Q2 2019 Earnings Call
At this time I would like to inform all participants that are lines will be in a listen only mode. After the speakers remarks, there will be a question and answer period I'd like to turn the call over to Terry and powers, Vice President of Investor Relations.
Good morning, everyone and you're aware this morning diplomat issued its second quarter 2019 financial results as well as a press release, indicating that the company is exploring strategic alternatives.
Before I turn it over to our chairman and CEO , Brian Griffin for his remarks.
I will read the following safe Harbor statement.
Some of the company's statements made on this conference call will be forward looking statements, which may include financial projections or other statements of the company's plans objectives expectations or intentions.
These matters involve certain risks and uncertainties.
The Companys actual results may differ significantly from those projected or suggested in any forward looking statements due to a variety of risks and uncertainties, which are discussed in detail in the earnings release, just issued and the company's annual 10-K report and subsequent filings with the Securities and Exchange Commission.
These statements speak only as of the date hereof or the dates specified on the call and except as required by law. The company does not undertake any obligation to update or otherwise release publicly any revisions to forward looking statements.
There can be no assurance that the process of reviewing and evaluating strategic alternatives will result in the approval or completion of any particular strategic alternative or transaction in the future.
The company does not intend to dispose development or provide updates on the progress or status of the review of strategic alternatives, unless and until required or when the company determined as appropriate.
As such management will not comment on the specifics of this process in today's prepared remarks, all comments today excludes any potential impact from strategic alternative.
During this call.
The company will also discuss non-GAAP financial measures. Please refer to the tables included in the Companys earnings Press release, just issued for a reconciliation of these non-GAAP measures to the comparable GAAP measures and a related discussion thereof.
A replay of the call and associated slide presentation is accessible through a link on the Investor Relations page of the company's website and it will be available for 90 days.
I will now turn the call over to Brian Christian Brian . Please go ahead.
Thank you Terry and good morning, everyone.
On previous calls we shared with you the challenges posed by the current market dynamics to our core specialty pharmacy business and the need to rebuild our PBM.
Well, we're taking aggressive actions with regard to both businesses. These dynamics have resulted in a need to refer the reduced our guidance for this year.
By contrast, infusion therapy performance continues to be strong and we are further invested in this area with a small infusion pharmacy acquisition in the third quarter.
We're also happy to report that we continue to partner with health plans nationwide, including increased access with major Blue Cross Blue Shield plans.
As we work to strengthen each of our businesses. We also are strengthening our financial flexibility.
We recently negotiated an amendment to our credit facility to provide covenant relief through the end of 2020.
Dan will provide more details on that and our revised guidance later.
From time to time, we've had discussions with third parties either at their initiation or hours regarding strategic transactions recently, we've had discussions with several parties, who see value in acquiring a company or a certain of our businesses and have expressed specific interest.
We along with our advisors are evaluating these expressions of interest.
To ensure that any decisions, we make will be in the best interest of our shareholders. We're also exploring the full range of alternatives for value creation, which could include a sale of the company.
The sale of individual businesses or other value enhancing transactions.
Ultimately, we may determine that our best option is to remain an independent publicly traded company and our current configuration.
There can be no assurance that this process will result in an approval or completion of any particular strategic alternative where transaction in the future.
The company does not intend to disclose developments will provide updates on the progress or status of the review of strategic alternatives unless and until required well when the company determines appropriate.
I wonder what the size the during the review process, we intend to maintain our focus on executing our strategic plan and improving our businesses.
We are leveraging previous investments in sales and account management talent across our businesses to drive additional volumes to diplomat, we're implementing enterprisewide initiatives to improve our cost structure and operating efficiency, while continuing to provide the high standard of patient care that diplomat is known for.
We're doing all of this because we believe in the prospects of our business, which is also validated by the third party expressions of interest we have received.
Turning to a more detailed business update.
As we look at the pipeline across the entire company. We continue to see a lot of opportunity and are clearly gaining traction with our strong clinical value proposition.
And the health plan market sales cycles can be long, but we are in the final stages of negotiating contracts with several regional health plans and provider networks.
We continue to gain new name business from hospital systems for wrap around L.D.D. access clinical services and door 340, B. services signing additional agreements in Q2 on top of those signed in Q1 within infusion therapies diplomat continues to perform very well successfully increasing network access with major health plans nationwide as a specialty infusion provider.
