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Edited Transcript of DPLO earnings conference call or presentation 12-Nov-19 1:30pm GMT

Q3 2019 Diplomat Pharmacy Inc Earnings Call

Flint Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Diplomat Pharmacy Inc earnings conference call or presentation Tuesday, November 12, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Thomas Griffin

Diplomat Pharmacy, Inc. - CEO & Chairman of the Board

* Daniel Paul Davison

Diplomat Pharmacy, Inc. - CFO & Treasurer

* Terri Anne Powers

Diplomat Pharmacy, Inc. - VP of IR

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Conference Call Participants

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* Charles Rhyee

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Courtney Patrice Owens

William Blair & Company L.L.C., Research Division - Associate

* Jason Adler;JP Morgan;Credit Analyst

* Lisa Christine Gill

JP Morgan Chase & Co, Research Division - Senior Publishing Analyst

* Rivka Regina Goldwasser

Morgan Stanley, Research Division - MD

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Presentation

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Operator [1]

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Hello and welcome to Diplomat's Third Quarter 2019 Conference Call. (Operator Instructions) I'd like to turn the call over to Terri Anne Powers, Vice President of Investor Relations. Please go ahead.

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Terri Anne Powers, Diplomat Pharmacy, Inc. - VP of IR [2]

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Good morning, everyone. As you are aware, this morning, Diplomat issued third quarter 2019 financial results. Before I turn it over to our Chairman and CEO, Brian Griffin for his remarks, I will read the following safe harbor statement. Some of the company's statements made on this conference call will be forward-looking statements, which may include financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested in any forward-looking statement due to a variety of risks and uncertainties, which are discussed in detail in the earnings release just issued in the company's Form 10-K report for 2018 and subsequent filings with the Securities and Exchange Commission.

These statements speak only as of the date hereof or the date specified on the call. And except as required by law, the company does not undertake any obligation to update or otherwise release publicly any revisions to its forward-looking statements.

Further, as previously noted, there can be no assurance that the process of reviewing and evaluating strategic alternatives will result in the approval or completion of any particular strategic alternative or transaction in the future.

The company does not intend to disclose developments or provide updates on the progress or status of the review of strategic alternatives, unless and until required or when the company determines appropriate. As such, management will provide a brief update, but not comment on the specifics of this process in today's prepared remarks. Except as expressly noted, all comments today regarding historical and anticipated results of operations exclude any potential impact from our previously announced review of strategic alternatives.

During this call, the company will also discuss non-GAAP financial measures. Please refer to the tables included in the company's earnings press release just issued for a reconciliation of these non-GAAP measures to the comparable GAAP measures and a related discussion thereof.

A replay of the call and associated slide presentation is accessible through a link on the Investor Relations page of the company's website, and it will be available for 90 days.

I will now turn the call over to Brian Griffin. Brian, please go ahead.

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Brian Thomas Griffin, Diplomat Pharmacy, Inc. - CEO & Chairman of the Board [3]

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Thank you, Terri Anne, and good morning, everyone. I'd like to begin this morning's remarks with a brief update on the strategic alternatives process.

We're engaged in a comprehensive process, and we have an interest in both the whole company and its businesses.

I'm sure that you saw last month's announcement of the sale of certain assets of the EnvoyHealth business. This was not a divestiture of the entire EnvoyHealth business.

Diplomat has retained key portions of the operations located in our Flint, Michigan headquarters. We remain committed to services supporting our manufacturer partners, particularly in support of specialty drugs and digital therapeutics.

While this transaction was not material from a financial or operational perspective, we determined that certain assets were not core to the overall company and made the decision to divest them.

I want to reiterate that we remain focused on maximizing shareholder value and pursuing all avenues to that end. We are in advanced discussions, but at this time, we are not in the position to provide any further detail regarding our process.

There can be no assurance that this process will result in the approval or completion of any particular strategic alternative or transaction in the future. However, we believe that we will be able to provide a substantive update on this process in the near future.

Moving on to a discussion of the quarter. I'm encouraged by some recent wins that demonstrate that our strong clinical value proposition is a differentiator in the market.

Continuing our strategy to focus on our exceptional disease state clinical care model, we are pleased to announce we have executed an innovative value-based agreement for exclusive oncology care management with a national PBM.

Diplomat is reaching beyond the typical unit-based pricing models for specialty pharmacy services with a value-based care approach based on our strong clinical value proposition and delivery of high-touch patient care.

In addition, we were awarded access to 3 additional limited distribution drugs during the third quarter, increasing our access to more than 135 limited distribution drugs.

In the third quarter, we also continued to gain new name business from hospital systems for a wraparound limited distribution drug access, clinical services and 340(b) services.

Within infusion therapies, Diplomat continues to successfully increase network access with major health plans nationwide as a specialty infusion provider.

