Hi, good afternoon, everyone. I'm Erin Wright, Healthcare Services Analyst at Morgan Stanley, and welcome to the Morgan Stanley Annual Global Healthcare Conference. For more important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. With us today, this afternoon, we have BrightSpring Health Services. With them, we have CFO, Jennifer Phipps. Thank you so much for coming. We look forward to a great conversation here in terms of the fireside chat. Thank you.
Yeah, thanks for having us.
We'll get right into it. You recently raised your 2026 guidance again in July with adjusted EBITDA now expected to be in that sort of $820 million-$845 million range. Can you bridge us to the latest increase and discuss what is now embedded in terms of your second half expectations? Where do you have the most visibility and which assumptions might, I guess, contain the greatest variability?
Yeah, thanks for the question. We obviously had really strong performance first half, 44% EBITDA growth year-over-year. We expect continued strong growth embedded in our guidance throughout the rest of the year. Some of that outperformance has been in volume and was broad-based across all of our different business lines. As we think about both the pharmacy and provider businesses, both have performed really well from a volume perspective. We had new LDD wins, many in the first half. We've had some new ones that we've launched since we last spoke at quarter end. Then we've had some updates on the pull-through associated with those. We've had EBITDA performance, again, broad-based across both segments and performance. We've had generics have performed ahead of expectations, and are expected growth throughout the rest of the year.
We have had lean and automation efficiency initiatives that have come online and as those have been implemented, we felt comfortable to put that into our guidance as well. As we think about our philosophy, we continue to put out guidance that we have a high confidence in our ability to deliver under a number of various different scenarios, and we are always working to exceed those expectations. Again, with volume growth underpinned by our high-quality services and maximizing leverage of our lean and automation and across our cost structure.
Okay. That is great. I do not want to get too much into the modeling details here, but given that there were a lot of investor questions on that quarterly progression in the first half, I do have to ask. The second quarter gross profit per script, about $27.50. It was down sequentially from the first quarter, though it was up 28% year-over-year. You noted that the first quarter did include about a dollar per script or so of normal seasonality uplift. What is the seasonality attributable to? How much uplift was from early conversion of POMALYST or Revlimid, and how should we think about the sustainable baseline for gross profit per script into 2027? What would create some of that upside downside?
Yeah. I just like to mention that we manage our company ultimately for long-term, sustainable, and durable GP dollar and EBITDA dollar growth. GP per script ultimately is an output of 75 different factors across all of our different business lines and performance there. As it relates, and we do expect sequential growth throughout the rest of the year in terms of GP dollars. We did mention that we expect stability to maybe slight benefit in GP per script throughout the rest of the year. So those are some things that we have mentioned during the call after the quarter. The seasonality really relates to something that happens every first quarter, and it relates to price appreciation that occurs on branded drugs.
To the extent that we have any inventory on hand at the end of the year in advance of our price appreciation, we get the benefit associated with that, and that typically happens in Q1. That tends to be, at least the last couple of years, has been a very similar dollar impact, and so we did provide the dollar impact per script as it related to the seasonality throughout the rest of the year.
What about the conversion impact of some of these biosimilar kind of opportunities? Is that flowing through meaningfully for you? How do we think about that?
From a generic standpoint, we do not have a lot of biosimilars. That is more related to infusion. But from a generic standpoint, we have a number of different drivers that are impacting ultimately our profitability. Those items from a pharmacy perspective are certainly volume growth, new LDD wins, the ramp of LDD wins that we have had, generic conversions, and the growth of those generics as they ramp throughout the incremental component. We think of those generics as being a net tailwind ultimately across each of the next several quarters. Then ultimately, infusion, you have volume growth across those from a driver perspective, and then improved profitability and margin expansion. In the home and community pharmacy, as we think about those drivers and leverage our cost per script is really kind of the primary focus in addition to volume growth that we are focused on.
Okay. Bigger picture, gross profit per script, as I was mentioning before, up 28% in the second quarter, up 50% in the first quarter year-over-year, up 21% throughout your fiscal 2025. Before the years before 2025, it was roughly flat. Can you give us a little bit more context on what really has driven that inflection and some of what is durable as we head into next year?
