MedAvail - Q3 2021

Transcript

Adam Heussner (Equity Research Associate)

I'll kick off. All right, let's go ahead and get started. Hello, everyone. I'm Adam Heussner, part of the Healthcare Technology and Distribution team here at Credit Suisse. Thanks, everyone, for joining us today. Next up, we have Ed Kilroy, CEO of MedAvail Technologies. By way of background, MedAvail is a technology-enabled pharmacy organization that embeds pharmacy services directly into clinics and other points of care. Ed's gonna begin with a 15-minute presentation, and then we can open the line for Q&A. With that, Ed, over to you.

Ed Kilroy (CEO)

All right, Adam, thank you very much. First of all, thanks to Credit Suisse for the invitation today. I'm gonna begin to share my screen, and hopefully that all works. Adam, I'll ask you, if you can get the full screen?

Adam Heussner (Equity Research Associate)

Yep. Looks great.

Ed Kilroy (CEO)

Okay, thank you very much. Thanks to Credit Suisse for the invitation today. We're very excited to be here. We are in a very fast-growing market and have a fast-growing company, so we're excited to share a bit with you about MedAvail Technologies. Safe harbor statements, everybody's familiar with these, so I will just skip over this chart. Let me talk about the company and our investment highlights. First of all, we are very clearly a Medicare-centric, technology-enabled pharmacy business. We embed pharmacy directly into points of care where there are large numbers of Medicare patients using a certain clinic or clinic chain. We operate in a very large market. Our view right now is that in the six focus states we have, the opportunity for us is in excess of $16 billion per year.

We do have a track record of delivering higher medication adherence, which is clearly of interest to the providers that we work closely with. Highly scalable business, embedded pharmacy model. It really does align with the value-based care providers we work with, and I'll talk a bit about that. We anchor this by our proprietary technology platform that really does provide us additional growth opportunities, which I will mention. Let me talk a bit about our business model. On the left side of the chart, SpotRx. I wanna be very clear, SpotRx is our branded pharmacy, which we own. We own and operate our own retail pharmacy that provides a turnkey, full-stack pharmacy offering, meaning that we are deploying our own technology directly into clinics. We have our own pharmacists. We acquire our own medication.

We are an end-to-end solution for the value-based care providers that we work directly with. Over time, we expect that this part of our business will be approximately 80% of our annual revenue. Currently, it's higher than that 80%. On the right side of the chart, us as a technology provider. Because we have this very unique proprietary solution, which I'll talk a little bit about, we have a lot of interest in the market in acquiring our technology for large pharmacy players who wanna use it within their own operations. We will selectively work with some significant market players, who are currently evaluating our technology and have it embedded within their production environments. Now, a little on the technology itself. It clearly is a physical device as one component, which you see on the left-hand side.

in behind this, there's about 1.5 million lines of software code, 400,000 lines of firmware code, which really drive this technology. We have built and written all of that solution end to end. What the system does do is provide this live access to central pharmacy team members, meeting all the regulatory requirements for retail pharmacy. That's a very important point 'cause there's a number of kiosk solutions out there that do not meet the regulatory requirements of a full retail pharmacy. We do. We have a capacity within the system of over 1,000 packages of medications, multiple shapes, and sizes. Very importantly, we customize the inventory in each of the clinics we deploy into to align with what is prescribed and dispensed.

The remote pharmacist is always in control of the machine when they're having an interaction with the patient. You can imagine a patient talking to the live pharmacist, a live audiovisual connection, but that remote pharmacist is telling the machine what to do and authorizing the machine to release the medication to the patient. Now, when I talked about MedAvail as a technology business, these are some examples of where we have operations today. Sam's Club, HCA, Texas Health Resources. Recently, we deployed our first system with Kaiser. We have a number of very large retailers and health systems that are currently using our technology with their own pharmacy as the back end. In this case, we are the technology provider.

