OPCH - NASDAQ

Good day and thank you for standing by. Welcome to the Option Care Health Third Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today inference 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 initiatives. While we have substantially recovered operationally from the Change 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 1.5x, the lowest reported level since our merger with BioScrip 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 Option Care 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 disruption, we don't believe our ability to support our patients was materially impacted and our teams work tirelessly to prepare for and then respond to these disasters. The Option 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 receive therapeutic doses compounded using intravenous solution containers, also known as IV bag. 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 logistics 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 intention 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 to 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 Option Care 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 31, a 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 realized 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 acquired 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 continued to impact us today. We delivered solid financial results and continue to navigate challenging supply chain dynamics for our acute therapy. 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 metrics. 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?

[Operator Instructions] Our first question comes from David MacDonald from Truist. Your line is open.

Good morning, guys. So just a couple of things. I mean, first of all, just on the IV topic, perhaps you 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 has kind of trended since the hurricane? Are you seeing noticeably better from a couple of weeks ago. And then should we think about this hopefully being resolved consistent with what they’re saying kind of late 4Q and we’re dealing with purchasing inefficiencies in the interim?

Yes, Dave, it’s John. 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 are 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 – 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 production.

And Dave, it’s Mike. The only thing I’d add is, naturally, you would expect that our guidance range for the fourth quarter in 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 a 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 are you guys in a position to go back to payers and be like, look, we’re not going anywhere. And we’ve obviously seen a lot of fluidity in the market in terms of potential pharmacy exits?

Yes, 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 or 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 on needs, we think we’ll continue to position us well in the marketplace. Now again, some of the disruption that we just talked about with the IV bags is – 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 centers. But as that starts to alleviate and things start to move back at 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 percentage of revenue by that class. Any additional detail you can provide just to help us kind of ring-fence us a little bit in terms of the class in terms of how much revenue the product specifically? Just any additional detail there to help us put a little bit of a box around it.

Yes, Dave, it’s Mike. Obviously, for obvious reasons, we don’t provide therapy specific concentration economics. 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 include things like AVSOLA, Inflectra or Renflexis. It also does include two branded therapies, STELARA and ENTYVIO at this point. So that’s the extent to which we provided granularity around STELARA.

Okay. Thanks very much guys.

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

Yes. Just following up on Dave’s question on STELARA. Can you give us a sense maybe just how those discussions are deviating from prior precedent, I guess, around spread and I know you said negotiations are ongoing as we sit here today. Is there a potential between now and year-end that those economics improve? Or do you kind of see it sort of resting where it’s sitting today in terms of those negotiations?

Hey, Constantine, it’s Mike. So maybe I’ll start with some mechanics and John can jump in and address some of the more – 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 relates to STELARA, that 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.

Yes. The only other thing I’d add is, to Mike’s point, 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.

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.

Yes, you bet. It’s roughly 75-25 chronic, acute.

Thank you. Our next question comes from Lisa Gill from JPMorgan. Your line is open.

Thanks very much, and good morning. Just coming back, I just want to go back to a comment that you made around STELARA 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 the manufacturer decided that with the biosimilar coming, they’re just going to collapse the gross to spread. Do you think that we could see more of that activity where the branded manufacturers trying to maintain their market share with a biosimilar coming? I’m just trying to understand what potentially could be happening in the market.

Yes. Hard for us to comment on manufacturers’ 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 we – this drug is part of the IRA and was identified as one of the first 10. And there is – with CMS’ 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 I think as we’re thinking through as we move forward, 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. So this is one where, again, STELARA 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, Mike, for you, when I think about the EBITDA reduction and I look at the fourth quarter, you talked about both what’s going on with the IV solution as well as what happened with the hurricanes. 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?

Yes. Good morning, Lisa. Those are the big box cars 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 got to keep track of all the storms watching the weather channel, but Milton was really in the early stages of October. That reached quite a bit of havoc when you think about our pharmacy and more importantly, our patient footprint in the Southeast that 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.

Okay. Great. Thank you.

Thanks, Lisa.

Thank you so much. Our next question comes from Matt Larew 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 STELARA manufacturer is not a part of Q4 in terms of the guidance change and really will the impact 2025? And then I guess as a follow-up thinking about the go forward, I mean, 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 STELARA that you would believe that would continue in terms of that cadence to grow.

Matt, it’s Mike. Confirming your first that there is no 2024 impact that is correct. We would expect that, as John said, to be drastic and rapid in early 2025. 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 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 growth profit range. So really encouraging, and that’s kind of how we’re thinking about things. Obviously, 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.

