Option Care Health, Inc.

Good day and thank you for standing by. Welcome to the OptionCare Health third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Nicole Maggio, Senior Vice President of Finance.

Good morning. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release, as well as in our Form 10-K and latest Form 10-Q filed with the SEC regarding the specific risks and uncertainties. We do not undertake any duty to update any forward-looking statements, except as required by law. During this call, we will use non-GAAP financial measures when talking about the company's performance and financial condition. You can find additional information on these non-GAAP measures in this morning's press release posted on the investor relations portion of our website. With that, I will turn the call over to John Rademacher, President and Chief Executive Officer.

Thanks, Nicole, and good morning, everyone. There have been quite a few developments for option care health over the past 90 days, so I'd like to jump right in. Overall, the third quarter results were quite encouraging and generally consistent with how we've expected the quarter to materialize. Mike will provide additional color in a few minutes, but we continue to deliver double-digit revenue growth and sequential improvement in gross profit dollar generation through our organic growth initiative. While we have substantially recovered operationally from the changed healthcare incident that we discussed in the past, we continue our efforts to catch up on patient payment obligations, which remain impacted and delayed from the disruption earlier in the year. In addition to solid revenue and earnings results, even with the delayed collections from patients, cash flow generation continues to be strong. And we finished the quarter with a net debt to EBITDA leverage ratio of 1.5 times, the lowest reported level since our merger with BioScript in 2019. This performance is inclusive of the repurchase of $41.9 million in stock during the quarter. Over the past month, the dedicated team at OptionCare Health has continued our focus on delivering extraordinary care, even in the face of Hurricanes Helene and Milton. Hurricane Helene impacted our operations in the southeast in the closing days of the third quarter, and the aftermath of Helene continues to impact our operations, which I will expand upon in a moment. Most importantly, despite considerable disruptions, We don't believe our ability to support our patients was materially impacted, and our teams worked tirelessly to prepare for and then respond to these disasters. The oxygen care health team in the southeast helped ensure seamless patient support and collaboration with our referral partners during these considerably challenging conditions. I continue to be humbled by our team members' focus and dedication, and I am grateful for their efforts. The supply chain disruption from Hurricane Helene regarding intravenous solution production has had and continues to have a meaningful impact on our operations. A large number of our acute patients received therapeutic doses compounded using intravenous solution containers, also known as IV bags. Upon learning of the supplier's plant closure and disruption, our teams in the field implemented immediate inventory conservation initiatives and worked quickly and proactively with manufacturers and distributors to secure supply. Having said that, we, along with most other care providers, continue to receive less than optimal levels of IV bags. Our first priority has been and will continue to be providing therapies for our existing patients on service. We believe we have a sophisticated and agile approach to reacting to market conditions like these using our national logistic capabilities that can adjust operations as supply dynamics hopefully improve in the coming weeks and months. However, as we sit here today, we are limited in our ability to onboard new patients who are primarily receiving intravenous antibiotics and nutrition support therapy. We intend to be supportive of these patient communities as collaborative with our referral sources as possible, and we remain in continuous contact with relevant stakeholder groups. At this point, we cannot accurately predict when supply will be more readily available and alleviate restrictions and conservation plans that we've had to put in place. Over the past month, we also learned that a certain large infusion provider has announced its intentions to exit certain acute therapies and no longer accept new patients. As we have articulated on many occasions, we have made significant investments over the past several years to establish what we believe is an efficient network of compounding pharmacies and clinical capabilities that support acute therapeutic administration in the home and alternate site settings. We continue to view these therapeutic areas as an attractive opportunity for us based on these investments and our broad capabilities. Notwithstanding the IV solution disruption just discussed, we see these market developments as a growth opportunity over the medium term once supply chain dynamics improve. Despite a very competitive marketplace, we continue to believe OptiCare Health possesses unique, differentiated capabilities that position us well to more deeply collaborate with referral sources and serve their patients in need of acute therapies and clinical oversight. Finally, I want to spend a few minutes discussing recent developments impacting our chronic inflammatory therapies portfolio. Since our second quarter call on July 31st, CMS announced that effective in 2026, it negotiated an approximate 66% reduction in the cost for Part D patients on Stelara, a therapy previously announced as part of the first 10 drugs subject to negotiation under the Inflation Reduction Act. Additionally, that therapy is expected to experience biosimilar competition beginning in early 2025. Based on discussions this month, we now believe the manufacturer of this therapy intends to drastically and rapidly reduce the spread in which we acquire this therapy relative to reference price. We believe this is unprecedented and inconsistent with how pricing changes have generally transpired with respect to biosimilar introductions. including our previous experience with this manufacturer. Although we recognize the Inflation Reduction Act, negotiations are a new factor here. While we remain actively engaged with them, we believe the impact of their pricing actions will materially impact the gross profit we realize on providing infusion services to these patients beginning in early 2025. At this point, we are not in a position to provide an estimated dollar impact for 2025 as negotiations are ongoing and there remain a number of uncertainties. As we have reiterated on many occasions, we do not control drug reference prices, nor do we set the spread off the reference prices at which we acquire the drug. Rest assured, this team remains focused on identifying cost efficiencies and additional growth initiatives to help offset some of these headwinds in 2025. So to close, to reiterate, I am very pleased with the team's performance in the third quarter, especially when considering the unique challenges that we were presented with in the quarter and continue to impact us today. We delivered solid financial results and continue to navigate challenging supply chain dynamics for our acute therapies. On the areas in which we have direct control, our team has executed well and demonstrated agility and resilience. And despite the unexpected drug price actions by a certain manufacturer, I believe this enterprise is well positioned to deliver growth and serve more patients over the medium term. With that, I'll hand the call over to Mike to provide additional details. Mike?

