OptimizeRx Corporation (OPRX) Earnings Call Transcript & Summary

All right. Good morning, everyone. I'm Jailendra Singh, health care technology and distribution analyst at Crédit Suisse. Thanks, everyone, for joining us for this session. Next up, we have OptimizeRx. From the company, we have Will Febbo, CEO and Director; Ed Stelmakh, CFO; and Andy D'Silva, SVP of Finance. OptimizeRx is a health technology company enabling care-focused engagement between life sciences automization, health care providers and patients at critical junctures throughout the patient journey. I have some prepared questions, so we are doing this in a fireside chat format. I'll plan to cover that. But if anyone from the audience has a question, please e-mail them to me at [email protected]. Will, Ed, Andy, thank you so much for doing this. Really appreciate it.

Nice to be here.

Thank you for [indiscernible]..

Maybe -- I have a bunch of questions here just to set the ground, level set for the audience, who might be new to the story. Can you guys provide a quick overview of the company, just kind of industry background and just like in general, like what the company focuses on?

Absolutely. Yes, thanks for the time. Good to be here and have had some great one-on-ones this morning. So thanks for that, too. Yes, what attracted me to the business 6 years ago was the idea that connectivity between pharmaceutical manufacturers and doctors and patients was just getting harder and harder as we are all spending more time on screens, that includes doctors and patients, all sorts of legislation for pasts, which made it hard for the manufacturers to actually communicate directly with their clients. And this company was started by 2 ex sales reps for pharma who saw that difficulty. And if you think about what they used to do, which is be a resource for the physician for information, some affordability programs and patient education and adherence. That was just getting harder and harder. As a matter of fact, today, it's, in some specialties, only 10% physicians even want to see a rep. But at the same time, you have this tremendous amount of specialty medications coming to market over the last few years. And so what I saw was this opportunity to be a partner with the manufacturers and a partner for the doctors and patients through software connectivity that allowed us to establish access, affordability and adherence that really help the patient improve their care and manage their health. And so 6 years later, really proud we've turned it from a product into a company. We have lots of solutions, which we can get into with more questions. But if you're going to think about us, you think about us as a partner to the life science companies that really focuses on establishing access, enabling affordability and adherence programs in multiple therapeutic areas, all digital.

Maybe just begin there in terms of your customers. Maybe talk about the mix between life science companies, health care provider, are they fairly diverse?

Actually, we are pretty much exclusively life science companies at this stage. We've we looked at the other markets, they're certainly big as well. But what we've built over the course of the last few years is really focused on the patient and the patient journey. And we really -- we cut our teeth with pharmaceutical manufacturers, so we really understand their challenges. And there's just such a big market opportunity that we decided to really focus in there. Testament to that, Ed joined us just about a month ago from a pharmaceutical company to bring even more perspective from the client and also just a great background, which he can talk to. But yes, exclusively pharmaceutical manufacturers. Within that, we're really on the commercial side, not the clinical side. So we help pre- and post-launch brands establish access to physicians and patients, basically to drive prescriptions, but also we do that through supplying therapeutic information, enabling affordability and adherence programs.

Can you briefly describe how do you guys facilitate communication between life science companies and providers, vision patients through your proprietary network and solutions? What are the main barriers in communication between those entities generally your solutions are addressing?

Yes, sure. It's important for the audience to think when the doctor is in their day, they're on their software now 6 to 7 hours a day, recording everything to doing with the patients. And if you think of OPRX, our technology is integrated into those software companies that capture all that information. So we're it that we call it the point of care. And we've got one of the largest networks of that. It covers specialties like oncology, but also hundreds of thousands of general practitioners. And that's very relevant for the client because what they're looking for is an efficient way to communicate with the doctor. They used to use people for that, call centers, reps, conferences. Even before the pandemic, that was challenged with the pandemic, that was incredibly challenged. And so they really rely on us for that kind of connectivity. And I would say over the last 6 years, we've seen very few be able to break into that kind of connectivity. They may have a great technology, but the software companies, the electronic health record companies, we're really not looking for more partners. Their job is to make sure the doctors have a perfect platform that works with the patients and the doctors, it's compliant, secure. They look at us as a partner to bring specific tools into that workflow so that they can help the doctor do their job and they can help the patients stay on their medication. So it's not -- it is marketing, but it is really tool-focused and value-added focus to the doctor and patient.

