised, 2,564 shares were surrendered in lieu of a cash payment via the net exercise feature of the warrantagreements.Preferred StockUnder our certificate of incorporation, our Board of Directors has the authority, without further action by stockholders, to designate up to 10 million sharesof Preferred Stock in one or more series and to fix or alter, from time to time, the designations, powers and rights of each series of Preferred Stock and thequalifications, limitations or restrictions of any series of Preferred Stock, including dividend rights, dividend rate, conversion rights, voting rights, rights and termsof redemption (including sinking fund provisions), redemption price or prices, and the liquidation preference of any wholly issued series of Preferred Stock, any orall of which may be greater than the rights of the Common Stock, and to establish the number of shares constituting any such series.Of the authorized Preferred Stock, 4,000,000 shares, 500,000 shares and 2,000,000 shares were designated Series A Preferred Stock, Series C PreferredStock and Series D Preferred Stock, respectively. As of December 31, 2016 and 2015, there were no shares of Series A Preferred Stock, Series C Preferred Stockor Series D Preferred Stock issued or outstanding.107Note 8 Accumulated Other Comprehensive Income (Loss)For the year ended December 31, 2016 , changes in Accumulated other comprehensive income (loss), net of tax, were as follows:(In thousands)Foreign currency translationUnrealizedgain (loss) inAccumulatedOCITotalBalance at December 31, 2015$(21,791)$(746)$(22,537)Other comprehensive income (loss) before reclassifications(4,955)(3,810)(8,765)Amounts reclassified from accumulated other comprehensive income (loss), net of tax—4,2934,293Net other comprehensive loss(4,955)483(4,472)Balance at December 31, 2016$(26,746)$(263)$(27,009)Amounts reclassified from Accumulated other comprehensive income (loss) for the year ended December 31, 2016 includes other-than-temporaryimpairment charges on our investments in Xenetic, ARNO and RXi as discussed in Note 4. Amounts reclassified for our available for sale investments were basedon the specific identification method.For the year ended December 31, 2015 , changes in Accumulated other comprehensive income, net of tax, were as follows:(In thousands)Foreign currency translation Unrealized gain (loss) in Accumulated OCI TotalBalance at December 31, 2014$(6,717) $(5,675) $(12,392)Other comprehensive income (loss) before reclassifications(15,074) (2,378) (17,452)Amounts reclassified from accumulated other comprehensive income, net of tax— 7,307 7,307Net other comprehensive loss(15,074) 4,929 (10,145)Balance at December 31, 2015$(21,791) $(746) $(22,537)Amounts reclassified from Accumulated other comprehensive income (loss) for the year ended December 31, 2015 includes an other-than-temporaryimpairment charge on our investment in RXi as discussed in Note 4. Amounts reclassified for our available for sale investments were based on the specificidentification method.108Note 9 Equity-Based CompensationWe maintain six equity-based incentive compensation plans, the 2016 Equity Incentive Plan, the Acuity Pharmaceuticals, Inc. 2003 Equity Incentive Plan,the 2007 Equity Incentive Plan, the 2000 Stock Option Plan, the Modigene Inc. 2005 Stock Incentive Plan and the Modigene Inc. 2007 Equity Incentive Plan thatprovide for grants of stock options and restricted stock to our directors, officers, key employees and certain outside consultants. Equity awards granted under our2016 Equity Incentive Plan are exercisable for a period of up to 10 years from the date of grant. Equity awards granted under our 2007 Equity Incentive Plan areexercisable for a period of either 7 years or 10 years from the date of grant. Equity awards granted under our 2000 Stock Option Plan, 2003 Equity Incentive Planand the two Modigene Plans are exercisable for a period of up to 10 years from date of grant. Vesting periods range from immediate to 5 years.We classify the cash flows resulting from the tax benefit that arises when the tax deductions exceed the compensation cost recognized for those equityawards (excess tax benefits) as financing cash inflows. There were no excess tax benefits for the years ended December 31, 2016 , 2015 , and 2014 .Equity-based compensation arrangements to non-employees are accounted for at their fair value on the measurement date. The measurement of equity-basedcompensation to non-employees is subject to periodic adjustment over the vesting period of the equity instruments.Valuation and Expense InformationWe recorded equity-based compensation expense of $42.7 million , $26.1 million and $14.8 million for the years ended December 31, 2016 , 2015 , and2014 , respectively, all of which were reflected as operating expenses. Of the $42.7 million of equity based compensation expense recorded in the year endedDecember 31, 2016 , $33.4 million was recorded as selling, general and administrative expenses, $7.5 million was recorded as research and development expensesand $1.8 million was recorded as a cost of revenue. Of the $26.1 million of equity based compensation expense recorded in the year ended December 31, 2015 ,$17.4 million was recorded as selling, general and administrative expense and $7.9 million was recorded as research and development expenses and $0.8 millionwas recorded as a cost of revenue. Of the $14.8 million of equity based compensation expense recorded in the year ended December 31, 2014 , $9.7 million wasrecorded as selling, general and administrative expense and $5.0 million was recorded as research and development expenses.We estimate forfeitures of stock options and recognize compensation cost only for those awards expected to vest. Forfeiture rates are determined for allemployees and non-employee directors based on historical experience and our estimate of future vesting. Estimated forfeiture rates are adjusted from time to timebased on actual forfeiture experience.As of December 31, 2016 , there was $72.6 million of unrecognized compensation cost related to the stock options granted under our equity-based incentivecompensation plans. Such cost is expected to be recognized over a weighted-average period of approximately 3.0 years .Stock OptionsWe estimate the fair value of each stock option on the date of grant using the Black-Scholes-Merton Model option-pricing formula and amortize the fairvalue to expense over the stock option’s vesting period using the straight-line attribution approach for employees and non-employee directors, and for awardsissued to non-employees we recognize compensation expense on a graded basis, with most of the compensation expense being recorded during the initial periodsof vesting. We apply the following assumptions in our Black-Scholes-Merton Model option-pricing formula: Year EndedDecember 31,2016 Year EndedDecember 31,2015 Year EndedDecember 31,2014Expected term (in years)1.0 - 10.0 1.0 - 10.0 1.0 - 10.0Risk-free interest rate0.71% - 2.51% 0.26% - 2.42% 0.10% - 2.65%Expected volatility38% - 64% 32% - 64% 31% - 72%Expected dividend yield0% 0% 0%Expected Term: For the expected term of options granted to employees and non-employee directors, we used an estimate of the expected option life based onhistorical experience. The expected term of stock options issued to non-employee consultants is the remaining contractual life of the options issued.Risk-Free Interest Rate: The risk-free interest rate is based on the rates paid on securities issued by the U.S. Treasury with a term approximating the expectedlife of the option.109Expected Volatility: The expected volatility for stock options was based on the historical volatility of our Common Stock.Expected Dividend Yield: We do not intend to pay dividends on Common Stock for the foreseeable future. Accordingly, we used a dividend yield of zero inthe assumptions.We maintain incentive stock plans that provide for the grants of stock options to our directors, officers, employees and non-employee consultants. As ofDecember 31, 2016 , there were 26,866,484 shares of Common Stock reserved for issuance under our 2016 Equity Incentive Plan and our 2007 Equity IncentivePlan. We intend to issue new shares upon the exercise of stock options. Stock options granted under these plans have been granted at an option price equal to theclosing market value of the stock on the date of the grant. Stock options granted under these plans to employees typically become exercisable over four years inequal annual installments after the date of grant, and stock options granted to non-employee directors become exercisable in full one-year after the grant date,subject to, in each case, continuous service with us during the applicable vesting period. We assumed stock options to grant Common Stock as part of the mergerswith Acuity Pharmaceuticals, Inc., Froptix, Inc., OPKO Biologics and Bio-Reference, which reflected various vesting schedules, including monthly vesting toemployees and non-employee consultants.A summary of option activity under our stock option plans as of December 31, 2016 , and the changes during the year is presented below: OptionsNumber ofoptions Weightedaverageexerciseprice Weightedaverageremainingcontractualterm (years) Aggregateintrinsic value(in thousands)Outstanding at December 31, 201531,286,787 $9.55 6.97 $63,902Granted7,945,500 $10.22 Exercised(1,836,572) $4.67 Forfeited(1,472,314) $11.28 Expired(1,282,887) $1.53 Outstanding at December 31, 201634,640,514 $10.18 6.79 $32,984Vested and expected to vest at December 31, 201631,724,227 $10.07 6.64 $32,477Exercisable at December 31, 201614,494,573 $8.59 4.50 $29,385The total intrinsic value of stock options exercised for the years ended December 31, 2016 , 2015 , and 2014 was $9.9 million , $69.9 million and $14.6million , respectively.The weighted average grant date fair value of stock options granted for the years ended December 31, 2016 , 2015 , and 2014 was $4.78 , $5.00 , and $4.64 ,respectively. The total fair value of stock options vested during the years ended December 31, 2016 , 2015 , and 2014 was $30.2 million , $13.3 million and $10.9million , respectively.110Note 10 Income TaxesWe operate and are required to file tax returns in the U.S. and various foreign jurisdictions.The benefit (provision) for incomes taxes consists of the following: For the years ended December 31,(In thousands)2016 2015 2014Current Federal$— $430 $225State(2,931) (2,157) 247Foreign(2,438) (8,134) (1,514) (5,369) (9,861) (1,042)Deferred Federal25,739 109,286 —State10,657 12,327 (167)Foreign25,088 1,923 1,185 61,484 123,536 1,018Total, net$56,115 $113,675 $(24)Deferred income tax assets and liabilities as of December 31, 2016 and 2015 are comprised of the following: (In thousands)December 31, 2016 December 31, 2015Deferred income tax assets: Federal net operating loss$76,792 $71,658State net operating loss36,285 14,227Foreign net operating loss32,895 33,701Research and development expense3,246 5,138Tax credits20,894 7,388Stock options36,485 24,756Accruals8,306 7,086Equity investments7,011 4,420Bad debts14,283 38,809Lease liability3,233 7,022Foreign credits10,253 —Available for sale securities4,792 —Other7,795 7,104Deferred income tax assets262,270 221,309Deferred income tax liabilities: Intangible assets(354,043) (386,588)Fixed assets(13,710) (17,072)Other(2,121) (1,538)Deferred income tax liabilities(369,874) (405,198)Net deferred income tax liabilities(107,604) (183,889)Valuation allowance(55,415) (42,147)Net deferred income tax liabilities *$(163,019) $(226,036) * The components of December 31, 2016 Net deferred income tax liability is presented on the Consolidated BalanceSheet as follows: $(165,331) within Deferred tax liabilities, net and $2,312 within Other assets. 111The changes in deferred income tax assets, liabilities and valuation allowances at December 31, 2016 reflect the acquisition of various legal entities,including the tax attributes. The acquisitions were accounted for under U.S. GAAP as stock acquisitions and business combinations. As of December 31, 2016 , wehave federal, state and foreign net operating loss carryforwards of approximately $409.3 million , $406.6 million and $186.6 million , respectively, that expire atvarious dates through 2036. Included in the foreign net operating losses is $98.6 million related to OPKO Biologics. As of December 31, 2016 , we have researchand development tax credit carryforwards of approximately $18.5 million that expire in varying amounts through 2036. As of each reporting date, managementconsiders new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.As a result of certain realization requirements of ASC 718, Compensation - Stock Compensation, the table of deferred tax assets and liabilities shown abovedoes not include certain deferred tax assets as of December 31, 2016 and 2015 , that arose directly from (or the use of which was postponed by) tax deductionsrelated to equity compensation that are greater than the compensation recognized for financial reporting. Equity will be increased by $33.7 million if and whensuch deferred tax assets are ultimately realized. The Company uses ASC 740 ordering when determining when excess tax benefits have been realized.Under Section 382 of the Internal Revenue Code of 1986, as amended, certain significant changes in ownership may restrict the future utilization of ourincome tax loss carryforwards and income tax credit carryforwards in the U.S. The annual limitation is equal to the value of our stock immediately before theownership change, multiplied by the long-term tax-exempt rate (i.e., the highest of the adjusted federal long-term rates in effect for any month in the three-calendar-month period ending with the calendar month in which the change date occurs). This limitation may be increased under the IRC Section 338 Approach(IRS approved methodology for determining recognized Built-In Gain). As a result, federal net operating losses and tax credits may expire before we are able tofully utilize them.During 2008, we conducted a study to determine the impact of the various ownership changes that occurred during 2007 and 2008. As a result, we haveconcluded that