Thanks, John, and good morning, everyone. Overall, we believe the third quarter financial results were quite strong. Revenue growth of 17% was positively impacted by strong growth within our rare and orphan portfolios and also benefited from continued growth in our more established therapeutic categories. As John mentioned, we did see some modest impact in the southeast in the closing days of the quarter from Hurricane Helene, but the impact was not material to our third quarter results. Gross profit dollar generation continues to improve. And in the third quarter, we sequentially generated approximately $7.3 million more than the second quarter, which was consistent with our expectations. Spending leverage continues to improve as SG&A was down almost 1% compared to the prior year, third quarter, and represented 12.3% of revenue. We continue to believe that we can drive considerable spending leverage within this platform, and the third quarter results affirm that conviction. Adjusted EBITDA of $115.6 million represented 9% of revenue and 5.3% growth over the prior year, which again included transitory procurement benefits that we called out last year. Cash flow generation continues to be strong, and we generated $160.4 million in cash flow from operations in the quarter. We finished the quarter with cash balances of $483 million after deploying approximately $42 million towards share repurchase, and as John mentioned, finished with our lowest leverage profile since the merger. So overall, we believe the balance sheet has never been stronger. And we remain engaged on a number of acquisition opportunities and continue to believe in our multifaceted capital deployment strategy. To that end, as you likely saw in this morning's press release, We have begun reporting adjusted earnings per share as an additional key financial metric. We believe that adjusted earnings per share is an important financial metric and helps articulate the value created through our capital deployment efforts and our organic operating results. Starting in 2025, we expect to provide guidance expectations on adjusted earnings per share in addition to the other existing metrics on which we provide guidance. Regarding guidance for the full year 2024, we now expect to generate revenue of $4.9 billion to $4.95 billion and adjusted EBITDA of $438 million to $443 million. Our updated guidance incorporates the IV bag supply chain disruption John discussed earlier, which continues to limit our ability to onboard new patients. Additionally, we continue to expect to generate at least $300 million in cash flow from operations. Consistent with previous years, we anticipate providing initial guidance for 2025 on our fourth quarter call in late February. On that call, we will provide additional color on expectations, incorporating the dynamics John articulated earlier. And while we are not in a position to provide additional color or details on the drug price impact, or timing of supply chain improvements on the IV solution situation at this time, we will provide an update on the Q4 call. And with that, we'll open the call for questions. Operator?

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your questions, please press star 11 again. Our first question comes from David McDonald from Truist. Your line is open.

