IQVIA Holdings Inc. (IQV) Earnings Call Transcript & Summary

So I love to read MOAs, the memorandum of agreement with DEA and registrant, if there's an enforcement action taken or a complaint taking. When I was in the industry, I will read those to kind of stay in front of how DEA is thinking. Again, like Paul mentioned earlier, the rigs are like this big and there's really not much there. So I would read those things, the guidance letters and the MOAs and the settlements and so forth to kind of see what DEA is enforcing now, how they're enforcing it, what they're thinking and just view down the road kind of see what's coming. And there was a recent complaint against a major wholesaler here recently. And of course, these are all allegations at this point. But from reading that document, which was like 80-plus pages, I have read that and have my [ high ladder road ] and everything. It kind of gives you an idea of what DEA is thinking as far as to know your customer and the thresholds versus an algorithm system and whether sales to wholesalers are in play, which they are. A sale to a wholesaler falls under the same SOM regulation as the wholesalers linked to a pharmacy. So I definitely recommend staying on top of those -- when there's a new complaint, a new MOA or a new settlement or things like that. That tells you where DEA is right now and where they're thinking futuristically, and they're very helpful.

Okay. Thank you. We are definitely getting a lot of questions here, which is good. Just to answer -- this kind of leads into a question that I had for Kim. There is also a question here that somewhat relates to it, but what -- Kim, what recommendations you offer for clients, both companies and individuals [ toward ] the changing landscape with the data and product? So is there training? How do you help them stay up to date as far as that goes?

So there is definitely training around the due diligence plus module that integrates with the SOM tool that Paul mentioned earlier. We do -- the biggest recommendations that I can really make is around understanding what data you have access to and then what tools that can help you dig deeper into that. And from digging deeper, being intentional into how you can be proactive around the review of that data. So really, I'm a big data nerd. Eric likes to read, I love data. And so really understanding that data and digging into it. And again, as I mentioned, we'll help you with that through the tools in all of our reporting. But being able to understand what locations are purchasing the product and the frequency of that purchase, the sizes of their purchase, it really gives you greater insight to make proactive decisions.

Excellent. Thank you. Just know what data you access to, really. [ It's not a ] big thing. So again, we have lots of questions coming in, so I'm going to try to get to some of these. Have you ever had to defend your SOMS to DOJ? If yes, how did it go? I'm going to direct that one to Paul.

Sure. And I think what we mean by that is probably the SOM technology solution, those algorithms I was mentioning. The short answer is yes. So -- and probably the best statement I can make about that is in all the time we were providing these systems, which is now going on nearly 15 years, I guess, we've never had an adverse finding from DEA or DOJ or anybody else, which is the best you can hope for. Unfortunately, they don't pass out gold stars. I keep asking for something like that. But if you don't have an adverse finding, then that's about the best you can hope for. So we've taken that as a very positive thing. And I think one of the things that's happened is we now have gotten to, again, more than 50 deployed customers, maybe up to 60 deployed customers with these systems is I think the agency has gotten familiar with our solution, which I think has been a positive development for us and for our customers we're helping. I don't want to go too far out on a limb and try to make an assertion that's not easily supportable. But I think some -- we've heard comments from some of our clients when they're having an inspection on those kind of things that when they hear it's the IQVIA system, they're like, okay, so you guys have SOM and then maybe they, in some cases, have moved on to some other things. So I take a lot of pride and happiness in hearing those kind of stories, for sure. So...

Excellent. I'll send you a gold star.

Thank you.

Okay. We do have quite a few questions. It's great. How are pharma manufacturers handling the distribution, controlled regulations and samples of certain controlled substances through pharma reps in the field? Are they still doing this? Example, RX cough medicine have been in the industry for some time. And in my earlier years, I remember that there was sampling of controlled substances directly to physicians by pharma reps. I think we can -- I'm probably going to direct that to Paul and/or Eric?

Yes, I'll start and then, Eric, you can chime in here, too, because you may have some more direct exposure to that. I mean, I'll -- I'm a little bit removed from sampling approaches, particularly on controlled substances side. But a lot of that is because I think what I have understood is the industry has mostly moved away from sampling controls. Just the complexities, the extra recordkeeping you have to keep in place, those types of things. Eric, I don't know if you know any more directly about -- if there are -- without naming company names, of course. If there are many companies, any companies that are sampling controls today, I'm just -- I'm not -- I've not heard of a lot recently, but I'll turn it over to you, maybe...