We continue to increase access with major Blue Cross Blue Shield plans, including Blue Cross Blue Shield of Kansas, and Blue Cross Blue Shield to Vermont in the second quarter.
We also recently signed an agreement with <unk> partners in Minnesota and in the Pacific Northwest First choice Health network.
In addition, we have been added to networks for Wellcare in Kentucky, well sense in New Hampshire, and always hoped partners in the New England region. All of the aforementioned agreements would provide access to at least an additional four and a half million lives.
We also recently announced an innovative first of its kind agreement with allergy partners, the largest allergy and immunotherapy practice in the United States.
Diplomat has entered into a five year agreement with allergy partners to provide in home or in office infusion services for their patients.
Diplomat will provide clinical oversight and staffing and nursing services amongst the suite of management services on behalf of allergy partners 128 practice locations. This innovative agreement will drive diplomats continued growth in infusion therapies, and we look forward to working with allergy partners. Our pharma services business unit envoy health continues to expand our pipeline of new opportunities with pharma manufacturers to provide help and medical information services. We recently signed two agreements with a pharmaceutical manufacturer to support product distribution and other services for investigator initiated clinical trials in oncology.
We also see continued growth in demand for digital therapeutic services.
As previously discussed 2019, as a rebuilding year for our PBM business.
We continue to work on establishing our specialty focused PBM value proposition and have committed additional sales and account management resources to that effort.
There is still an opportunity to win additional business in 2019, though given where we are on the year any new contract awards would not have a material impact on our 2019 financial performance.
We continue to see a robust pipeline and our PBM business for 112020.
Given the dynamics of the middle market, we expect to be in a position to provide further insight into the pbms prospects for 2020 early next year.
Moving to the regulatory environment. The situation is fluid changing day by day as new proposals are brought forth and debated.
While the Trump administration eliminated the proposed HHS revision to the Safe Harbor rule. There is the potential to see it revived as an addition to one or more bills currently proposed or in future bills.
The HHS proposal would have only impacted Medicare and managed Medicaid business, but new proposals could applied to commercial business as well.
Until we gain more visibility into legislative proposals it is difficult to predict at this time any potential impacts on our business.
What is clear is that there is bipartisan support and support from the Trump administration for drug pricing reform. There are a lot of moving pieces and implications for timing given that we are fast approaching campaign season for the 2020 presidential election.
We continue to monitor regulatory developments and we will update the market as necessary.
Regardless of any regulatory change we are confident in the clinical value, we bring and that we'll be able to shift our business model accordingly.
We support efforts that would make medications more affordable for patients, which can improve adherence, particularly for life saving medications like those which diplomat dispenses.
We continue to be laser focused on driving more volumes to diplomat, improving operational efficiency and further improving our clinical value proposition.
I believe in diplomat and the high quality of care that we bring to our patients.
I assure you that the board management and I are committed to doing what is in the best interest for diplomat shareholders patients and their providers.
Payers as well as our pharma partners and employees.
I'll now turn the call over to Dan for a review of our financial performance in the quarter Dan.
Thank you, Brian and good morning, everyone.
This morning, we reported 1.3 billion in revenue for the second quarter down 9% year over year, while adjusted EBITDA was 19 million down 55% versus the prior year.
Looking at revenue at the segment level in the second quarter, our specialty segment generated revenue of $1.2 billion down 1% from the prior year.
Segment revenue benefited from brand price inflation, but was more than offset by payer reimbursement compression the increase in volume of newer generics and volume declines in certain therapeutic areas. As we have previously noted we believe core specialty pharmacy performance is being negatively impacted by increased competition.
Infusion sales grew 6% year over year, driven by higher volumes oncology sales were up almost 2% year over year as the benefit of brand inflation was partially offset by reimbursement compression prescription volume declines and higher generic utilization.
Ask the Rx recorded 90 million in revenue down 98 million from the prior year as we realize the impact of previously disclosed lost business, including some business that dropped off during the second quarter.
Taking a look at gross profit and margin total company gross profit was $73 million down 26% year over year and gross margin was 5.6% down 130 basis points compared to the prior year.
Gross profit in the specialty segment was $63 million down 13% year over year and gross margin in the segment was down 70 basis points year over year to 5.2%.
Both the gross profit and margin decline were the direct result of lower reimbursement in our core specialty pharmacy business. Despite the contribution from higher margin generics.
