Panelists of Bank of America Quality Healthcare Facilities and Managed Care names, and thank you so much for joining our conference. We are going to start the day with Option Care Health, the largest home infusion provider in the U.S. Today with us, we have John Rademacher, who's the President and CEO, and Mike Shapiro, CFO. I guess, John, you want to have some introductory remarks before I go into Q&A?
Certainly. First and foremost, as always, you know we may be making some forward-looking statements in today's presentation. We ask that you review our safe harbor language on our investor website for full disclosures as we move ahead. I'd like to start by just saying really strong first quarter. We are really pleased with the progress that the organization made, really balanced in the portfolio as we looked at the execution. A lot of moving pieces as we were exiting the fourth quarter with some of the things like the bag shortages and some of the competitive exits. The team responded extremely well. Our ability to utilize our national scale with local responsiveness was something that we take great pride in, but really pleased with the progress that the team made, as well as the execution during that period of time.
Pretty much every measure that we had put out there, again, we don't give quarterly guidance, but as we set our internal markers, pretty much every measure that we had, we were at or exceeded as we exited the first quarter. Really strong results. Really feel like we're well positioned to continue that and deliver the year.
Great. Thank you so much. I guess let's start on the core business. I know there's a lot of questions around policy things and such, but maybe first, you know, to continue on your thought in terms of the guidance for this year, right? When you exclude the Stelara headwind, it calls for a 20% EBITDA, call it, on the midpoint. So maybe walk us through the drivers, right? Like, is this the growth sustainable? How much, I guess, is the benefit of CVS, I guess, exiting and you're waiting? Sure, but also maybe some incomes from last year. So kind of walk us through the build to that core number.
Yeah, I would say, again, you'll hear the word balanced, but really balanced results. As we were looking at the year and the guidance that we put forward, our expectations were continued strength of growth in the acute therapies, certainly capitalizing on competitive exits and the opportunities that that creates for us in those markets in which we exit. We believe there's a halo effect associated with that as well. We're seeing growth not just in those exit markets, but growth in other markets as we continue to execute. We think part of that is, you know, as hospital and health systems, you know, expand and are across multiple MSAs, their ability to have partners who are reliable, that can provide consistent high-quality care are ones that they seek. That ability for us to continue to execute, we were really pleased on the progress.
We think that is part of that growth driver. We continue to see strong execution in the chronic space, whether it's in our rare and orphan and to continue to capitalize on the platform that we have from that perspective, as well as our core products, whether it's, you know, the chronic inflammatory disease, as well as our IG portfolio products. We really feel as if the growth is going to come from all those dimensions. When you pull out some of the impacts of the Stelara on that, you know, another strong year of top and bottom line performance, we feel really good about the composition of that and the balance that that brings, given the value proposition that we bring into the marketplace.
That value proposition, I'd say, is both with the referral sources, again, that responsiveness that we have, the reliability, the consistency of the clinical outcomes, but also as we're working with the payer community and looking for opportunities to deepen our relationships there, especially as they're working through challenges with medical loss ratios and others, they're looking for partners that can help to reduce the total cost of care. When you think of what we can do, offering high-quality care and appropriate costs in a setting in which their members want to receive that, we're really well positioned to continue to deepen those relationships and provide real value to those two key stakeholders.
Yeah, so actually topic of today is high trend. So maybe, you know, as it relates to your relationship with Managed Care, can you talk about, you know, their strategies when they try to address the trend and these 28 changes and all these other things? You know, is it something that you can leverage, you know, on your end to kind of do more, I guess, with the Managed Care plans as they try to address these issues?
Yeah, a lot of our conversations are, when you think of the value that we create for a payer, it really, when you look at the different portfolios of products that we have, helping them manage bed days by being able to safely and effectively transition patients out of the higher cost inpatient settings into the home or into one of our infusion suites is significant value when you're looking at the total cost of care. A lot of our conversations with payers is, how do we help to support that? How do we utilize our pharmacy infrastructure, our nursing community to be able to support that transition in a very efficient and effective way? When they're looking at the total cost of care, not just the unit cost of a product or a service, they're looking at that total cost of care.
Home infusion is significantly less expensive than going to a skilled nurse facility or staying in an inpatient setting. A lot of the conversations that we're having with the network management people is, how do we facilitate that in a more efficient and effective way? How do we bring that more to your members? Similar thing in the chronic conversations when we're talking about their membership that have chronic conditions that require the infusion services that we can offer. The ability for us to work with them on site of care initiatives to be able to help their members identify areas in which they can receive care at a high quality, but at that lower cost, moving out of the hospital outpatient departments that tend to be 20%-40% more expensive than what it is in the home or in one of our infusion suites.
