A company that came under my radar recently is OptimizeRx (OPRX). In the following I want to present (1) an overview about the company and its business, (2) some fundamentals with comparison to another industry-related comparable stock and (3) an overall outlook for the future.
(1) Overview and business model
OptimizeRx operates as a digital health company that provides communications solutions for life science companies, physicians, and patients. Its products and applications include financial messaging, a virtual patient support center that allows doctors and staff to access sample vouchers, co-pay coupons, and other patient support through their EMR and/or e-prescribe systems; and brand awareness and therapeutic support messaging services, such as brand awareness messages, reminder ads, therapeutic support messages, and unbranded messages. The company also offers brand support services, which focuses on educating and working with pharmaceutical manufacturers on identifying, formulating, and implementing new eRx media strategies, including drug file integration, sales force training, and strategy development services for promoting their products. In addition, it operates cloud based Mobile Health Messenger platform that provides interactive health messaging for enhanced medication adherence and care coordination; and HIPAA-compliant automated mobile messaging platform that allows pharmaceutical manufactures and related entities to directly engage with patients to enhance regimen compliance. Further, the company offers patient programs with treatment and affordability information, lifestyle and condition trackers, Internet device connectivity, forms, and surveys.
The most compelling part of the company's business is there B2B platform. What do I mean with this. So traditionally if e.g. a drug manufacturer like Pfizer or JnJ develops a drug succesfully, that is only the first step. What makes a new drug succesful is the distribution in the market, i.e. among the actual doctors, hospitals, pharmacies, psychologists etc. Same goes with new medical devices, e.g. by Thermo Fisher. After inventing and developing them, they need to be rolled out by the respective company to really cash in on this.
So traditionally this was handled by agents. They were going to the hospitals or pharmacies like WBA to offer them the company's products. They were presenting the products using PowerPoint, buying them nice lunch etc. to convince them of their new product. You can compare this with an insurance agent who tries to find new customers for their respective company to engage.
Well this however, is no longer needed. OptimizeRX has developed a platform, which allows companies to engage virtually with physicians, hospitals, doctors, psychologists etc. to promote their product.
"When a new treatment is available, it’s important to get the word out as soon as possible so patients can benefit. The OptimizeRx platform is an ideal communications network to accelerate awareness of a new brand or to quickly spread the word during significant life-cycle events such as a new indication. And with OptimizeRx, you can precisely target the physicians, and their healthcare staff, that matter most. And you can put your provider communications front and center in the EHR." (read here)
I always like to compare the company to Teladoc (TDOC). But while TDOC is B2C (connects the buisness, i.e. hospital, doctor, psychologist etc., to the customer, i.e. patient). OPRX meanwhile approaches medical care in a more B2B fashion, connecting the manufacturer of medical devices and new drugs to the actual places where they get applied or sold (hospitals, doctors, pharmacies etc.).
The overall advantages should be clear, catalyzed by the Covid-19 pandemic but to strengthen my point I want to give you some bullet points:
- While it takes consumers/patients a change of habit to change from a analog to a virtual platform which is always kind of connected to a certain laziness (by human nature, we are a creature of habit who does not want to change that quickly), businesses and enterprises are driven by hard facts, i.e. time and money. So if there is a more cost effective way, businesses will choose this way. And connecting virtually not only saves money, it also saves time (remember, earlier the agent brought lunch presenting his PowerPoint). No doctor has the time to do that.
- With the OPRX platform the doctor/hospital/psychologist/pharmacist saves time because he can find target-orientated solutions through the EHR. Being more efficinet saves time. And saving time saves money.
- Health care is growing rapidly, more money will be spent on drug development. These drugs need to be promoted and sold.
- As far as I have found out there is no other (listed) company that provides a similar service.
(2) Fundamentals, guidance and valuation
OPRX has a market cap of $797M as of writing this which makes it a small cap. TTM revenue accounts for $43.3M which results in a P/S ratio of 18.4. Full year 2020 yoy rev growth was 76%, Q4 yoy rev growth was even higher at 123%.
For the full year, operating income was a negative ($2,135M). Q4 operating income however was positive $1.356M.
So what you can see overall, is that the metrics improved especially lately. They increased revenue tremendously especially in Q4 with posting positive operating income.