Hey, good morning, guys. So just a couple things. I mean, first of all, just on the IV topic, fractures talked about like 90 to 100%. by year end, and we've heard some other manufacturers talk about increased supply. Can you just talk about how supply is kind of trended since the hurricane? Are you seeing, you know, noticeably better from a couple of weeks ago? And then, you know, should we think about this hopefully being resolved consistent with what they're saying kind of late 4Q and, you know, we're dealing with purchasing inefficiencies in the interim?

Yeah, Dave, it's gone. So from the moment of the closure, needless to say, there was immediate actions that we took to not only start to drive conservation, but also to prioritize the way that we were going to look at the inventory that we had. We certainly worked closely with suppliers and distributors to secure supply through that process and ensure that we were able to take care of our existing patients, as you would expect. The patients on census were the highest priority to make certain that we had continuity of care. As the weeks have progressed, we use a variety of products. And so it's broad with the different IV products container, the IV bags that we're utilizing in a broad basis. We are working as aggressively as possible with all of the alternate suppliers, as well as with the impacted supplier around making certain that we can get the most amount of allocation as possible. We think it's going to continue to improve over the weeks and months. As I said in my prepared remarks, it's really hard for us to hazard a guess as to when it's going to come back fully online through that process. But we're seeing encouraging signs of increased supply as we've started to move through the quarter. And our expectations are that that's going to continue to move in alignment as importation comes into the U.S., as well as the plant and other producers can start to ramp up their productions.

And, Dave, the only thing I'd add is naturally you would expect that our guidance range for the fourth quarter includes a variety of scenarios around pace and volumes of recovery. So we're going to play it cautious, but we also have built in a variety of solutions based on what we're hearing from them.

And then guys, just I guess second topic, just around some of the pharmacy exits out of a major competitor. Should we think about the opportunity as maybe more broad than just kind of where they're exiting? I mean, this is going to be, I would assume for payers, the second scramble drill. This is not the first time we've seen some exits. So you know, are you guys in a position to go back to payers and be like, look, we're not going anywhere. And, you know, we've obviously seen a lot of fluidity in the market in terms of potential pharmacy exits.

Yeah, Dave. And first and foremost, we've talked a lot about the balance of our portfolio and how much we have invested into the infrastructure, our network, to make certain that we could follow and be able to provide service across that broad spectrum of the acute and chronic patients. We believe that the investments that we have made create a really attractive opportunity for us to continue to capture market demand, to be a partner of choice for the referral sources given the breadth of the products that we're able to support. And we do think that as payers are looking at their network designs, having organizations that can be able to provide that broad spectrum of solutions for infusion needs, we think will continue to position us well in the marketplace. Again, some of the disruption that we just talked about with the IV bags, you know, has to resolve for us to be able to really ramp that up. As I said, we need to make certain we take care of our existing patient census. But as that starts to alleviate and things start to move back as supply, we believe this creates an attractive opportunity for us to leverage the investments that we've made into our people, process, technology, and facilities.

Okay, and then guys, just last one, just on Stelara. I know you guys have talked before just about, you know, percentage of revenue by that class. You know, any additional detail you can provide just to help us kind of rank fences a little bit in terms of, you know, the class, in terms of how much revenue, you know, the product specifically, just any additional detail there to, you know, help us put a little bit of a box around it. Yeah, Dave, it's Mike.

Obviously, for obvious reasons, we don't provide therapy-specific concentration or But what we have said publicly is that chronic inflammatory therapies, in which Stelara is one of the therapies, roughly represents 20% of our revenue. That's a therapy category that includes both biosimilars, primarily for Remicade, that includes things like Epsola, Inflectra, Renflexus. It also does include, you know, two branded therapies, Stelara and Intivio at this point. Okay. That's the extent to which we've provided granularity around STOLAR. Okay. Thanks very much, guys.

Thank you. Our next question comes from Constantine Davides from Citizens JMP Securities. Your line is open.