We're helping them manage, you know, situations where they have high complexity from the medical needs and our, you know, healthcare professional oversight can provide value there. Those are the things that we're really working in earnest with. I think this has come up before. You had asked questions before, Joanna. You know, we felt site of care initiatives were starting to move forward with some level of interest from the payers until COVID. COVID happened and really the world got turned upside down. There were many situations where a lot of the focus was just around the stability of the network and the supply chains and those types of things.
I think as we're emerging out of that and getting back to, you know, looking at how do we manage the business and how do we drive better clinical outcomes at a more appropriate cost, they're starting to pursue those types of programs to help support their members and help to reduce that total cost of care. You know, we feel really good about the position we have. We think that the uniqueness of our platform, especially when you're in those conversations with the national payers, we may have members in Maine and in California and every state in between, that opportunity that we have to be licensed in all 50 states, to have coverage of 96% of the U.S. population, and the capacity within our pharmacy and nursing network really positions us so well to be that partner of choice.
Are you seeing more of an interest from payers coming to you and trying to do a little bit more?
Yeah, those conversations are picking up pace. They are trying to think of ways to utilize those types of programs to influence their members to make better choices.
Right. I guess you mentioned, you know, your, I guess, access points, right? You have the nursing pool that's available to you, but maybe we can talk also about your physical assets, right? That's been part of the growth, so in terms of the infusion suites, but then also most recently the advanced care practitioner model. Maybe you can talk about kind of, you know, the trajectory there and how you would think about how this is aiding the growth, how much capacity there is, and I guess, you know, how much is used and what are you using for and kind of why you're doing this essentially?
We continue to invest. I mean, one of the things that we have the flexibility with the balance sheet that we operate, as well as with the focus that we have as an organization of making that investment into the business. On a CapEx basis, on an annual basis, we're anywhere between $30-$40 million is what we spend on that. And that's putting new pharmacies into the infrastructure. You know, we had highlighted that we have a new state-of-the-art facility in New York, in Tampa, Florida, in Richmond, Virginia. That really allows us to continue to invest in that fleet of pharmacies to ensure that we have the capacity, but also that we're operating at the highest levels of quality across that. We also invest in our infusion suite capability. We're now over 750 chairs that we operate across the U.S.
Those infusion suites and the capabilities that we have there either support patients that are operating under the practice pharmacy, and now we're building out more capabilities with advanced practitioners. That allows us to expand the portfolio of products that we're able to manage and to be able to oversee. It also allows us to tap into a different class of trade as we're thinking about the way that we're sourcing the product. It also gives us an opportunity to manage more medically complex patients, given the fact that those advanced practitioners can help manage and modify the care plans associated with those patients. We like the duality that that brings to us. We like the optionality that allows us to match the service that we can provide with the needs of the patient.
We also like that opportunity we have to go based on what we've been able to demonstrate with the medically complex to continue to invest in and grow our capabilities to serve more patients where clinical protocols and/or the oversight that's required is more complex than just a pharmacy-led infusion event.
On this advanced practitioner setting, can you talk about the type of patients that you sort of addressed? Because I want to say in the past you talk about Alzheimer's and even oncology. Sounds like that's been your area. That may be something that you guys are trying to expand into.
Yeah, it opens it up in a couple of dimensions. One is in situations like with Medicare fee-for-service where there's limited access because there's just not coverage under the home infusion therapy, you know, aspects of direct fee-for-service. It allows us to expand and serve a broader base of patients, given that you can use the advanced practitioner model in order to support them there. On the complex patients, certainly Alzheimer's and the emerging therapies in that space, more medically complex, certainly those patients require a different level of care and handling and monitoring through that process. Having those additional capabilities and competencies of the advanced practitioner model helps there. The other area of emerging, you know, interest, as well as we think opportunity, is really in the oncology area.
Starting with a lot of the, I'd say, the more standard products like the PD-1s, the Keytrudas, Opdivos, Urovoids, a lot of those have the same characteristics of our chronic inflammatory diseases, require a healthcare professional to oversee it, have some, you know, comorbidities with those patient populations, that ability for us to be able to bring those patients into the advanced practitioner model and really tap into that, as well as also tap into some of the site of care initiatives that are happening at the payer level. We think this sets us up very well in order to do that. There historically has always been a bit of a resistance to do oncology in the home. ASCO and other, you know, bodies have been resistant to that.
