My initial analysis on OPRX

I’ve been seeing some buzz about this company being innovative, growing fast, and under the radar. So I thought I’d look into it. I have not opened a position yet, but I probably will soon. This is still a tiny company, with just 14M share float, and average daily volume around 229K.

I have analyzed three years of their financial reports, and I will post that down below because I think there is a compelling case. But in the meantime, I’m still not sure how this company makes money.

I struggled initially to understand exactly what they do. I’m still struggling to understand how they generate revenue, what their target market is, and who pays them and how.

What is OptimizeRx?

  • Their web site states “OptimizeRx?is the?only point-of-care?focused platform on the market – linking life sciences, physicians, patients, and pharmacies within one platform.”

  • Their software platform apparently integrates directly into EHR systems to reach ambulatory healthcare providers in the US, spanning multiple therapeutic areas and specialities.

  • From a positioning standpoint they call it digital optimization at the point of care, where they provide access to clinically relevant data and workflow improvements.

  • Another bunch of words on the OptimizeRx website states:
    "OptimizeRx Corporation (NASDAQ: OPRX) is a pioneering digital health company that provides healthcare communications solutions for life sciences to engage in streamlined, outcomes-focused dialogue with healthcare providers and patients.

Connecting more than half of healthcare providers in the US through a proprietary electronic health network, the OptimizeRx digital health and communications platform is a SaaS solution supporting treatment access and adherence by advancing affordability and transparency.

The platform unlocks novel patient and provider touchpoints for life sciences along the complete longitudinal patient journey, from both ambulatory and hospital point-of-care, to retail pharmacy, through patient engagement outside the care setting."

It took me a lot of digging, but after connecting dots through news articles and quarterly reports I think OptimizeRx is basically a pharmaceutical sales and marketing platform, directly embedded into EHR systems (which OPRX refers to as the point of care). This enables pharmas to offer discount coupons to the practice, provide handouts and educational materials to patients, manage the patient opt-in and disclosures forms for the providers, send reminders to patients to get their prescriptions filled or renewed, notify physicians when their patients get their meds, and link the physicians directly to pharmaceutical products for prescribing, as well as tracking their patients’ adherence to their prescribed medications.

  • Their website is gibberish. There is a lot of fluff, and the marketing is aimed at improved patient outcomes through digital communication between Pharmas, physicians, and patients, but there are no indicators of how the revenue cycle works.

  • Their website states 370+ active EHR channels, 695K Providers reached, 19.5M coupons distributed in 2019. It is March 2021 now, why do they still have 2019 stats prominently posted on their site?

  • I also read through the “TelaRep” page, which is one of their newest offerings that was just introduced to the market in the past month or so. The TelaRep page states:
    - In Person Meetings Are Out. Strengthen Your Virtual Connection Points.
    - TelaRep Keeps the Lines of Communication Open Between Manufacturers and Prescribers
    - There’s no going back now. Even before COVID-19 providers had limited time to meet with pharma reps in-person. Now, in-person meetings are non-existent for the foreseeable future, and it isn’t much easier to connect virtually. Especially for brands that don’t already have airtight relationships with the HCPs most likely to prescribe their treatment.
    - TelaRep, the newest addition to the OptimizeRx digital health and communications platform, changes that.

  • So the TelaRep platform enables a prescriber to request samples from pharmas, obtain educational information about their products, and book a virtual meeting with a pharma rep.

  • The differentiator, I am guessing, is since TelaRep is embedded directly into the EHR clinical workflow, it is supposedly non-disruptive, they can engage pharma reps with one click, without leaving their electronic workflow. Those interactions would be driven by the provider, rather than the pharma, so that should minimize spam from sales reps trying to push their meds. And since providers are unlikely to take an in-person sales call from a pharma in a pandemic environment, then I guess this app helps Pharmas to be more accessible.

What I am still struggling with is how do they make $$$ from this? Do they get kickbacks from the Pharmas for the prescriptions prescribed? I would think the Pharmas would be the ones paying for this service, since it gives them a channel for connecting directly with physicians, but it is not clear.