the annual utilization of our net operating loss carryforwards (“NOLs”) and tax credits is subject to a limitation pursuant to Internal Revenue CodeSection 382. Under the tax law, such NOLs and tax credits are subject to expiration from 15 to 20 years after they were generated. As a result of the annuallimitation that may be imposed on such tax attributes and the statutory expiration period, some of these tax attributes may expire prior to our being able to usethem. There is no current impact on these financial statements as a result of the annual limitation. This study did not conclude whether OPKO's predecessor,eXegenics, pre-merger NOLs were limited under Section 382. As such, of the $409.3 million of federal net operating loss carryforwards, at least approximately$53.4 million may not be able to be utilized.Uncertain Income Tax PositionsWe file federal income tax returns in the U.S. and various foreign jurisdictions, as well as with various U.S. states and the Ontario and Quebec provinces inCanada. We are subject to routine tax audits in all jurisdictions for which we file tax returns. Tax audits by their very nature are often complex and can requireseveral years to complete. It is reasonably possible that some audits will close within the next twelve months, which we do not believe would result in a materialchange to our accrued uncertain tax positions.U.S. Federal: Under the tax statute of limitations applicable to the Internal Revenue Code, we are no longer subject to U.S. federal income tax examinationsby the Internal Revenue Service for years before 2013. However, because we are carrying forward income tax attributes, such as net operating losses and taxcredits from 2013 and earlier tax years, these attributes can still be audited when utilized on returns filed in the future.State: Under the statute of limitations applicable to most state income tax laws, we are no longer subject to state income tax examinations by tax authoritiesfor years before 2013 in states in which we have filed income tax returns. Certain states may take the position that we are subject to income tax in such states eventhough we have not filed income tax returns in such states and, depending on the varying state income tax statutes and administrative practices, the statute oflimitations in such states may extend to years before 2013.Foreign: Under the statute of limitations applicable to our foreign operations, we are generally no longer subject to tax examination for years before 2011 injurisdictions where we have filed income tax returns.112Unrecognized Tax BenefitsAs of December 31, 2016 , 2015 , and 2014 , the total amount of gross unrecognized tax benefits was approximately $27.5 million , $8.6 million , and $5.9million , respectively. As of December 31, 2016 , the total gross unrecognized tax benefit of $27.5 million consisted of increases of $19.9 million as a result ofcurrent year activity, and decreases of $0.3 million as a result of the lapse of statutes of limitations. As of December 31, 2016 , the total amount of unrecognizedtax benefits that, if recognized, would affect our effective income tax rate was $6.1 million . We account for any applicable interest and penalties on uncertain taxpositions as a component of income tax expense and we recognized $0.1 million and $0.3 million of interest expense for the years ended December 31, 2016 and2015 , respectively. As of December 31, 2015 and 2014 , $0.7 million and $0.9 million of the unrecognized tax benefits, if recognized, would have affected oureffective income tax rate. We believe it is reasonably possible that approximately $4.1 million of unrecognized tax benefits may be recognized within the nexttwelve months.The following summarizes the changes in our gross unrecognized income tax benefits. For the years ended December 31,(In thousands)2016 2015 2014Unrecognized tax benefits at beginning of period$8,595 $5,890 $9,231Gross increases – tax positions in prior period1,443 955 524Gross increases – tax positions in current period18,472 2,543 193Gross decreases – tax positions in prior period(671) (176) (396)Lapse of Statute of Limitations(294) (617) (472)Settlements— — (3,190)Unrecognized tax benefits at end of period$27,545 $8,595 $5,890Other Income Tax DisclosuresThe significant elements contributing to the difference between the federal statutory tax rate and the effective tax rate are as follows: For the years ended December 31, 2016 2015 2014Federal statutory rate35.0 % 35.0 % 35.0 %State income taxes, net of federal benefit5.2 % 2.8 % 2.5 %Foreign income tax1.2 % (7.8)% (10.3)%Research and development tax credits5.4 % — % 1.1 %Non-Deductible components of Convertible Debt2.2 % (9.4)% (3.8)%Valuation allowance9.5 % 61.1 % (25.3)%Rate change effect21.2 % — % — %Non-deductible foreign stock compensation(1.9)% (0.7)% — %Other(8.7)% (1.0)% 0.8 %Total69.1 % 80.0 % — %The following table reconciles our losses before income taxes between U.S. and foreign jurisdictions: For the years ended December 31,(In thousands)2016 2015 2014Pre-tax income (loss): U.S.$(92,175) $(113,612) $(84,075)Foreign10,977 (30,091) (87,567)Total$(81,198) $(143,703) $(171,642)113We intend to indefinitely reinvest the earnings from our foreign subsidiaries, primarily for purposes of continuing significant research and developmentactivities related to intellectual property owned and developed by our foreign subsidiaries. The accumulated earnings are the most significant component of thebasis difference which is indefinitely reinvested. The aggregate undistributed earnings of our foreign subsidiaries for which no deferred tax liability has beenrecorded is approximately $31.2 million as of December 31, 2016. Determination of the amount of unrecognized deferred tax liability on these undistributedearnings is not practicable because of the complexities of the hypothetical calculation.Note 11 Related Party TransactionsWe hold investments in Zebra (ownership 28% ), Sevion ( 3% ), Neovasc ( 4% ), ChromaDex Corporation ( 2% ), MabVax ( 4% ), COCP ( 8% ), ARNO (5% ), NIMS 1% and BioCardia ( 5% ). These investments were considered related party transactions as a result of our executive management’s ownership interestsand/or board representation in these entities. See further discussion of our investments in Note 4. In July 2015, we made an additional $0.5 million investment in aprivate placement transaction with Sevion pursuant to which we acquired 66,667 shares of Series C Convertible Preferred Stock convertible into 666,667 shares ofcommon stock and warrants to purchase 333,333 shares of common stock. In October 2015, we made an additional $0.4 million investment in MabVax pursuant towhich we acquired 340,909 shares of common stock at $1.10 and 170,454 warrants to purchase shares of common stock. In November 2015, we made anadditional $1.0 million investment in Zebra pursuant to which we acquired 420,000 shares of Series A-2 Preferred Stock. In January 2016, we invested anadditional $0.3 million in ARNO for 714,285 shares of its common stock and in August 2016, we invested an additional $0.3 million in ARNO for 714,285 sharesof its common stock and warrants to purchase 357,142 shares of its common stock. In August 2016 we invested an additional $1.0 million in MabVax for 207,900shares of its common stock and warrants to purchase 415,800 shares of its common stock. In September 2016, we invested an additional $2.0 million in COCP for4,878,050 shares of its common stock.In October 2016, we entered into a consulting agreement to provide strategic advisory services to BioCardia. In connection with the consulting agreement,BioCardia granted us 5,027,726 common stock options. In December 2016, we purchased 19,230,769 shares of BioCardia from Dr. Frost for $2.5 million . Wehave also purchased shares of BioCardia in the open market. BioCardia is a related party as a result of our executive management’s ownership interest and boardrepresentation in BioCardia and its predecessor, Tiger X Medical, Inc. In October 2016, BioCardia completed its merger with Tiger X Medical, Inc., to whichTiger X Medical, Inc. was the surviving entity and the name of the issuer was changed to BioCardia.In November 2016, we made a $0.2 million loan to Sevion which was considered a related party transaction as a result of our executive management’sownership interests and board representation in Sevion.In November 2016, we entered into a Pledge Agreement with the Museum of Science, Inc. and the Museum of Science Endowment Fund, Inc. pursuant towhich we will contribute an aggregate of $1.0 million over a four-year period for constructing, equipping and the general operation of the Frost Science Museum.Dr. Frost and Mr. Pfenniger serve on the Board of Trustees of the Frost Science Museum and Mr. Pfenniger is the Vice Chairman of the Board of Trustees.We lease office space from Frost Real Estate Holdings, LLC (“Frost Holdings”) in Miami, Florida, where our principal executive offices are located.Effective May 28, 2015, we entered into an amendment to our lease agreement with Frost Holdings. The lease, as amended, is for approximately 25,000 square feetof space. The lease provides for payments of approximately $66 thousand per month in the first year increasing annually to $75 thousand per month in the fifthyear, plus applicable sales taxes. The rent is inclusive of operating expenses, property taxes and parking. The rent was reduced by $0.2 million for the cost of tenantimprovements.Our wholly-owned subsidiary, Bio-Reference, purchases and uses certain products acquired from InCellDx, Inc., a company in which we hold a 27%minority interest.We reimburse Dr. Frost for Company-related use by Dr. Frost and our other executives of an airplane owned by a company that is beneficially owned byDr. Frost. We reimburse Dr. Frost for out-of-pocket operating costs for the use of the airplane by Dr. Frost or Company executives for Company-related business.We do not reimburse Dr. Frost for personal use of the airplane by Dr. Frost or any other executive. For the years ended December 31, 2016 , 2015 , and 2014 , werecognized approximately $298 thousand , $595 thousand , and $175 thousand , respectively, for Company-related travel by Dr. Frost and other OPKO executives.114Note 12 Employee Benefit PlansEffective January 1, 2007, the OPKO Health Savings and Retirement Plan (the “Plan”) permits employees to contribute up to 100% of qualified pre-taxannual compensation up to annual statutory limitations. The discretionary company match for employee contributions to the Plan is 100% up to the first 4% of theparticipant’s earnings contributed to the Plan. Our matching contributions to the Plan were approximately $0.7 million , $0.8 million and $0.6 million for the yearsended December 31, 2016 , 2015 , and 2014 respectively.Bio-Reference Laboratories, Inc. sponsors a 401(k) Profit-Sharing Plan (the “Bio-Reference Plan”). Employees become eligible for participation afterattaining the age of eighteen and completing one year of service. Participants may elect to contribute up to 60% of their compensation, as defined in the Bio-Reference Plan, to a maximum allowed by the Internal Revenue Service. Bio-Reference makes a matching contribution to the plan for each participant who haselected to make tax-deferred contributions. The discretionary company match for employee contributions to the Bio-Reference Plan is 100% up to the first 3% ofthe participant’s earnings contributed to the Bio-Reference Plan, with an annual maximum match of $1 thousand . Bio-Reference Laboratories, Inc. elected tomake a matching contribution which amounted to $1.8 million for the year ended December 31, 2016 .GeneDx, Inc. sponsors a 401(k) Profit-Sharing Plan (the “GeneDx Plan”). Employees become eligible for participation after attaining the age of eighteenand completing one month of service. Participants may elect to contribute up to 100% of their compensation, as defined in the GeneDx Plan, to a maximumallowed by the Internal Revenue Service. GeneDx, Inc. makes a matching contribution to the plan for each participant who has elected to make tax-deferredcontributions. The discretionary company match for employee contributions to the GeneDx Plan is 100% up to the first 3% , plus 50% of the next 2% of theparticipant’s earnings contributed to the GeneDx Plan. GeneDx, Inc. elected to make a matching contribution which amounted to $1.0 million for the year endedDecember 31, 2016 .Note 13 Commitments and ContingenciesIn connection with our acquisitions of CURNA, OPKO Diagnostics, OPKO Health Europe and OPKO Renal, we agreed to pay future consideration to thesellers upon the achievement of certain events. As a result, as of December 31, 2016 , we recorded $45.1 million as contingent consideration, with $0.3 millionrecorded within Accrued expenses and $44.8 million recorded within Other long-term liabilities in the accompanying Consolidated Balance Sheet. Refer to Note 5.During the year ended December 31, 2016, we satisfied a $25.0 million contingent payment to the former owners of OPKO Renal through the issuance of2,611,648 shares of our common stock. During the year ended December 31, 2015 , we satisfied a $20.0 million contingent payment to the former owners ofOPKO Renal through the issuance of 1,194,337 shares of our common stock.On or around October 21, 2014, we received a Civil Investigative Demand (“Demand”) from the U.S. Attorney’s Office for the Middle District of Tennessee(“Attorney’s Office”). The Demand concerns an investigation of allegations that the Company or one of its affiliated entities or other parties submitted false claimsfor payment related to services provided to government healthcare program beneficiaries in violation of the False Claims Act, 31 U.S.C. Section 3729. We enteredinto a settlement agreement resolving the matter in May 2016, and it did not have a financial impact on the Company.Following the announcement of entry into an agreement and plan of merger with Bio-Reference, four putative class action complaints challenging the mergerwere filed in the Superior Court of New Jersey in Bergen County (the “Court”). In September 2015, the parties executed