OPRX didn't give explicit guidance. However, they set an aspirational goal of $100M. But what really strikes me the most isn't the fact that they will reach that, but how. Here's the part of the conference call transcript:
Analyst: "Okay, and then speaking of aspirations, I noticed you didn't give us a year in which you're going to have $100 million in revenue. So we've got a potential revenue of $100 million. I just wanted to dive into that, you have talked about a shift to more subscription type revenue or current type revenue. In this year where you do achieve that $100 million in revenue, what percentage is subscription?"
William Febbo (CEO): "[...] Yes, we don't give guidance, so we don't put a date on it. I think what's more important is we have the team to get there, asidefrom maybe a few select hires; so that should scream, we're going after it hard. There's that leverage we keep talking about"
He also said: " In 2021, we expect to see a continued favorable shift to higher margin recurring-revenue enterprise deals, and we believe our pipeline growth has been driven by a permanent shift to more digital enablement."
So the key takeaway from this for me is that
(1) a large part of their revenue is recurring
(2) the recurring revenue is higher margin, which results in even more operating income
(3) their pipeline is really strong in 2021 (see here)
(4) they do not have to hire big time to leverage their platform. The platform is there, now they can scale it which is cost efficient, further increasing margins and operating income.
So overall they have strong numbers, they are scaling their business and there certainly is demand for their product.
However: A good company does not make it necessarily a good investment, if it's too expensive (even Amazon.com was dead money for quite some time after the 01' crash).
So what I want to do is compare the valuation of OPRX to Teladoc (TDOC).
The reason why I compare OPRX with TDOC specifically as mentioned above is because both are operating a virtual platform in healthcare, just on different levels: while TDOC connects the doctor with the patient (B2C), OPRX connects the manufacturer of medications, drugs, therapies, medical devices etc with the doctor/hospital/laboratory/pharmacies/etc (B2B). Same thing, different level of operation.
So TTM P/S ratio is 18.4 in comparison with Teladoc's $1.093B in revenue on a market cap of $26.9B which results in a TTM P/S ratio of 24,6.
One could argue that this valuation gap in favor of OPRX is because TDOC grew their Q4 revenue 145% yoy while OPRX “only“ grew 123%.
However, there are several points mentioned above that make me pick OPRX over TDOC:
(1) OPRX is profitable, posting ~1.4 million in net income in Q4 alone while TDOC isn’t profitable
(2) business model: connecting B2B is traditionally higher margin and more recurring; also the argument I made above that companies will shift to digital solutions quicker than "humans" when it is cost-saving while humans still are kind of a creature of habit who prefer to go to the doctor in person.
(3) outlook -> OPRX (admittedly vaguely) guided for 100 million revenue which would be up ~130%. TDOC guided for ~2bn in revenue which would be up only ~83%.
So basically OPRX has
- cheaper multiples
- positive net income (!)
- higher projected growth
(3) Future outlook and entry possibility
So I hoped to shed some light on OPRX, their business and their fudnamentals. I am highly convinced by the business model and honestly when I realized how drug manufacturers and medical device companies promoted their products before in comparison to OPRX's solution it was kind of eye-opening and thoroughly logical for me as no doctor or head of a hospital wants to waste his time with a PowerPoint of a sales agent.
The business shifted into the next gear of course driven by the pandemic. It was the initial booster. But from the statemtents during their conference call about a month ago as well as the latest press release you can be quite optimistic about the future of their business even afer the pandemic ends in 2021.
I know the stock is richly valued. Look at the entire market. It ran 500% yoy which I cannot deny is a good argument against investing right now especialy if you are risk-averse. And certainly it is a small cap stock which includes higher risk. But the business itself is high margin, high growing, profitable and from my perspective uniquely positioned to profit from a continued shift to digital solutions in a huge total addressable market.
It recently pulled back from a high of $64 to around $47.50 which is 25% off the high. Given the (for you hopefully insightful) facts mentioned above that was enough for me to enter a rather big position in OPRX yesterday. And what in the end makes the most sense to me is not particularly a financial but more of a common sense thought: The actual users of medical devices and drugs do not have time for a sales agent. Why not integrate it into an all around immersive platform. That is what OPRX does.
Disclaimer: 412 shares long
Submitted March 27, 2021 at 10:57AM by DBroker1997 https://ift.tt/3ruqJWj