I would also assume OptimizeRx is probably paying something to EHR companies in exchange for embedding their software, and may even be sharing profit with them, which likely eats into their margins in some way. But I still haven’t connected all the dots yet.

Does anyone know? Please chime in with any knowledge you may have.

Here are the financials;

**Fiscal Year 2018-2020**
 **FY2020      FY2019      FY2018**
TOTAL REVENUE            43.3        24.6        21.2
REVENUE CHANGE YoY       76.1%       16.0%       74.9%
GROSS PROFIT             24.11	     15.44       12.21
GROSS PROFIT CHANGE YoY  56.1%       26.5%      105.1%
GROSS MARGIN             55.7%       62.77%      57.56% 
OPERATING INCOME         -2.14       -3.69        0.18
GAAP NET INCOME          -2.21       -3.14        0.23
Non-GAAP NET INCOME       3.18       -0.90        3.67
GAAP EPS Diluted         -0.15       -0.23        0.02
Non-GAAP EPS Diluted      0.20        0.07.       0.31

**Quarterly Metrics**

 **Q4FY19	  Q3FY19    Q2FY19    Q1FY19**
TOTAL REVENUE             7.4       5.0       7.0       5.2
REVENUE CHANGE YoY       12.2%     -7.6%     37.4%     26.7%
GROSS PROFIT              4.47      3.02      4.32      3.63
GROSS PROFIT CHANGE YoY   9.3%     -4.0%     50.9%     72.3%
GROSS MARGIN            60.61%    60.40%    61.65%    69.60%
OPERATING INCOME         -2.32     -1.99      0.48      0.13
GAAP NET INCOME          -1.99     -1.57      0.41      0.01  
Non-GAAP NET INCOME      -0.40     -0.94      1.29      0.98 
GAAP EPS Diluted         -0.14     -0.11      0.03.     0.0  
Non-GAAP EPS Diluted     -0.03     -0.07      0.09      0.08 

 **Q4FY20    Q3FY20    Q2FY20    Q1FY20**
TOTAL REVENUE            16.4      10.5       8.8       7.6
REVENUE CHANGE YoY      122.6%    110.3%     25.4%     45.6%
GROSS PROFIT              8.60      6.01      5.14      4.34
GROSS PROFIT CHANGE YoY  92.4%     99.0%     19.1%     19.8%
GROSS MARGIN             52.4%     57.2%     58.6%     57.3%
OPERATING INCOME          1.36     -0.18     -1.06     -2.26
GAAP NET INCOME           1.36     -0.28     -1.08     -2.20
Non-GAAP NET INCOME       2.65      1.11      0.25     -0.83
GAAP EPS Diluted          0.08     -0.02     -0.07     -0.15
Non-GAAP EPS Diluted      0.16      0.07      0.02     -0.06

Q4 Results

  • Q4 revenue was up 123% YoY, and up 76% for full year 2020 versus 2019, almost all from organic growth. Meanwhile operating expenses where up just 10% YoY.
  • Q4 gross margin ended at 52.4%, down from 60.6% a year ago. Full year was 55.7%, down from 62.8% in 2019.
  • The decline in margin was blamed on solution mix, where most of the incremental business came from lower margin solutions that were very easy to launch and fulfill in a short time period. However, the incremental business almost all falls to the bottom line.
  • Non-GAAP net income for FY2020 was $3.2 million of $0.20 per share compared to $900K or $0.07 in 2019.
  • In February the company raised $71 million in an equity offering, which they plan to use to expand the business (no details of what that entails).
  • The company is debt-free and not planning to raise additional capital in the near future.
  • Forecast Margins at 56% to 58% for FY2021

Q4 Notes

  • Facilitating critical and timely communication between life science companies, physicians and patients.
  • Leverages real-world data to deliver real-time information at the point of care with new AI-powered, real-world evidence solution.
  • Last year restructured the organization based on MkKinsey digital factory model.
  • Launched TelaRep, new virtual communication solution, enables providers to reach the pharma contact from within the EHR workflow with one click. Praised as one of the most innovative life sciences solution.
  • Driving additional revenue from its existing network.
  • Shifting to enterprise level engagements with recurring revenue streams.
  • Client renewal rates at the end of 2020 reached al all-time high, while adding 60 new brands to the platform.