a stipulation and agreement ofcompromise, settlement and release resolving all matters between them. In January 2016, the Court entered an order finally approving the settlement. Thesettlement did not have a material impact on our business, financial condition, results of operations or cash flows.Under a license agreement one of our subsidiaries has with Washington University in St. Louis, we are obligated to pay Washington University a single digitpercentage of any sublicensing payment we receive in connection with a sublicense of our rights to Washington University patents subject to certain exceptions. Inconnection with the Pfizer Transaction, we sublicensed to Pfizer the sole remaining patent licensed to us by Washington University and paid to WashingtonUniversity the sublicensing payment we believe is due under the license agreement. Washington University disagreed with the computation of the sublicensepayment and notified us that it wanted to review additional information relating to the sublicense and the Pfizer Transaction to determine whether additionalamounts were owed to it. In May 2016, the parties entered into a settlement agreement resolving the matter. The settlement did not have a material impact on ourbusiness, financial condition, results of operations or cash flows. On December 18, 2013, Bio-Reference filed an action in the Superior Court of New Jersey against Horizon, captioned Bio-Reference Laboratories, Inc. v.Horizon Healthcare Services, Inc. d/b/a Horizon Blue Cross Blue Shield of New Jersey, Docket No. BER L-009748-13 (N.J. Super. Ct. Bergen County). Bio-Reference has been an in-network provider with Horizon’s PPO network for more than 20 years and filed the lawsuit after attempts to resolve its dispute withHorizon were unsuccessful.115The parties have agreed to a full and final settlement of the matter with an effective date of March 31, 2016, based on an execution date of May 11, 2016. Amongother consideration, under the terms of the settlement, Horizon paid Bio-Reference a negotiated settlement for the disputed claims and Bio-Reference’s currentPPO contract will remain in effect through December 31, 2018. The settlement was not material to Revenue from services in our Consolidated Statement ofOperations for the year ended December 31, 2016 .We accrue a liability for legal contingencies when we believe that it is both probable that a liability has been incurred and that we can reasonably estimatethe amount of the loss. We review these accruals and adjust them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevantinformation. To the extent new information is obtained and our views on the probable outcomes of claims, suits, assessments, investigations or legal proceedingschange, changes in our accrued liabilities would be recorded in the period in which such determination is made. For the matters referenced in the paragraph below,the amount of liability is not probable or the amount cannot be reasonably estimated; and, therefore, accruals have not been made. In addition, in accordance withthe relevant authoritative guidance, for matters which the likelihood of material loss is at least reasonably possible, we provide disclosure of the possible loss orrange of loss; however, if a reasonable estimate cannot be made, we will provide disclosure to that effect.From time to time, we may receive inquiries, document requests, or subpoenas from the Department of Justice, the Office of Inspector General and Officefor Civil Rights (“OCR”) of the Department of Health and Human Services, the Centers for Medicare and Medicaid Services, various payors and fiscalintermediaries, and other state and federal regulators regarding investigations, audits and reviews. In addition to the matters discussed in this note, we are currentlyresponding to subpoenas or document requests for various matters relating to our laboratory operations. In addition, we are subject to other claims and lawsuitsarising in the ordinary course of our business. Some pending or threatened proceedings against us may involve potentially substantial amounts as well as thepossibility of civil, criminal, or administrative fines, penalties, or other sanctions, which could be material. Settlements of suits involving the types of issues thatwe routinely confront may require monetary payments as well as corporate integrity agreements. Additionally, qui tam or “whistleblower” actions initiated underthe civil False Claims Act may be pending but placed under seal by the court to comply with the False Claims Act’s requirements for filing such suits. Also, fromtime to time, we may detect issues of non-compliance with federal healthcare laws pertaining to claims submission and reimbursement practices and/or financialrelationships with physicians, among other things. We may avail ourselves of various mechanisms to address these issues, including participation in voluntarydisclosure protocols. Participating in voluntary disclosure protocols can have the potential for significant settlement obligations or even enforcement action. TheCompany generally has cooperated, and intends to continue to cooperate, with appropriate regulatory authorities as and when investigations, audits and inquiriesarise. We are a party to other litigation in the ordinary course of business. We do not believe that any such litigation will have a material adverse effect on ourbusiness, financial condition, results of operations or cash flows.We expect to continue to incur substantial research and development expenses, including expenses related to the hiring of personnel and additional clinicaltrials. We expect that selling, general and administrative expenses will also increase as we expand our sales, marketing and administrative staff and addinfrastructure, particularly as it relates to the launch of Rayaldee . We do not anticipate that we will generate substantial revenue from the sale of proprietarypharmaceutical products or certain of our diagnostic products for some time and we have generated only limited revenue from our pharmaceutical operations inChile, Mexico, Israel, Spain, and Ireland, and from sale of the 4Kscore test. If we acquire additional assets or companies, accelerate our product developmentprograms or initiate additional clinical trials, we will need additional funds. If we are not able to secure additional funding when needed, we may have to delay,reduce the scope of, or eliminate one or more of our clinical trials or research and development programs or possible acquisitions.We have employment agreements with certain executives of Bio-Reference which provide for compensation and certain other benefits and for severancepayments under certain circumstances. During the year ended December 31, 2016 , we recognized $17.9 million of severance costs pursuant to these employmentagreements as a component of Selling, general and administrative expense.At December 31, 2016 , we were committed to make future purchases for inventory and other items in 2017 that occur in the ordinary course of businessunder various purchase arrangements with fixed purchase provisions aggregating $90.3 million .Note 14 Strategic AlliancesVifor Fresenius Medical Renal Care Pharma LtdWe plan to develop a portfolio of product candidates through a combination of internal development and external partnerships. In May 2016, EirGen, ourwholly-owned subsidiary, and Vifor Fresenius Medical Renal Care Pharma Ltd (“VFMCRP”), entered into a Development and License Agreement (the “VFMCRPAgreement”) for the development and116marketing of Rayaldee (the “Product”) worldwide, except for (i) the United States, (ii) any country in Central America or South America (excluding Mexico), (iii)Russia, (iv) China, (v) Japan, (vi) Ukraine, (vii) Belorussia, (viii) Azerbaijan, (ix) Kazakhstan, and (x) Taiwan (the “Territory”). The license to VFMCRPpotentially covers all therapeutic and prophylactic uses of the Product in human patients (the “Field”), provided that initially the license is for the use of theProduct for the treatment or prevention of secondary hyperparathyroidism related to patients with stage 3 or 4 chronic kidney disease and vitamin Dinsufficiency/deficiency (the “Initial Indication”).Under the terms of the VFMCRP Agreement, EirGen granted to VFMCRP an exclusive license in the Territory in the Field to use certain EirGen patents andtechnology to make, have made, use, sell, offer for sale, and import Products and to develop, commercialize, have commercialized, and otherwise exploit theProduct. EirGen received a non-refundable and non-creditable initial payment of $50 million . EirGen is also eligible to receive up to an additional $37 million inregulatory milestones (“Regulatory Milestones”) and $195 million in launch and sales-based milestones (“Sales Milestones”), and will receive tiered, double digitroyalty payments or a minimum royalty, whichever is greater, upon the commencement of sales of the Product within the Territory and in the Field.As part of the arrangement, the companies will share responsibility for the conduct of trials specified within an agreed-upon development plan, with eachcompany leading certain activities within the plan. EirGen will lead the manufacturing activities within and outside the Territory and the commercializationactivities outside the Territory and outside the Field in the Territory and VFMCRP will lead the commercialization activities in the Territory and the Field. For theinitial development plan, the companies have agreed to certain cost sharing arrangements. VFMCRP will be responsible for all other development costs thatVFMCRP considers necessary to develop the Product for the use of the Product for the Initial Indication in the Territory in the Field except as otherwise providedin the VFMCRP Agreement.The VFMCRP Agreement will remain in effect with respect to the Product in each country of the Territory, on a country by country basis, until the date onwhich VFMCRP shall have no further payment obligations to EirGen under the terms of the VFMCRP Agreement, unless earlier terminated pursuant to theVFMCRP Agreement. VFMCRP’s royalty obligations expire on a country-by-country and product-by-product basis on the later of (i) expiration of the last toexpire valid claim covering the Product sold in such country, (ii) expiration of all regulatory and data exclusivity applicable to the Product in the country of sale,and (c) ten ( 10 ) years after the Product first commercial sale in such country. In addition to termination rights for material breach and bankruptcy, VFMCRP ispermitted to terminate the VFMCRP Agreement in its entirety, or with respect to one or more countries in the Territory, after a specified notice period, providedthat VFMCRP shall not have the right to terminate the VFMCRP Agreement with respect to certain major countries without terminating the entire VFMCRPAgreement. If the VFMCRP Agreement is terminated by EirGen or VFMCRP, provision has been made for transition of product and product responsibilities toEirGen.In connection with the VFMCRP Agreement, the parties entered into a letter agreement (the “Letter Agreement”) pursuant to which EirGen granted toVFMCRP an exclusive option (the “Option”) to acquire an exclusive license under certain EirGen patents and technology to use, import, offer for sale, sell,distribute and commercialize the Product in the United States solely for the treatment of secondary hyperparathyroidism in dialysis patients with chronic kidneydisease and vitamin D insufficiency (the “Dialysis Indication”). Upon exercise of the Option, VFMCRP will reimburse EirGen for all of the development costsincurred by EirGen with respect to the Product for the Dialysis Indication in the United States. VFMCRP would also pay EirGen up to an additional aggregateamount of $555 million upon the achievement of certain milestones and would be obligated to pay certain double digit royalties on VFMCRP’s sales in the UnitedStates for the Dialysis Indication.The Option is exercisable until the earlier of (i) the date that EirGen submits a new drug application or supplemental new drug application or their thenequivalents to the U.S. Food and Drug Administration for the Product for the Dialysis Indication in the United States, (ii) the parties mutually agree to discontinuedevelopment of Product for the Dialysis Indication, or (iii) VFMCRP provides notice to OPKO that it has elected not to exercise the Option.OPKO has guaranteed the performance of certain of EirGen’s obligations under the VFMCRP Agreement and the Letter Agreement.For revenue recognition purposes, we evaluated the various agreements with Vifor to determine whether there were multiple deliverables in the arrangement.The VFMCRP Agreement provides for the following: (1) an exclusive license in the Territory in the Field to use certain patents and technology to make, havemade, use, sell, offer for sale, and import Products and to develop, commercialize, have commercialized, and otherwise exploit the Product; (2) EirGen will supplyProducts to support the development, sale and commercialization of the Products to VFMCRP in the Territory (the “Manufacturing Services”); and (3) the Optionto acquire an exclusive license under certain EirGen patents and technology to use, import, offer for sale, sell, distribute and commercialize the Product in theUnited States solely for the Dialysis Indication. Based on our evaluation, the exclusive license is the only deliverable at the outset of the arrangement. Weconcluded the Manufacturing117Services were a contingent deliverable dependent on the future regulatory and commercial action by VFMCRP and the Option was substantive and not considereda deliverable under the license arrangement.We recognized the $50.0 million upfront license payment in Revenue from transfer of intellectual property in our Consolidated Statement of Operations forthe year ended December 31, 2016 . Revenues related to the Manufacturing Services will be recognized as Product is sold to VFMCRP. No revenue related to theOption will be recognized unless and until VFMCRP exercises its Option under the Letter Agreement.We determined that the cost sharing arrangement