Okay. Maybe let's talk about the revenue model for some part of the business, like maybe with your patient engagement and the provider engagement solutions, are they all like enterprise recurring revenues? Or are there slight differences in payment models? Let's spend some time there.

Yes, sure. We started in a very tactical selling way. When I came in, in 2016, it was by program, by solution, but we only had 1 solution. So by nature, it was very tactical. What we realized is we had this incredibly valuable real estate connected into the technology, and there was other information we could supply to the doctors and the patients. And so over the last few years, we've moved more towards enterprise selling, where you bundle solutions. The clients love it. It's a better return on investment. It's more efficient. You just get more information to those doctors and patients in 1 seamless contract. We tend to work in 2 different ways. It's either based on value or volume. So if it's a very high volume, prescription drug will be more of a CPM model. If it's a specialty medication, which is expensive and complex, which -- and lower volume, we tend to look at what kind of value are we going to create and then come up with the right kind of charge for the service. They tend to be 6- to 12-month contracts. They're not multiyear contracts on the commercial side. And we've gone from virtually in 2019, no enterprise to probably just less than half enterprise revenue. So we're making really good progress over the next few years -- over the last few years.

On this contract duration, you said like 6 to 12 months. Have you seen clients wanting to enter into more long-term contracts? Or the duration of 6 to 12 months is a more common norm or anything else you're seeing in terms of just contract preferences from your clients?

Yes. No, on the commercial side, they really plan annually, unless you're a true SaaS business like Aviva salesforce, then that could be multiyear. They're really planning annually for us. Now that being said, our revenue retention is very, very high. It's SaaS-like because the companies will stay with you until that brand is off patent. So -- all of which is publicly available. So you really know the life of a brand once you're servicing that. And our job is to start, get them into the platform and then sell them more modules, get them more access to cardiologists or oncologists. And we've done a really good job over the last 3 years, adding solutions and reach just in terms of being able to take our existing clients and upsell so that they get a better return for their spend.

Okay. In your last 10-K, you mentioned the revenues are concentrated in less than 50 customers who are primary large pharma manufacturers. Has your client base evolved since then as you expanded your solution offerings? Maybe comment on the amount of anchor customers you have.

Yes. No, I think the bulk of our business is going to be with the top 20 manufacturers because they have either the commercial rights or the ownership of the -- some of the biggest brands in the market, and that's where the dollars will be. But we've done a very good job about sort of landing and expanding within those manufacturers. If you think of just any one of them, they're really like 20 or 30 clients in each manufacturer, if not more, right? Because there each therapeutic area is a separate P&L. They have different decision-makers. And then even within 1 brand, let's say, it's a brand in oncology, it can have multiple indications. So there's this really nice waterfall effect of once you get in, you can expand. The pandemic has been our friend there with a little less noise in travel. People have had more time to give internal referrals and recommendations. We're seeing a good chunk of that pickup. And I think if you just look at our brand count increase, while we don't really focus on an ASP per brand because some will start small and some will be huge. That testament of the adoption, that's happening. Clients are really leaning into this tech -- this digital approach to process and marketing process.

Okay. Maybe as we think about the sales cycle, sales cycle for your business, can you give us some flavor about approximate time line there, steps in the process? Do customers undertake as significant evaluation process prior to choosing your service?