Having the infusion suite infrastructure that we've been able to build out allows us to demonstrate our capabilities and do that in a clinic setting, if you want to think of it that way, that allows us to expand and to take on some additional products that may not be really well suited for the home, but we can still serve those patients and serve those referral sources with the patients' needs.
How many of these advanced care practitioner locations do you have?
The broader strategy that we will be executing is all of our infusion suites will operate in this hybrid model. It takes time. Each state has different aspects of corporate practice of medicine and other things that are the requirements through that process. We see that expanding, you know, as rapidly as possible and being able to tap into this opportunity. It's going to take us, I'd say, a couple of years to get that fully executed, given the things that you have to do from a corporate practice of medicine and then being able to build along. We're going to continue to be building our infusion suite capabilities along that path with that longer-term vision around how to use the facilities. Again, to your earlier question, that just gives us broader capacity and be able to utilize our nursing resources more efficiently and effectively.
You mentioned that I know that's going to happen ahead, but maybe you can expand a little bit more about, you know, specific therapies that are driving that growth and kind of the pipeline in terms of bringing therapies coming along.
Yeah, and we've highlighted, you know, some of the rare and orphan products that have really, we've been able to tap into the strength of our platform and the clinical competencies as an organization. So products like Byjuvi, Vyepti are ones that we have called out before. These are, you know, products that, again, expand on the capabilities that we have both in the practice of pharmacy as well as our healthcare professional oversight in our nursing community. Our clinicians, especially with products like Byjuvi, can set up clinical protocols that are unique to that therapy. Our learning management system helps to deploy any of the training that is required for our nurses to oversee and to execute on that, both in adjusting time as well as a reinforcing aspect to that.
That brings a significant amount of value to our manufacturer partners who are looking for a platform to be able to bring their products into the marketplace. You know, we always have an eye towards continuing to look for rare and orphan limited distribution drugs and be able to continue to push, you know, those programs forward and execute around that. We feel like we're well positioned. You know, one of the things that we focus on is certainly new product launches and those opportunities to do that. There are also existing products that are in the marketplace and some of the manufacturers are looking for different partners or better partners for their products and channel partners to be able to serve their products.
We're always kind of working through those relationships broadly and looking for the opportunities to sweat the assets and to really utilize the platform to its fullest.
Maybe switching gears, Stelara, it has been a very topical topic, I should say, recently. Now the next, so you were able to quantify the headwind for 2025. How should we think about biosimilars coming online? We're starting to see some of those maybe entering the market right now and how, you know, how we should be preparing, thinking about, you know, how this is going to play out through this year and next year?
Yeah, it's still early to tell, Joanna. You know, there has been a lot of talk. I think most of the focus has been really around the pens and the self-injectable aspect of those products. And there are a lot of Stelara patients, again, just defining the world that we operate in. The patients that we serve is a small cohort of patients that are on Stelara that have letters of medical necessity. They have medical needs in which they cannot do the self-administration. So it's a very small subset of the broad patients that participate in Stelara. A lot of the focus has been on those that are self-administered and that use the pens to do those self-injections through that process.
Most of the patients that we have are, we use vials and we are doing it as an intravenous application or administration of that as opposed to a self-injectable. So, you know, we think that the uptake will be more focused around those self-administered patients as it moves forward. We're in active conversations with all of the biosim manufacturers around bringing their products onto formulary, how the economics will work on that. As we reported in the first quarter, the patients that we have, the census that we were operating at the end of the year through first quarter, we've retained, you know, a vast majority of the Stelara patients and retained them on service. Again, Stelara is still a profitable therapy for us. It's just less profitable given some of the shifting economics from Janssen.
You know, our view is that we're going to continue to, like with every other biosimilar event, we're going to manage that as efficiently and effectively. It gives us some different leverage points in the conversations, both with biosim manufacturers as well as the original innovator around the economics that we can participate in, given the value that we bring to those patients and the uniqueness of the patient cohort. You know, we're going to continue to work on that. Again, we have been given 2026 guidance. One of the things that's a little bit, I'd say I don't want people to jump to is there are a lot of moving components as we start going through the rest of the year.
Part of it's going to be around the biosim uptake and how that kind of fits into the equation and what the economics look like for that product. The other thing is what is the census of patients that we have as we roll through 2025 into 2026 that are on Stelara, that are on the biosimilars, that are potentially moving to the next generation products like Tremfya, et cetera. That is why it's not like a linear, only one variable type of equation and why we're trying to be really thoughtful around the way that we're approaching it. We feel good based on the results of the first quarter and how things are trending that the $60-$70 million range that we gave for 2025 is in alignment and what we would expect for the remainder of the year through that process.