We'll sell our hardware and license our software to each of these clients for their internal use, and we would support them in that manner. Now when we think about SpotRx, we operate a hub-and-spoke model. That hub-and-spoke model allows us to deploy quickly, especially after we've developed a hub pharmacy. If you think about cities like Phoenix, Tucson, Southern California, Buffalo or Detroit, excuse me, Miami or Orlando, we have deployed central hub pharmacies. Once we have that hub, we can scale very quickly around that hub by deploying our technology into clinics within that metropolitan service area. As an example, as we reported in our third quarter results, we have deployed nine sites in Florida around the Orlando hub, which we opened up about 30-45 days ago.

We can expand quite quickly, and you'll see us continue to expand around each of the hubs that we have deployed. Now, when you think about what we do deploy within the clinic, first of all, we deploy our MedAvail MedCenter, the technology itself, but we also deploy an on-site live person pharmacy, a technician type person who is our clinic account manager. This is very important because what we're doing is not only embedding the ability to dispense medications directly into the clinic, but we also have a team member from our pharmacy on site who's becoming an integrated part of that care team and a core part of how we acquire customers within that clinic to become patients of MedAvail. I mentioned we customize the inventory by site.

We review that regularly with the prescribers so that they have the opportunity to make changes as it may be season to season or there may be a new discipline that's been introduced to the clinic, and we can very quickly customize that inventory. Most importantly, though, we are very proactive around adherence and driving to Five-Star performance around adherence for the patients which we are serving, which I think most people listening understand is critically important to the value-based care providers and the plans, not only from an adherence measurement perspective, but health outcomes. We do offer free courier home delivery as well to our patients, so we give them multiple channels to access our pharmacy services.

Critically, we do provide and share patient-level data with regards to adherence with providers, with the clinics, you know, by clinic, by patient, which they can't get in real-time like they can with us from any other pharmacy in the marketplace. We're embedded directly into the clinic to serve the patient, offer multiple channels, and very importantly, are sharing data in a real-time basis in order to drive higher levels of adherence and partnership with the providers. As we look at our value proposition, it clearly resonates. We recently did a study with L.E.K., where they talked to both our customers and prospective customers. You can see down the left side, the first four are the ones I would be focusing on, the areas that people said were most important.

When you look at the executives of the organizations we're dealing with, and then the physicians, very similar, important metrics that they're looking at. Some differing levels of importance depending on your point of view. Now, the patients we're focused on, as you can imagine, while we're in these Medicare sites, are Medicare recipients. They are on multiple chronic medications. The Medicare market is obviously growing. As pointed out in the left-hand side of the chart, the Medicare Advantage market is growing rapidly, and the amount of risk being taken by providers is increasing, which all fits right into our value proposition and our business model. The patients themselves are on multiple chronic medications, so they're very valuable patients. That is really where we fit within these organizations.

Now, it's not that we won't serve, commercial or Medicaid patients that may be utilizing the same site, and we absolutely will, but we do target sites that have a large, Medicare population to allow us to reach the goals that we have as far as revenue per clinic and productivity. When you think about what we're driving to around medication adherence, and I focus on the right side of the chart in the box, where it says adherence impacts 42% of Star Ratings, we understand the triple weighting of the specific metrics around PDC, where we obviously focus. Very clearly, customer satisfaction is becoming a triple-weighted factor as well.

We drive extremely high customer satisfaction. As seen on this chart on the left side, the blue vertical bar is our average PDC performance for our patients, and then the green horizontal line is the current CMS metric for Five-Star. Then on the right side of the chart, you can see that we operate at a 90 Net Promoter Score, which is extremely high and certainly important to our clients and important to them as they move into 2022 with changes in the measurement system. Now, just as a quick example of how we would use data, because if you think about it, we're servicing the patient, we're the pharmacy, and we're integrated and partnering with the clinic. If you looked at the first patient here that says savable, this is mock data, by the way.