Specialty prescription volumes decreased slightly by 40 basis points year over year to 235000.
Infusion therapy volumes grew while other therapeutic area volumes were down year over year.
Gross profit per script in the second quarter of 2019 was $264 per script compared to $301 per script in the prior year period.
Castillo Rx recorded gross profit of $10 million in the quarter down $16 million and generated a gross margin of 10.7% versus 13.7% in the prior year.
The gross margin decrease was primarily driven by a $2.5 million nonrecurring client rebate payment in the second quarter.
Total company SDMA declined by $10 million compared to the prior year to $81 million.
Driven by lower amortization expense, resulting from the fourth quarter 18 impairment of intangibles as well as lower acquisition related expense and share compensation costs. In addition, well cost saving efforts have resulted in lower employee costs in certain areas savings have been reinvested in sales teams such that employee costs were flat year over year.
Taken together, our consolidated adjusted EBITDA for the second quarter was $19 million down 55% from the prior year period.
Additionally, our results were approximately 4 million below our prior guidance due to multiple factors that were not predictable, including the nonrecurring PBM client rebate payment.
The second quarter includes a noncash impairment of 85 million to write off the remaining portion of goodwill and intangibles associated with our specialty pharmacy business.
The impairment was booked due to lower than expected second quarter results, which combined with the impact of challenging market dynamics and slower than expected realization of new business awards resulted in reduced expectations for future projected earnings and cash flows.
In addition results also include an additional non cash impairment of goodwill and intangibles.
Totaling $56 million associated with our PBM business due to lower than expected second quarter results and a more conservative outlook for growth beyond 2019.
Net loss in the quarter was $159 million or $2.13 per share compared to a loss of $4 million or five cents per share in the second quarter of 2018.
Turning to the balance sheet, our working capital improved by $41 million compared to December 30, Onest 2018, driven primarily by an improvement in inventories and payables.
We will continue to look at ways to improve our working capital position.
We reported 585 million in net debt, including contingent consideration as of June Thirtyth 2019, and our leverage ratio was four point fivex.
We paid down net debt by a total of $53 million compared to the end of last year, mainly on our revolving credit facility as Bryan previously mentioned, we recently amended our debt covenants effective August six.
Covenants have been amended from Three Q2 019 through for Q2 thousand 20.
There were no changes in interest rates as a result of the amendment, but we did pay a one time fee to facilitate the amendment.
Details of the modifications to our total net leverage ratio and interest coverage ratio covenants are provided in the slide presentation accompanying today's results.
Details are also available in the 8-K filed today.
Less restrictive covenants are expected to ensure continued compliance and give the company additional financial flexibility to execute our strategy.
As a part of the agreement with our lenders we agreed to reduce the size of our revolving credit facility from 250 million to $200 million.
Even with the reduced size of the revolver, we continue to have significant availability under our credit facility and our priority is to continue to reduce debt with any excess cash flow.
Given that we have already paid down $53 million in net debt compared to the end of last year any further debt paydown will be dependent on additional working capital improvement and any potential asset sales.
Additionally, we are required to use the net proceeds from certain asset sales over $1 million to pay down our term loans.
Turning to our outlook.
First while we remain encouraged by the pipeline of opportunity across all of diplomats businesses and we are being awarded new business. Recent awards are expected to be more beneficial to 2020 performance with limited impact on 2019 results.
Second we now expect brand price inflation to come in at the lower end of our previously forecasted 4% to 6% range.
We continue to see volumes in our core specialty pharmacy business being reduced by member channel management and efforts by larger vertically integrated peers to push volumes to their specialty pharmacies.
In addition, we have also observed competitors cherry picking prescriptions, leaving lower profit margin scripts for diplomat.
Finally, the reimbursement environment and specialty pharmacy is driving continued downward pressure on margins.
Taking into account these trends and recent developments, we have lowered our 2019 adjusted EBITDA net income and EPS guidance.
We continue to expect consolidated revenues between $4.7 billion and $5 billion.
This still includes specialty segment revenue between $4.4 billion and $4.6 billion.
As we are halfway through the year, we have tightened the range of expected PBM segment revenue from $300 million to $400 million.
Two 325 million to $375 million.
We now expect adjusted EBITDA in the range of 87 million to $93 million versus the prior 110 million to $116 million range.
Factors driving the reduced outlook compared to prior guidance include.