Yeah. One of the things to remember, this is why I mentioned early on that we are focused on the dollar growth, in addition to obviously managing each of the components of script growth for each different business that we have. Mix definitely has an impact as each of those different pharmacy businesses has varying different GP and EBITDA profile, and we are focused on driving maximum growth across each individual business line, which can then play out from a script standpoint. If you were to go to 2024, you are right. There were periods where we had a negative GP per script, but really significant GP dollar growth or even in some cases, margin expansion, and that was really a mix-related dynamic. Again, we think the right metric to focus on is the dollar growth.
But ultimately, from a sustainability standpoint, we've continued to drive outsized volume in certain areas like specialty pharmacy, which has a higher script growth as well.
Okay, great. At your Investor Day in March, you outlined long-term guidance of 15%-20% organic EBITDA CAGR through 2028. That's nicely ahead of prior targets that were alluded to during the IPO process of high single-digit EBITDA growth. How do we think about the continuation of the momentum that we're seeing? Can you walk us through some of those key growth drivers, what they've been for BrightSpring over the past two years, but what we should see in terms of growth over the next couple of years here?
Yeah. Over the last couple of years and what we see playing out into the next couple of years, there's been a handful of drivers of that growth. Number one is ultimately volume underpinned by our high-quality services. That was broad-based across many different businesses, but specialty pharmacy has had an outsized growth over that time period. I would say the second being the specialty pharmacy and the attractive market and our leading market position that we have across the pharmacy business. Number three would be we've had really strong provider growth, which has contributed to the bottom line in the second quarter. From an organic standpoint, the provider business grew almost 20% on an organic basis, significantly more if you include the Amedisys acquisition. Leveraging our scale and efficiency. We think that that has provided a lot of meaningful value.
Our ability to contract from a payer standpoint, our ability to contract on the cost side, and certainly drive lean and automation. Fifth would be infusion and the work that we've been doing there. We've invested a lot of money over the last couple of years, a lot of money and time, as we're working to really build out a platform for growth there. I think, as we look forward, we see that being a meaningful contributor over the next couple of years, has been a contributor over the last year and a half, after a couple of years of really being stable. On the home and community side, I would point out, we believe that there's a lot of opportunity for automation and efficiency and driving pretty significant dollar per script growth.
As we look across all of those different areas, we just really see the ability to continue to leverage and perform well across our platform.
Okay. Anything to call out as we think about the second half in terms of pharmacy services, or the pharmacy solutions segment, I should say. How do we think about more nearer term dynamics that we should keep in mind from a modeling perspective?
Yeah. We continue to expect sequential growth. We think the primary drivers of that are going to be the things that we talked a little bit earlier about. New LDD wins that we have launched either earlier this year, some that we have recently announced, post the Q2 earnings. The ramp of those historical LDD wins that are going to provide growth in terms of revenue, GP, and EBITDA dollars. The generic conversions, continued growth in those and opportunity on the cost side. Fee for service that grows with those LDDs, certainly is important. Volume growth in infusion and leveraging our home and community lean and automation work that we are doing. All of which are contributing to EBITDA growth that we expect in the second half.
Okay. You mentioned some LDD wins, so let us go there. As of the second quarter, the company had 155 LDDs and had launched, I guess, about 12 products, I think, year to date. For exclusive, I think, what you call ultra narrow. I guess, how does this compare to kind of your original expectations? What is remaining in terms of launch pipeline? How does that LDD pipeline look for you? Were these a couple of new wins even since the most recent quarter?
Yes. We did recently launch two new. We've actually announced a few on our Onco360 and CareMed website. We usually announce the bigger ones. We've announced a couple of new launches in both rare and orphan space and also in the oncology space. The pipeline remains robust. We typically are working with manufacturers. We typically know if we're going to participate in a launch, oftentimes 12 months before a launch. We have pretty good insight into what we were expecting 2026 and how we would expect that to play out. We're starting to work with manufacturers, obviously, on 2027 launches and what that will look like. We usually have pretty good insight into what that looks like a little bit further out. We can't announce that or talk about that until the drugs actually launch.