You can see that when we stare at this the focus is on the column titled Trending PDC Score, where everyone, especially in the latter part of a year, is focused on having their patients over 80%. As we look at each of our patients daily, we can identify the at-risk patients. We can identify what needs to be done in order to get them adherent. Very importantly, we can partner with the clinic and the clinicians, either intercepting the patient for some form of consultation when on their next visit, or partnering with the clinic and the providers in ensuring the patient it has every opportunity to become adherent. We look at this all through the year.

We're managing to this, we're driving to it, and again, we're sharing data like this with our clients, which is very important to them and their operation and truly a differentiator for what we do. Now from a market size standpoint, when I look at the six states we're focused in on, which are highlighted here, you can see that we're live now in Arizona, California, Michigan, and Florida. We are targeting Illinois and Texas. Many of our clients have operations in those states. As you would expect, we're in different discussions at different stages with regards to continuing to expand. We have demonstrated, though, that we can expand and do expand with our current clients. We've done it with CareMore, with Oak Street Health. We just opened up with Cano Health and also firms like Optum.

We're demonstrating that as we deploy initially, we grow rapidly. Here what you see is a few of the logos of the clients that we deal with. You can see CareMore in Arizona and California, Cano Health in Florida, Oak Street Health right now in Michigan. Again, they have large footprints both within these states as well as in other states. Our goal and our discussions with these firms is to continue our expansion with them through their organization because of the value that we're delivering to them. Then from a growth perspective, when I think about our business, we are a growth story. The middle bars around revenue growth show that we are tracking right now. We've recommitted to the street to be delivering at least $21 million of revenue this year.

Would represent in excess of 100% year to year growth. We point to the right side of the chart where quarter to quarter we had 15% total revenue growth, 21% pharmacy revenue growth, which is the dark blue. The business grows extremely rapidly, and we are growing quarter to quarter with new clinic openings, expansion within the sites that we're in, and new customer acquisition. Our long-term business model is to be the 80/20 split, which I talked about at the beginning, drive margins up into the 20%-25% range and EBITDA into 12%-14%. Again, these are our long-term target business models. We have a very experienced team which we're very pleased with.

Most importantly, we have very, very strong investors who have been with us and have stuck with this business as we've moved forward and grown. With that, I'll say thank you very much. Adam, we'll turn it back to you.

Adam Heussner (Equity Research Associate)

Oh, that's great. Thanks, Ed, for the presentation. I've some prepared questions, but if anyone from the audience wants to ask a question, please feel free to email me at [email protected], and I can ask on your behalf. Ed, thanks again for the presentation and for participating at this year's conference. Maybe to start, you guys reported earnings earlier this week. Maybe just highlight some of the key takeaways from the quarter or some strong points. I guess what have people been focused on coming out of the release?

Ed Kilroy (CEO)

Sure. First of all, I'll ensure that I stop sharing so you're not seeing the presentation anymore. Perfect. When we reported, we reported above consensus on revenue and number of installs. The focus of our investors and the discussions I've certainly been having with potential investors is all around our growth with the value-based care providers. We clearly are acquiring and growing with the preeminent names in the marketplace. So they are seeing value in what we do. What that says to me, and I hope to the market, is the model works, and it is working. We're gonna continue to grow. We have a very fast expansion in Florida. I mentioned we opened up our pharmacy about 45 days ago. We opened our initial nine clinics.

You'll see us continue to grow through the fourth quarter in Florida as well. We can grow very rapidly once we establish that footprint within a site. We also grew in California and Arizona as well. We really are committed to delivering this value around the data sharing and focusing on adherence of the patients in a real-time manner, which is just very different for you know, the experience with these chains have with other pharmacy providers. Very importantly, we reconfirmed our outlook for the year of at least $21 million of revenue and 45 new clinics installed in 2021.

