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Q3: Strides In Operating Progress Overshadow Revenue Miss
By Brian Marckx, CFA
OptimizeRx ((OPRX)) filed their 10-Q for the third quarter ending 9/30/2012 on November 14th and also held a conference call. While revenue increased 137% yoy, it fell 12% sequentially and was about 50% lower than our estimate. While we had clearly overestimated the arrival of the inflection point in revenue growth, from an outlook perspective (even a near-term perspective), the "miss" on revenue is fairly immaterial given that revenue continues to grow yoy, the business and revenue models remain (mostly) intact, and several catalysts to growth are still on the front end and have yet to make even a modest contribution. Our full update on OPRX is available here.
Despite the relatively disappointing sales number, there were some significant positive highlights. Specifically, operating expenses remain very low and came in almost 45% less than where we were pegging them (although on a % of revenue basis they were largely in-line with our number), coupon "distributions" (prints/e-deliveries) almost tripled yoy, and OPRX has made meaningful progress with increasing the functionality of SampleMD and broadening its distribution reach, both of which are integral to its growth strategy. Of particular significance is OPRX's collaboration with DrFirst, KRAMES Staywell, and Adheris, all leaders in their respective fields, which was penned in October and provides OptimizeRx not only with increased distribution but also the ability to leverage these relationships to help facilitate bringing on more promoted drugs and provides even greater credibility to SampleMD. Another important recent operational-related milestone was completion of the integration of SampleMD with Allscripts PRO EMR which is now completed and will eventually afford SampleMD access to an additional 25k prescribers.
Q3 revenue of $453k was up from $192k (+136% yoy) in Q3 2011, down from $515k (-12% sequentially) in Q2 2012 and about $569k (56%) lower than our $1.0 million estimate. Management provided utilization volumes for the first time this quarter. Distributions, or the number of coupons generated, increased to more than 89k, which is over three times as many generated in the same period 2011. While this was a little less than half of what we modeled (~194k), as it's still very early in the roll-out and on the front end of what we expect to be significant growth going forward, the difference in actual vs. modeled at this point is relatively meaningless. More important is that volumes are already increasing at a rapid rate and should continue to grow, facilitated by the recent operational progress including product enhancements, increased awareness, and partnership/collaboration agreements - most of which are still in their infancy and have yet to begin to make a meaningful contribution.
Operating expenses remained relatively flat in Q3 (and slightly down sequentially) at $559k and well below our $989k estimate. Management continues to keep a lid on expenses which meant net income and EPS of ($106)k and ($0.01) were only slightly below our $33k and $0.00 numbers despite the big miss on revenue. Importantly management continues to expect the business to be highly leverageable as revenue grows which, as we've noted in the past, means earnings, EPS and cash flow should ramp very quickly with only a modest increase in the top line.
OPRX exited Q3 with $283k in cash and equivalents, down from $528k at the end of Q2. Cash used in operations was $250k which included $170k pay-down in A/P in Q3. Ex-changes in working capital cash used in operations was $63k. It's worth highlighting that OPRX is already almost cash flow positive (they were cash flow positive in Q2 ex-changes in working capital) - again, they only need a very modest uptick in revenue to consistently generate positive cash flow.
Continued Operational Progress Should Benefit Future Periods
> Integration Into e-Prescription Platforms: As a reminder SampleMD was first integrated into Allscripts' e-prescription system in late 2010. Since then OPRX has been very active in expanding the SampleMD footprint in additional e-prescription providers including NewCrop and DrFirst, two e-prescriber applications that adopted SampleMD since late 2011. During Q2 OPRX completed the integration of SampleMD into the NewCrop platform and launched it with DrFirst. In Q3 integration of SampleMD with Allscripts' PRO EMR application was completed and went live. This will afford SampleMD access to an additional 25k physicians - the physicians have to opt-in but it's anticipated the vast majority will do so over the near-term.
> SampleMD Enhancements: OPRX has been working on certain enhancements to SampleMD including their eVITEREP functionality for physicians to be able to schedule meetings with drug reps. eVITEREP, which also allows the prescriber to live chat with a drug manufacturer, was launched in Q3. eVITEREP is expected to be a valuable feature as it can reduce the hassle physicians deal with heeding drug reps' sales calls at all points during the day and eliminate rep cold calling - potentially benefitting both the doctor and drug rep/drug companies.
> Medication Adherence Collaboration With DrFirst: perhaps the biggest recent news was that SampleMD has been integrated into DrFirst's Patient Advisor as that platform's exclusive provider of electronic coupons. Patient Advisor is a medication adherence solution within DrFirst's e-prescribing system and includes value-added services from KRAMES Staywell, Adheris and now SampleMD. The system allows doctors insight into Rx fill rates of their patients to help inform them of patient compliance and is expected to increase medication adherence rates - which when not followed has shown to have a significant and direct adverse effect on patient health and health care costs (particularly for chronic diseases which are harder and more expensive to treat if not properly managed). Addressing these problems is at the forefront of recent healthcare reform measures focused on reducing healthcare costs and improving patient care and outcomes - which should increase demand for solutions such as Patient Advisor. KRAMES is one of the largest providers of health information and health management solutions. Adheris is the leading provider of direct-to-patient medication adherence programs. Together, this collaboration exposes OPRX to about 150 drug brands (including major brands such as Lipitor), increases distribution reach of SampleMD, and further bolsters its credibility from the relationships with DrFirst, KRAMES and Adheris, leaders in their respective areas.
> Marketing / Advertising: OPRX recently hired a VP of Eastern Sales and beefed up their sales and marketing staff. The company continues to attend industry conferences, promoting the benefits of SampleMD to health systems and drug manufacturers. In Q2 they attended the Marcus Evans Pharma Executive Summit, an invitation-only event of the top 150 pharmaceutical marketing and brand executives and the Pharma West conference. In Q3 OPRX was a keynote presenter for the Allsripts ACE User conference. The company has also begun other marketing and awareness building initiatives designed around increasing visibility of OPRX and SampleMD. OPRX continues to look to expand their reach including partnering with other eprescribers and electronic medical record providers.
Please visit Brian Marckx's coverage page at scr.zacks.com to access a free copy of the full research report.