for development of the Dialysis Indication is not a deliverable in the VFMCRP Agreement. Payments forthe Dialysis Indication will be recorded as Research and development expense as incurred.EirGen is also eligible to receive up to an additional $37 million in Regulatory Milestones and $195 million in Sales Milestones. Payments received forRegulatory Milestones and Sales Milestones are non-refundable. The Regulatory Milestones are payable if and when VFMCRP obtains approval from certainregulatory authorities and will be recognized as revenue in the period in which the associated milestone is achieved, assuming all other revenue recognition criteriaare met. We account for the Sales Milestones as royalties and Sales Milestones payments will be recognized as revenue in full in the period in which the associatedmilestone is achieved, assuming all other revenue recognition criteria are met. To date, no revenue has been recognized related to the achievement of themilestones.Pfizer Inc.In December 2014, we entered into an exclusive worldwide agreement with Pfizer Inc. (“Pfizer”) for the development and commercialization of our long-acting hGH-CTP for the treatment of growth hormone deficiency (“GHD”) in adults and children, as well as for the treatment of growth failure in children bornsmall for gestational age (“SGA”) (the “Pfizer Transaction”).The Pfizer Transaction closed in January 2015 following the termination of the waiting period under the Hart-Scott-Rodino Act. Under the terms of the PfizerTransaction, we received non-refundable and non-creditable upfront payments of $295.0 million and are eligible to receive up to an additional $275.0 million uponthe achievement of certain regulatory milestones. Pfizer received the exclusive license to commercialize hGH-CTP worldwide. In addition, we are eligible toreceive initial tiered royalty payments associated with the commercialization of hGH-CTP for Adult GHD with percentage rates ranging from the high teens tomid-twenties. Upon the launch of hGH-CTP for Pediatric GHD in certain major markets, the royalties will transition to regional, tiered gross profit sharing for bothhGH-CTP and Pfizer’s Genotropin®.The agreement with Pfizer will remain in effect until the last sale of the licensed product, unless earlier terminated as permitted under the agreement. Inaddition to termination rights for material breach and bankruptcy, Pfizer is permitted to terminate the Agreement in its entirety, or with respect to one or moreworld regions, without cause after a specified notice period. If the Agreement is terminated by us for Pfizer’s uncured material breach, or by Pfizer without cause,provision has been made for transition of product and product responsibilities to us for the terminated regions, as well as continued supply of product by Pfizer ortransfer of supply to us in order to support the terminated regions.We will lead the clinical activities and will be responsible for funding the development programs for the key indications, which includes Adult and PediatricGHD and Pediatric SGA. Pfizer will be responsible for all development costs for additional indications as well as all post-marketing studies. In addition, Pfizer willfund the commercialization activities for all indications and lead the manufacturing activities covered by the global development plan.118For revenue recognition purposes, we viewed the Pfizer Transaction as a multiple-element arrangement. Multiple-element arrangements are analyzed todetermine whether the various performance obligations, or elements, can be separated or whether they must be accounted for as a single unit of accounting. Weevaluated whether a delivered element under an arrangement has standalone value and qualifies for treatment as a separate unit of accounting. Deliverables that donot meet these criteria are not evaluated separately for the purpose of revenue recognition. For a single unit of accounting, payments received are recognized in amanner consistent with the final deliverable. We determined that the deliverables under the Pfizer Transaction, including the licenses granted to Pfizer, as well asour obligations to provide various research and development services, will be accounted for as a single unit of account. This determination was made because theongoing research and development services to be provided by us are essential to the overall arrangement as we have significant knowledge and technical know-how that is important to realizing the value of the licenses granted. The performance period over which the revenue will be recognized is expected to continue fromthe first quarter of 2015 through 2019, when we anticipate completing the various research and development services that are specified in the Pfizer Transactionand our performance obligations are completed. We will continue to review the timing of when our research and development services will be completed in orderto assess that the estimated performance period over which the revenue is to be recognized is appropriate. Any significant changes in the timing of the performanceperiod will result in a change in the revenue recognition period.We are recognizing the non-refundable $295.0 million upfront payments on a straight-line basis over the performance period. We recognized $70.6 million ofrevenue related to the Pfizer Transaction in Revenue from transfer of intellectual property in our Consolidated Statement of Operations during the year endedDecember 31, 2016 , and had deferred revenue related to the Pfizer Transaction of $158.9 million at December 31, 2016 . As of December 31, 2016 , $70.6 millionof deferred revenue related to the Pfizer Transaction was classified in Accrued expenses and $88.3 million was classified in Other long-term liabilities in ourConsolidated Balance Sheet. During the year ended December 31, 2016 , we incurred $45.9 million in research and development expenses related to hGH-CTP.The Pfizer Transaction includes milestone payments of $275.0 million upon the achievement of certain milestones. The milestones range from $20.0 millionto $90.0 million each and are based on achievement of regulatory approval in the U.S. and regulatory approval and price approval in other major markets. Weevaluated each of these milestone payments and believe that all of the milestones are substantive as (i) there is substantive uncertainty at the close of the PfizerTransaction that the milestones would be achieved as approval from a regulatory authority must be received to achieve the milestones which would becommensurate with the enhancement of value of the underlying intellectual property, (ii) the milestones relate solely to past performance and (iii) the amount ofthe milestone is reasonable in relation to the effort expended and the risk associated with the achievement of the milestone. The milestone payments will berecognized as revenue in full in the period in which the associated milestone is achieved, assuming all other revenue recognition criteria are met. To date, norevenue has been recognized related to the achievement of the milestones.In the first quarter of 2015, we made a payment of $25.9 million to the Office of the Chief Scientist of the Israeli Ministry of Economy (“OCS”) inconnection with repayment obligations resulting from grants previously made by the OCS to OPKO Biologics to support development of hGH-CTP and theoutlicense of the technology outside of Israel. We recognized the $25.9 million payment in Grant repayment expense in our Consolidated Statement of Operationsduring the year ended December 31, 2015.TESAROIn November 2009, we entered into an asset purchase agreement (the “NK-1 Agreement”) under which we acquired VARUBI™ (rolapitant) and otherneurokinin-1 (“NK-1”) assets from Merck. In December 2010, we entered into an exclusive license agreement with TESARO, in which we out-licensed thedevelopment, manufacture, commercialization and distribution of our lead NK-1 candidate, VARUBI™ (the “TESARO License”). Under the terms of the license,we received a $6.0 million upfront payment from TESARO and are eligible to receive milestone payments of up to $30.0 million upon achievement of certainregulatory and commercial sale milestones (of which $20.0 million has been received to date) and additional commercial milestone payments of up to $85.0million if specified levels of annual net sales are achieved. During the years ended December 31, 2016, 2015 and 2014 , $0.0 million , $15.0 million and $5.0million of revenue, respectively, has been recognized related to the achievement of the milestones under the TESARO License. TESARO is also obligated to payus tiered royalties on annual net sales achieved in the United States and Europe at percentage rates that range from the low double digits to the low twenties, andoutside of the United States and Europe at low double-digit percentage rates. TESARO assumed responsibility for clinical development and commercialization oflicensed products at its expense. Under the Agreement, we will continue to receive royalties on a country-by-country and product-by-product basis until the later ofthe date that all of the patent rights licensed from us and covering VARUBI™ expire, are invalidated or are not enforceable and 12 years from the first commercialsale of the product.119If TESARO elects to develop and commercialize VARUBI™ in Japan through a third-party licensee, TESARO will share equally with us all amounts itreceives in connection with such activities, subject to certain exceptions and deductions.The term of the license will remain in force until the expiration of the royalty term in each country, unless we terminate the license earlier for TESARO’smaterial breach of the license or bankruptcy. TESARO has a right to terminate the license at any time during the term for any reason on three months’ writtennotice.TESARO’s New Drug Application (“NDA”) for approval of oral VARUBI™, a neurokinin-1 receptor antagonist in development for the prevention ofchemotherapy-induced nausea and vomiting, was approved by the U.S. FDA in September 2015, and in November 2015, TESARO announced the commerciallaunch of VARUBI™ in the United States. Under the terms of the NK-1 Agreement, upon approval by the FDA of the TESARO’s NDA for oral VARUBI™, wewere required to pay Merck a $5.0 million milestone payment. In addition, $5.0 million will be due and payable each year thereafter for the next four ( 4 ) years onthe anniversary date of the NDA approval. We recognized the present value of the milestone payments on FDA approval of $23.0 million as an intangible assetwhich will be amortized to expense over the expected useful life of the asset, which is approximately 13 years. The present value of the future payments to Merckof $14.0 million at December 31, 2016 is recorded as a liability in our Consolidated Balance Sheet with $4.9 million in Accrued expenses and $9.1 million in Otherlong-term liabilities.PharmsynthezIn April 2013, we entered into a series of concurrent transactions with Pharmsynthez, a Russian pharmaceutical company traded on the Moscow StockExchange pursuant to which we acquired an equity method investment in Pharmsynthez (ownership 17% ). We also granted rights to certain technologies in theRussian Federation, Ukraine, Belarus, Azerbaijan and Kazakhstan (the “Territories”) to Pharmsynthez and agreed to perform certain development activities. Wewill receive from Pharmsynthez royalties on net sales of products incorporating the technologies in the Territories, as well as a percentage of any sublicenseincome from third parties for the technologies in the Territories.In July 2015, we entered into a Note Purchase Agreement with Pharmsynthez pursuant to which we delivered $3.0 million to Pharmsynthez in exchange for a$3.0 million note (the “Pharmsynthez Note Receivable”). The Pharmsynthez Note Receivable will be settled in 2017 and Pharmsynthez may satisfy the note eitherin cash or shares of its capital stock. We recorded the Pharmsynthez Note Receivable within Other current assets and prepaid expenses in our Consolidated BalanceSheet.RXi Pharmaceuticals CorporationIn March 2013, we completed the sale to RXi of substantially all of our assets in the field of RNA interference (the “RNAi Assets”) (collectively, the “AssetPurchase Agreement”). Pursuant to the Asset Purchase Agreement, RXi will be required to pay us up to $50.0 million in milestone payments upon the successfuldevelopment and commercialization of each drug developed by RXi, certain of its affiliates or any of its or their licensees or sublicensees utilizing patents includedwithin the RNAi Assets (each, a “Qualified Drug”). In addition, RXi will also be required to pay us royalties equal to: (a) a mid single-digit percentage of “NetSales” (as defined in the Asset Purchase Agreement) with respect to each Qualified Drug sold for an ophthalmologic use during the applicable “Royalty Period” (asdefined in the Asset Purchase Agreement); and (b) a low single-digit percentage of net sales with respect to each Qualified Drug sold for a non-ophthalmologic useduring the applicable Royalty Period.OtherWe have completed strategic deals with numerous institutions and commercial partners. In connection with these agreements, upon the achievement ofcertain milestones we are obligated to make certain payments and have royalty obligations upon sales of products developed under the license agreements. At thistime, we are unable to estimate the timing and amounts of payments as the obligations are based on future development of the licensed products.120Note 15 LeasesOperating leasesWe conduct certain of our operations under operating lease agreements. Rent expense under operating leases was approximately $18.8 million , $7.8 million, and $2.6 million for the years ended December 31, 2016 , 2015 , and 2014 , respectively.As of December 31, 2016 , the aggregate future minimum lease payments under all non-cancelable operating leases with initial or remaining lease terms inexcess of one year are as follows: Year Ending(In thousands)2017$16,751201812,39620199,96720204,76120212,964Thereafter6,173Total minimum operating lease commitments$53,012Capital leasesWe