Adam Heussner (Equity Research Associate)

No, that's great. Maybe just to level set and help us understand the level of adherence on the platform and that part of the value proposition, within Medicare specifically, obviously. Can you just give us a sense as to how the adherence of a solution like yours compares to a traditional mail order pharmacy that the Medicare patient might be able to get through their PBM? What's the difference in the value proposition there?

Ed Kilroy (CEO)

Sure. First of all, the value prop that we're delivering is very much focused on the patient and the value-based care provider. What we look at is a couple of things. First of all, we're a very high touch solution. We have our on-site presence. We're integrated in the clinic. You know, one example is one of our clients has integrated us into their internal chat system that allows our pharmacy team to talk to their prescribers in real time if there's questions going back and forth, for example, with regards to a patient. Excuse me. That's one example of the level of integration that they're really pulling us into.

The second is the follow-up and continued follow-up with the patient, whether it be with regards to access to the medication, assistance on co-pays, multiple ways of receiving the medication, both through the kiosk or through courier home delivery. The patients appreciate that level of high touch and access to our team. 'Cause, you know, if you think about value-based care providers, a lot of those patients are coming in on a regular basis for their health checkups. They're seeing our person there. They're getting to know them. They get to know our pharmacy. They get to know our pharmacist. We're acting almost like a local pharmacy, you know, a neighborhood pharmacy in that operation. Then very importantly, you know, the chains, the clinic providers we're dealing with, we're sharing this data with them.

They have large investments in call centers and groups of people who are focused in on adherence and focused in on ensuring the patients are getting their medications. They feel very confident that we can take on that role for them. In that partnership, in showing them data, do that in real time. It's almost like, you know, I'll say that we're a department where we're sharing the data and they can see what we're achieving for them and feel confident we'll do that, and they don't need to make the investment in those areas.

Adam Heussner (Equity Research Associate)

It makes a lot of sense. You know, I know you've touched on this, but I think, and you also alluded to the importance of it, and that's where the focus has been. I do wanna kind of double-click into that aspect of the business. In terms of these partnerships you've announced with some of these, you know, major value-based care providers such as Cano and Oak Street. Can you just talk more about how your platform and your solution is maybe fits into their business model and their own value proposition?

Ed Kilroy (CEO)

Sure. When we talk to those providers, the two things that obviously are most critically important to them are the health outcomes of the patient and the cost of care, and secondly, the overall satisfaction and retention of the patient. When they look at the impacts, and on one of the charts I was showing, it showed that adherence impacts about 42% of the CMS Star Rating score, either directly or indirectly. But on the right side of the chart, which is very important, it points to the cost of care for adherent patients versus non-adherent patients.

When we talk to our providers, to our customers, and they talk about certain areas or clinics that are having challenges, us driving up these higher levels of adherence, they know will be driving lower costs of care, higher levels of satisfaction, and improved retention. Right now, they don't have control over that component, which is so very important to the health outcome of the patient themselves. You know, that to me is the underlying value proposition and what they're looking for and how we fit is, you know, that driver of outcomes. We are there, you know, and again, I'll say it in real time, sharing information, but available to them and their patients whenever they require.

Adam Heussner (Equity Research Associate)

Makes a lot of sense. Can you talk about the sales and marketing strategies that your company's been focused on and maybe how that's evolved over time? Maybe just to touch on that and as maybe a follow-up is, do you begin to see more inbound interest from these providers, especially in this value-based care space?

Ed Kilroy (CEO)

We have two go-to-markets. We have a business development team that is focused on selling our turnkey solution through SpotRx. We are marketing directly in the states that we're operating in today, both through the headquarters operation as well as the regional clinical directors. You'd imagine that, you know, we go into Florida, we have a list of all the key value-based players. We were thrilled to sign with Cano Health out of the gate, Access Health, IMA, InnovaCare Health now. A lot of those players, they're all operating in the same areas. They see what we're doing. It's very easy for us to get an audience with them to talk about what we're doing, but they are showing inbound interest to us.

