Option Care Health, Inc. (OPCH) Earnings Call Transcript & Summary

Okay. Good afternoon or good morning, everyone. My name is Erin Wright. I'm the health care services analyst at Morgan Stanley and welcome to our 24th Annual Global Morgan Stanley Healthcare Conference. For more important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. And with that, we're happy to have Option Care with us today, CEO, John Rademacher; and CFO of Meenal Sethna. Happy to have you best today. I think, John, you wanted to start out with some prepared remarks or some opening remarks, and then we'll get into the fireside chat.

Yes. Thank you for coming today. Great seeing you again. And as we exited in the second quarter, just wanted to reinforce really the momentum that we feel within the business, the execution of the team as we had called out, first quarter certainly had a step-down in performance is our expectations. And we really wanted to look at the second quarter to identify how to stabilize and then more importantly, start to build the momentum and move forward. And as we reported in the second quarter, that momentum not only the stable [Audio Gap] Expectations where we needed to really understand kind of the dynamics and the shifting dynamics. So we're different than we expected. Especially in that chronic inflammatory portfolio as we are moving that ahead. And we wanted to see how that pattern into the second quarter. And again, we're pleased to be able to report the stabilization and kind of the momentum that we felt out of that. From our perspective, we see that there are vectors of growth as we're looking at that forward view that we're excited about. We continue to drive extreme amount of value in the acute therapies helping to manage patients safely and effectively to transition out of an inpatient setting into the home and manage them effectively through that process. The product portfolio within the specialty space continues to expand. And there are great opportunities for us to capture more of that market share as we're deploying additional resources on that. Our capability set when you look at a national network of highly advanced pharmacies as well as the clinical capabilities with our nursing network is unique in the marketplace. And so to be able to partner with pharma to be able to introduce new products and support that through its journey, we feel we are really well positioned to do that. And the conversations that we've been having with payers around helping them manage the total cost of care and their medical loss ratios around utilizing our capabilities, those site of care initiatives, again, continue to pick up momentum through that standpoint. So I'd say as a whole, across those dimensions of where we see and where we play today, we think there are opportunities for us to continue to drive that growth. And utilize our national scale, but our local responsiveness in ways that captures more of the demand that's in the marketplace. So I'll put it around that, Erin, to contextualize our confidence in this model, our confidence in this business remains intact, trying to understand some of the implications of the chronic inflammatory disease. We just wanted to be very thoughtful in the way that we approach it.

Yes. And as we start thinking about getting into 2027, we like other companies that have a year-end -- December 31 year-end, we're finalizing the long-range plan and that then nicely tends to dovetail into the budgeting process. It's a little early for us at this point to get into what that looks like for 2027 and beyond. But in the coming months as we find the right time frame, we'll definitely be providing more color both on '27, but with some of the aspects that John just talked about as we think about that longer term.

Yes. I think some time it gets lost in the whole [ STELARA ] dynamic, the bigger picture here in terms of us a solutions provider across the health care system more broadly. But I do want to dig a little bit into the portfolio, and you've given some great metrics in terms of 4% or no more than 4% of your gross profit is tied to 1 product. How you think about therapy -- line of therapy kind of exposure and dynamics around biosimilars or price changes or subcutaneous transitions and how you can kind of navigate that going forward and how I think you're limited in terms of your outsized exposure, but how do you potentially limit that even further going forward?

Yes. We start with the breadth of the portfolio. When you look at how broad the portfolio is in the expansion of bringing new products in, that is front and center, like the focus of the enterprise. And we like the fact that we can provide everything from the acute short duration antibiotics through the most sophisticated specialty drugs. And that shows the breadth, but the depth of the clinical team and our capabilities in order to do that. As you're looking forward around just the diversity of the portfolio and you called out, I mean, there is no product that is more than 4% of the revenue. And so that just demonstrates the breadth of the portfolio as we move that forward. I think we called out in previous conversations, we have over 600 products that are part of our portfolio, and that's growing every day as our team kind of looks at those opportunities. The opportunity to support from a specialty pharmacy standpoint, we are a specialty pharmacy, we're [indiscernible] accredited, we maintain patients that move from IV induction dose on to subcutaneous -- it's part of our normal flow. There's different dynamics associated with that with the economics when -- again, you don't have nursing and other components involved. But we are a full spectrum pharmacy, and we do have that specialty pharmacy capability to continue to support patients on their journey and then wrap around that, the clinical competencies of the enterprise. So sitting here today, there's nothing that we're looking forward that is a significant disruption over that midterm horizon. The products we're watching have dynamics of having a competitive environment today anyways around alternatives in the marketplace. And a lot of our focus is around the new products that are being developed that are moving through the product pipeline and making certain that we are a partner of choice for pharma to introduce those products as being part of our formulary it's in a limited distribution network or in a full spectrum network, we want to be part of that pharmacy solution for them and care team to expand the portfolio broadly.

Okay. And then I want to speak about kind of biosimilars just more broadly, kind of where are some of the puts and takes as you think about how it flows through your model how you think about how PBM-owned or private label biosimilars like what we -- the dynamic we saw is still are in formulary exclusions, change that traditional pattern of biosimilars although I think that is going to be defined to certain categories, right, and help to explain that in terms of in terms of that dynamic and how you think about more broadly biosimilars going to your...

I want to talk about the model first, and I'll talk about.