Actual second quarter results that were below expectations.
Lower than expected generic volumes.
Potential for additional reimbursement pressure in the latter half of the year.
Lower than anticipated new core specialty pharmacy contracts.
And cost savings that are running behind forecast.
We now expect $7 million to $8 million in cost savings generated in 2019 with an annualized run rate exiting 2019, now expected to be 10 million or more.
This is due to a number of factors, including delays in restructuring and facilities consolidation as well as delays in the full implementation of script med, our new specialty operating platform.
Given the revised outlook, we expect third and fourth quarter adjusted EBITDA to each be sequentially stronger than the second quarter due to typical seasonality growth in infusion patients and timing of PBM rebate recognition.
GAAP net loss expectations for the full year, our now between negative $201 million and negative $191 million, which translates into a GAAP EPS loss range of negative $2.69 to negative $2.55.
We continue to expect to income tax expense to be approximately $2 million.
Capex is expected to be approximately 21 million to $23 million for the year, primarily related to investments expected to improve unit cost efficiencies as well as enhanced analytic capabilities and to support the creation of new solutions for our manufacturer PBM and payer clients in our core specialty pharmacy business.
Based on our revised outlook, we expect 2019 operating cash flow between 60 million and $80 million.
As previously indicated any further debt paydown will be dependent on additional working capital improvement and the potential sale of assets.
It is important to note that even with the revised 2019 outlook, we expect to remain in compliance with the new terms of our credit facility, giving us the financial flexibility to pursue our strategy into the future.
Thank you again for your time I will now turn the call back over to Brian .
Thank you Dan.
We remain focused on executing our strategy to grow the company and improve operational efficiency.
Our clinical value proposition is differentiated from our competitors due to our therapeutic areas of expertise in particular oncology.
Our limited distribution drug access and the fact that we put our patients first always every day our employees are committed to the diplomat difference and taking care of the patient.
And I'd like to thank them for their unwavering commitment to go the extra mile to make our patients lives easier.
At the same time management and the board are committed to maximizing shareholder value.
Thank you for your time, and we look forward to your questions.
Thank you Brian .
Well now move to today I'd ask everyone to please limit your questions to one and a follow up to that all participants may be able to ask a question. Operator can you. Please provide the instructions.
If youd like to ask a question at this time. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key we'll pause for a moment to compile the culinary roster.
And your first question comes from Lisa Gill with Jpmorgan. Please go ahead.
Hi, Thanks, very much good morning.
Brian can you talk to us about the time line for evaluating the strategic decisions. My first question and as a follow up I know historically, you havent broken out the EBITDA.
Three different businesses that you have today.
Would you be comfortable giving that to answer at least giving us an indication as to the relative size. It seems to me that that does it probably has the greatest value today would be the infusion business of mystery.
Good morning, Lisa Yes that is is true I think you're right. Historically, we haven't given a perspective on the breakdown by business unit and so and I don't think we would do that at this point.
I'll, let Dan add any additional color.
In terms of the you know the first part of your question on the timing.
We as we said and obviously our press release and in our prepared remarks, we aren't going to make additional commentary on the evaluation of strategic alternatives.
Dan any additional color.
No Brian that that's right.
The infusion business continues to perform very strongly and we're very encouraged by the results there, but we're not in a position to break it out from from for our specialty.
Obviously, so you saw that we had some pretty solid wins in the infusion area with the additional health plan.
Wins that we had in this quarter.
You you undoubtedly saw the press release on.
The new partnership with allergy partners, that's going to continue to drive the infusion growth into the future. So we're obviously excited about that unique new model provider focused model.
And what it means for us in terms of infusion growth.
Just if I think about the three businesses I know you talked about the gross profit for proton CRX.
Our all three businesses profitable on the EBITDA line today.
Well, we don't take the segment's down to an EBITDA level.
They're simply broken out at the gross margin for.
Our our public reporting.
Okay. Thank you.
Thanks Lisa.
Your next question comes from Steven Eloquence with Barclays. Please go ahead.
Thanks, Good morning.
Yes kind of a similar question to maybe the ago, just a little bit deeper on that.
Our own view is that the specialty infusion business may comprise about 75% of the company's EBITDA for 2019 at the beginning of this year.
Now at today's adjustments to EBITDA guidance, maybe closer to a 100%.
Im not asking to comment on that some worry about that I guess my question is.