On the surface, some of the metrics are compelling; share price has advanced 137% in the past quarter, 208% in the past 6 months, and 613% in the past 12 months. YTD the shares have risen 91%, but surprisingly it still has a beta of just 0.67.

This is just my initial take for now. Hoping for some input if anyone can add to or correct anything I have here.

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Hi CMFSolo… thanks for writing this up… this is one of the smaller companies that I am following for a couple of quarters and did build small position.

Agree with your reading, it is hard to decipher their business… for all the great communication they are enabling, they are poor or purposefully vague in sharing information on their business. I did read through their last quarters transcript yesterday, it was a painful read…

Few points to add to your notes

  1. OPRX biggest strength seems to be their integration with many different EHRs (Electronic Health Record). For those not familiar with this, it is literally health record of patients, however, in our free market, there are multiple companies proliferated with incompatible format… other than big gorilla Epic systems, and to some extent Athena, there are many other software companies with small market share… this makes sharing / exchanging information very difficult. Somehow, OPRX has found a way to integrate messaging with these EHRs. This must be a huge investment with painful efforts over a few years… actually, OPRX guys bought a couple of different small companies in the space in 2017 and 2018.

So all in all, smart guys, built real differentiating advantage.

  1. I agree, it seems to build marketing and communication platform for physicians. Their current revenue source seems to be from pharma companies trying to sell new drugs to doctors… since the pandemic, in person sales visits went down, pharma companies jump on board with OPRX… first selectively (for new drugs), and then slowly across the board… at-least thats the plan.

So I see them as very narrowly focused version of TWLO of pharma / physicians world. I remember company called Veeva from past investments who were specialized in data storage for such vertical and very successful even though broader data storage companies like Box and Dropbox were not that attractive.

  1. While I am impressed with their business skills, they are really difficult to understand for a casual investor / observer. I am not sure why their gross margins are <60% for a business like this. They don’t provide guidance for next quarter… they see runway to $100M revenue but won’t say whether its in two years or five years…
    more importantly, they speak loosely on their pipeline… say its grown from $140M to $180M in a month… but that’s 18 months pipeline… and that includes business they already won… and part of the business is recurring but they still count that as part of pipeline (or not… just not clear)

so all in all, I dont see red flags, believe they will grow, may be not as rapidly as pandemic driven 2020 but for sure in 50% range… but you have to put up with poor communication.
For folks on this board used to really clear communicator CEOs, OPRX is going to be a puzzle…

I do intend too keep my small position but keep it on short leash till I really understand where its going.

hope this helps
nilvest

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Thanks nilvest!

I’m watching it climb almost daily, and wondering what the market sees that I don’t. The stock’s performance has been nothing short of breathtaking since March, rallying from $7 to $64. Could it all be pandemic driven, or will it continue that momentum? Wish I could comprehend their business model better.

One more thought on this Nilvest;

It donned on me this morning that there may be an interesting angle here for both physicians and pharmas, which I pondered after reading a news article about pharmas trying to connect with EHRs to expand their network for clinical trials and to fulfill prescriptions. It got me thinking maybe OptimizeRx is a gateway or stepping stone for Pharmas to bypass the distributors like McKesson, and ship direct to patient with a kicker to the physicians. Similarly, if they can tap physicians to help find them candidates for clinical trials, they would be able to collaborate in a mutually beneficial way.

Seems like a possible windfall for pharmas.

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CMFSF - I agree, there are multitude of possibilities with the network they have built.
I have seen suggestions on the potential one you described, and a couple of other ones like OPRX can help with faster enrollment for phase 2 / phase 3 drug trials for pharma companies…

It does seem like a long runway for growth with multiple growth vectors.

However, it is hard to measure the pulse of this business… specially when CEO says almost half of the business is subscription… yet they have to win the entire business again every year… So I intend to keep small to moderate position until may be they are more confident of base business…

one example - after reading through transcript two times… I can not figure out if they are expecting to grow 20% this year or 50% or 80%…
Wondering if you have an opinion on that?

Thanks for the initial overview, I’ve been looking into this company for a while and did a short write-up on it so thought I would share and help clear up some questions about how they generate revenue. I think this is a solid company with a great year ahead of them. I am long.