What is more, important, quite frankly, in my mind is we continue to expand with our current customers. If you think about the number of clinics that our current customers have and their public communications with regards to their growth plans, with the current customers we have, we have hundreds of clinics that are opportunities for us. As we continue to grow within states and move to new states with these providers, the opportunity is just immense. On the hardware and software side, I touched on it briefly, but we are selling to, with a small team, directly into large IDNs and retailers like Sam's Club, who are looking to use our technology either to extend reach of their operations of their pharmacy operations.

If you think about a Kaiser, where they run a large pharmacy operation, they wanna have pharmacy capability in all of their sites, and having physical pharmacies there is not always an option. We are the solution for that. We can do that. I think on the retail side, it's really a productivity play. It is giving access to patients as long as a site is open, whether it be through, you know, through the kiosk, they can access first fills and refills. You know, both are direct selling, but we do see a lot of inbound interest, 'cause people have become over time, much more aware of what we are doing.

Again, as we're playing with some of these large players in the value-based care, they see us operating, and they don't wanna be disadvantaged in the market.

Adam Heussner (Equity Research Associate)

Oh, it's very interesting. You talked about these six states or the six initial states that you're focusing on, and I assume there's some specific strategies in terms of where you'll go next, which I assume you won't share with us, but maybe just give us some high-level thoughts about, you know, how you go about deciding which state to enter and maybe just what goes into that decision.

Ed Kilroy (CEO)

Sure. Initially, when we first started, it was really built around regulatory.

Adam Heussner (Equity Research Associate)

They're filling two with their mail order PBM or filling two at CVS or something like that. How does that work?

Ed Kilroy (CEO)

What we do, and again, think about the fact that we have a live person on the site. When we're talking to the patient, what we're talking to them about is our service and the type of service we provide. The second thing we're talking to them about is transferring their full medicine cabinet to us. In many of the sites we're in today, we have access to the EMR system as well of the clinic. The providers can also tell if the patient is on medication that either they're not prescribing because maybe it's coming from a specialist, or potentially a medication that's being filled somewhere else.

Many of our patients are transferring their full medicine cabinet to us because they don't want to have, you know, a multi-vendor solution when they're talking about their medication. Our satisfaction level is very, very high. What we find is a patient will use us, probably transfer medications. Some of them transfer all of them out of the gate, others will transfer some and then transfer the full medicine cabinet. That's our goal in every case, is to transfer the full medicine cabinet, including specialty meds, which we will fill for the patients, as well. We see that 'cause what we look at on a clinic level is the average number of prescriptions per patient.

You can see, you know, many of the clinics where the patients are on 3.5-4 medications per patient. You have an indication that you're likely capturing the most of the medications, if not all, that they're on.

Adam Heussner (Equity Research Associate)

Just in terms of that medication mix, is it? If you think about just generic branded specialty, is it fairly similar to what we would expect of just the normal retail pharmacy? Is that pretty standard for your pharmacies?

Ed Kilroy (CEO)

It is, except we would have a larger chronic med mix, because we're not in the urgent cares or the emergency department, so we don't get as many of the acute meds that you would think. You know, if you think about Oak Street, certainly they're treating acute conditions, but the patients coming in on a regular basis are on chronic medications, and those are the ones that we are acquiring. We're heavily Medicare-oriented.

Adam Heussner (Equity Research Associate)

Understood. Can you just give us some sense about the competitive landscape that you're operating in? Maybe just give us some thoughts about the SpotRx side and the kiosk endpoints versus the technology piece of the business.

Ed Kilroy (CEO)

There are, I'll say, competitors out there today, but they have very, very different models. Many either have a physical presence or want to have a physical presence, which is not something that any of our clients that we talk to, they don't want to have a physical pharmacy on the site or don't have the space to have one on the site, or the provider, you know, the pharmacy provider can't justify it based on the cost of opening up a physical pharmacy. We have a very low capital cost to get up and running, about $50,000 when we look at the cost of the MedCenter to get it deployed. When you think about that, you know, that's one type of competitor.

