Progyny, Inc. (PGNY) Earnings Call Transcript & Summary

Good day, everyone, and thank you so much for joining us for this session of the BofA Global Healthcare Conference. It's my absolute pleasure to have with us Progyny, somewhat recently public company. With us is CEO, David Schlanger. David, thanks so much for joining us today. We're going to have a bit of an informal chat. But maybe for people who are new to the Progyny story, can you just give a little sense of what exactly Progyny does within the fertility market and where that value and key value differentiation comes for your business?

Well, I'll start with what we do. And we can take it from there. So Progyny is a fertility benefits manager. We provide a fully carved-out fertility benefit solution for large self-insured employers. So what that essentially means is that when one of those employers want to provide fertility coverage to their employees, they do it through us. It's fully carved out from the health plan so that when an employee is seeking treatment, they can't go to the Aetna or Cignas of the world if that happens to be that employer's carrier, they do it through us. And we manage pretty much the entire process, everything from all the administrative things like claims processing, adjudication and payment, but also what generates our superior outcomes, which is we build benefit plan design, which is far different than a carrier design. We manage it. We have a very high-touch set of member services where each member gets assigned a dedicated fertility counselor that interacts with them continually through their journey. We've built a very unique network of reproductive endocrinologists that deliver the service. And we monitor and manage that network using extensive treatment and outcomes data. We have an integrated pharmacy element where we manage not just the treatments, but the medication. So again, a very all-encompassing experience for the employee, where we're managing all elements of them getting fertility treatment.

And just to give a greater sense for people, and I love the mission of the company. I love the fact that you're really doing something that's good for the world. Can you give us a sense, if you're a member, if you're an employee of one of your customers, where they engage with Progyny and the life cycle that somebody would have as they're going through a pregnancy?

Sure. So the way it works is pretty simple. So for whatever reason, if you're an employee of one of our customers and you can't conceive naturally, and that could be -- you're in a heterosexual relationship and you're the 1-in-8 couple that doesn't conceive naturally, whether it's an issue with the male, the female or an unexplained, it could be that you're in the same sex -- you're part of the same-sex couple and obviously, you can't conceive naturally, therefore, you need the services -- assisted reproductive technology services. It could mean you're a single mom by choice. And the only way you can get pregnant is via IVF. So once you realize that and you fit into one of those categories, and again, as I mentioned before, and you want to seek treatment, if your employer has elected Progyny, you have to do it through us. You can't go through the health plan. It starts with a phone call. It starts with a phone call where you'll be assigned a dedicated PCA, we call it patient care advocates. They're essentially highly expert and trained fertility counselors. Once you're assigned that PCA, that PCA will work with you throughout your entire fertility journey. On average, our PCAs speak to the members 15x during the course of their journey, and it's everything from scheduling appointments, helping you understand billing and the benefit plan design, all the way through clinical education about treatment options and what the best way to approach building a family is. It's the emotional support through a very traumatic and difficult emotional journey for most people, wondering whether they're going to be able to actually build their families or not. So that's how it all works and that's how it starts. It starts with a call to one of our PCAs where you get assigned a PCA and that PCA will work closely with you to manage your entire experience.

And along those lines, I think managing fertility as a benefit is not necessarily new. That being said, Progyny is a clear leader in terms of the outsourced benefit management. Can you give a sense of what the carriers don't do effectively enough that has allowed you to build such a successful business, such a strong roster of customers?