acquired various assets under capital leases in connection with our acquisition of Bio-Reference in 2015. Capital leases are included within Property,plant and equipment, net in our Consolidated Balance Sheet with imputed interest rates of approximately 2% as follows:Capital leasesYear ended December 31,2016Automobiles$10,342Less: Accumulated Depreciation(3,291)Net capital leases in Property, plant and equipment$7,051As of December 31, 2016 , the aggregate future minimum lease payments under all non-cancelable capital leases with initial or remaining lease terms inexcess of one year are as follows: Year Ending(In thousands)2017$3,14320182,72020192,18420201,4262021488Thereafter570Total minimum capital lease commitments10,531Less: Amounts representing interest290Net capital liability$10,241 Current$3,025Long-term$7,216121Note 16 SegmentsWe manage our operations in two reportable segments, pharmaceutical and diagnostics. The pharmaceutical segment consists of our pharmaceuticaloperations we acquired in Chile, Mexico, Ireland, Israel and Spain and our pharmaceutical research and development. The diagnostics segment primarily consistsof our clinical laboratory operations we acquired through the acquisitions of Bio-Reference and OPKO Lab and our point-of-care operations. There are nosignificant inter-segment sales. We evaluate the performance of each segment based on operating profit or loss. There is no inter-segment allocation of interestexpense and income taxes.Information regarding our operations and assets for our operating segments and the unallocated corporate operations as well as geographic information are asfollows:122 For the years ended December 31,(In thousands)2016 2015 2014Revenue from services: Pharmaceutical$— $— $—Diagnostics1,012,129 329,599 8,426Corporate— 140 240 $1,012,129 $329,739 $8,666Revenue from products: Pharmaceutical$83,467 $80,146 $76,983Diagnostics— — —Corporate— — — $83,467 $80,146 $76,983Revenue from transfer of intellectual property: Pharmaceutical$126,065 $81,853 $5,285Diagnostics— — 191Corporate— — — $126,065 $81,853 $5,476Operating (loss) income: Pharmaceutical$(9,841) $(40,395) $(94,401)Diagnostics(3,393) (10,294) (21,647)Corporate(60,041) (46,512) (27,725)Less: Operating loss attributable to noncontrolling interests— (1,280) (2,042) $(73,275) $(98,481) $(145,815)Depreciation and amortization: Pharmaceutical$18,254 $10,245 $7,936Diagnostics78,233 31,918 6,894Corporate89 85 97 $96,576 $42,248 $14,927Loss from investment in investees: Pharmaceutical$(7,665) $(7,105) $(3,587)Diagnostics13 — —Corporate— — — $(7,652) $(7,105) $(3,587)Revenues: United States$1,014,389 $344,464 $14,142Ireland137,785 78,989 —Chile35,364 29,885 29,154Spain15,812 16,622 21,323Israel15,317 18,107 20,638Mexico2,988 3,671 5,807Other6— 61 $1,221,661 $491,738 $91,125123(In thousands)December 31, 2016 December 31, 2015Assets: Pharmaceutical$1,294,916 $1,258,011Diagnostics1,408,522 1,479,841Corporate63,181 61,336 $2,766,619 $2,799,188Goodwill: Pharmaceutical$251,817 $251,225Diagnostics452,786 492,123Corporate— — $704,603 $743,348During the year ended December 31, 2016 , no customer represented more than 10% of our total consolidated revenue. During the year ended December 31,2015 , revenue recognized under the Pfizer Transaction represented 13% of our total consolidated revenue. During the year ended December 31, 2014, onecustomer of our pharmaceutical segment represented 13% of our total consolidated revenue. As of both December 31, 2016 and December 31, 2015, one customerrepresented more than 10% of our accounts receivable balance.The following table reconciles our Property, plant and equipment, net between U.S. and foreign jurisdictions: (In thousands)December 31, 2016 December 31, 2015PP&E: U.S.$100,716 $113,307Foreign22,115 18,491Total$122,831 $131,798Note 17 Fair Value MeasurementsWe record fair values at an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transactionbetween market participants. As such, fair value is a market-based measurement determined based on assumptions that market participants would use in pricing anasset or liability. We utilize a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined asobservable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectlyobservable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.A summary of our investments classified as available for sale and carried at fair value, is as follows: As of December 31, 2016(In thousands)AmortizedCost Grossunrealizedgains inAccumulatedOCI Grossunrealizedlosses inAccumulatedOCI FairvalueCommon stock investments, available for sale$3,409 $1,313 $(194) $4,528Total assets$3,409 $1,313 $(194) $4,528124 As of December 31, 2015(In thousands)AmortizedCost Grossunrealizedgains inAccumulatedOCI Grossunrealizedlosses inAccumulatedOCI FairvalueCommon stock investments, available for sale$2,978 $904 $(267) $3,615Total assets$2,978 $904 $(267) $3,615Any future fluctuation in fair value related to our available for sale investments that is judged to be temporary, and any recoveries of previous write-downs,will be recorded in Accumulated other comprehensive income (loss). If we determine that any future valuation adjustment was other-than-temporary, we willrecord a loss during the period such determination is made.As of December 31, 2016 , we have money market funds that qualify as cash equivalents, forward foreign currency exchange contracts for inventorypurchases (Refer to Note 18) and contingent consideration related to the acquisitions of CURNA, OPKO Diagnostics, OPKO Health Europe, and OPKO Renal thatare required to be measured at fair value on a recurring basis. In addition, in connection with our investment and our consulting agreements with Neovasc andBioCardia, we record the related Neovasc and BioCardia options at fair value as well as the warrants from COCP, ARNO, Sevion, MabVax, InCellDx, Inc.,Xenetic and RXi.Our financial assets and liabilities measured at fair value on a recurring basis are as follows: Fair value measurements as of December 31, 2016(In thousands)Quotedprices inactivemarkets foridenticalassets(Level 1) Significantotherobservableinputs(Level 2) Significantunobservableinputs(Level 3) TotalAssets: Money market funds$5,314 $— $— $5,314Common stock investments, available for sale4,528 — — 4,528Common stock options/warrants— 4,017 — 4,017Forward contracts— 39 — 39Total assets$9,842 $4,056 $— $13,898Liabilities: Embedded conversion option$— $— $16,736 $16,736Contingent consideration:$— $— $45,076 45,076Total liabilities$— $— $61,812 $61,812 Fair value measurements as of December 31, 2015(In thousands)Quotedprices inactivemarkets foridenticalassets(Level 1) Significantotherobservableinputs(Level 2) Significantunobservableinputs(Level 3) TotalAssets: Money market funds$84,421 $— $— $84,421Common stock investments, available for sale3,615 — — 3,615Common stock options/warrants— 5,338 — 5,338Forward contracts— 9 — 9Total assets$88,036 $5,347 $— $93,383Liabilities: Embedded conversion option$— $— $23,737 $23,737Contingent consideration:— — 54,422 54,422Total liabilities$— $— $78,159 $78,159125The carrying amount and estimated fair value of our 2033 Senior Notes without the embedded conversion option, as well as the applicable fair valuehierarchy tiers, are contained in the table below. The fair value of the 2033 Senior Notes is determined using a binomial lattice approach in order to estimate thefair value of the embedded derivative in the 2033 Senior Notes. Refer to Note 6. December 31, 2016(In thousands)CarryingValue TotalFair Value Level 1 Level 2 Level 32033 Senior Notes$27,238 $28,468 $— $— $28,468 December 31, 2015(In thousands)CarryingValue TotalFair Value Level 1 Level 2 Level 32033 Senior Notes$25,676 $24,647 $— $— $24,647There have been no transfers between Level 1 and Level 2 and no transfers to or from Level 3 of the fair value hierarchy.As of December 31, 2016 and 2015 , the carrying value of our other assets and liabilities approximates their fair value due to their short-term nature orvariable rates of interest.The following tables reconcile the beginning and ending balances of our Level 3 assets and liabilities as of December 31, 2016 and 2015 : December 31, 2016(In thousands)Contingentconsideration EmbeddedconversionoptionBalance at December 31, 2015$54,422 $23,737Total losses (gains) for the period: Included in results of operations16,954 (7,001)Foreign currency impact(1) —Payments(26,299) —Conversion— —Balance at December 31, 2016$45,076 $16,736 December 31, 2015(In thousands)Contingent consideration Embedded conversion optionBalance at December 31, 2014$71,567 $65,947Total losses (gains) for the period: Included in results of operations5,050 36,587Foreign currency impact(269) —Payments(21,926) —Conversion— (78,797)Balance at December 31, 2015$54,422 $23,737The estimated fair values of our financial instruments have been determined by using available market information and what we believe to be appropriatevaluation methodologies. We use the following methods and assumptions in estimating fair value:Contingent consideration – We estimate the fair value of the contingent consideration utilizing a discounted cash flow model for the expected paymentsbased on estimated timing and expected revenues. We use several discount rates depending on each type of contingent consideration related to OPKO Diagnostics,CURNA, OPKO Health Europe and OPKO Renal transactions. If estimated future sales were to decrease by 10% , the contingent consideration related to OPKORenal, which represents the majority of our contingent consideration liability, would decrease by $2.7 million . As of December 31, 2016 , of126the $45.1 million of contingent consideration, $0.3 million is recorded in Accrued expenses and $44.8 million is recorded in Other long-term liabilities. As ofDecember 31, 2015 , of the $54.4 million of contingent consideration, $22.2 million is recorded in Accrued expenses and $32.3 million is recorded in Other long-term liabilities.Embedded conversion option – We estimate the fair value of the embedded conversion option related to the 2033 Senior Notes using a binomial latticemodel. Refer to Note 6 for detail description of the binomial lattice model and the fair value assumptions used.Note 18 Derivative ContractsThe following table summarizes the fair values and the presentation of our derivative financial instruments in the Consolidated Balance Sheets:(In thousands)Balance Sheet Component December 31, 2016 December 31, 2015Derivative financial instruments: Common stock options/warrantsInvestments, net $4,017 $5,338Embedded conversion option2033 Senior Notes, net of discount and estimated fair value ofembedded derivatives $16,736 $23,737Forward contractsUnrealized gains on forward contracts are recorded in Othercurrent assets and prepaid expenses. Unrealized (losses) onforward contracts are recorded in Accrued expenses. $39 $9We enter into foreign currency forward exchange contracts to cover the risk of exposure to exchange rate differences arising from inventory purchases onletters of credit. Under these forward contracts, for any rate above or below the fixed rate, we receive or pay the difference between the spot rate and the fixed ratefor the given amount at the settlement date.To qualify the derivative instrument as a hedge, we are required to meet strict hedge effectiveness and contemporaneous documentation requirements at theinitiation of the hedge and assess the hedge effectiveness on an ongoing basis over the life of the hedge. At December 31, 2016 and 2015 , our derivative financialinstruments do not meet the documentation requirements to be designated as hedges. Accordingly, we recognize the changes in Fair value of derivativeinstruments, net in our Consolidated Statement of Operations. The following table summarizes the losses and gains recorded for the years ended December 31,2016 , 2015 and 2014 : For the years ended December 31,(In thousands)2016 2015 2014Derivative gain (loss): Common stock options/warrants$(4,262) $(2,854) $1,1932033 Senior Notes7,001 (36,588) (12,213)Forward contracts$39 $359 $388Total$2,778 $(39,083) $(10,632)Note 19 Selected Quarterly Financial Data (Unaudited)127 For the 2016 Quarters Ended(In thousands, except per share data)March 31 June 30 September 30 December 31Total revenues$291,037 $357,100 $298,035 $275,489Total costs and expenses318,555 328,834 321,658 325,889Net income (loss)(11,978) 15,533 (14,977) (13,661)Net income (loss) attributable to common shareholders(11,978) 15,533 (14,977) (13,661)Earnings (loss) per share, basic$(0.02) $0.03 $(0.03) $(0.02)Earnings (loss) per share, diluted$(0.02) $0.02 $(0.03) $(0.04) For the 2015 Quarters Ended(In thousands, except per share data)March 31 June 30 September 30 December 31Total revenues$30,084 $42,429 $143,034 $276,191Total costs and expenses86,998 67,838 151,257 284,126Net income (loss)(118,037) (43,241) 128,247 1,603Net income (loss) attributable to common shareholders(117,112) (42,766) 128,247 1,603Earnings (loss) per share, basic$(0.26) $(0.09) $0.26 $—Earnings (loss) per share, diluted$(0.26) $(0.09) $0.18 $—Note 20 Subsequent EventsOn January 3, 2017, we announced that our 2033 Senior Notes continue to be convertible by holders of such 2033 Senior Notes through March 31, 2017. Wehave elected to satisfy the conversion obligation in shares of our Common Stock. This conversion right has been extended because the closing price per share ofour Common Stock has exceeded $9.19 , or 130% of the applicable conversion price of $7.07 , for at least 20 of 30 consecutive trading days during the quarterended on December 31, 2016 . We previously announced that this conversion right had been triggered each quarter during the quarters ended March 31, 2015through September 30, 2016. The 2033 Senior Notes will continue to be convertible until March 31, 2017, and may be convertible thereafter, if one or more of theconversion conditions specified in the Indenture is satisfied during future measurement periods. Pursuant to the Indenture, a holder who elects to convert the 2033Senior Notes will receive 141.4827 shares of our Common Stock plus such number of additional shares as is applicable on the conversion date per $1,000 principalamount of 2033 Senior Notes based on the early conversion provisions in the Indenture.We have reviewed all subsequent events and transactions that occurred after the date of our December 31, 2016 Consolidated Balance Sheet date, through thetime of filing this Annual Report on Form 10-K.128ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’sdisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) asof December 31, 2016 . Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in thereports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms ofthe Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to thecompany’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of December 31, 2016 .Management’s Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(e)and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined effectivecould provide only reasonable assurance with respect to financial statement preparation and presentation.Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016 , based on theframework in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “2013Internal Control-Integrated Framework”). Based on our evaluation under the 2013 Internal Control-Integrated Framework, our management concluded that ourinternal control over financial reporting was effective as of December 31, 2016 . As permitted, our management’s assessment of and conclusion on theeffectiveness of our internal control over financial reporting did not include the internal controls of Transition Therapeutics, Inc. (“Transition Therapeutics”),because Transition Therapeutics was acquired by us in a business combination in August 2016. Transition Therapeutics' assets excluded from the annualassessment process were 2% of consolidated total assets as of December 31, 2016 and 0% of consolidated revenues for the year then ended as a result of theclosing of the acquisition in August 2016.The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by Ernst & Young LLP, ourindependent registered public accounting firm, who also audited our Consolidated Financial Statements included in this Annual Report on Form 10-K, as stated intheir report which appears with our accompanying Consolidated Financial Statements.Changes to the Company’s Internal Control Over Financial ReportingIn connection with the acquisitions of EirGen in May 2015, Bio-Reference in August 2015 and Transition Therapeutics in August 2016, we beganimplementing standards and procedures at EirGen, Bio-Reference and Transition Therapeutics, including establishing controls over accounting systems andestablishing controls over the preparation of financial statements in accordance with generally accepted accounting principles to ensure that we have in placeappropriate internal control over financial reporting at EirGen, Bio-Reference and Transition Therapeutics. We are continuing to integrate the acquired operationsof EirGen, Bio-Reference and Transition Therapeutics into our overall internal control over financial reporting process.We implemented a new billing system for our laboratory business in October 2016 and we are in the process of implementing a new comprehensiveenterprise resource planning (“ERP”) system on a company-wide basis. We use both the billing system and the ERP system for financial reporting. Theimplementation of these systems involves changes to our financial systems and other systems and accordingly, necessitated changes to our internal controls overfinancial reporting.129These changes to the Company’s internal control over financial reporting that occurred during the most recent quarter ended December 31, 2016 havematerially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.130ITEM 9B. OTHER INFORMATIONNone.131PART IIIThe information required in Items 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (SecurityOwnership of Certain Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related Transactions, andDirector Independence), and Item 14 (Principal Accounting Fees and Services) is incorporated by reference to the Company’s definitive proxy statement for the2017 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of December 31, 2016 .132PART IV.Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.(a)(1)Financial Statements: See Part II, Item 8 of this report. Schedule I - Condensed Financial Information of Registrant. Additionally, the financial statement schedule entitled “Schedule II – Valuation andQualifying Accounts” has been omitted since the information required is included in the consolidated financial statements and notes thereto. Otherschedules are omitted because they are not required. (2)Exhibits: See below.ExhibitNumberDescription1.1 (12)Underwriting Agreement, dated March 9, 2011, by and among OPKO Health, Inc., Jefferies & Company, Inc.and J.P. Morgan Securities LLC, as representatives for the underwriters named therein. 2.1 (1)Merger Agreement and Plan of Reorganization, dated as of March 27, 2007, by and among AcuityPharmaceuticals, Inc., Froptix Corporation, eXegenics, Inc., e-Acquisition Company I-A, LLC, and e-Acquisition Company II-B, LLC. 2.2 (3)+Securities Purchase Agreement, dated May 2, 2008, by and among Vidus Ocular, Inc., OPKO Instrumentation,LLC, OPKO Health, Inc., and the individual sellers and noteholders named therein. 2.3 (9)Purchase Agreement, dated February 17, 2010, by and among Ignacio Levy García and José de Jesús LevyGarcía, Inmobiliaria Chapalita, S.A. de C.V., Pharmacos Exakta, S.A. de C.V., OPKO Health, Inc., OPKOHealth Mexicana S. de R.L. de C.V., and OPKO Manufacturing Facilities S. de R.L. de C.V. 2.4 (14)+Agreement and Plan of Merger, dated January 28, 2011, by and among CURNA Inc., KUR, LLC, OPKOPharmaceuticals, LLC, OPKO CURNA, LLC, and certain individuals named therein. 2.5 (15)Agreement and Plan of Merger, dated October 13, 2011, by and among OPKO Health, Inc., Claros MergerSubsidiary, LLC, Claros Diagnostics, Inc., and Ellen Baron, Marc Goldberg and Michael Magliochetti onbehalf of the Shareholder Representative Committee. 2.6 (17)+Stock Purchase Agreement, dated December 20, 2011, by and among FineTech Pharmaceutical Ltd., ArieGutman, OPKO Holdings Israel Ltd., and OPKO Health, Inc. 2.7 (18)Purchase Agreement, dated January 20, 2012, by and among OPKO Health, Inc., OPKO Chile S.A., SamuelAlexandre Arama, Inversiones SVJV Limitada, Bruno Sergiani, Inversiones BS Limitada, Pierre-Yves LeGoff,and Inversiones PYTT Limitada. 2.8 (19)+Stock Purchase Agreement, dated August 2, 2012, by and among Farmadiet Group Holding, S.L., the Sellersparty thereto, OPKO Health, Inc., and Shebeli XXI, S.L.U. 2.9 (21)+Agreement and Plan of Merger, dated October 18, 2012, by and among Prost-Data, Inc. d/b/a OurLab, OurLabs, Endo Labs and Gold Lab, Jonathan Oppenheimer, M.D., OPKO Health, Inc., OPKO Laboratories Inc.,and OPKO Labs, LLC. 2.10 (22)+Share Purchase Agreement, dated January 8, 2013, by among Cytochroma Inc., Cytochroma Holdings ULC,Cytochroma Canada Inc., Cytochroma Development Inc., Proventiv Therapeutics, LLC, Cytochroma CaymanIslands, Ltd., OPKO Health, Inc., and OPKO IP Holdings, Inc. 2.11 (23)Asset Purchase Agreement, dated March 1, 2013, by and between RXi Pharmaceuticals Corporation andOPKO Health, Inc. 1332.12 (24)Agreement and Plan of Merger, dated April 23, 2013, by and among OPKO Health, Inc., POM AcquisitionInc., and PROLOR Biotech, Inc. 2.13 (27)+Agreement for the Sale and Purchase of Shares in EirGen Pharma Limited, dated May 5, 2015 by and amongOPKO Ireland Limited, OPKO Health, Inc. and the Sellers named therein. 2.14 (27)+Form of Additional Agreement for the Sale and Purchase of Shares in EirGen Pharma Limited, dated May 5,2015 by and among OPKO Ireland Limited and the Sellers named therein. 2.15 (28)+Agreement and Plan of Merger by and among the Company, Bamboo Acquisition, Inc. and Bio-ReferenceLaboratories, Inc. dated as of June 3, 2015. 2.16 (35)Arrangement Agreement by and among the Company, OPKO Global Holdings, Inc. and TransitionTherapeutics Inc. dated as of June 29, 2016. 3.1 (26)Amended and Restated Certificate of Incorporation, as amended. 3.2 (2)Amended and Restated Bylaws. 3.3 (7)Certificate of Designation of Series D Preferred Stock. 4.1 (1)Form of Common Stock Warrant. 4.2 (7)Form of Common Stock Warrant. 4.3 (25)Indenture, dated January 30, 2013, between OPKO Health, Inc. and Wells Fargo Bank, National Association. 10.1 (1)Form of Lockup Agreement. 10.2 (2)Stock Purchase Agreement, dated December 4, 2007, by and between OPKO Health, Inc. and the membersof The Frost Group, LLC. 10.3 (3)Form of Director Indemnification Agreement. 10.4 (3)Form of Officer Indemnification Agreement. 10.5 (4)Stock Purchase Agreement, dated August 8, 2008 by and between OPKO Health, Inc. and the Purchasersnamed therein.10.6 (5)Stock Purchase Agreement, dated February 23, 2009 by and between OPKO Health, Inc. and Frost GammaInvestments Trust. 10.7 (6)Form of Stock Purchase Agreement for transactions between OPKO Health, Inc. and Nora Real Estate SA.,Vector Group Ltd., Oracle Partners LP, Oracle Institutional Partners, LP., Chung Chia Company Limited,Gold Sino Assets Limited, and Grandtime Associates Limited. 10.8 (6)Stock Purchase Agreement, dated June 10, 2009, by and among OPKO Health, Inc. and SorrentoTherapeutics, Inc. 10.9 (7)Form of Securities Purchase Agreement for Series D Preferred Stock. 10.10 (8)*Form of Restricted Share Award Agreement for Directors. 13410.11 (8)Cocrystal Discovery, Inc. Agreements. 10.12 (11)Stock Purchase Agreement, dated October 1, 2009, by and among the Laboratoria Volta S.A., FarmaciasAhumada S.A., FASA Chile S.A., OPKO Chile Limitada and Inversones OPKO Limitada, subsidiaries ofOPKO Health, Inc. 10.13 (10)+Asset Purchase Agreement, dated October 12, 2009, by and between OPKO Health, Inc. and ScheringCorporation. 10.14 (10)Letter Agreement, dated June 29, 2010, by and between OPKO Health, Inc. and Schering Corporation. 10.15 (16)+Exclusive License Agreement by and between TESARO, Inc. and OPKO Health, Inc. dated December 10,2010. 10.16 (13)Third Amended and Restated Subordinated Note and Security Agreement, dated February 22, 2011, betweenOPKO Health, Inc. and The Frost Group, LLC. 10.17 (15)+Asset Purchase Agreement dated September 21, 2011, by and among Optos plc, Optos Inc., OPKO Health,Inc., OPKO Instrumentation, LLC, Ophthalmic Technologies, Inc., and OTI (UK) Limited. 10.18 (20)Form of Note Purchase Agreement, dated as of January 25, 2013, by and among OPKO Health, Inc. andeach purchaser a party thereto. 10.19 (29)+Development and Commercialization License Agreement by and between OPKO Ireland, Ltd., a subsidiaryof OPKO Health, Inc., and Pfizer, Inc. dated December 13, 2014. 10.20 (34)Credit Agreement by and between Bio-Reference Laboratories, Inc. and certain of its subsidiaries andJPMorgan Chase Bank, N.A. dated November 5, 2015. 10.21 (35)OPKO Health, Inc. 2016 Equity Incentive Plan. 10.22 (36)Development and License Agreement between OPKO Health, Inc. and Vifor Fresenius Medical Care RenalPharma Ltd., dated May 8, 2016. 21Subsidiaries of the Company. 23.1Consent of Ernst & Young LLP. 23.2Consent of MSPC Certified Public Accountants and Advisors, P.C. relating to Bio-Reference Laboratories,Inc.’s financial statements. 31.1Certification by Phillip Frost, Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a) of theSecurities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002for the year ended December 31, 2016. 31.2Certification by Adam Logal, Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a) of theSecurities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002for the year ended December 31, 2016. 32.1Certification by Phillip Frost, Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2016. 32.2Certification by Adam Logal, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2016.135 99.1 (31)The audited consolidated balance sheets of Bio-Reference Laboratories, Inc. and its subsidiaries as ofOctober 31, 2014 and 2013, and the related consolidated statements of operations, shareholders’ equity, andcash flows for each of the years in the three-year period ended October 31, 2014, and the notes and theindependent auditor’s reports thereto. 99.2 (32)The unaudited consolidated balance sheet of Bio-Reference Laboratories, Inc. and its subsidiaries as of April30, 2015, the related unaudited consolidated statements of operations, and statements of cash flows for thethree and six months ended April 30, 2015, and the notes thereto. 99.3 (33)The unaudited pro forma condensed combined financial statements of the Company and Bio-ReferenceLaboratories, Inc. 101.INSXBRL Instance Document 101.SCHXBRL Taxonomy Extension Schema Document 101.CALXBRL Taxonomy Extension Calculation Linkbase Document 101.DEFXBRL Taxonomy Extension Definition Linkbase Document 101.LABXBRL Taxonomy Extension Label Linkbase Document 101.PREXBRL Taxonomy Extension Presentation Linkbase Document* Denotes management contract or compensatory plan or arrangement.+ Certain confidential material contained in the document has been omitted and filed separately with the Securities and Exchange Commission.(1) Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 2, 2007, and incorporated hereinby reference.(2) Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2008 and incorporatedherein by reference.(3) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 8, 2008 for the Company’sthree-month period ended June 30, 2008, and incorporated herein by reference.(4) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2008 for theCompany’s three-month period ended September 30, 2008, and incorporated herein by reference.(5) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2009 for the Company’sthree-month period ended March 31, 2009, and incorporated herein by reference.(6) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 7, 2009 for the Company’sthree-month period ended June 30, 2009, and incorporated herein by reference.(7) Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 24, 2009, and incorporatedherein by reference.(8) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2009 for theCompany’s three-month period ended September 30, 2009, and incorporated herein by reference.