You know what, Paul? I have not either. I'm really not certain in that space as far as sampling of controlled substances.

Heather, here's one thing I can commit to is obviously, we know who that particular question came from, and we can either generically make a broader -- a more complete answer made. I've got several folks that are former DEA regulators on staff. Let me run that by them real quickly as well just to see if they've heard of trends or people returning to sampling controls or those kind of things, and we'll look at that answer out as a part of the post follow-up of this meeting, too. So...

Okay. I'm also just going to put our presentation of our contact information up there, just in case anyone wants to follow up with any one of us directly. So please feel free to grab the host e-mail addresses if you have follow-ups. I have another question. Again, feel free to put -- continue to put questions in the Q&A section. If you have anything you'd like sent in to us, we can take a look at it. And if I miss you, we do have a list, then we can circle back with you. Are you going to talk about the current DOJ injunction relief action on wholesalers and the negative impact on direct patient care due to the flawed thresholds and limits on ordering that do not align with the CDC updated opioid prescription guidelines? And that is, I'm going to say, Eric, you usually know the most about those sorts of things.

Yes, I will try to take a stab at that one, not so much the specific DOJ injunction. But yes, so the thing -- and we mentioned this earlier, the thing about thresholds, you know that's tough, and that's something that I faced when I was in the industry, managing SOMS programs. Of course, there's a very legitimate need for -- I think the question mentioned controlled substance or even opioids. There is definitely a need for that. And the triggers to balance the need, of course, with your regulatory obligations. As far as the thresholds, that's why I believe DEA kind of challenges there. And plus, I like to use algorithms because -- you have the thresholds and then you have to figure out, okay, how do I determinate a threshold? Is it based on a statistical number? Is it based also on due diligence research that I have done? Or is it something that I've heard? Or is this something from 20 years ago in the state of Florida, say, 5,000 dosage units of hydrocodone. And I think the industry kind of just followed that for a while. So the tricky thing with the threshold is setting them, setting a good threshold. Is it based on a class of customer? Is it based on a specific customer? Because no other thing -- you got 2 large wholesalers or 2 large pharmacies that have a different customer base. So that's tricky to fill that need that the medical need that is definitely there, yet the obligations to monitor your distributions for regulatory needs for potential diversion, which does exist as well. So that's a tricky one as far as the threshold management. But I would say that an algorithm that actually looks at size, frequency and pattern as opposed to just a single threshold alone is a great step to combating that and helping to manage that balance.

Okay. Thank you very much. Do you only work with manufacturers? And I think that actually is 2 people here, right? So I would say, it kind of goes in different directions. Eric and Paul, do you want to answer about your piece of it?

Sure, Eric. I've been talking a lot. I'll let you answer that one, if you want, from a SOM front-end technology side.

So the question is, do we work with strictly manufacturers?

Yes.

Yes. So we work with manufacturers, we work with wholesalers, we work with chain pharmacies, we work with 3PLs, we work with animal medicine manufacturers and distributors, pretty much the entire spectrum for our SOMS platform.

Yes. And I'll add real quickly before you go to Kim. I mean because it's required, right? I mean the regulation doesn't differentiate or say, "Hey, wholesalers, you guys have to have an SOM system. It's -- in fact, it was interesting to me, talk about the regulatory nerd-ness. And Eric, you're still the king, okay? But slightly behind. So that December '07 memoranda changed who it was sent to. It actually covered manufacturers and distributors in the way it was worded out to the industry, which I think made it very clear that DEA was expecting manufacturers absolutely needed to have an SOM system as well. So -- I'm sorry. Kim?

So currently, our tools are centered around the manufacturers because it leverages manufacturer's 867, chargeback data or 852 data, but we're definitely open to conversations of expanding that.

Okay. Let's see here. The questions just keeping coming. Thank you. Okay. It looks like there are 2 that are very similar to each other. Let's see. Can you discuss any differences between human and veterinary CS SOM strategies?

I can take a stab at that one. So from a SOMS world from a regulatory and as far as DEA is concerned, there's really no difference, right? They're both registrants and they're both selling -- they're either distributing or dispensing controlled substances. Of course, we have both clients. I have some clients who are in the vet space, I have clients who are, of course, in the human drug space. And the algorithm is actually based on a customer's or a client's -- the order patterns and histories for their clients. And whether that's a veterinarian ordering a drug or whether it's a pharmacist at a chain or a retail independent ordering a drug, the same principles apply. You're looking at that customer's ordering history and patterns and frequencies. The client is doing their own due diligence as far as the type of prescribing or dispenses, dispensing that a pharmacy or -- does, what may be appropriate or what may not be appropriate. Why is this doctor's vet prescribing in this X drug and it's not used on animals, for instance. Overall though, I would say from a SOMS perspective, it's pretty much the same. It's know your customer and having a program in place to actually analyze their orders and their ordering patterns and history. So I would say that is very similar.