It's been a good year in terms of the pipeline of drugs. It remains robust and as we continue to work with manufacturers on upcoming drugs, we believe that the leading and high-quality services of our specialty platform, the high touch services and white glove services that we're able to provide on behalf of the manufacturers to service their drugs, our time to first fill and medication possession ratio, and our patient satisfaction and physician satisfaction scores have led to our ability to continue to serve these populations and these drugs and new drugs coming to market.
Can you comment a little bit on the recent FDA cancer drug approvals, the opportunities with the recent pancreatic cancer drug? Can you discuss kind of, I guess, some of those more recent LDD wins?
Yeah. There was a new drug that was launched earlier this month, I think it was the beginning of September, where there was a new pancreatic cancer drug that was launched, RYZONVY, from Revolution Medicines. We're excited to participate in that drug as a partner on that drug and what that drug is doing and the novel nature in service of patients with pancreatic cancer. We're just really proud to partner with the manufacturers on that. We also had a notable rare drug win. That was not a new LDD, but ultimately a switch from a different, and that was an exclusive drug, ORLADEYO. That's just another example of a drug that we're excited to partner with manufacturers in the service of their drug and their market.
For the pancreatic cancer drug approval, for something like that, it is not necessarily the super ultra narrow probably in terms of. Or how exclusive would the nature of that relationship be?
It is a network of 2. From a specialty, the drugs that go through the hospital channel, we would not necessarily participate in that. But we would service and be one of 2 pharmacies servicing that drug in the specialty pharmacy market.
Okay. Oncology remains, I think the Onco360 business, a gem within the BrightSpring ecosystem. 93% of your specialty pharmacy business is tied to oncology, which I think you view as a nice durable market. What else is from a pipeline perspective, are you encouraged with what you are seeing from an innovation standpoint? Presumably, you are, and how do we think about the mix of oncology versus other complex therapies over time?
Yeah. No, we just continue to see a lot of unique drugs in the oncology and rare and orphan space and the specialty pharmacy space. We continue to see the need for high quality specialty pharmacies to help service narrow or exclusive networks. We are excited to be able to be a partner to manufacturers in support of that drug. As we look out from a pipeline perspective, there are a number of drugs that continue to be in phase III for FDA approval, and the pipeline remains robust. Our team is constantly thinking about how can we utilize our unique specialty pharmacy network services across different disease states. Rare and orphan is an area that we are very interested in continuing to participate.
We've had some notable wins in this space over the last couple of years, and we're excited to continue to partner with manufacturers in this area. But we're constantly looking out in terms of additional areas of specialty pharmacy where we think our unique high touch pharmacy network that works in exclusive and ultra narrow areas might be additional opportunities in the future over the coming years.
Okay. And then hub services. You've highlighted hub services and other fee for service programs as a growing contributor to specialty pharmacy and as a way to deepen those manufacturer relationships that you have. Can you describe a little bit about the breadth of your hub capabilities today, how the economics compare with the core dispensing business? How meaningful of a contributor is the hub services business?
Yeah. So in support of a drug, we're able to really design programs that really will do whatever is necessary, typically to support a patient or a manufacturer for patients on that drug. So, that sometimes looks like just data back to the manufacturers, helping them understand the patient journey. A lot of times it involves other things. It could involve designing hub services where we have a lot of communication with those patients, where they're directly communicating with us about any needs they have on the drug. And then we're able to provide that information back to manufacturers. It really can be whatever the manufacturer feels would help benefit the outcomes. Ultimately, these services are used to produce better outcomes for the patient and more effective treatment in the care of the patients on these drugs.
Okay. A little bit on infusion. I believe you indicated that infusion was approximately, I think, 70% acute. Second quarter showed solid growth, both acute and chronic. I guess you're beginning to integrate some of the payer contracting and purchasing more closely with the broader PharMerica platform. Can you talk a little bit about the opportunities you're seeing across infusion and where ultimately that mix shakes out in terms of acute versus chronic and geographic areas of focus? Which ones are the highest priority for you?