OptimizeRx is a health tech company that enables pharma companies to reach providers directly at the point of care. To do so, they integrate over 370 EHRs, reaching 60% of physicians in the US. 80% of the top 50 pharma brands are clients and they grew revenue 76% last year to $43.3M.

Business:

The most important marketing channel for pharma are providers, accounting for 49% of marketing budgets. Traditionally, pharma companies made use of in-person sales reps. However, only 46% of physicians are willing to meet with pharma reps, a number that continues to decline post-COVID. With more new drugs entering the market each year, pharma companies are increasingly looking to digital channels like OptimizeRx.

Essentially, OPRX enables pharma marketing efforts by doing 3 things at the point of care (within the EHR systems):

-Providing clinical information (education on new drugs)
-Financial messaging (offering coupons at the right time)
-Patient engagement (medication adherence)

They acquired CareSpeak to improve medication adherence and RMDY Health to expand into digital therapeutics. They also launched TelaRep last year to allow providers to reach pharma reps directly through the EHR, making them more comfortable with prescribing new treatments.

Over half of revenue is from enterprise contracts (providing more revenue and higher retention) and the rest is pay per click. They closed 33 enterprise contracts so far this year. Gross margins are mid-50s with costs mainly made of the revenue share they’re paying to EHRs. Average initial deal size for enterprise contracts is $1M, however, there is significant room to expand as pharma manufacturers have separate marketing teams for each branded drug and within that, each indication (use case) can have different marketing campaigns.

2020 was a transformational year and their solutions have never been more relevant. Pharma is seeing an incredible 520% ROI because digitizing the sales process leads to improved accessibility, affordability, and engagement. This is not just a COVID phenomenon either.

Moat:

This model scales well and there is a clear flywheel: more EHR partners = more providers → more pharma partners/marketing spend → more EHR partners.

It’s similar to Roku, where more users drives more ad spend which then drives more content which leads to more users.

OptimizeRx’s relationship with EHRs is very similar to GDRX’s relationship with PBMs too, who can’t aggregate each other and see the relationship as incremental margin. 90% of providers use EHRs daily and for an average of 5.9 hours. OptimizeRx is a win-win-win because pharma can see a higher ROI on marketing spend, providers can get coupons from pharma and spend less time talking with sales reps or researching new treatments, EHR vendors can earn additional revenue for very little work, and patients can better afford their drugs.

Competition:

They only have one major competitor, ConnectiveRx, and although ConnectiveRx is the bigger company, they are getting disrupted by OptimizeRx with a newer, easier-to-use platform. GoodRx is a potential future competitor but is currently focused on DTC rather than B2B.

TAM:

Pharma spends $20B annually marketing to providers, $4B of which is digital. Given OPRX offers high and measurable ROI, has established relationships with pharma, and the secular tailwinds towards digital, I believe it is well-positioned to capture significant share.

Management:

Will Febbo joined OPRX in 2016 after working at an investment bank. Before that, he co-founded MedPanel and he came to know OPRX through the buyer of that company. Since joining, he has accelerated their trajectory and established OPRX as the clear leader.

Risks:

EHR vendors are incentivized to partner with competitors but since OPRX is the best there is no incentive for the pharma clients to go anywhere else. Enterprise contracts are deepening these relationships. And EHR vendors have no incentive to partner with each other.

Also, while EHRs are very fragmented with over 500 vendors in the US, Epic and Cerner control over half the market. Because of this, OptimizeRx may be pressured on margins in the future. However, EHRs have no good alternative to OPRX and it’s free margin.

Conclusion:

It currently trades at an EV of $746M with $83M cash after a recent raise and no debt, so 12.7x 2021 consensus of $58.6M (35% growth). Gross margin is 55% and adjusted EBITDA margins are 12%, which it expects to improve through 2021 via a larger mix of higher-margin offerings.

Overall, I see OptimizeRx as the category leader in a niche but attractive market that should continue to benefit from strong tailwinds as pharma spend moves digital. They offer a win-win-win for providers, pharma, patients, and EHR vendors.

-Richard

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