It's really early to try to hazard a guess around the implications for 2026, given some of the various variables that will be part of that overall equation.
I guess since you mentioned it, the last question on Stelara about the, you know, there's some confusion I guess around how to think about the headwind, right, from Stelara this year when it's at 60-70 for the year, but in Q1 was much lower. I guess automatically people kind of assume, hey, that's going to create additional, you know, headwind into next year. Can you walk us through?
I used to buy a lot when it was Stelara, so it's not bad. I'm trying to cut down as well, Joanna.
Look, as John said, we would err caution on anchoring on one variable going into 2026. As you know, Joanna, we operate in a very dynamic environment. As John said, there's a lot of moving pieces around the biosimilar uptake, what our census looks like, what is the approach of Janssen with, you know, the legacy Stelara brand going into 2026. When we laid out the $60-$70 million range, that was specifically linked to the guidance that we articulated for 2025. As you know, we don't provide 2026 guidance at this point.
That 60-70 included a consideration that we, like every other year, use our balance sheet at the end of the year to, you know, to mitigate some of the price adjustments on certain drugs by using our balance sheet to build some inventory. You know, the 60-70, as we see it, is our high confidence interval, as John said, around the impact for 2025. At this point, it's way too early. I would just err caution because there's so many dynamics, whether it's in the acute portfolio, whether it's in the rare and orphan portfolio, just within our cost structure, relationships with payers.
To anchor, and I understand the math that, well, I need to adjust my 2026 number by 10-15 for this wrap-around in a bubble where absolutely nothing else changes in our business, which just simply is not the case. I think that would be a safe assumption. Again, we are just not in a position to unpack even our thoughts on how Stelara will look going into 2026 at this point.
There are a couple of other big topics. I know there's a lot of uncertainty, but maybe, you know, any initial comments on the executive order yesterday in terms of, you know, trying to influence how the pharmacy chain works in the U.S. and how this potentially could flow through to you?
Yeah, it's, I think everyone is really trying to understand the executive order. I think in principle, you know, trying to reduce the cost of drugs in the U.S., or at least have better balance between the U.S. and other developed nations. You know, I think people understand that aspect. How it actually would be executed as it was laid out would create a significant amount of challenges, I think, for everyone. First and foremost, you know, re-importation, there's challenges with counterfeit and other aspects that have to be taken into consideration. It's really hard for us at this point in time to understand how it would actually ripple through to us, given the uncertainties of the way that the executive order kind of outlined on that. As we've said before, you know, we do make a margin on the drug.
We do get paid a clinical per diem, and we do get paid a nursing rate. We have those three levers that we operate. Some of our payer contracts are tied to, from the drug price to average selling price, the ASP, and that's less than 50% of our revenue comes from contracts from that standpoint. There are other mechanisms, AWP, et cetera, that we use for the majority of our contracts on that. How this all patterns out, Joanna, it will be interesting to see. We're always looking for balance across those three legs of the stool as we move forward. We know the cost structure that we have and the value that we bring to the patients. When you're looking at the total cost of care, the way that we manage from that perspective.
We're always working with payers around getting that appropriate amount of value across those three dimensions. I think that as this starts to move forward, if we see, you know, changes in the drug prices and things associated with that, we're always going to be looking for ways to pull on the other levers to make certain that we're being paid fairly through that process. A lot to see as it kind of unfolds and develops before that. At this point in time, I just don't see how this gets applied in the way that it was written and disclosed yesterday.
Right. But in, you know, in theory, right, if this is where things are headed and there's more pressure on costs of drugs, you know, is there something that you can do in response to that? I mean, I understand there's this, you know, the three legs of the stool in terms of going to maybe, you know, more nursing and per diem rates to try to, you know.
Yeah.
Make a margin. Is there something else?
I guess from our perspective, it's always been a challenging market from a pricing standpoint. Just because there's an ASP or a reference price out there doesn't mean that the payers just give us free road on that. I mean, they're adjusting our prices as to what's the ASP plus or the WAC minus that we're getting. Like we've been operating in a very thin margin business and operating dynamic from that standpoint. Look, we're always going to be fighting for every basis point. We would look for, as Mike says, you know, pennies and nickels in the cushions. Like that's the orientation of our business and the way that we operate from that standpoint. We're always going to be looking for ways for those offsets, Joanna.