(9) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2010 for the Company’sthree-month period ended March 31, 2010, and incorporated herein by reference.(10) Filed with the Company’s Amendment to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 3, 2011.(11) Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2010.(12) Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2011, and incorporatedherein by reference.(13) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2011 for the Company’sthree-month period ended March 31, 2011, and incorporated herein by reference.136(14) Filed with the Company’s Quarterly Report on Form 10-Q/A filed with the Securities and Exchange Commission on July 5, 2011, and incorporatedherein by reference.(15) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2011 for theCompany’s three-month period ended September 30, 2011, and incorporated herein by reference.(16) Filed with the Company’s Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on July 28, 2011.(17) Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2012.(18) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2012 for the Company’sthree-month period ended March 31, 2012, and incorporated herein by reference.(19) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2012 for theCompany’s three-month period ended September 30, 2012, and incorporated herein by reference.(20) Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2013, and incorporatedherein by reference.(21) Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 18, 2013.(22) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2013 for the Company’sthree-month period ended March 31, 2013, and incorporated herein by reference.(23) Filed with the Company’s Schedule 13D filed with the Securities and Exchange Commission on March 22, 2013, and incorporated herein by reference.(24) Filed as Annex A to the Company’s Preliminary Joint Proxy Statement/Prospectus, Form S-4, with the Securities Exchange Commission on June 27,2013, as amended, and incorporated herein by reference.(25) Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2013, and incorporatedherein by reference.(26) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2013 for theCompany’s three month period ended September 30, 2013, and incorporated herein by reference.(27) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 5, 2015 for the Company’sthree month period ended June 30, 2015, and incorporated herein by reference.(28) Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 4, 2015, and incorporated hereinby reference.(29) Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2015, and incorporatedherein by reference.(30) Filed under Part II, Item 8, of the Bio-Reference Laboratories, Inc. Form 10-K filed with the Securities and Exchange Commission on January 13, 2015(File No. 0-15266), and incorporated herein by reference.(31) Filed under Part I, Item 1, of the Bio-Reference Laboratories, Inc. Form 10-Q filed with the Securities and Exchange Commission on June 9, 2015 (FileNo. 0-15266), and incorporated herein by reference.(32) Filed under the heading “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 27 of the Company’s RegistrationStatement on Form S-4/A filed with the Securities and Exchange Commission on July 15, 2015 (File No. 333-205480), and incorporated herein byreference.(33) Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 30, 2016 and incorporated hereinby reference.(34) Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2016, and incorporatedherein by reference.(35) Filed with the Company’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on March 25, 2016, andincorporated herein by reference.(36) Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 8, 2016 for the Company’sthree month period ended June 30, 2016, and incorporated herein by reference.137Schedule I - Condensed Financial Information of RegistrantOPKO Health, Inc.PARENT COMPANY CONDENSED BALANCE SHEETS(In thousands, except share and per share data) December 31, 2016 2015ASSETS Current assets: Cash and cash equivalents$15,744 $97,647Other current assets and prepaid expenses12,446 4,306Total current assets28,190 101,953Property, plant and equipment, net503 225Investments2,114,473 1,932,731Other assets176 —Total assets$2,143,342 $2,034,909LIABILITIES AND EQUITY Current liabilities: Accounts payable$1,070 $1,266Accrued expenses5,769 4,341Current portion of notes payable522 522Total current liabilities7,361 6,1292033 Senior Notes and estimated fair value of embedded derivatives, net of discount43,701 48,986Deferred tax liabilities, net472 —Total long-term liabilities44,173 48,986Total liabilities51,534 55,115Equity: Common Stock - $0.01 par value, 750,000,000 shares authorized; 558,576,051 and 546,188,516 shares issued at December 31, 2016 and 2015, respectively5,586 5,462Treasury Stock, at cost - 586,760 and 1,120,367 shares at December 31, 2016 and 2015, respectively(1,911) (3,645)Additional paid-in capital2,845,096 2,705,385Accumulated other comprehensive loss(27,009) (22,537)Accumulated deficit(729,954) (704,871)Total shareholders’ equity2,091,808 1,979,794Total liabilities and equity$2,143,342 $2,034,909The accompanying Notes to Parent Company Condensed Financial Statements are an integral part of these statements.138OPKO Health, Inc.PARENT COMPANY CONDENSED STATEMENTS OF INCOME(In thousands) For the years ended December 31, 2016 2015 2014Revenues: Revenue from products$— $140 $240Revenue from transfer of intellectual property and other— 154 —Total revenues— 294 240Costs and expenses: Costs of revenue875 798 252Selling, general and administrative60,819 47,708 27,809Research and development3,791 8,496 5,227Total costs and expenses65,485 57,002 33,288Operating loss(65,485) (56,708) (33,048)Other income and (expense), net: Interest income440 5 42Interest expense(3,585) (5,347) (11,325)Fair value changes of derivative instruments, net2,738 (39,442) (11,019)Other income (expense), net(2,387) 2,141 2,832Other income and (expense), net(2,794) (42,643) (19,470)Loss before income taxes and investment losses(68,279) (99,351) (52,518)Income tax benefit (provision)(686) — —Loss before investment losses(68,965) (99,351) (52,518)Loss from investments in investees(7,665) (7,105) (3,587)Net income (loss) from subsidiaries, net of taxes51,547 76,428 (115,561)Net loss attributable to common shareholders$(25,083) $(30,028) $(171,666)The accompanying Notes to Parent Company Condensed Financial Statements are an integral part of these statements.139OPKO Health, Inc.PARENT COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME(In thousands) For the years ended December 31, 2016 2015 2014Net loss$(25,083) $(30,028) $(171,666)Other comprehensive income (loss), net of tax: Change in foreign currency translation and other comprehensive income (loss)(4,955) (15,074) (8,088)Available for sale investments: Change in unrealized gain (loss), net of tax(3,810) (2,378) (8,044)Less: reclassification adjustments for losses included in net loss, net of tax4,293 7,307 322Comprehensive loss attributable to common shareholders$(29,555) $(40,173) $(187,476)The accompanying Notes to Parent Company Condensed Financial Statements are an integral part of these statements.140OPKO Health, Inc.PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS(In thousands) For the years ended December 31, 2016 2015 2014Cash flows from operating activities: Net loss$(25,083) $(30,028) $(171,666)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization89 85 97Non-cash interest1,866 2,612 5,662Amortization of deferred financing costs149 1,212 2,007Losses from investments in investees7,665 7,105 3,587(Income) loss from subsidiaries(51,546) (76,428) 115,561Equity-based compensation – employees and non-employees42,693 26,074 14,779Realized loss (gain) on equity securities and disposal of fixed assets(2,738) 7,091 167Gain on conversion of 3.00% convertible senior notes284 (943) (2,668)Change in fair value of derivative instruments2,347 39,442 11,019Gain on deconsolidation of SciVac— (15,940) —Changes in other assets and liabilities(6,844) (15,640) (5,627)Net cash used in operating activities(31,118) (55,358) (27,082)Cash flows from investing activities: Investments in investees(14,424) (4,375) (589)Subsidiary financing(44,569) 62,471 (85,386)Proceeds from sale of equity securities— — 1,331Acquisition of businesses, net of cash— (138) (231)Capital expenditures(368) (92) (18)Net cash provided by (used in) investing activities(59,361) 57,866 (84,893)Cash flows from financing activities: Proceeds from the exercise of Common Stock options and warrants8,576 25,921 12,928Net cash provided by financing activities8,576 25,921 12,928Net increase (decrease) in cash and cash equivalents(81,903) 28,429 (99,047)Cash and cash equivalents at beginning of period97,647 69,218 168,265Cash and cash equivalents at end of period$15,744 $97,647 $69,218SUPPLEMENTAL INFORMATION: Interest paid$966 $2,175 $3,686Pharmsynthez common stock received$— $— $6,264141 For the years ended December 31, 2016 2015 2014Non-cash financing: Shares issued upon the conversion of: 2033 Senior Notes$583 $120,299 $95,665Common Stock options and warrants, surrendered in net exercise$350 $14,369 $3,494Issuance of capital stock to acquire or contingent consideration settlement: Transition Therapeutics, Inc.$58,530 $— $—Bio-Reference Laboratories, Inc.$— $950,148 $—EirGen Pharma Limited$— $33,569 $—OPKO Renal$25,986 $20,113 $21,155OPKO Health Europe$313 $1,813 $—OPKO Uruguay Ltda.$— $— $159Inspiro$— $— $8,566Issuance of stock for investment in Xenetic$4,856 $— $—The accompanying Notes to Parent Company Condensed Financial Statements are an integral part of these statements.142OPKO Health, Inc.Notes to Parent Company Condensed Financial StatementsNote 1. Organization and Basis of PresentationWe are a diversified healthcare company that seeks to establish industry-leading positions in large and rapidly growing medical markets. The parentcompany condensed financial statements included in this Schedule I represent the financial statements of OPKO Health, Inc., the parent company (or "OPKO"), ona stand-alone basis and do not include results of operations from our consolidated subsidiaries. The parent company condensed financial statements should be readin conjunction with our audited consolidated financial statements included in Item 8 of Part II of this Form 10-K. As of December 31, 2016 and 2015,approximately $2.1 billion and $1.9 billion , respectively, of our Investments, net have not been eliminated in the parent company condensed financial statements.The parent company condensed financial statements included herein have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, assubstantially all the assets of Bio-Reference, a wholly owned subsidiary, and its subsidiaries are restricted from sale, transfer, lease, disposal or distributions toOPKO under the credit agreement with JPMorgan Chase Bank, N.A. (the "Credit Agreement"), subject to certain exceptions. Bio-Reference and its subsidiaries'net assets as of December 31, 2016 were approximately $1.0 billion , which includes goodwill of $401.8 million and intangible assets of $488.7 million . Bio-Reference's restricted net assets exceeds 25% of OPKO's consolidated net assets of $2.8 billion as of December 31, 2016.Note 2 Debt In January 2013, we entered into note purchase agreements (the “2033 Senior Notes”) with qualified institutional buyers and accredited investors(collectively, the “Purchasers”) in a private placement in reliance on exemptions from registration under the Securities Act of 1933, (the “Securities Act”). The2033 Senior Notes were issued on January 30, 2013 . The 2033 Senior Notes, which totaled $175.0 million in original principal amount, bear interest at the rate of3.00% per year, payable semiannually on February 1 and August 1 of each year. The 2033 Senior Notes will mature on February 1, 2033 , unless earlierrepurchased, redeemed or converted. Upon a fundamental change as defined in the Indenture, dated as of January 30, 2013, by and between the Company andWells Fargo Bank N.A., as trustee, governing the 2033 Senior Notes (the "Indenture"), subject to certain exceptions, the holders may require us to repurchase all orany portion of their 2033 Senior Notes for cash at a repurchase price equal to 100% of the principal amount of the 2033 Senior Notes being repurchased, plus anyaccrued and unpaid interest to but not including the fundamental change repurchase date.The following table sets forth information related to the 2033 Senior Notes which is included our Consolidated Balance Sheet as of December 31, 2016 :(In thousands)Embeddedconversionoption 2033 SeniorNotes Discount Debt IssuanceCost TotalBalance at December 31, 2015$23,737 $32,200 $(6,525) $(426) $48,986Amortization of debt discount— — 1,913 153 2,066Change in fair value of embedded derivative(7,001) — — — (7,001)Conversion— (350) — — (350)Balance at December 31, 2016$16,736 $31,850 $(4,612) $(273) $43,701The following table sets forth information related to the 2033 Senior Notes which is included our Consolidated Balance Sheet as of December 31, 2015 :(In thousands)Embeddedconversionoption 2033 SeniorNotes Discount Debt IssuanceCost TotalBalance at December 31, 2014$65,947 $87,642 $(22,135) $(1,638) $129,816Amortization of debt discount— — 2,613 233 2,846Change in fair value of embedded derivative36,587 — — — 36,587Conversion(78,797) (55,442) 12,997 979 (120,263)Balance at December 31, 2015$23,737 $32,200 $(6,525) $(426) $48,986143The 2033 Senior Notes will be convertible at any time on or after November 1, 2032, through the second scheduled trading day immediately preceding thematurity date, at the option of the holders. Additionally, holders may convert their 2033 Senior Notes prior to the close of business on the scheduled trading dayimmediately preceding November 1, 2032, under the following circumstances: (1) conversion based upon satisfaction of the trading price condition relating to the2033 Senior Notes; (2) conversion based on the Common Stock price; (3) conversion based upon the occurrence of specified corporate events; or (4) if we call