Sure. So the carriers had a difficult task. They have to manage thousands of diseases and conditions and find an efficient way to do that. So they've come up with kind of a way of doing business. And if your kid has strep throat, it works great. They build the network, your pediatrician is in it. The treatment protocol is pretty simple. You get a rapid strep test and if it's positive, you get an antibiotic. But fertility is far different. Fertility is a very complex condition. The treatments are expensive. The outcomes vary. The patient experience is a difficult one, both emotionally and physically. And the way the carriers manage all these other diseases and conditions has proven not to work that well in fertility, and that's why the national outcomes are not that good. And we have the flexibility because we only work at fertility to really start from scratch and start with a whiteboard and say, if you were going to be -- if we're going to optimize the fertility experience, try to create the best outcomes in fertility, how would you do it? What would you do differently than the carrier? So it starts with our benefit plan design. Carriers have a dollar-capped benefit plan design, it's typically a $15,000 to $25,000 lifetime benefit. They layer on top of that, their typical rules and treatment protocols and step therapies that are designed to limit access to services so that, for instance, you might have to go through 3 failed rounds of IUI or artificial insemination before you can access IVF. You may not be able to, even when you access IVF, genetically screen your embryos because maybe after the failed IVF cycle before that would be authorized. We took a whole different approach to that. Our benefit plan design is one where it's a comprehensive benefit plan design. It includes access to all the treatments and science that might be necessary for a successful treatment. There are no precertification rules. There are no step therapy requirements. There are -- so that it allows doctors and patients to customize the course of treatment to get the patients in the right treatment protocol most quickly and the one that's most appropriate for them. It is comprehensive in the fact that the patient knows they're never going to run out of coverage mid-treatment. So the decision-making is not based upon financial criteria, it's based on the best outcomes. So again, we start with this cycle-based benefit plan design. It's very comprehensive. It provides access to a full course of treatment and incents the right decision-making. We layer, on top of that a set of member services led by our PCAs that really is kind of unheard of in the managed care world, where we -- where our PCAs are talking to the members frequently, really guiding them through the whole treatment experience. When health plans typically provide call center services, it's kind of one-and-done. You reach out, make sure the patient is okay and then, hopefully, you don't hear from them again. We have a very extensive member services such that we want to hear from our patients all the time. And in fact, the relationship between PCAs and patients gets -- sometimes gets so deep that we've actually had babies named after PCAs. So again, the member services is very unique. And then the -- probably the last key pillar that I want to talk about is our network. So we have a very unique network, much different than the way carriers put networks together. 30% of our physicians in our network don't broadly accept carrier coverage, but work with us because of how unique we are from a benefit plan design, from a member services perspective. But it's not just who's in our network that we've been fortunate enough to get these great doctors, it's that we engage in a very extensive effort to -- with our providers to collect treatment data and outcomes data on all of our patients. We use that data to create clinic scorecards for all of our clinics so that -- we go back to our clinics, at least quarterly, and we're talking about how they're doing. We report back on 300 data points. So it's everything from what are your outcomes, but are -- how long is it taking you to get people pregnant, how much it's costing? What's your office experience like? What do patients think of you? So that we can actually work with our patients, our providers in a collaborative fashion to ensure that our patients are getting -- are benefiting from best practices and getting the best outcomes. So we do pretty much everything differently than a carrier does. But again, we've had the flexibility of just doing it around fertility. And it's the combination of all those things we do uniquely that really allow us to generate the outcomes that we do.

And before we dive into some of the more recent thoughts, I know one of the things that in all of our conversations, that we -- been a big focus for you and your management team has been NPS score. Clearly, NPS scores within the traditional benefit management, whether it's broader benefits, your specialty benefits tend to be fairly low. Progyny has a much higher NPS. Can you give a little sense on how you manage and how you focus on that level to make sure that your customers are happy and that turns into that self-fulfilling referral and renewal and expansion of customer prophecy?