Just want to confirm that the specialty infusion business remains intact, both from the revenue and profit perspective, you mentioned, the 6% revenue growth.
And that business I, just want to make sure that the EBITDA is intact.
And also things you mentioned in the press release that was leading to softer EBITDA seem to be tied to just the PBM operation in core specialty doesn't make sure that the infusion impact EBITDA perspective. Thanks.
Thanks for the question.
Yes, Thats correct, the the growth and margin prospects for the infusion therapies within specialty are.
Intact.
Okay. The other quick follow up here you mentioned the lower earned rebates in the PBM due to drug mix.
Finally, there was another large PBM that said that they actually had an increase in.
Attained rebates due to drug mix.
Is there any color on either which drugs or if not that will be switched therapeutic categories. We're seeing maybe some shifting around the market share that might OLED, one PBM to get greater rebates and then unfortunately for yourselves.
The wrong end of that for any color either on the drugs are the therapeutic category. Thanks.
Not really because it's not just drug mix. It's also client mix, so margins and rebid retention vary by client and the growth.
The relative growth of an individual client would also impact our aggregate numbers.
So it's not it's not specific it's going to be different for every client there's really no general trend there on a therapeutic chapter level.
Okay, all right I appreciate the color. Thanks.
Your next question comes from Ricky Goldwasser with Morgan Stanley . Please go ahead.
Yes, hi, good morning.
So.
I have a few questions here, but just to follow up on the questions on the health.
Engine business is obviously on the specialty side, you highlighted the vertical integration and the larger enterprises.
Focus on carving in the specialty business.
One of these entities does have an infusion business that one is a partnership how is infusion different and why wouldn't we see those same trends.
Happening on that market.
Okay.
Yes, good morning, Ricky if I if I understood. The question is why is infusion different than core specialty in terms of.
The vertical integration as that I'd capture that correctly.
Correct, when we think about the characteristics of the infusion market, what's what's in it that does make making it more defensive.
Yes, well I think.
I think as you know the market is definitely a more fragmented market and I think the idea that.
Within infusion, we're managing across the the medical benefit as well as the specialty benefit does make it different.
We haven't seen.
The same.
Dynamics to your point in the infusion side of the business.
From a.
Our growth trajectory perspective, obviously, you saw our announcements this morning.
We continue to be successful in gaining at no additional access through partnerships with health plans. So on the core side. The vertical integrations that are that have occurred and that are impacting us in terms of volume you've heard us obviously point to that during our last quarter call.
It is also on the flip side, creating opportunities for us to.
Become the strategic partner for independent Health plan. So.
The teams have had some nice success there they've they've.
Also developed strong relationships here in Twoq you with.
A number of major hospital systems across the country, So thats going well.
So that vertical integration actually is creating opportunity for us in terms of our both our core specialty as well as the infusion.
Okay, and then question on the rebate side, so Brent it seems that your tone kind of like in terms of the potential regulatory impact has changed since the last call and I understand there are kind of like more builds that are proposed in Congress instead, but what do you think step back and you think about your comments and the impact that you had in the quarter.
And also the comment around the fact that client mix matters. Here are you starting to also see kind of like clients coming to you and asking questions about kind of like the rebate and thinking about ways to kind of like change that the model.
Yes, great Great question, Yes, we aren't actually so.
It's.
Given the fact that were.
Focused on the middle market, which as you know we define that as groups of 500 to 5000 that varies a bit across the pvms and within our plans.
We are not seeing any.
Yes request from either the consultant community or directly from clients.
To change the traditional rebate model. So there it's still a very important component of.
Cost management efforts of our clients and.
Their decision to retain a certain level of rebates to offset the overall.
Healthcare costs that that model continues to be the model within our middle market and we really have not seen any any change or any indication that it will change here in the near term.
Yes, I'd say that.
My view of.
Potential legislation.
In any one of the.
Proposed bills that might affect rebate retention or were spread pricing I, just think that the value that we create particularly with our specialty expertise that we bring to bear in our PBM offering.
Drives a differentiated clinical value proposition that ultimately will be paid for and I think that's really that is consistent with my my view from really our Q1 discussion as well.
Okay. Thank you.
Thank you. Your next question comes from Charles Rhyee with Cowen. Please go ahead.
Hi, James on for Charles actually.
Well given our other pbms are starting to move away from rebates can you maybe talk about where that is within that process.