Yeah. Just following up on Dave's question on STOLAR, can you give us a sense maybe just how those discussions are deviating from from prior precedent i guess around spread and um i know you said negotiations are ongoing as we sit here today is there potential between now and your end that those economics uh improve or um do you kind of see it um sort of resting where it's where it's sitting today in terms of those negotiations hey constantine it's mike um so maybe i'll start with some mechanics and and john can jump in and address some of the more uh the broader

aspect of your question. So I think just to rebase with folks, again, when we acquire therapies from manufacturers, we're acquiring at a spread off of a reference price. We subsequently bill a payer for a spread over reference price, thereby affording us a margin on that drug. Specifically, it relates to Stelara. therapy has enabled us, because in many instances, or in most instances, we're treating patients that have medical necessity where there's an increased clinical requirement. So that spread has afforded us the ability to invest in patient-centric investments. And so, as John alluded, from a mechanical perspective, what the initial communication is, is that that spread off of that reference price the intention is that that will be dramatically reduced. That is atypical from what we have seen in such scenarios in the past, where typically that spread is either consistent or wider, and when things go biosimilar or adjust, that is primarily felt through the reference price, which is where we have said consistently that when things go biosimilar or evolve from a therapy maturity, we typically see that through the reference price, not through the spread, which is why this is such an atypical situation.

So maybe I'll hand it to John for any additional... Yeah, and the only other thing I'd add is, you know, to Mike's point, our... Our normal and I guess the historical precedence that we looked at was that's normally a glide down that we see in that reference price and therefore you would expect that parallel to happen. The fact that this is going in a different direction of that spread being compressed early in the process and not really following that glide down of the reference price is what is unprecedented and why we are calling that out as being something that is drastically different than what we've seen on a historical basis.

Got it. Thanks. And then just one follow-up. Can you just give us the revenue split between the chronic and acute therapies this quarter?

Thank you. Yeah, you bet. It's roughly 75-25 chronic-acute.

Thank you.

Our next question comes from Lisa Gill from JPMorgan. Your line is open. Hi, thanks very much, and good morning.

Just coming back, I just want to go back to a comment that you made around Dallara and what's happening that you really believe this is unique. Can you maybe just walk me through to understand why you think this is unique and not a new norm from a manufacturer perspective? So, John, I think I heard you say that You know, the manufacturer decided that with the biosimilar coming, they're just going to collapse the growth to spread. Do you think that we could see more of that activity where the branded manufacturer is trying to maintain their market share with a biosimilar coming? I'm just trying to understand what, you know, potentially could be happening in the market.

Yeah, hard for us to comment on the manufacturer's pricing strategies on that, Lisa. So in many instances, probably better for them to answer on that. There is some uniqueness with this in the fact that this drug is part of the IRA and was identified as one of the first 10. And there is, with CMS's announcement, in August and the negotiation, there is an endpoint that's a little bit different than what you see in a traditional biosim type of situation. So, again, within my prepared remarks, I also tried to reflect that that is a little bit unique within this. So, you know, I think as we're thinking through as we move forward, again, We'll try to factor that in. I think as Mike has said multiple times, when you think of the portfolio that we have of products, the acute therapies for the most part are generic or generic equivalent in the marketplace. Most of our chronic is in a biosim. There are very few branded products other than what we have in some of the limited distribution drugs and the rare and orphan space that are of that branded type of stance. This is one where, again, Stellara probably represents one of the last of the big branded products in our broader portfolio, but we're going to use this as being an opportunity to continue to monitor and to review as we're thinking about our forward views and the impacts that biosimilar events can have on the rest of the portfolio.

That's really helpful. And then just like for you, when I think about the EBITDA reduction and I look at the fourth quarter, you talked about both, you know, what's going on with the IV solution as well as what happened with the hurricane. Should I assume that that's the only impact of what the change is for the EBITDA guidance for 2024? Or is there anything else that I should be aware of?

Yeah, good morning, Lisa. Those are the big boxcars on the rails as we think about the fourth quarter. As you well know, this is a dynamic market. We typically do see some seasonal ramp, especially on the acute therapies going into the later part of the year. I'm comfortable with you characterizing that those are the meaningful variables. Again, as John highlighted, Helene continues to impact us through the IV bag shortage. I've got to keep track of all the storms watching the Weather Channel, but Milton was really in the early stages of October. That wreaked quite a bit of havoc when you think about our pharmacy and, more importantly, our patient footprint in the Southeast. It created a tremendous amount of patient dislocation and disruption. There was some inefficiencies. Again, I wouldn't characterize it as overly material, but it did create some hurdles earlier in the quarter. And so even though it's in the rearview mirror, there's still some recovery. So those two are the primary variables that we modeled out affecting the range.