Okay. That makes sense. And then just the patient payment dynamic in terms of – it sounds like that’s the one lingering item from the change disruption. Obviously, initially, post-merger patient collections in MedTech was really something you improved upon and that was kind of a nice driving factor for the P&L. And just any way to think about what kind of a timeline 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.

Yes. 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 health care providers 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 collection, it’s a process. I think we feel very good where we’re reflecting that in the balance sheet and how we provided for it. And it’s just something that we continue to focus on. And I think our cash flow in the third quarter just reaffirms that we’ve effectively recovered from the change situation.

Okay. Thanks.

Thanks, Matt.

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

Good morning, guys. Maybe Mike or John, just not to harp back on the STELARA issue, but – as I think about some of the PBM is already announcing partnerships to manufacture biosimilar versions of STELARA. How would that impact the dynamics as we get into 2025 for this specific issue?

Yes, Brian, I’ll start, and certainly, Mike can add a comment. We are continuing to have relationships and developed 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 types 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 health care 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 their – the medical complexity that they have and the clinical oversight that we can provide is a benefit on that through that process. So as we’re working forward, 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 health care professional oversight onto a biosimilar through that process. What we hear from our prescribing physicians is as a patient responds well to the 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 on to the biosimilars, part of it is 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 I think as we're looking at all of those dynamics and some of the uncertainties, and that's kind of what we're trying to factor in and will be part of what we provide in our 2025 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 2025 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. So 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 with STELARA open M&A opportunities as well. So I just want to hear your thoughts on that. Thanks.

Yes. 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 we'll generate more than $300 million of cash. How we deploy that in the shareholders' best interest is something, as we've talked about in the past, we take very, very seriously. And 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 the share repurchase. So with this balance sheet, that also affords us the ability to look for both strategic and economically attractive opportunities. And again, 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 at you in the eye and saying that anything we do is both strategically quite attractive and is more advantage 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 at 3x net levered over the medium term, which would imply that we've built a balance sheet with considerable dry powder.

Thank you.

Thanks Brian.

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

Hi, thanks. Good morning. One short-term question, just on acute and the IV bag shortage. It sounds like acute and antibiotics and 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 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. Yes, 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 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 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 are 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 a higher gear, I think, again, as we've said it, somewhat contingent on the supply chain situation in the near-term. But I think 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 drug portfolio, the pipeline, maybe operating infrastructure to kind of build back some of those gross profit and EBITDA dollars over time?

Yes, Jamie. So 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 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 has 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 on 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're 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 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 have called out with VYJUVEK of using the platform that we have of a 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 sort of a broader spectrum of therapy. So we think that there remains significant opportunities for us to find additional vectors of growth of 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 entrant 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 strong partner for them to be able to bring their products into 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 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. Your line is open.

Hey, good morning, guys. I apologize for sticking on the STELARA topic here. But I guess, the first question is, what percent of your patients on STELARA are the first time in IV? What percent of them are the medically assisted subcu and what percent of them are on IV because they can't tolerate subcu?

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 subcu. It's patients that have that medical necessity and required additional clinical oversight.

Okay. And then think about how this rebates flow as we move into the biosimilar as the mechanics here, if we collapse the reference pricing – and if you ship 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 sort of 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 biosimilar, we would expect that that reference price will compress considerably. Again, in my comment earlier 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 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 do you have a range for 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 you had Cigna talking about 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.

So last question here. The stocks are obviously getting pretty hard, 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 help put ranges on that as people look to value the company? Thanks.

Yes. Look, Pito, 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 2025 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 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 Gajuk in here. Can you hear me?

Yes, Joanna, crystal clear.

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

Joanna, 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 will be in a position to provide initial thoughts on 2025 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 dialogues, 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 speak 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 that does impact your, I guess, long-term growth algorithm looking beyond 2025?

Yes. 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 leverageability 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 we've called out, like the procurement benefits last year, we try to be as transparent and forthright with the investors 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 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 opportunities on rare and orphan and chronic categories. I don't think that – 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.

And if I may follow up on different topic around your infusion suites, any update there? Did you add more locations and how you're thinking about that? Or that's sort of much – just store of maturation of the clinic? Thank you.

Yes, 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 and the utilization of the facilities. It drives operating efficiencies. And certainly, as we put more facilities closer to where the patients are and their activities of daily living, it just increases the opportunities for us to move that forward. We also operate that multiple, I guess, two different models of the infusion suites of 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, 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 and its traditional sense but alternate treatment sites but also in these infusion clinics that have an advanced practitioner, to oversee the infusion and to help expand the portfolio of products that we are able to service.

Thank you.

Yes, thanks.

Thanks Joanna.

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 set even more patients in 2024 and beyond. Thank you very much, and have a great day.