Excellent. Thank you. We have a question that -- it could be 1 or 2, but let me just ask one here. In reference to SOM's pended orders, when an order is pended, what are some examples of acceptance and not -- acceptables and not acceptable rationale?

Heather, I assume that means rationale probably for release, what's acceptable justification for release. Eric, I hate to keep putting you on the spot, but I know you did this obviously on both the manufacturing and the wholesale distributor side. Why don't you start, and I'm sure you'll probably give a pretty complete answer on it as well.

I love talking SOMS, as you know, Paul. So that's a great question, right? That's pretty much a common question. So when I was in the industry, my thing that I lived by, the thing I always told my team, if you have an order that pends, do not release that order unless you could explain why you're releasing it to the DEA. I always say, pretend like there is a Diversion investigator standing over your shoulder watching you. And if you can't explain it to him or her why you're releasing that order, then don't. Go back to the customer and get additional information. Do all the due diligence that you possibly can until you're comfortable releasing that order because you may have to explain it tomorrow or next week or a year from now to senior management or the DEA or a lawyer in a lawsuit. So that's the thing. As far as acceptable, right, orders pend for many reasons. You have an order pends because it's a new order. Maybe it's a first-time order for a new customer or a drug that you just released. Those may pend because there's not going to be any history there. But you do a due diligence, and you realize, okay, how -- what number based on the research that I've done. Can I release to this customer? Is it a [ shocking ] order? There are so many things that come into play. There's -- some people with a disease. And when winter comes, you have an increase in the cough syrups, and you may see an increase there. So there are various reasons why an order that pends can be released. It's just the due diligence that you have. The -- if you're a manufacturing selling to a wholesaler, they may have acquired a new chain that has 200 pharmacies. So their purchase is going to go up because they have to not only stock their warehouses for those purchased pharmacies, but they also have to stock those 200 pharmacies. So there are reasons that an order would pend, but after review, it can be released. And of course, there's obvious reasons why an order may pend and it may not be released. There may be a substantial increase in quantity, and you reach out to the customer and there's no explanation for that increase. Their customer base has not changed and anything like that, but they have this large order. I definitely recommend reaching out to the customer. And a lot of times, we have enough data on hand with like Kim mentioned the 867 and the 852. We have some chargeback data or maybe we have some data that we've gained from our own internal -- just knowing the customer. But at the end of the day, if there's still a question, always reach out to the customer and get an explanation.

And the key -- Eric, I think I know and then you said this in your comments as well. But I mean, I think a key part of that is documenting all those conversations, those interactions as well. Again, where I've heard people get challenged sometimes is maybe they had a great reason 6 months ago, but they're trying to remember the reason. So if your system allows you to capture comments and document, "Hey, I talked to Robert Smith at this particular location on this date," and whatever that substantiation is, you want to make sure you keep really good records that you can come back to, particularly if that account or to ever become in some regulatory trouble because I think that's what we've seen is when somebody downstream gets in trouble, then they start saying who are the suppliers? And why did they elect to release to this particular organization? So that defensibility is key.

Yes. Does a manufacturer have the same level of SOM responsibility of a wholesaler or a retailer?

Yes, I think we've answered that. And the answer -- the short answer is yes, right? I mean it's a little bit different type of system. You certainly have a very different type of customer in many cases, although I will add one of the kind of nuances we've seen of working with manufacturing customers that have SOM systems. Sometimes the conversations kind of starts like this, where they'll say, "Hey, we only supply big wholesalers," and those kind of things. But we start poking around a little bit. So first of all, you still have a responsibility to check those orders to make sure they're appropriate regardless of their big 3 wholesaler you're supplying to. But the other piece of it is sometimes we'll find programs where maybe they have some direct to downstream. Maybe they have a direct-to-retailer program for a really large retail chain and those kind of things in some cases. So yes, the short answer is yes. I get going. I apologize. And my hand is [indiscernible].

It's good. I mean it's -- I mean there are obviously sparking questions, which is great. For a virtual manufacturer who only sell to distributors, can you speak to the requirements regarding know your customers' customer and the minimum data that should be reported back to VM?