Great. Thanks, sir. Thank you.

Thanks, Lisa. Thanks, Lisa.

Thank you so much.

Our next question comes from Matt LaRue from William Blair. Your line is open.

Hi, good morning. Just following up on Lisa's last question, so just to confirm the sort of ongoing negotiations or potential impact from the solar manufacturer, it is not a part of Q4 in terms of the guidance change and really will they impact 25, and then I guess As a follow-up, thinking about the go-forward, you've obviously, in the last four quarters, average top-line growth has been kind of low to mid-teens. Gross profit growth has continued despite a variety of headwinds this year. So just sort of confirming that, as you think on a go-forward basis, despite the swirling headwinds you've referenced today, including the LARA, that you would believe that would continue in terms of that cadence of growth.

Hey, Matt, it's Mike. Confirming your first that there is no 24 impact, that is correct. We would expect that, as John said, to be drastic and rapid in early 25. Look, I think as it relates to how we're thinking about things, a little historical context. Interestingly, we entered the year, our initial top line range was 4.6 to 4.8. We've now brought up the bottom end of of our revenue range, $300 million in the year. So really encouraged by the momentum on the top line. Again, a lot of that is from our chronic therapy portfolio, both existing as well as some of the new rare and orphans, which do, again, carry a lower gross profit rate. As I mentioned in my prepared remarks, nice momentum sequentially in the gross profit dollar generation. Again, more than $7 million up versus Q3, which is kind of how we socialize things in late July. And while we don't provide gross profit growth, when you normalize for the procurement benefits last year, we were in the 6% to 7% kind of same store sales gross profit range. So really encouraging, and that's kind of how we're thinking about things. Obviously, you know, with the range going into the fourth quarter, we're maniacally focused on gross profit dollar generation, but there are some challenges around our acute therapies, which, as you know, are higher gross profit therapies for us.

Right, okay, that makes sense. And then just the patient payment dynamic, it sounds like that's the one green item from the change disruption. You know, obviously, initially, post-merger, patient collections and that was really something you improved upon and that was a kind of a nice driving factor for the P&L. Just any way to think about what kind of a timeline, extent of disruption, or size of impact this might be. I assume it's sort of a one-time catch-up and then hopefully sort of back to normal.

Yeah, I think if you think about where we were entering the third quarter, we were still in recovery mode from Change Health. We utilized a lot of their capabilities and applications to correspond with patients and enable efficient patient collections and payment through our website. And much of that functionality was down even into the third quarter. And that's an area where, frankly, all healthcare providers you know, find it challenging. I would say on a broad level, Matt, our ability to convert revenue to cash is still very, very high. And that's something that we focus on every single day. And with patient collections, it's a process. I think we feel very good where we're, you know, reflecting that in the balance sheet and how we provided for it. And, you know, it's just something that we continue to focus on. And I think our cash flow in the third quarter just reaffirms that, you know, we've effectively recovered from the change situation.

Okay. Thanks.

Thanks, Matt.

Thank you. Our next question comes from Brian from Jefferies. Your line is open.

Hey, good morning, guys. Maybe Mike or John, just not to harp back on this Stellara issue, but as I think about some of the PBMs already announcing partnerships to manufacture biosimilar versions of Stellara, how would that impact the dynamics as we get into 2025 for this specific issue?

Yeah, Brian, I'll start, and certainly Mike can add comment. We continue to have relationships and develop relationships with the biosim manufacturers as well on that process, and that continues to be something that we're working through around how that moves and how that moves forward. With these type of products, again, just so that everyone understands the role we play, A lot of the product in general is self-administered in the marketplace. The patients that we have on service are ones that have letters of medical necessity that require a healthcare professional to help oversee the infusion event because their prescriber requires that they have that additional help and oversight. So it's somewhat of a unique cohort of patients in which we serve, and the medical complexity that they have and the clinical oversight that we can provide is a benefit on that, you know, through that process. So, you know, as we're working forward, you know, part of the thing that has to try to be factored in is what is going to be that conversion of these patients that require this healthcare professional oversight onto a biosimilar through that process. What we hear from our prescribing physicians is as a patient responds well, to a therapy, they're not inclined to just immediately move them over to another product through that. So part of this is going to be that conversion rate onto the biosimilars. Part of it's going to be the ability for us to pull that into our portfolio and the economics around each of those biosimilars through that process, and then how we see that conversion move over time. So, you know, I think as we're looking at all of those dynamics and some of the uncertainties in that, that's kind of what we're trying to factor in and will be part of what we provide in our 25 guidance, knowing that we have all of these different variables that are going to have to be factored into the way that we're looking at 25 and beyond.