So yeah, we did first of all good morning James.
We.
Actually going back to just a year ago, when I started with the company we began to.
Look at alternative models in that area and so we made some investments that we've spoken about in terms of data and analytics that support our value proposition.
Our clinical value proposition, specifically in PBM and our specialty business.
In in anticipation of significant market movement around rebates and obviously at that point. It was right. After the the Trump blueprint was published and.
The secretary was pointing to a change in the rebate model.
We have not as I just mentioned.
With respect to Rickys question, we have not seen any demand for a different model in fact, we've seen.
A continued focus on the traditional pricing model that we've been in market with.
However, we are preparing.
An alternative model that is more focused on.
Clinical value proposition and so my hope is that I can bring that out into the market as an alternative.
Offering really just to capture more share but from a market perspective, we're just not seeing a different demand than we have historically.
Okay and.
Can you maybe talk more about the RFP activity. So far this year end.
The level of conversion that you are seeing and maybe how that compared to.
Last year.
So in terms of RFP activity, certainly relative to the last year on the on the PBM side, we've seen an increase in the RFP activity and I think that's really a function of the fact that we have fielded.
Professional.
Experienced sales organization that candidly, we didnt have in the company.
Our year ago, and that basically is leveraging folks that had been out in the in the PBM business for 20 plus years and have.
Significant relationships with the consultants and broker community and that is that's driving a higher level of overall RFP activity within the PBM business and so we don't obviously, we don't comment in terms of.
New wins during the.
During the quarter, we'll give more guidance on that.
You know as we get into 2020.
As we've discussed our selling season, obviously goes through the entirety of the year given that we are focused on small group and but we have seen an increase in RFP activity and we're excited about it we think.
Yes, the specialty value proposition that is really core.
Two our PBM offering.
Is really resonating within the consultant community and I think there's certainly a growing appreciation for the fact that here in the near term specialty is going to represent over 50% of total.
Pharmacy costs, and really almost the entirety of pharmacy trend and as a result of that we are getting more play out in the market within the consultant community.
Okay, great. Thank you.
Thank you.
Your next question comes from AJ Rice with Credit Suisse. Please go ahead.
Hi, everybody.
I understand you don't want to comment about the process going forward.
But I did wonder if you might comment about what what prompted you to to come to this point, where you're considering the strategic alternatives in your prepared remarks, you seem like you referenced a couple of times outside inquiries and I guess I'm wondering is that the driver or is it do you see market conditions, making it more difficult.
For a standalone player like yourself versus the big the big guys and what they're doing.
Any any flavor on what brought you to the point, where you're thinking about this.
Good morning, Ajay, Yes, no we.
And.
Obviously as chair of the board and in our discussions with.
The rest of my board colleagues.
We have always been focused on maximizing shareholder value and it's been a part of every board meeting that we've had since I've arrived at the company.
So it's.
We're not going to comment obviously on on the the process itself, but this is just.
Continued focus on the part of the board to ensure that we are maximizing shareholder value.
Okay, Alright and.
A couple of announcements in the last few days I guess your own announcement as you referenced in the prepared remarks about.
The allergy partners deal and then also.
I guess CMS announcing the carty reimbursement.
Approach any anything about that move the needle for you. It sounds like in terms of the partnership you probably say that Doesnt impact 19, as much as maybe 20, but.
But is there any way to size that or or.
Talk about how the other thing impacts the environment.
Well I mean, we're just really excited about the partnership obviously you saw in the press release that this really is from from our vantage point.
A very innovative new approach, where you know its a partnership with a large scale.
No physician practice.
Obviously with.
Our focus on allergic asthma, and immunology therapeutic categories, which lineup.
Obviously and complement.
Diplomats focus and obviously they have got a network of 161 providers 128 locations and two in 20 states. So that really just gives us broad national access in a in a true partnership with a physician organization and so thats why its so exciting for us its new it it represents a new market for us and.
The idea that we can together in that partnership drive a different value proposition.
And clinical clinical outcomes is really key to.
What we see in terms of the growth opportunity within it and we have not sized.
Nor do we intend on immediately sizing that opportunity that will grow over time.
And obviously, we're just very excited about the view the innovation in the partnership.
Okay.
Anything on the ecology side with what's happening in CMS.
Yes.
Yes, so no we.
No additional insight there A.J. in terms of what's happening on that obviously.