There is. It's funny. The sales cycle can be very quick, but that doesn't mean the revenue is big when you start. So I would say you can get in either directly or through an agency that's helping that pharmaceutical company, and those tend to be smaller to start. They definitely want to test and verify that the solution is accurate. But then as you scale, their sales cycle is sort of continuous. Every year, there's an RFP process. You've proven you can measure it. You're bringing in new solutions, so you're really just upselling. So I would say you've got a -- if you don't have an MSA, a master service agreement, with the manufacturer, it's going to be hard. And you're going to get a lot of like test revenue. We have MSAs with pretty much all of them. So that gives us license to basically work with any division within those manufacturers. And that is IP in and of itself. It takes a long time to get that, and they're very valuable. So we've made huge progress on adding the remaining MSAs, not just for the top 20, but we have over 60 clients, and that allows the sales cycle to be very fast. But in terms of how it comes together. Generally, you sit down with some one who's really -- only really focused on oncologists or cardiologists. They don't care that we can access the majority of doctors, they care about a certain subset of doctors. And then we look at that next to who we can talk to. And we say, okay, this, we can reach 58% of those physicians. And we believe this is the best way to get to them. This is the kind of like therapeutic message or financial message or patient engagement program, whatever it may be, we put that together. And then we show them a business case, which shows sort of perspective ROI on that spend. And then we launch it and sort of track it quarterly and usually measure it every 6 to 12 months.

Okay. Maybe let's spend some time on the competitive landscape. Who do you view as your main competitors in the market? What are the key factors or qualities that you believe sets one company apart from others? Maybe spend some time there?

Yes. So we -- when we started about 6 years ago, there were 2 other companies integrated into the EHRs to at the level we are now. One was covered by meds, which is acquired by McKesson in 2018, I believe. And the other was PDR, which eventually got rolled up into what is now Connective Rx, which is a co-pay service business. And -- so they are in that workflow. They're meaningful to pharma. I would say we're -- we don't overlap a lot today with them -- with either of them because they're really doing different services. If we had stayed just on the financial piece, then it would be more of a head-to-head with Connective in that division. But what we've done is we've backed up and said, okay, that's an important piece, but it's not the only piece. Let's look at all the information that needs to get to doctors and patients so that they can initiate and maintain therapy and stay healthy. And so that was our -- so our first phase was just diversify and stay relevant to that. And that started to distance ourselves. I will say with this digital wave of adoption, there is just competitive noise, right? I mean pharma is being inundated with every solution you could dream up that's been funded over the last 10 years. But what a lot of them lack is that last mile of connectivity, and that's really where we're strongest. So I think we're in a very good competitive arena to get above that noise over the next few years. We're seeing it. We mentioned our pipeline is already 50% higher than this time last year, and we're nowhere near done with that process. We still have 1.5 months. So I would say the clients on the other competitive side, they've got, obviously, traditional means. There's still TV, there's still indirect marketing, WebMD, Medscape up to date, all those great -- they're great sites, Everyday Health. You have people like Freesia, Toximity, GoodRx. A lot of that -- at least in GoodRx' case, it's lots, it's media. But we're really -- as a company, the way we're different than all those businesses is we're really integrated into the workflow and we connect that to the care journey, which is how our clients think about the world. And so we feel like we've basically got the secret sauce ahead of most people, and I think pharma is starting to see that. The only thing I would add is we've recently brought in real world evidence to better inform the trigger of a message. And there, that just puts us even further apart from the competition. We can get into more of that later. But it's a good way to get away from any kind of commodity push or any kind of race to the bottom on pricing. I think we've been able to wrap some really good value around what we do.

There's one company which recently became public, Definitive Healthcare, do you guys utilize any solutions from them? Or do you see them as competitors?

No. We don't view them as competitors. They are a data enabler. Again, they're not in the workflow at all. They are a great company though. We know them well. And that's going to be a more steady, steady build type company with, I think, what will be a really, really attractive P&L and management team.

Just thinking about the COVID impact, I mean I would imagine COVID probably had an acclarent for digital delivery as a preferred method of communicating to physicians and patients. How has the company performed during the height of pandemic in 2020? And what are your thoughts on industry trends after the hopefully, when this COVID is over?