Yes. Yes. I mean, first, I'll start out with -- I know we've had a lot of dialogue about STELARA, but STELARA was a pretty unique situation I start out with that. We talked about -- I think the way we've described it too many people is really we had a branded product with some pretty strong margins generic like margins. And so we really don't have other products in our portfolio with that type of profile. What we typically see with biosimilars, and this has been the history we had on a number of different therapies is as there are biosimilars that have come in because of some event an LOE event as an example, there's a fair amount of competition that starts in there, which tends to be quite advantageous for us because when it's just a single branded product, that isn't the case. And so with that competition and even with the pricing, the pricing may drop a little bit initially, but we do tend to see improved gross profit as that as you see more entrants in that space. And then with -- also with some volume increases as well, that can turn into improved profitability profiles for us overall. So that's more of a typical profile of what we've seen when we see a few biosimilars come in, and it's a big part of our portfolio as well.

Yes. And the only thing I'd add, Erin, is the uniqueness of the situation with Stelara, there's about 10 biosimilars that all entered in a pretty pretty tight time frame. That created a really interesting dynamic when you then have the IRA backdrop of a 66% reduction in the branded pharmaceutical price. So again, sitting here today and looking forward, there really is nothing else in our portfolio that has the similar characteristics. And in a normal process, right, if you expect that it's going to be rational economic decisions that are being made that ability to bring a biosimilar into market, there has to be an incentive for that [indiscernible] manufacturer to have enough volume to be able to support that development and growth and moving forward. And we expect that when those happen, as Meenal said, it normally creates a very interesting dynamic for us as that glide path of the reference price begins to move down from the branded pharmaceutical price into a biosimilar type of environment and our opportunity to use our scale and our patient census in order to negotiate best acquisition costs through that process. So we're going to continue to manage and learn from this experience that we've gone through. But we think the dynamics set up pretty well. And again, we're in support of biosimilar introductions. We think we've got a great platform. We've got an existing patient census in which we're managing. And the clinical competencies that we have that can wrap around those patients is really an important aspect of the value that we bring.

Okay. Let's talk about acute. You mentioned that being a key driver for you, and it grew high single digits. For instance, in the second quarter that's above the underlying market. what are some of the key drivers in acute or in subcategories to note on that front? And how much are you still benefiting from kind of your competitive positioning in terms of some competitor exits and what's [indiscernible].

We have lapped the competitive closures. So from that aspect, we don't believe that we're feeling much other than the goodwill that was created as people exited the market, we stepped in. And our team did a really great job of responding to those market dynamics that, again, weren't signaled broadly in the marketplace, and yet our team stepped in and was that partner choice for discharge planners for hospitalist case managers in order to help to facilitate that transition out of the hospital into the home. So our team did a lot of great work there in order to do that. And again, that developed those deeper relationships with the hospital health systems we continue to invest in the commercial resources of embedding nurses into more hospitals to be that partner of choice to identify patients that are stable enough to be discharged, but still require an infusion as part of their care plan moving forward. And we're continuing to take a look at it from that perspective. As we look at the market in general, we're under-indexed in some markets. I mean -- when we look at NSA level. I've mentioned before, we like our national scale and the consistency that we can drive across the country with that infrastructure, but health care is still local. And so that opportunity that we have to continue to deepen those relationships. Invest in those relationships to capture more of that demand and really drive that forward. I'd say there still is opportunities for that above-market growth from our perspective. That is a broad portfolio of products. Most of those are generic in nature, whether it's the antibiotics, nutrition support or other products like [ inotropes ] and other things that support those acute discharges. And so there's opportunities for us to also look for procurement savings as well as we're thinking about ways that we can use that scale in order to make certain that we're getting the best land cost from an acquisition for some of the inputs on the nutrition as well as the generic products in the antibiotic space.

And I would just add, we talk about the fact that our business is a humble business as we talk about it. It's really patient-by-patient you can really see that as part of the acute business, right? Because it tends to be -- our referral sources are with our hospitals and health systems that are out there. And these tend to be patients that are coming out of the hospital and need to be -- still need treatments on the same-day discharge. So you get a phone call, you've got to react very quickly. You've got to be prepared to have a nurse and you've got to have the infrastructure to have nursing to have the therapy delivery to the patient often same day. And so that's why I think you see a lot of competitors have exited, but we've continued to grow because we've built out our capabilities and with the foundation that we have that John talked about, it's -- we've really figured out the right way to succeed in that space, which has been challenging, I think, for others. So that's why way we look at it as further opportunity to gain additional share.

Okay. And then across IVIG or IG neurology momentum has been building throughout 2026. I guess what's driving some of the strength? And how do you think about VYVGART or Vivara portfolio and that impacting that portfolio?

Yes. We had called out both first quarter and second quarter that we continue to see momentum within the IG neuro category broadly. And that's across abroad not only formulary within the IVIG space and the subcutaneous IG space, but also some of the emerging products in neuro, whether it's cognitive impairment or other products within that. We had called out that fourth quarter of last year and really into the first quarter of this year, -- we continue to invest in the commercial resources in that group of our team that focuses around those call points of IG neurology as well as in support of hospitals that have specialty capabilities within that space. The team continues to make really good headways in not only developing and deepening those relationships, but also serving those patients well. When you look at our patient satisfaction scores in the '90s, if you look at our Net Promoter Scores in the '70s, like we're doing the things to not only put the patient at the center of everything that we do and really deliver that extraordinary care but also wrapping around the service model in which we're getting high value from a Promoter Score basis. based on the services that we provide. So as an organization, that has been an area of focus of kind of putting the team better division around their call points those relationships that they're developing and then their focus around really capturing more of that market demand. And then we have a team that focuses around the other [indiscernible] that really drives around those call points and the value proposition that we have for those therapies.

And one more on the portfolio, rare and orphan, you mentioned adding new therapies in this category, some going live late 2026 and into 2027. I guess can you provide more specifics on some of those newer programs, the disease states that they addressed any sort of expected contribution will be moved the needle for you? And ability also to compete on that LDD for some of those LDD type of relationships.