Sure. We're really proud of our NPS score, which as you know is in the 70s, which means virtually all your members are giving you 9s and 10s because you have to get 9s and 10s to have an NPS score that high, where as you correctly point out, the traditional managed care NPSs are around 0. Maybe a great plan may have an NPS in the teens. But I think the NPS score is just reflective of many of the things we talked about before. And by the way, it's not the only kind of survey result we get. We do extensive surveying of our members around a lot of criteria. NPS is just one of them. We do extensive surveying of our customers around a lot of criteria so that we know how they're doing and how happy they are because we -- we're a service business, and we take both member and employer satisfaction and happiness very seriously, and that really drives everything we do. I think the NPS score, though, is very reflective of the fact of all the things I talked about before that we have a benefit plan design that makes it easier for patients to access the care they need, getting the right treatment most quickly and have the best outcomes and doesn't turn them into accountants. They don't go to the doctor with their calculator worrying that they'd really like to get this test or they'd like to get this procedure, but they can't afford it. It's all covered. So that helps them be very satisfied with what we're doing. Having a real person that they can develop a relationship with, that works with them to understand everything, to help them be better patients and make better decisions is driving that NPS. Having access to the doctors they want to see, not just the ones that may be in a very limited carrier network, helps drive that NPS. So it's reflective of all the things we do uniquely. And obviously, something we take very seriously and measure all the time and are constantly working on improving. But I think all those elements go into help driving the NPS, which is an overall satisfaction score about how do you like the benefit. So it's -- again, you get to go to the doctor you want to see. You get to go there with a benefit plan design that is going to allow you to achieve the best outcomes. And you have someone that's helping you all along the way in a very kind of intimidating journey. So all those things are contributing to our NPS score.

And let's dive into a little bit more of the recent trends in the kind of near-term, medium-term outlook. You've made comments in the past, including your most recent earnings call about the health of your pipeline. Can you give us a little sense on how the pipeline builds and what type of customers are finding Progyny to be most interesting they have in service before? And then especially in this environment where we do have significant job loss across the country, how employers think about adding on value-added benefits such as your own at a time where their employee base is in somewhat of a fluctuation.

Well, I'll try to remember all those pieces of that question, Mike, if I don't, you can help me. But...

I will have to come back to you, David.

Yes. I'll start with kind of -- if you look at our current client base, the 135 customers, it certainly started 5 years ago when the company started was this was -- the Progyny benefit was really built to address the concerns of some large tech companies that they were spending a lot of money on fertility treatments for their members, their employees are not getting good value for it. They really were searching for a better way. And out of that the project was built. But since that time, that initial set of customers who, by the way, all of them are still with us 5 years later, the company has really diversified. So we now represent probably 2 dozen industries, both old and new economy, and it's everything from pharmaceutical companies, to insurance companies, to energy companies, consumer packaged goods companies, food processing companies. So we're not so dependent upon just the tech industry, although the tech industry continues to be a good supporter of the business. What it really reflects is the fact that employers across all industries are realizing that providing fertility coverage is an essential element of their benefit plan, that providing fertility coverage is no longer a nice to have but really a have to have. It's a have to have because if you don't provide fertility coverage, you're really making a statement that you don't value families, you don't value your female workforce. But by providing fertility coverage, you're making a statement that you do value families, you value your female workforce, you want to be fair to your employees. And in this -- in 2020, in the MeToo world, employers are always competing for the best talent. And they really can't afford to be viewed as an employer that doesn't provide what is really deemed by employees as an essential element of coverage. Employees know that fertility is common. It affects 1 in 8 people, that the treatments are really expensive and that they want to know that if they happen to be the 1 in 8 and they're going to need treatment, that their employer has their back. So again, all employers from all industries are waking up to that fact. So if you look at kind of the overall industry trend, just a few years ago, probably only 25% of large employers cover fertility. It's probably closer to 50% now, and the industry estimates are that in a few years it will probably be 75%. So employers are waking up to the need for this coverage. So what we're seeing in our business, again, 2/3 of our new customers typically have had some level of coverage to their carrier. They leave the carrier for us, but 1/3 never had coverage before. So our sales trends are reflective of kind of what's happening in the overall industry, which are more and more employers are realizing they need to do this. And if they're going to do it, we offer a better solution. You can get more for your money. You can spend less, have happier employees, get better outcomes. I think you also asked me about how COVID has impacted that, right?

Correct, especially on the sales cycle and against some of the utilization dynamics in the -- kind of after this.