I'll start that, then I'm going to hand it to Ed. But I -- we talked about it last year, but our team we were already virtual. We just by the nature of this company was founded in Michigan. I was in Boston. Everyone's everywhere. So we were very ready for virtual management of a business. It's technology. So it should be possible. It's not always possible. We're doing a good job with that. We use 2020 to really innovate, so come up with some really -- 2 new products and inform the market, sort of bring the market together to discuss point of care and some of the issues. And what we found was a lot of the meetings we had with the people we knew all of a sudden, there'd be new people in those meetings from pharma. And it was clear the directive came down to get up to speed on digital as fast as possible. This is going to be very disruptive to our business. And so we didn't see a lot of revenue in 2020 from COVID, but we saw great innovation, great team coming together, clients leading in a lot of education. In '21, we are starting to see that. Again, like pharma, they're coming in and sort of testing and then verifying, but we think that sets us up for a lot of growth in the out years. But in terms of whether it's permanent or temporary, let me ask Ed to talk to that.

Yes. Thanks, Will. Yes. So just coming out of pharma, fresh a couple of months out, I spent about 30 years in pharma just before coming to OptimizeRx. What I can tell you is that during the pandemic, obviously, there was complete shutdown in ability to engage fees to fees with the doctors, and the digital adoption really had to be accelerated. But the big learning for most pharma companies was that you can actually do a lot more with less, less. So profit margins expanded, top line didn't really slow down that much. And I think on the back end of the pandemic, people are seriously considering more of a hybrid model as a prominent way of doing business. So basically, just continuing to look at nonpersonal promotion channels that really utilize technology, data analysis, insights to be smarter, more surgical than we used to be the best, I would say, as an industry. So my view is that this is a permanent new way of doing business in pharma on the commercial side of the equation.

Yes. That makes sense.

Just to add to that, obviously, there was a trend to move to digital or alternative means and sales reps. We've been utilizing sales reps over the last 15 years. Now there's obviously a bunch of technological reasons, regulatory reasons behind that. One thing that's kind of interesting coming out of COVID is that pretty much around 90% of physicians actually don't want to return to prepandemic marketing methods. And when you kind of look at some of the larger growth specialties like oncology, previously, a quarter or so of oncologists were nose with sales reps that obviously increased closer to 80% now. And that trend is carried over to most other specialties as well. And the majority of doctors, again, are looking to kind of maintain the pandemic mindset for marketing and not go back to the pre-pandemic marketing methods.

Okay. Now we have kind of Ed doing some talking here. Maybe let's spend some time, maybe first question for Will that why was there a need for the transition? And maybe talk about that. And maybe, Ed, from your perspective as well, like why do you think OptimizeRx was a good fit for you? Maybe just let's have some discussion there.

Yes, sure. So what I could see is we're going to actually build this into a rather large business. And I didn't want to get too far ahead of that because you either hire too early and then you outgrow again or you -- so you have to wait. And Doug Baker was excellent CFO, still on the team, still very much on the team. And I was handling most of the outward discussion with investors, which was fine. When you're a sub-billion-dollar market cap and your basically a micro cap, that is possible. Once we hit the small-cap space, as you know, everything changes, the pace changes, the pressure changes. You have to have different KPIs. We don't give guidance yet. I didn't want to do that without the team to build the tools so that we can do that reliably. So I'm very confident we can get there now with Ed's guidance and Andy brings just a tremendous capital markets and analyst exposure. They covered our business and now really is on the other side to really knows our business. So excited. It's a good transition. We just brought a lot of muscle. So I'll let Ed speak to why us?