You know, we get a lot of questions around other home delivery pharmacies. Our point is that we are not, you know, we do home delivery, but we are an embedded pharmacy in the site, integrated with the care providers, sharing data with the providers to improve health outcomes. By the way, we do delivery. Versus many of the other models are the other way around where they do delivery. If you know, if you want just delivery, then that's not us. If you want a partner in pharmacy to help you drive adherence and share data and be an integrated part of the team, that's us.

When I look at our ability to embed our technology, our proprietary technology as well, to me, I don't see another competitor that can provide that turnkey solution end to end that we do. It really is, you know, I say to people, I certainly don't want to sit here and say there, you know, won't be and can't be a competitor out there, but we're dealing with some of the largest firms in this market, and they have done their homework. They know what options are out there. Many of them have tried different options. We're winning in the market. I feel very good about what our team has done to position us both through our pharmacy capability and service as well as our technology.

I believe we have a significant advantage and lead in the market, and we expect ourselves to continue to take advantage of that and grow rapidly as we continue to move forward.

Adam Heussner (Equity Research Associate)

Makes a lot of sense. Maybe just last few questions before we wrap up here. In terms of the COVID-19 impact on the business and maybe the market in general that you're operating in, can you just talk to us about how, you know, what I mean, I guess, what the COVID impact has been, and I guess maybe more importantly, how you're thinking about the business set up for beyond the COVID environment?

Ed Kilroy (CEO)

Sure. I would say in the height of COVID, it had an impact on us because a lot of the clinics had either significantly reduced their face-to-face visits, some actually shut down totally, and others adjusted their workflows, where people would wait in their cars to be texted to come in. That had an impact, although we did see that in many of the cases, we were able to not only retain the customers we had entering the COVID height but add new customers, again, because our partners, the clinics, saw us as a value add in that type of environment, being able to serve the customer base.

As we've moved through the, you know, I'll say the last quarter, and we talked a bit about this in our third quarter results, that we have seen the clinic volumes increase quarter to quarter. Our clients are very much focused on having those patients on site and seeing them and treating them physically in front of them because of the risk that they're taking with these patients and the types of patients. We see things coming back to what I would call, you know, much more normal environment, and it has returned. So that's encouraging for us. You know, from an ongoing impact, I wouldn't say there's an ongoing impact of COVID. Clearly, you know, we can't predict what may happen in the future, but we've seen things come back strong.

Adam Heussner (Equity Research Associate)

Great. Maybe just last question. When we think about or when you think about MedAvail, what are just some of the most misunderstood aspects of the business?

Ed Kilroy (CEO)

I think people think about us either as a technology company and you sell a kiosk. The answer is we do, but it is a very complex solution that meets the requirements of the boards of pharmacy across multiple states, which, in our view, not anybody can do today. But really that turnkey solution and the fact that we are all about adherence. We're an adherence play in the value-based care market. The market is growing extremely rapidly. We're being successful. The model is working. I just think that, you know, the market is continuing to come our way. Value-based care, the growth in that is just expanding, and it's gonna expand outside of Medicare into other parts of the healthcare market as well.

We think we're poised very well in that market to play a partnership role, whether it's people who wanna acquire our technology and utilize it with their pharmacy back end or use our full stack turnkey solution through SpotRx.

Adam Heussner (Equity Research Associate)

That's great. Well, with that, I think we can wrap it up. Ed, thanks a lot for participating and for all the insight here. Thanks to everyone else for joining us today. This is Ed Kilroy from MedAvail Technologies.

Ed Kilroy (CEO)

Great. Thank you very much, Adam. I appreciate it, very much. To all the veterans out there and people serving, thank you very much for your service.

Adam Heussner (Equity Research Associate)

Yeah. Thanks, Ed.

Ed Kilroy (CEO)

Have a great day.

Adam Heussner (Equity Research Associate)

Take care.