Yeah. We are putting resources to both because we think there are interesting opportunities across both. From an acute standpoint, we think density in our current markets is very important, certainly important, as we are trying to leverage our scale across our provider and payer negotiations. There are some markets that we are not in today that are very interesting to us that we think that we could provide our high-quality infusion services at. From a chronic standpoint, we are really focused on very specific drugs and end markets for drugs that we think are very interesting. How do we build out the right sales force, the right infrastructure to be able to deliver really high-quality care? Jon has talked a little bit the last couple of quarters, for example, about a program that we created called IG Connect.
Individuals that are on IVIG medications, for example, how can we help them through their life cycle of IVIG medication in a white glove way, similar to some of the services that we do in a specialty pharmacy. How can we bring those to help ensure better adherence, better outcomes ultimately for patients that are on that. Those are things that we are doing that we think are differentiated and, ultimately, will be helpful for growth in those areas.
Okay. Home and community pharmacy revenue declined in the most recent quarter that reflects IRA and some customer exits, I believe. Yet the EBITDA, I guess, increased because of some of the internal efficiency initiatives that you have and technology investments that you have made. I guess, how do you think about full year, or how do you think of the long-term dynamics around IRA and drug pricing dynamics across that business? What is the long-term profile of that home and community pharmacy business?
Yeah, really great question. From a revenue standpoint, we do expect continued decline in revenue throughout the rest of this year from IRA. We have seen about half of the impact through the first half of what we had talked about. As we look forward to the 2027 drugs, certainly the largest drugs were impacted first. What we have said is we expect the impact in 2027 to be about half of the impact that we are seeing in 2026. Despite that, as you mentioned, we have grown. Certainly for 2027, we are working to continue to further mitigate any IRA impacts that we have. That would include what could be additional mitigations for drugs that were even on the 2026 list.
In addition to that, we certainly have a number of lean and efficiency and then volume growth that we would expect, that would ultimately produce meaningful EBITDA growth in that business as well.
Okay. Since we are talking about some regulatory dynamics, I guess, can you separate direct 340B economics from indirect exposure for you through referral sources, hospital customers, or manufacturer contracting? Under what sort of 340B reform might you face risk versus potential share opportunity?
Yeah. From a 340B perspective, where we have some 340B support is in our specialty pharmacy and related to LDD drugs. What I would say is that we have a very transparent model with our hospital partners, and we work to be a true partner to them in providing some of the drugs where they might not have the ability to provide that drug to their patients. As we look at the economics, it is not significantly differentiated compared to our normal economics on the dispense of a drug. 340B is certainly a really important program for hospitals. It has been very meaningful to drive support of their patients. Certainly, we just look to be a partner to those hospitals and to the extent that there is reform. Although we do not necessarily have a view on where that would happen.
We see it more as an opportunity, or continuation of what we are servicing, because these patients are in need of these drugs. If it were to go through the specialty pharmacy channel, there would not be a meaningful shift from our standpoint.
Then maybe a bigger picture question on just PBM and PBM economics as they move towards this greater fee transparency or de-linking from traditional rebate models. How do you expect that would affect an independent specialty pharmacy like BrightSpring Health Services?
Yeah. I think what you are referring to are some of the rebates and the linking of rebates. We do not have rebates on our side. But again, we are focused on, across our specialty platform, largely from a brand standpoint on LDDs that are exclusive or ultranarrow and being able to provide these drugs to the patients. We have been able to work productively with payers on these LDD drugs that are very important to patients. So we do not necessarily expect that to impact us. We would expect to continue to have similar opportunity sets across our platform.
Okay. Then, staying on the topic of regulatory, but CMS also has proposed a 2027 home health rule that would increase aggregate HH, I guess, payments by 2.4% versus 2026. What are your thoughts on that? Any sort of high level feedback?
Yeah. We were very encouraged to see the rate increase. They essentially kept the temporary rate flat and then provided the normal cost of living adjustment from a rate perspective. That was consistent with a lot of the conversations that we have had. We have a really strong government relations team. We have a really strong federal team that has experience both at payers, at CMS, across a number of different areas. Oftentimes, we are one of the leading voices for the industries that we are in across CMS and legislatively. So, we continue to advocate for the really important work that is being done by home health providers and ensuring that there is appropriate compensation and rate support for those services that are producing meaningful outcomes for patients.