Got it. And then maybe, Mike, I noticed in your prepared remarks how much you emphasize where the balance sheet is today and the buyback. Obviously, leverage is low. Cash flow generation is pretty good. How should we be thinking about M&A and future capital deployment opportunities? Or this disruption was to our open M&A opportunities as well. So I just want to hear your thoughts on that. Thanks.

Yeah. First and foremost, the team has just performed incredibly well in driving the cash generation, again, converting revenue to cash and leading to a leverage profile that, frankly, is by far the lowest since the merger five years ago. And so generating the capital just gives us the confidence both in the business, we'll continue to invest back in a lot of the acute capabilities that John talked about, but we've really built a capital efficient enterprise that, again, we expect will generate more than $300 million of cash. How we deploy that in the shareholder's best interest is something, as we've talked about in the past, we take very, very seriously. And we We believe that we have the flexibility and the capability to deploy capital through two primary avenues through share repurchase, and we haven't been shy about deploying capital towards share repurchase. So with this balance sheet, that also affords us the ability to look for both strategic and economically attractive opportunities. And again, you know, we are incredibly thoughtful. We're disciplined. We don't chase just to get an M&A headline. And we need to make sure, Brian, that we're looking you in the eye and saying that anything we do is both strategically quite attractive and is more advantaged under our ownership, as well as it's generating an accretive opportunity for the shareholders. And we think that there's a number of those that, again, we remain actively involved in. And I think the expectation is that we will continue to do what we've been doing, which is actively deploy capital. Again, we've said that we are very comfortable operating up to three times net leverage over the medium term, which would imply that we've built a balance sheet with considerable dry powder.

Thank you. Thanks, Brian. Thanks, Brian.

Thank you. Our next question comes from Jamie Perse from Goldman Sachs. Your line is open.

Hey, thanks. Good morning. One short-term question just on acute and the IV bag shortage. It sounds like acute and antibiotics, nutrition are probably the areas most affected by that. First, can you confirm that or if there's more on the chronic side that's impacted by this? And then, relatedly, just, you know, thinking about the competitive exits in the acute space, I mean, how should we think about sizing there and when you can potentially get back to new patient enrollment within acute.

Sure, Jamie. Yeah, on the acute side, you're absolutely right. We use intravenous solution containers primarily to support our antibiotic and our parenteral nutrition patient cohorts. Those are mostly what are prepared in clean room settings. Look, early to tell, but again, as John mentioned, I think we feel very good about, you know, the opportunity once we return to a more normal supply chain situation. Again, I think as we've characterized these therapeutic categories, the broader growth profile is, you know, low to mid single digit growth. These are more mature therapies But I think for a lot of the reasons that John outlined, I think we feel very confident in our unique platform, the investments we've made, our consistent patient support. We're not going anywhere with these therapies. And I think that should enable us to grow faster than the market. How much faster and when that kicks into higher gear, I think, again, as we've said, it's somewhat contingent on the supply chain situation in the near term. But I think we're we're excited about the opportunities in the future.

Okay. And then you guys are calling out these gross profit headwinds next year. You must also be thinking about the other side of things, right? Which is how you refill the gross profit gap that this creates. I know that's not an overnight process, but how are you thinking about the, you know, the drug portfolio, the pipeline, you know, maybe operating infrastructure to kind of, you know, build back some of those gross profit and EBITDA dollars over time?