Yes. No, look, I mean I spent 30 years on pharma, but really, I always throw out opportunities to transform and build businesses. If you take Otsuka as my last company I worked for the 6 years, I came in at the time when we lost a multibillion-dollar blockbuster drug called Abilify, one of the largest drugs ever, frankly, on the market. And I had to help this company sort of get through that LOE cycle and get back to growth into more of a steady state, which is kind of where we got to be time left. So my next kind of role is going to be something where I can really utilize 30 years of experience in pharma and CRO industries in a way that would enable any company or organization to grow to the next fees. And OptimizeRx specifically attracted me just such unique technology and such a unique opportunity at a time when there's such a pivot point between the old operating model and what I see is the new one evolving. And our unique advantage being such a great connectivity point. for kind of people and HCPs in just, I think, in a very highly competitive fashion. So that's kind of what attracted me to OptimizeRx. And so far, has been great. I mean a month in, every expectation ahead has been met or exceeded. And I'm maybe even more optimistic about what the future may look like.

Okay. Now it makes sense. Maybe one of the key topic, which everybody's focused on these days I want to touch upon is this whole labor market pressure, right? I mean, what are the thoughts there? Has the labor shortage impacted your business in any way in terms of attracting or retaining product development guys, sales, IT stuff, from anything on wage inflation? Anything you can update there?

Yes. Luckily, we are not encountering any labor or supply chain issues as a business. In our market, we're one of the fastest-growing innovative public companies. So that just attracts people who are competitive and like to win. And so on the commercial side, we've been able to bring on some really great people. It's interesting a lot of investors over the last few years have said, well, why aren't you putting more -- like invest more and get more salespeople. And in this world, it's -- I could have hired more, and like 30% of them would have left. It just -- when you rush that, it's actually -- the quality goes down. And so we've really taken our time, been very deliberate, do not have a position we cannot fill. We also have a owned, meaning full-time employees and partners in Zagreb, Croatia, which is a place with excellent, excellent people and great talent. And so that's enabled us to scale with technology. But yes, no, no issue there. And luckily, we just need laptops and we want Amazon to keep doing well. And otherwise, we're not dependent on the LA port in any way. So we're lucky there, very lucky.

Great, great. I also want to run some time on your new therapy initiation workflow you guys have launched recently as an enhancement to OptimizeRx platform. Where do you see future development opportunities for additional capabilities? Can we talk about those, maybe some key investment areas?

Yes. And I'll have Ed talk to this because he was on the other side, and I haven't been. But what we really want to be as a technology partner to our clients, right? As they're assessing go-to-market, in market, rapid pivots of communication for whatever reason, whatever disruption comes or whatever new technology enters or -- and so the initiation and maintenance therapy platform is really rebranding what we were doing, right? We were calling it a digital health company. Digital health has a different connotation. It's more like Livongo or that kind of business. We're really becoming a technology partner with our clients so that when they think of how to access and reach physicians, patients, deploy adherence programs or deploy affordability programs, they come to us, and we have such a broad reach and such a great network of partnerships that were enabled. We could really have a seat at the table. 3 years ago, we just didn't have enough to be there. Now we do, in particular, with data sprinkled in as enabler and a little bit of AI as well. But Ed, maybe you can talk to just the sort of the core capabilities of the pharma side and how that supports that.

Yes. So I would say kind of in the last 2 years, as pharma transitioned away from kind of the legacy model to the new digitally enabled model. Clearly, pharma is good at certain things, and they have core capabilities in R&D, commercial and many other areas. Technology, especially with this sort is not core capability for pharma. It just takes the eye of a ball and put resources where pharma most many want to win long term. So my perspective is they're going to need to partner with companies like OptimizeRx to really drive these technology adoption initiatives forward and to really make them a permanent part of the operating model. So as I think as we evolve the company from kind of the early days of being a tactical partner, mostly messaging driven to an enterprise partner where brands are buying more of our solutions to what I'm hoping to be really is more of a strategic partner with the prominency of the table and prominently embedded in the operating model of our clients, solving major issues.

And Ed, from your M&A-focused perspective, are you more of a kind of acquisitive guy, like you prefer to do more acquisitions? Or your strategy is more to like build in-house? Like, I mean, I think from OptimizeRx' perspective, the last actuation was RMBY in 2019. How should we think about from M&A or other partnership point of view as compared to other investments?