You recently reaffirmed your commitment to the home health category and business that you have. You closed the acquisition of Amedisys . Can you talk a little bit about your expectations across that business? I think you've been running ahead of plan in terms of the EBITDA contribution. How is integration progressing? What's driven the improved outlook? What integration milestones remain from here?
Yeah, really great question. We were obviously really excited for the opportunity to acquire those branches. That acquisition is performing really well and is performing ahead of plan both in terms of volume as well as some of the margin expansion opportunities. It's been a lot of work. We've effectively doubled the size of our home health business and the number of branches that we have. Certainly, a lot of IT and other integration work to make sure they're on our processes, our policies. But those were really high quality branches and high quality teams and processes. So it really has been a pretty smooth transition into our processes and what we're doing from a work standpoint.
We think that there's obviously continued growth that we'll expect out of that acquisition, including, really, we would expect to be run rating at our home health margins probably six to nine months from now. Fully run rating at those margins. So, we're continuing to see that margin increase and it's performing really well.
How is your acquisition pipeline shaping up relative to your expectations? Are you seeing some greater opportunities across pharmacy versus provider? How do you think about weighing those opportunities? Is it still like $100 million a year, the right annual deal spend? If you back into what's implied in the long-term guidance, it could be vastly bigger than that. So I'm just curious, what's your capacity and appetite for deals at the moment?
Yeah, really great question. We are really proud of the position we are now in from a leverage position. At the end of Q2, we were at 2.15x levered, with a path to be well under 2x by the end of the year outside of M&A or other use of capital. Which is below our long-term target of what we have said is 2.5x or below, giving us a lot of opportunity for M&A. It is our belief that our ability to do highly accretive M&A is still one of the best uses of our capital dollars, and our corporate development team is fantastic and has done a really good job executing really well over the last 9 years across many different deals and with an almost flawless record in terms of EBITDA being higher than where we acquired it.
That team, we have a robust pipeline across all of our different businesses. We are able to really look across a lot of different areas and a lot of different businesses and say, "What is the most attractive opportunities for us now?" So each business, we have targets, target geographies, target density as we try to build out more services across different areas. What are the areas we want to look at? And we can look out across many different deals and target the most attractive opportunities for us, which we think is a differentiation for BrightSpring. We remain interested. I would say, the areas we remain most interested would be home infusion and our ability to target pharmacies in some key market areas. I would say, hospice, rehab, those are also very interesting to us.
But again, we are able to look across all of our different businesses as we think about this. I would say, from a target size perspective, we will continue to be very focused on every deal being the right strategic fit, at a reasonable multiple that we think is accretive over time. And then, as we think about that use of capital, we will probably continue to do the really highly accretive tuck-in M&A, under $3 million deal sizes. I would say we will still continue to do a number of those deals. I think our cash position has put us to a place where maybe we can do more of the $5 million- $15 million deals. We have not done very many of those over the course of the last couple of years as we have been really focusing on de-leveraging.
And then, might we do one or two $15 million- $30 million deals over the next couple of years. I think, that is sort of how we are thinking about M&A.
Okay. I'll end with this huge question. One of the biggest questions we get from investors, too, is, can you keep the momentum going in pharmacy and pharmacy solutions, and can you still continue to win LDDs? I think whether it's being unencumbered or just your expertise or data or solution or hub services, which one of those, how would you rank those in terms of when you're kind of competing for sort of that LDD win, what's the most important for them?
I think, really having high quality services. For us, some of the evidence of that are our time to first fill being significantly better than many of the market players. Medication possession ratio, which is an adherence measure, being really high and much better than a number of the players. Then really high patient and physician satisfaction scores, which have been very helpful. Then certainly, I would say the operational team has done an excellent job of just performing on the drugs that we have access to. That has then continued to provide, I think, the excitement around our specialty pharmacy business and what they're able to execute on
Okay
with new opportunities.
Great. Thanks so much. Appreciate the time.
Yeah. Thank you.