I guess I can take the initial stab at that. So virtual manufacturers, so does that virtual manufacturer hold a DEA registration, I guess, would be my first question. But as far as a virtual manufacturer who sells to a wholesaler and then the wholesaler is selling their project -- I mean, I'm sorry, their product downstream. I would say my personal opinion is that, yes, SOMS does play a role in that and the downstream activity as far as that virtual manufacturer knowing where their product is going. I would have to consult with our DEA consultants as far as how DEA would view a virtual manufacturer as -- from the regulatory stance as far as DEA. But as far as SOMS, I definitely think it's a good idea to actually monitor that to see where their product is going because it may come back too, even if you don't hold a DEA registration and even if DEA potentially from a regulatory standpoint may not be able to take action. There's also potential civil actions or anything like that. If something happens downstream, there's some diversion or something, it's your product. So as far as like I said, I have to consult with the consultants as far as DEA, as far as the DEA view on the virtuals, but that's kind of my high-level first take.

Thank you. It's good that you have access to them. That is for sure. So I have one more here. We are a manufacturer and do not handle any sales orders. We ship everything made on site to our sole distributor, and they handle sales, et cetera. We have always produced the SOM SOP from the distributor to the DEA during inspections without any issues so far. Do we still need our own SOM?

Yes. So this -- I mean this -- sorry, I'll hop in and take a quick stab at this. So we do run into a wide diversity of distribution models and manufacturers that maybe only have one distributor they're working with, only have a hand -- has really a small number they're working with. I think we've had those conversations internally. And every time we have those conversations, the answer is, there's not an exception in the regulation. So does the SOM system, can it be different than maybe the complexity of somebody who has tens and hundreds of clients or customers downstream that they're distributing to? I think the answer is, of course. So I think the answer to this particular question in my mind, and Eric, if you disagree or feel differently, hop in here and let me know. But I think you would have to have something that shows that you, as the manufacturer, have done something intentional. Maybe you need to qualify that distributor. I mean that's great you're supplying the distributor's SOM SOP because that kind of guides what they do, but to cover your regulatory responsibility, I think you may would want to consider having some level of due diligence to that distributor, something documented on hand. And then still probably some level of analysis of their orders. If their orders were to spike in a very unusual way, size, pattern and frequency, again, I think you would want to have some kind of defensibility that you've done something not just kind of advocated your full SOM responsibility. So Eric, do you agree with that? Or what are your thoughts on that?

Yes. Yes, Paul, I totally agree with that. Yes, definitely. If you are a manufacturer and you're pretty much shipping your product to a single distributor, whether that's a distributor in the sense of the Big 3 or distributor in the sense of a 3PL. I guess, a couple of questions would be, one, you'd ask the manufacturer, do you have a DEA registration? And two, I know it says that you're not managing the orders, but do you have visibility to the orders? I found a lot of times with some clients that they manufacture the product and then maybe a 3PL or another distributor distributes that product for them, but they still get their orders into their ERP system and then they're sent to that distributor or that 3PL. And if that is the case, I would say that you do have visibility to those orders. Another thing that I see that's common is the distributor may or may not reach out to the customer for questions around their order. They may go back to the manufacturer, and then the manufacturer reaches out to that customer. So it all depends on your scenarios. Without knowing all of the details, it's hard to answer. But you could definitely reach out to us through our e-mail. But I will say that if you do have one of those 2 scenarios that I mentioned, you definitely would -- you're required to have a SOM system. And as Paul mentioned, you should have a SOM system. So I definitely agree with you, Paul.

Excellent. So unfortunately, we are out of time, which is -- I am so grateful for this amazing interaction from the audience today because we've got a lot of really good questions. We may have missed some because we did run out of time, but we do have contact information, and we'll try to circle back with you if we did miss a question. Just to kind of summarize. One thing I just want to reiterate is what Paul said, he used a great word and that is intentional. So in order to sort of stay compliance and continue to evolve, we all need to be intentional in our actions. And you being on this call showing the initiative and asking these tremendous questions really shows that you are engaged. And that is, in my opinion, the first step. So we really appreciate the engagement and the questions and obviously, the need to continue to improve and stay together and keep making this better and better. So I really appreciate your time, and we'll follow up with you. Please feel free to fill out the survey. And also if you have any questions or any -- here's our contact information here. So please feel free to reach out to any of us. So thank you so much for joining today.