Diplomat adjusts guidance amid exec shake-ups

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Diplomat adjusts guidance amid exec shake-ups

By David Salazar - 01/07/2019
As two of its executives presented at the 37th Annual J.P. Morgan Healthcare Conference, Diplomat announced changes to its executive team and revised its guidance for its 2018 fiscal year. Diplomat president Joel Saban and Albert Thigpen, president and COO of the company’s CastiaRx division will be departing, effective immediately.

Chairman and CEO Brian Griffin will directly oversee CastiaRx as the company looks for replacements, with plans for an operational review of the division once a successor is found. The company introduced the specialty benefit manager division last April, bringing together two of its acquisitions — LDI Integrated Pharmacy Services and National Pharmaceutical Services — and its infusion and specialty expertise with the aim of providing high-level patient support.

"While we've been seeing some positive signs for the CastiaRx brand and value proposition, there is no question that this segment disappointed in 2018," Griffin said. "We are looking at this business very closely and are taking decisive steps to address its challenges, including key senior management changes. We have also engaged an external consultant with deep PBM operational experience to help implement operational performance improvement initiatives. We expect this review to be completed over the next several weeks and expect to provide an update on the review as part of our Q4 earnings call.”

Ahead of their Q4 earnings, the company also has adjusted its outlook for the full-year 2018. It now expects 2018 revenue to be at the lower end of its previously predicted range of between $5.5 billion and $5.7 billion. Its adjusted EBITDA is expected to be between $167 million and $170 million, which it noted is an increase of at least 65% based on the low end of the 2018 range versus 2017. Its net debt is expected to be roughly $630 million.

“Diplomat delivered strong revenue and EBITDA growth in 2018 despite challenges in our CastiaRx PBM segment,” Griffin said. “Solid specialty growth, robust infusion performance, and better than expected synergy capture following completion of the PBM integration drove 2018 results, and investments we have made in sales, systems, processes and facilities are expected to drive future growth and profitability, positioning the company well for 2019 and beyond."

Griffin noted two developments for the company. The first is Diplomat’s selection by Hospitality Rx to be its exclusive provider of specialty pharmacy service for its roughly 250,000 Unite Here Health plan members nationwide. Diplomat also inked a partnership with specialty pharmacy consulting firm CSI Specialty group, providing limited-distribution drugs and specialty care management solutions to health system clients.

"These recent contract awards are evidence that the payer sales strategy launched in early 2018 is gaining traction," Griffin said. "Payers are increasingly interested in Diplomat's specialty and infusion services on a carve-out basis as they focus on improved patient care and driving down total healthcare costs. We continue to see interest and are in discussions with mid and large-tier health plans looking to enhance the management of not only their specialty pharmacy benefit, but also their specialty medical drug benefit. We expect to announce additional awards in the coming months as we leverage coordinated sales and clinical efforts across specialty and infusion."

The company’s preliminary 2019 outlook includes expected revenue of between $5.6 billion and $5.8 billion, or roughly 3% year-over-year growth based on the midpoints of its 2018 and 2019 guidance ranges. This outlook assumes a revenue contribution of between $450 million and $500 million from CastiaRx, which includes roughly $200 million in Medicare Part D contract losses, including $120 million in combined revenue losses from client loss and contract renewals and $35 million in new business as of Jan. 1.

“We expect 2019 to be characterized by continued growth in specialty and infusion given our payer-focused strategy, and actions we are taking to return our PBM business to growth,” Griffin said.