Where given our historical focus right on in terms of our limited distribution model and the success that weve had expanding that portfolio.
We think that there are opportunities for us.
In in the market as it relates to.
Some of these disease categories orphan categories as well.
Because it just fits into our clinical sweet spot, but nothing additional in terms of carty.
Okay. Thanks.
Once again, if you would like to ask a question. Please press star one on your telephone keypad and we have a question from John Kreger with William Blair. Please go ahead.
Hi, Thanks.
Brian on your PBM business.
Given what you're seeing in the market in terms of the selling season. How comfortable are you that you can see a nice uptick in in script volume and overall business in 2020.
Yes, John I have confidence that we're going to we're going to start to see a turn within the PBM business and again for the reasons I outlined earlier.
Relative to my comments on the RFP activity.
We're just seeing.
Higher overall level of RFP volume.
Yes, we know that the.
Our value proposition, which we think is different relative to the big three or many of our competitors is really resonating resonating within the consultant community.
I've just gotten off of.
Several week.
Set of meetings with some of the major national consulting firms and I think we're going to start they have assured us that we're going to get more RFP is in the future based on that value prop and so looking at the opportunity within 2020, we think that we're going to start executing on sales.
Given the higher level of opportunity there and I think that I should also add that there clearly is an appreciation that.
In term in terms of the PBM.
Operating metrics.
Weve turned the corner on some of the operating issues that we had.
During the initial migration of the two legacy Ppms onto one single operating platform and our operating metrics are now completely consistent with the rest of the PBM industry and obviously, we're striving to be better than the rest of the industry in that regard and that is clearly being recognized by the consultant and broker community.
Very helpful. Thanks.
Okay, turning to the specialty pharmacy.
Business is so if you just set the strategic review process aside for a second what are you guys doing or what can you do.
To stabilize that business.
And maybe get it back into a into a growth mode.
Between now and year end thanks.
Yes, John I'll start and then.
Obviously as Dan if he has any additional color, but so the key focus for us.
And this is.
A new set of strategies that we started to execute just last year is this focus on health plans and hospital systems and so while obviously, we pointed to the fact that we're being impacted here in 2019.
On volumes based on what we see is up.
An aggressive.
Shift of.
Script volume to the vertically integrated players. So they are basically through plan design narrow network and patient channel management shifting volume. So as you know thats really what's impacting.
Our overall specialty volume and the opportunity for us is to.
Execute on this strategy are building relationships with independent health plans and hospital systems, and we've had some nice successes that.
Unfortunately, we don't expect them to contribute materially to 2019, but we do.
Hi expectations for 2020.
For continued sales successes in our core specialty.
With health plans and these investments that I mentioned earlier around data and analytics.
Really are helping to support our clinical value proposition with those health plans.
So that's that's going very well.
With respect to the hospital system initiative.
That the hospital team is really doing a great job, we've had a number of wins here in both Q1 and in Q2.
In the hospital system marketplace, so thats going well again, not expecting to impact 2019, but.
Clearly is going to create a growth trajectory for us in 2020 and beyond.
So thats really key for US is to continue to execute on that strategy I think the idea that where we are.
We're able to partner and become a strategic partner with those those health plans is is clearly resonating.
Yes. This is Dan that's exactly right and those clients.
Offer a better margin profile than the vertically integrated payers. So thats part of our growth strategy and then I would just add that we are focused on increasing our.
Data sales to manufacturers out into the future and I think given all of the clinical data that we have and are.
Accumulating that that is a real opportunity for us.
And I guess I'll, just finish that that the commentary here with them.
We're also in a position to re leverage the leverage obviously, a really strong infusion.
Offering and the idea that we can in partnership with a health plan manage the benefit across both pharmacy and medical and cutting across infusion really becomes a differentiated advantage for us and.
Obviously as you saw in our press release, we've had some really solid wins in the Blue Cross Blue Shield system market.
As well as commercial health plan marketplace and that we can leverage the relationships that we're building on the infusion side.
To to offer an integrated core specialty infusion offering to those health plans.
Very helpful. Thank you.
Thank you once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
And we do not have any questions at this time I will turn the call over to Mr., Brian Griffin.
Thank you very much for your time today, we really appreciate your spending the time with US obviously will be available after the call for any further questions. Thank you very much and have a great day.
This concludes today's conference call you may now disconnect.
Okay.