Yeah, Jamie. So, you know, first and foremost, this team is very focused around always looking for operating efficiencies and cost effectiveness in the way that we're operating the model. And, you know, some of the investments we've made into technology and into our facilities allows us to continue to look for ways to drive that efficiency as we move forward. And we don't believe that that – tapped out. We think there's ample opportunity. And we had announced earlier this year some of the work we're doing with Palantir around some of the machine learning and repetitive process automation and other things that we're going to continue to pursue aggressively as we look at those opportunities. We're also encouraged by the investments that we made into our infusion suites and some of the capabilities that we have within infusion clinics, those advanced practitioner models. We think that Alzheimer's continues. We're doing some experiments that of being able to serve Alzheimer's patients with the multiple products that are available in the market that are overseen by the nurse practitioner model within that and we were you know encouraged by early indications there certainly as you had called out we think there's opportunities in the acute area as supply chain starts to settle as we move forward and we continue to You know, with confidence, be in the marketplace with the broad spectrum of products that we have there. We continue to invest in the rare and orphan area to look at those opportunities like we had called out with by Juvik of using the platform that we have of national reach and with the payer relationships from a market access standpoint that we'll continue to do there. And we do think that oncology presents some unique opportunities as that marketplace continues to evolve and think about how we can utilize the infrastructure, not only of our pharmacy infrastructure, but the infusion suite infrastructure to serve a broader spectrum of therapies. So we think that there remains, you know, significant opportunities for us to find additional vectors of growth, continue to work upstream with biopharma to be a platform of choice for them to help to introduce new products in the rare and orphan as well as new entrance space. And we think there's a robust pipeline of infused products that are moving through the FDA approval process that we think our platform is unique and presents a really a strong partner for them to be able to bring their products in the marketplace. And we're going to continue to pursue all of those aspects as we've always looked to reload and continue to reinvigorate the portfolio of products that we've had as we've gone through these different cycles of products moving either generic or biosimilar or other products reaching the end of their life cycle, you know, as we manage through that.

All right. I'll leave it there. Thank you.

Thanks, Jamie.

Thank you. Our next question comes from Pito Chickering from Deutsche Bank. The line is open.

Hey, good morning, guys. I apologize for sticking on the Stelar topic here. But, you know, I guess the first question is, what percent of your patients on Stelar are the first time on IV? What percent of them are the medically assisted sub-Q? And what percent of them are on IV because they can't tolerate sub-Q?

We're not going to get into specifics, Pito, but I think based on John's comments, you can assume that the majority of our patients are ones that are not on the self-admin sub-Q. It's patients that have that medical necessity and required additional clinical oversight. Okay.

And then, you know, think about how does rebates flow, you know, as moving to the body, similar as the Mechanics here, if we collapse the reference pricing and if you shift 100% of your market share into biosimilars, is it because the new pricing of the biosimilars is low enough, there's not enough spread for the rebates to offset the lost EBIT you're getting today? Is that true how this is flowing through?

I'm not sure I'm following exactly how you map that out, Pito, but look, again, when things are going to go biostimilar, we would expect that that reference price will compress considerably. Again, in my comments earlier and in response to one of the questions, one of the things that has enabled us to maintain our investments in patient support and clinical models is is maintaining that spread off of which even at a lower reference price due to biosimilar competition, we can maintain a margin which enables us to, again, invest and maintain that higher level of clinical care. Based on the engagement thus far, again, what is unique about this is that not only would we expect over the course of next year that reference price to compress as biosimilars are introduced, what we're talking about this morning is simply that that margin or that spread based on recent conversations is basically being dramatically reduced. And so putting aside what we would expect the reference price to do, again, part of the reason why things going biosimilar in previous experience hasn't been as punitive is because, again, in many instances, we were able to expand that spread because of the competitive dynamics.

So, you know, do you have a range as to where you think that the sort of either the biosimilar and or the new price, the net price will be as of January 1? Because we had Cigna talking about you know, sort of $5,000 range. It sounds like it's going to be coming up below that.

Unfortunately, Pito, for a variety of reasons at this point, we're not in a position to provide any ranges or more specific expectations.

Okay. So, you know, our last question here, you know, the stocks are obviously getting pretty hard, you know, getting hit hard here as people are trying to underwrite sort of this commentary on material gross profit impact next year. And I know it's too early to size it up with conviction, but can you give some ranges of when you say material impact to gross profit so people can output ranges on that as people look to value the company? Thanks.