the2033 Senior Notes for redemption. The 2033 Senior Notes will be convertible into cash, shares of our Common Stock, or a combination of cash and shares ofCommon Stock, at our election unless we have made an irrevocable election of net share settlement. The initial conversion rate for the 2033 Senior Notes will be141.48 shares of Common Stock per $1,000 principal amount of 2033 Senior Notes (equivalent to an initial conversion price of approximately $7.07 per share ofCommon Stock), and will be subject to adjustment upon the occurrence of certain events. In addition, we will, in certain circumstances, increase the conversionrate for holders who convert their 2033 Senior Notes in connection with a make-whole fundamental change (as defined in the Indenture) and holders who convertupon the occurrence of certain specific events prior to February 1, 2017 (other than in connection with a make-whole fundamental change). Holders of the 2033Senior Notes may require us to repurchase the 2033 Senior Notes for 100% of their principal amount, plus accrued and unpaid interest, on February 1, 2019,February 1, 2023 and February 1, 2028, or following the occurrence of a fundamental change as defined in the indenture governing the 2033 Senior Notes.We may not redeem the 2033 Senior Notes prior to February 1, 2017. On or after February 1, 2017 and before February 1, 2019, we may redeem for cash anyor all of the 2033 Senior Notes but only if the last reported sale price of our Common Stock exceeds 130% of the applicable conversion price for at least 20 tradingdays during the 30 consecutive trading day period ending on the trading day immediately prior to the date on which we deliver the redemption notice. Theredemption price will equal 100% of the principal amount of the 2033 Senior Notes to be redeemed, plus any accrued and unpaid interest to but not including theredemption date. On or after February 1, 2019, we may redeem for cash any or all of the 2033 Senior Notes at a redemption price of 100% of the principal amountof the 2033 Senior Notes to be redeemed, plus any accrued and unpaid interest up to but not including the redemption date.The terms of the 2033 Senior Notes, include, among others: (i) rights to convert into shares of our Common Stock, including upon a fundamental change;and (ii) a coupon make-whole payment in the event of a conversion by the holders of the 2033 Senior Notes on or after February 1, 2017 but prior to February 1,2019. We have determined that these specific terms are considered to be embedded derivatives. Embedded derivatives are required to be separated from the hostcontract, the 2033 Senior Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closelyrelated to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument.We have concluded that the embedded derivatives within the 2033 Senior Notes meet these criteria and, as such, must be valued separate and apart from the 2033Senior Notes and recorded at fair value each reporting period.For accounting and financial reporting purposes, we combine these embedded derivatives and value them together as one unit of accounting. At eachreporting period, we record these embedded derivatives at fair value which is included as a component of the 2033 Senior Notes on our Consolidated BalanceSheet.In August 2013, one of the conversion rights in the 2033 Senior Notes was triggered. Holders of the 2033 Senior Notes converted $16.9 million principalamount into 2,396,145 shares of the Company’s Common Stock. In June 2014, we entered into an exchange agreement with a holder of the Company’s 2033Senior Notes pursuant to which such holder exchanged $70.4 million in aggregate principal amount of 2033 Senior Notes for 10,974,431 shares of the Company’sCommon Stock and approximately $0.8 million in cash representing accrued interest through the date of completion of the exchange. During 2015, pursuant to aconversion right or through exchange agreements we entered with certain holders of our 2033 Senior Notes, holders of our 2033 Senior Notes converted orexchanged $55.4 million in aggregate principal amount of 2033 Senior Notes for 8,118,062 shares of the Company’s Common Stock.144On April 1, 2015, we initially announced that our 2033 Senior Notes were convertible through June 2015 by holders of such notes. This conversion right wastriggered because the closing price per share of our Common Stock exceeded $9.19 , or 130% of the initial conversion price of $7.07 , for at least 20 of 30consecutive trading days during the applicable measurement period. We have elected to satisfy our conversion obligation under the 2033 Senior Notes in shares ofour Common Stock. Our 2033 Senior Notes continued to be convertible by holders of such notes for the remainder of 2015 and 2016 and continue to be convertiblefor the first quarter of 2017, and may be convertible thereafter, if one or more of the conversion conditions specified in the Indenture is satisfied during futuremeasurement periods. Pursuant to the Indenture, a holder who elects to convert the 2033 Senior Notes will receive 141.4827 shares of our Common Stock plussuch number of additional shares as is applicable on the conversion date per $1,000 principal amount of 2033 Senior Notes based on the early conversionprovisions in the Indenture. See further discussion in Note 14.In November 2015, Bio-Reference and certain of its subsidiaries entered into the Credit Agreement with JPMorgan Chase Bank, which provides for a $175.0million secured revolving credit facility and includes a $20.0 million sub-facility for swingline loans and a $20.0 million sub-facility for the issuance of letters ofcredit. The Credit Agreement matures on November 5, 2020 and is secured by substantially all assets of Bio-Reference and its domestic subsidiaries, as well as anon-recourse pledge by us of our equity interest in Bio-Reference.Note 3 Commitments and Contingencies We have no significant direct commitments and contingencies, but our subsidiaries do. See Note 13 of our consolidated financial statements in Item 8 of PartII of this Form 10-K.Note 4 DividendsWe did not receive any dividend payments from our consolidated subsidiaries for the years ended December 31, 2016, 2015 and 2014.Note 5 Income TaxesThe parent company condensed financial statements recognize the current and deferred income tax consequences that result from our activities during thecurrent and preceding periods pursuant to the provisions of Accounting Standards Codification Topic 740, Income Taxes (ASC 740), as if we were a separatetaxpayer rather than a member of the consolidated income tax return group. The tax expense and benefit recorded in OPKO's consolidated financial statementswas the result of activity at the subsidiaries and therefore all tax benefit and expense was reported in the Net income (loss) from subsidiaries, net of taxes line in theCondensed Statement of Income.145SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. Date: March 1, 2017OPKO HEALTH, INC. By:/s/ Phillip Frost, M.D. Phillip Frost, M.D. Chairman of the Board and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated.Signature Title Date/s/ Phillip Frost, M.D. Chairman of the Board and Chief Executive March 1, 2017Phillip Frost, M.D. Officer (Principal Executive Officer) /s/ Jane H. Hsiao, Ph.D., MBA Vice Chairman and Chief Technical Officer March 1, 2017Jane H. Hsiao, Ph.D., MBA /s/ Steven D. Rubin Director and Executive Vice President – March 1, 2017Steven D. Rubin Administration /s/ Adam Logal Senior Vice President, Chief Financial Officer, March 1, 2017Adam Logal Chief Accounting Officer and Treasurer(Principal Financial Officer) /s/ Richard Krasno, Ph.D. Director March 1, 2017Richard Krasno, Ph.D. /s/ Thomas E. Beier Director March 1, 2017Thomas E. Beier /s/ Dmitry Kolosov Director March 1, 2017Dmitry Kolosov /s/ Richard A. Lerner, M.D. Director March 1, 2017Richard A. Lerner, M.D. /s/ John A. Paganelli Director March 1, 2017John A. Paganelli /s/ Richard C. Pfenniger, Jr. Director March 1, 2017Richard C. Pfenniger, Jr. /s/ Alice Lin-Tsing Yu, M.D., Ph.D. Director March 1, 2017Alice Lin-Tsing Yu, M.D., Ph.D. 146Exhibit IndexExhibit NumberDescription 21Subsidiaries of the Company. 23.1Consent of Ernst & Young LLP. 23.2Consent of MSPC Certified Public Accountants and Advisors, P.C. relating to Bio-Reference Laboratories, Inc.’s financialstatements. 31.1Certification by Phillip Frost, Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities andExchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the year endedDecember 31, 2016. 31.2Certification by Adam Logal, Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities andExchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the year endedDecember 31, 2016. 32.1Certification by Phillip Frost, Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2016. 32.2Certification by Adam Logal, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2016. 101.INSXBRL Instance Document 101.SCHXBRL Taxonomy Extension Schema Document 101.CALXBRL Taxonomy Extension Calculation Linkbase Document 101.DEFXBRL Taxonomy Extension Definition Linkbase Document 101.LABXBRL Taxonomy Extension Label Linkbase Document 101.PREXBRL Taxonomy Extension Presentation Linkbase Document147Exhibit 21SUBSIDIARIES OF OPKO HEALTH, INC. NAME JURISDICTION OF INCORPORATIONOPKO Instrumentation, LLC DelawareOPKO Pharmaceuticals, LLC DelawareOPKO Diagnostics, LLC DelawareOPKO Chile, S.A. ChileArama Natural Products Distribuidora, Ltda ChilePharmacos Exakta S.A. de C.V. MexicoFineTech Pharmaceutical Ltd IsraelFarmadiet Group Holdings, S.C. SpainOPKO Biologics, Ltd IsraelOPKO Ireland Global Holdings, Ltd IrelandOPKO Ireland, Ltd IrelandOPKO Canada Corp, ULC CanadaOPKO Renal, LLC CanadaCurna, Inc. DelawareBio-Reference Laboratories, Inc. New JerseyGeneDX, Inc. New JerseyGenome Diagnostics, Ltd CanadaEirGen Pharma Limited IrelandTransition Therapeutics, Inc. CanadaExhibit 23.1Consent of Independent Registered Certified Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements: 1.Registration Statement (Form S-8 No. 333-211209) pertaining to the 2016 Equity Incentive Plan of OPKO Health, Inc. and subsidiaries,2.Registration Statement (Form S-8 No. 333-144040) pertaining to the 2007 Equity Incentive Plan of OPKO Health, Inc. and subsidiaries,3.Registration Statement (Form S-8 No. 333-190899) pertaining to the 2005 Stock Incentive Plan and 2007 Equity Incentive Plan of PROLOR Biotech, Inc.(formerly Modigene Inc.),4.Registration Statement (Form S-8 No. 333-190900) pertaining to the 2007 Equity Incentive Plan of OPKO Health, Inc. and subsidiaries, and5.Registration Statement (Form S-8 No. 333-206489) pertaining to the 2003 Employee Incentive Stock Option Plan of Bio-Reference Laboratories, Inc.of our reports dated March 1, 2017, with respect to the consolidated financial statements and schedule of OPKO Health, Inc. and subsidiaries and the effectivenessof internal control over financial reporting of OPKO Health, Inc. and subsidiaries included in this Annual Report (Form 10-K) of OPKO Health, Inc. andsubsidiaries for the year ended December 31, 2016./s/ Ernst & Young LLP Miami, FloridaMarch 1, 2017Exhibit 23.2Consent of Independent Registered Public Accounting FirmMarch 1, 2017OPKO Health, Inc.4400 Biscayne Blvd.Miami, FL 33137We consent to the incorporation by reference in the following Registration Statements: 1.Registration Statement on Form S-8 (No. 333-211209) of OPKO Health, Inc. and subsidiaries; 2.Registration Statement on Form S-3 (No. 333-144040) of OPKO Health, Inc. and subsidiaries, 3.Registration Statement on Form S-8 (No. 333-190899) of OPKO Health, Inc. and subsidiaries; 4.Registration Statement on Form S-8 (No. 333-190900) of OPKO Health, Inc. and subsidiaries; and 5.Registration Statement on Form S-8 (No. 333-206489) of OPKO Health, Inc. and subsidiaries;of our reports dated January 13, 2015, with respect to the consolidated financial statements and internal controls over financial reporting of Bio-ReferenceLaboratories, Inc. and its subsidiaries which is incorporated by reference in this Annual Report on Form 10-K of OPKO Health, Inc./s/ MSPCMSPCCertified Public Accountants and AdvisorsA Professional CorporationCranford, New JerseyMarch 1, 2017Exhibit 31.1CERTIFICATIONSI, Phillip Frost, certify that:(1)I have reviewed this Annual Report on Form 10-K of OPKO Health, Inc.;(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;(4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and(5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 1, 2017/s/Phillip Frost, M.D. Phillip Frost, M.D. Chief Executive OfficerExhibit 31.2CERTIFICATIONSI, Adam Logal, certify that:(1)I have reviewed this Annual Report on Form 10-K of OPKO Health, Inc.;(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;(4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and(5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 1, 2017/s/ Adam Logal Adam Logal Senior Vice President, Chief Financial Officer,Chief Accounting Officer and TreasurerExhibit 32.1Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)Pursuant to 18 U.S.C. Section 1350, as adopted pursuant section 906 of the Sarbanes-Oxley Act of 2002, I, Phillip Frost, Chief Executive Officer of OPKO Health,Inc. (the “Company”), hereby certify that:The Annual Report on Form 10-K for the year ended December 31, 2016 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the financial conditionand results of operations of the Company.Date: March 1, 2017/s/ Phillip Frost, M.D. Phillip Frost, M.D. Chief Executive OfficerExhibit 32.2Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)Pursuant to 18 U.S.C. Section 1350, as adopted pursuant section 906 of the Sarbanes-Oxley Act of 2002, I, Adam Logal, Chief Financial Officer of OPKO Health,Inc. (the “Company”), hereby certify that:The Annual Report on Form 10-K for the year ended December 31, 2016 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the financial conditionand results of operations of the Company.Date: March 1, 2017/s/ Adam Logal Adam Logal Senior Vice President, Chief Financial OfficerChief Accounting Officer and Treasurer

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