Well, my perspective would need to be both, organic and inorganic. I mean, speed matters. So I would say if we do find an opportunity to lock in additional solutions that fill out our offering to our clients. And we can get there faster by acquiring it, obviously, the fair price, we should go that route. But obviously, it's always a balance of both. I don't know if Will want to speak to that, too.

Yes, totally agree. Yes. We have talked about the focus where we have a very strong presence at point of care, which we talked about, and we have the technology to connect directly with the patient the retail specialty pharmacy, we're a little bit blind there. So that's an area we're definitely looking at. And then anything that gives us access to more patients is a good thing because we want to connect them into this patient journey that we already have built and just to get to more people to help them manage their health.

That makes sense. One last thing I wanted to ask about, we're in health care business, there's always a lot of regulations and rules you have to be worried about. What are different regulations in the space do you or even your clients in some way currently see as a opportunity or the challenge? Do you think that [ high terms scrutiny ] around privacy, data security and that could be any kind of issue for you? But just help us understand from a regulatory point of view, what is the expose or what if not just you, but your clients as well in particular?

Yes. Well, I think Andy talked on it a little bit. Basically, without regulation, we would really be in business. If the Sunshine Act and High-Tech a didn't happen, this would be -- this would have taken a lot longer. This transformation of using technology and manage. I think there's a lot of attention and care on security and privacy Obviously, there are things that are going to happen. And the EHRs there the front of that responsibility because they're actually holding all that personal information, and they do a really good job of protecting that. I think the challenges are there. It's very fragmented. There are a lot of EHRs, Doctors are spending too much time on computers. They didn't go to med school to be on a computer, they want to take care of people. So the opportunity, I think, for companies like ours are bringing the technology to keep them on the screen only as much as they need to be. but give them the tools to make delivering care faster and easier and less expensive for the patient. I don't think in terms of government, the people talk about pricing and all that. In our view, and I'll let Ed talk to this, but I think the force that's upon our clients is about efficiency. And efficiency is a good thing for us because we actually do things more efficiently for our clients. But Ed, maybe talk a little bit about any other kind of things that pharma is thinking about from a risk standpoint or -- go ahead.

Yes, on the pharma side, obviously, the biggest risk has been for a while, pricing pressure. And there's been many different attempts at controlling price of drugs in the U.S. The latest one out there at least looking at it briefly to me, feels more impactful on PDMs rather than pharma itself. So I think pharma we definitely feel some of the bite, but most of it, I think, will fall within the PBM camp. In which case, again, it's just another headwind for pharma to deal with to continue to be more efficient on the commercial side. And I think solutions we bring to pharma for make of that efficiency. So for us, I think it will be a tailwind.

And just to add to some of the regulatory and compliance-related stuff you were mentioning. So both are 2 sides of the business when you're thinking about our partners and our clients. They both are very regulated, right, whether it be HIPAA or dealing with the FDA and items like that. So when you partner with them, as Will was mentioning earlier, you kind of small -- start obviously small trials and then kind of move bigger and bigger and expand. And part of the reason for that isn't just our high ROI benefits to their top line, it's that they trust us to be compliant above and beyond actually was mandated because they don't want to take any chances. And that's extremely important to them. And so that's obviously a core focus is over, but I think the biggest validation of it is the types of customers and partners that we have.

Okay. So before we wrap up, anything else you guys want to highlight or kind of we didn't cover something on closing comments?

Well, we just did earnings. So really excited with the 53% growth from Q3, gave signaling that Q4 is looking really strong. And obviously, with the pipeline already up 50% year-over-year with similar close rate parameters of 35% to 50%. Yes, we're very excited, feel fortunate and just have our heads down building the business. So really appreciate the time and exposure and look forward to working together.

Sounds good. Thank you so much, guys. Thanks for the participation, and thanks, everyone else, for dialing in. Take care.

Thank you very much.

Thank you. Take care. Bye.

Bye-bye.