Yeah, look, Peter, the reason we brought this up is obviously as we've been, you know that John and I and Nicole have been spending quite a bit of time engaged with shareholders. We understand that this is a topic that is near the top of the list as people think about 25 and beyond. And so while we're not in a position to provide any specific ranges or any more granularity for obvious reasons, we did want to try to be transparent to highlight that this is something, again, based on recent dialogues, we believe will be material. Now, again, we're not in a position to debate what material means and put a number behind it. But again, I think we have a track record where as things come up, we strive to be as transparent as responsible with the investors in the enterprise.

Great. Thanks so much.

Thank you. Our next question comes from Joaquin Martinez from Bank of America. Your line is open.

Hi, this is actually Joanna Godrick in here. Can you hear me?

Yeah, Joanna, crystal clear.

Hi, how are you? Yes, I think Joaquin set up the thing for this call. This is actually my line, but thank you so much for taking the question. So just to follow up on these comments around the offsets to the stellar gross margin pressure, I guess kind of question like Peter had, but can you grow EBITDA next year?

Joanne, at this point, we're not in a position. Again, as you know, we provide guidance on our fourth quarter call, which we would expect to be in late February. Obviously, as I mentioned, on that call, we'll be in a position to provide initial thoughts on 25 outlook. We're obviously very much managing real-time information on the supply chain dynamics, what are some of the growth opportunities like the acute opportunities that lie in front of us. And again, based on ongoing dialogue, we would expect by that point that we'll have more substantive expectations around the potential impact that we talked about from the drug pricing impact. At this point, we're not in a position where we're going to stick to our protocol, which is to provide guidance on the February call.

No, I understand. And I guess as we think about this drug also moving into the biosimilar zone and such, you know, does this impact your, I guess, long-term growth algorithm, you know, looking, you know, beyond 25?

Yeah, look, I think we've been consistent in that we believe and we've articulated that on an organic basis, we view this enterprise as a high single-digit top-line opportunity. And given the leverage ability and the scalability, we think that translates into a low double digit enterprise over the medium and long term. I think if you look at the track record over the last five years, we have significantly exceeded both of those guardrails. And even when there are things that we've called out, like the procurement benefits last year, we try to be as transparent and forthright with the investors as on some of these dynamics, frankly, some of which we don't control, such as the spread on the drug. So does this change our conviction in the medium-term growth opportunity? No, it does not. And I think for a lot of the things that John articulated around, you know, the acute opportunity and our ability to differentiate there, we're starting to see some green shoots around Alzheimer's with some of our clinical experimentation and some of the the opportunities on rare and orphan and chronic categories. I don't think that, you know, I think as we've articulated, there will be likely an impact in 2025, but over the medium term, we are not wavering from our confidence in this platform.

Thank you. And if I may follow up on a different topic around your infant suites, any update there? Did you add more locations and how you're thinking about this or that? sort of, you know, just the story of maturation of these clinics. Thank you.

Yeah, Joanna, it's John. So, in the quarter, we added three additional infusion suites into the network. We continue to drive utilization of that. Again, the positive aspects that we've called out before is we see really high patient satisfaction in the utilization of the facilities. It drives operating efficiencies, and certainly as we put more facilities closer to where the patients are and in their activities of daily living, it just increases the opportunities for us to move that forward. We also operate that, you know, multiple, I guess, two different models of the infusion suites operating as a home or alternate treatment site as well as those that have an advanced practitioner that provides that oversight in the model. And our ability right now to kind of utilize both of those and experiment and learn, as Mike said, to make certain that we are approaching and identifying opportunities for expanded use of that advanced practitioner model are things that we're encouraged by. And we think we'll continue to make investments in that space, not only in the infusion suite in its traditional sense of an alternate treatment site, but also in these infusion clinics that have an advanced practitioner to oversee the infusion and to help, you know, expand the portfolio of products that we are able to service.

Thank you.

Thank you. This concludes the question and answer session. I would now like to turn it back to management for closing remarks.

Thank you all for joining us this morning and participating on our call. As we outlined, the third quarter was very productive and our team continued to execute at a very high level, even with significant disruptions in the marketplace. Despite the unexpected gross margin pressures that will impact our business in 2025, our team remains focused on identifying cost efficiencies and additional growth initiatives to help offset some of these headwinds. We understand the important role that we play in delivering care to our patients and their families. This remains the light that guides us as we continue to grow and serve even more patients in 2024 and beyond. Thank you very much, and have a great day.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.