Yes. So every year, when we go talk to potential employer customers, there's always a percentage of employer customers that like what they hear from us, but they say, look, it's not a no, but it's a not now. You've got to come back next year because we have other priorities. It could be we're changing our carrier, we're changing our PBM. There's other point solutions that they've decided to bring on. So we sometimes hear not now. This year, there's a new element to not now. And that element is that employers are managing their COVID strategies as it relates to their workforce. So early in the year was how do I deal with the remote workforce, now it's how do I deal with trying to get some people back in the office. And we certainly have heard from a number of employers that we like what you're doing. In a normal year, we'd say, yes, but we're not making any benefit changes this year. We're just making none. And that even with some employers that we got all the way through a best and final RFP process, where we essentially won the process, and they said we're going to have to talk to you next year because we're making no changes this year. So there's a new element to the not now. What that means is that we are going to enter the 2021 sale season, with a very robust pipeline of accounts that are pretty well-developed that we've talked to, that we've done financial analyses for to showing what the program would look like from a cost perspective, where we've shown them how our network provides access to their employees, wherever they're located. So we are going to enter 2021 with a more robust pipeline than we normally have. What that also means is that we're not going to have the sales year that we would have in a non-COVID year. We're still winning new business. But in a non-COVID year, we would have expected to win more business. So -- and at our last earnings call, we put out that $525 million number. That reflected kind of the level of business we expect to win this year given the distractions of COVID.

And that's a great segue into that $525 million number. It's clearly a great starting point to kick off based on where you are right now. Where do I assume the average employer is in terms of the typical utilization versus normalized levels? And I guess the second question, I'm no good at these 2-part questions, are you seeing at that level of utilization rebound that you would have potentially expected for people that did prolong some of their fertility journeys during COVID?

So I think we talked about on the last call that we're seeing utilization levels approximately 90% of what we would normally expect to see. And that kind of has been relatively consistent since kind of beginning of July-ish time frame. I think it all -- I think it reflects that there's a certain percentage of people that have trepidation about getting treatment. That -- and that could be driven by they may be in a community with a fair amount of outbreak and spread in the community right now. It may be that they just don't want to be pregnant during this because they're unsure of being pregnant, while the COVID threat still looms. But I think it's what -- I think it's a reasonable expectation that given the strange overall living in right now that there's going to be a certain percentage of patients that don't get treatment. And that percentage for us, unfortunately, has been small. It's only probably about 10% of patients. And it's again remained relatively steady. And the $525 million assumes kind of that that level of utilization stays, that there's going to be a small percentage of patients that still are delaying care. So -- but because we have no reason to -- we haven't seen anything to actually give us a reason to change that assumption. The COVID situation has been relatively stable, I guess, is the only word I can think of for the last 6, 8 weeks. And again, we're kind of -- that's the level of utilization that we see.

And you mentioned that it seems like the holdback in terms of the utilization is more demand-oriented. On the supply side, how are your doctors getting back to work? And are you seeing any examples of them essentially over working or expanding their time frame in order to make sure that if that pent-up demand does come back faster, they're ready to service it?

So well, first thing is, just on the supply side, you should understand that there's kind of capacity built into the system that most docs are working at a level where if they chose to, and they chose to work as hard as some of the hardest working docs, they'd be able to treat more patients. But having said that, if you think about the source of patients most doctors have, there's kind of 3 buckets, particularly for docs on the coast. The first bucket are patients that have coverage. They have some level of insurance or fully sponsored coverage, whether it's through Progyny or other means. And then a very significant percentage of the fertility industry is still cash pay, probably half the industry. And then for docs on the coast, they've always had a fairly significant medical tourism business from patients in Asia and in Europe. Because of the better outcomes here, some of the world's most renowned physicians are here when it comes to fertility. And from the docs' perspective, cash pay patients are slower to come back because, again, it's a very expensive treatment protocol. People are more concerned about the economy, their jobs, et cetera. So they're seeing fewer cash pay patients. For the docs on the coast, they're not seeing medical tourism from Europe and Asia because travel is pretty much shut down. So on top of already -- some already built-in capacity, there is additional capacity there. On top of that, the physicians have been -- have recognized that the safety protocols they put in place to protect their staffs and their patients, spacing patients out, et cetera, if they need to, they're working longer hours. They're working nights, working weekends, so they can see the patients they need to see. What we've seen is that our patients are having no trouble getting into the doctors' offices when they want, and they're getting treated promptly. So the capacity is there.