We're always going to be pushing around what can we be doing in the investments in our technology to drive efficiency and effectiveness within our operating model. How do we take costs out of our systems in order to do that? How do we leverage the infrastructure, sweat the asset? Like all of those things are part of, you know, the way that we've operated the business. As I said, like we've worked through pricing challenges. We've worked through, you know, changes that have happened within the environment. I think have shown agility and resilience as an enterprise to kind of work through those challenges to a very good outcome for our shareholders.
The other thing I'd add, Joanna, is, you know, when we think about and we're constantly triaging and analyzing some of these developments that seem to be coming out on a daily basis. As we've recently articulated, 75% of our gross profit comes from therapies that are either generic or biosimilar today. Those are already very efficiently priced therapeutic areas where you have multiple competitors which are keeping prices relatively, you know, competitive. I would say of the 50% of our revenue, which are quote unquote branded drugs, which presumably would be some of the areas that the EO would be targeting, roughly half of those are limited distribution or rare and orphan therapies, which are higher costs for very small patient populations. Again, our branded therapies, as we've talked about, you know, on a relative basis contribute less at that gross profit line.
Not that we're not monitoring this, but as we look at the portfolio of therapies, you know, we see a lower risk profile.
Joanna, because that's what I was trying to ask you, but you answered that question before I asked it. There was actually exposure to where those prices could show up. On the flip side, right, before this executive order, there was a lot of focus on tariffs, potential tariffs, right, especially on drugs in particular, like and as it relates to how this impacts the company. Can you walk us, you know, through that, any updated thoughts on, you know, how we should think about it and, you know, same thing in terms of like where it will show up in your portfolio?
Happy to. Yeah. Look, you know, we're in an environment where we navigate and manage through variable drug reference prices on a daily, if not weekly, basis. Whether drug prices increase or decrease, those are dynamics that we've reacted and managed proactively quite often. I know one of the prevailing concerns is, well, there's delays in ASP and when it's calculated, would the company have exposure on an interim basis? That's just not, that's just categorically not correct. Less than half of our revenue is anchored to payer contracts that utilize ASP as the reference price. If there are, you know, inflationary impacts on drugs, again, we make a spread over the medium term on the drugs. We have demonstrated that we can very well manage interim disruptions around, you know, timing differences with reference prices.
AWP and WAC are typically, you know, updated more frequently in more real time. Even with ASP delays, because that usually is, or it's managed by CMS, we can very well manage those interim, the dissonance between the reference price and the drug cost.
I think we probably.
Yeah, just because this had come up before is, look, we manage med supplies. We're maniacal in the way that we look at how do we source and drive that forward. As we had, you know, called out, it's not material. I mean, we will, again, find the right ways to do that, you know, from the med supply standpoint. Tariffs should not be an impacted material for us.
It sounds like we have three minutes. Okay. Because my other topic was around free cash flow because company generates very high.
I love it. Yeah.
Free cash flow. Maybe walk us through any updated thoughts on the deployment of it. You've been buying a lot of stock, but there's also deals there. Kind of, you know, walk us through the targets you're looking at and how we should think about that.
Yeah. Look, I think one of the hallmarks of this platform is our ability to convert revenue and earnings into cash flow. As we like to say, EBITDA does not pay the light bill, cash does. And, you know, last year we generated more than a quarter of a billion dollars of free cash. As John said, our capital expenditures are quite efficient, around $30-$40 million. Our guidance this year is we will generate at least $320 million of cash flow from ops. That implies that we should be this year generating and would expect to clear more than $250 million of free cash flow. Given the health of the balance sheet and our leverage profile, we are very comfortable that people should expect us to at least deploy our free cash flow in shareholder-friendly manners.
I think our balance sheet and our confidence in the cash flow, you know, affords us the flexibility and the optionality in terms of how to deploy that. We see two primary avenues. First and foremost is through M&A. We were thrilled in the first quarter to deploy $117 million towards Intramed Plus, a highly complementary regional provider who we've respected for decades that shores up our offerings in the Southeast. At the same time, in the first quarter, we deployed $100 million and bought back more than three million shares. In the first quarter, we deployed over $200 million alone, and yet our leverage profile remains at 2.1 at the end of the first quarter. I think folks should expect us going forward to continue to be actively deploying capital.
M&A isn't as predictable and smooth as our ability to project, you know, timing of share repurchase, but we'll constantly monitor the forward view of actionable M&A. If we think we have excess capital at our disposal, we won't be shy about buying back stock.
Great. Sounds good. This is, I think, the end of our session. Thank you so much.
Thanks, Joanna.
Thank you, everyone.
This wasn't working, right? I was like, okay, I have no idea how much time we have.