Since the beginning of the year, we have added access to 15 million additional lives. We continue to increase access with major Blue Cross and Blue Shield plans, including Blue Cross Blue Shield of Kansas City, Blue Cross Blue Shield of North Carolina, Healthy Blue and Blue Cross Blue Shield of Wyoming in the third quarter.

We also recently signed an agreement with AmeriHealth Caritas in New Hampshire.

Finally, I'm pleased to report that the implementation of the previously announced Allergy Partners agreement is progressing well as we continue to ramp up direct referrals from their practice locations.

I'd now like to turn to an update on our PBM business. Despite investments in sales and account management and remediating prior service issues, our PBM business continues to be under pressure.

Subsequent to our second quarter report, we have continued to experience client losses, which are expected to impact 2020 results. This contributed to the need for an incremental $156 million impairment of PBM goodwill and intangibles recorded in third quarter results, which Dan will discuss in greater detail.

Now I'd like to provide an update on the competitive environment, specifically as it relates to our core specialty pharmacy business.

In prior calls, we noted that the challenges that we're facing in core specialty pharmacy, in particular, a more challenging reimbursement environment and increased competition from our larger, vertically integrated specialty pharmacy competitors.

As was announced this morning, Diplomat was unable to reach an agreement to renew network participation with 1 of our largest specialty pharmacy network payers. As of November 28, 2019, Diplomat will no longer participate in a large group of this payer's specialty and retail networks.

While this group of networks is not the only network group that Diplomat participates in for this payer, it does comprise the vast majority of the specialty pharmacy business Diplomat does with this payer. We will continue to support their patients in these other networks as well as the clients with whom we have direct contracts.

Diplomat remains committed to the patients that we serve, and we will support the transition of impacted patients to other specialty pharmacies as needed.

The loss of this business is not expected to materially impact our revenue or profitability in fourth quarter 2019.

For 2020, it is expected to significantly impact our revenue and volumes. We do not expect the loss of this business to materially impact the company's profitability in 2020 based on our plan to reduce related costs to service this payer.

We are disappointed that we are unable to come to an agreement with this payer, and we'd be open to further discussions to find a solution that works for all parties, and importantly, the impacted patients.

I know that many of you will have a lot of questions regarding this matter. But based on confidentiality obligations in our agreement with this payer, we are precluded from making any public statements about them or providing any further detail regarding this agreement or recent negotiations.

Before I turn the call over to Dan, I'd like to discuss our third quarter results. I'll give a high-level overview.

Within our specialty segment, infusion therapies continue to perform very well while the core specialty pharmacy business continues to be under pressure.

In the third quarter, in addition to the adverse impact of previously disclosed and continuing contract losses, PBM performance was negatively impacted by a $4 million litigation reserve and a $9 million contractual rebate volume penalty, resulting in a $13 million negative impact to adjusted EBITDA.

Total adjusted EBITDA for the quarter was $11.5 million.

In addition, Diplomat recorded a further write-down of PBM goodwill and intangibles of $156 million, leading to an EPS loss of $2.35, a disappointing result for the company overall.

As a result, we are lowering our 2019 guidance and now expect 2019 adjusted EBITDA to be in the range of $71 million to $74 million, and GAAP loss per share to be in the range of negative $4.91 to a negative $4.81.

As of September 30, 2019, we paid down $75 million in debt compared to December 31, 2018.

We also remain in compliance with our debt covenants. However, as we take into account lower-than-expected third quarter results, our reduced 2019 outlook and continued industry headwinds, it is possible we may be in violation of covenants for the period ending December 31, 2019, absent the successful execution of mitigating strategies.

Mitigating strategies could include an additional amendment to our credit facility or further progress on initiatives being considered as part of the strategic alternatives process. Dan will provide more detail on this momentarily.

We remain focused on executing our strategy to drive more volumes to Diplomat, improve operational efficiency and improve our clinical value proposition.

We have observed some increased traction in terms of new business awards as the market is recognizing Diplomat's clinical value proposition and specialty pharmacy and specialty benefit solutions in the PBM.

And as noted, infusion therapies continue to expand payer network access and perform very strong financially.

I'll now turn the call over to Dan for a review of our financial performance in the quarter. Dan?

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Daniel Paul Davison, Diplomat Pharmacy, Inc. - CFO & Treasurer [4]

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Thank you, Brian, and good morning, everyone. This morning, we reported $1.3 billion in revenue for the third quarter, down 5% year-over-year while adjusted EBITDA was $11.5 million, down 73% versus the prior year. Adjusted EBITDA was negatively impacted by 2 discrete items totaling $13 million in our PBM business, which I will discuss in more detail momentarily.

Looking at revenue at the segment level in the third quarter, our Specialty segment generated revenue of $1.2 billion, up 3% from the prior year. Segment revenue benefited from strong growth in infusion therapies and brand price inflation, partially offset by payer reimbursement compression and the increase in volume of newer generics.

Infusion sales grew 17% year-over-year, driven by higher volumes and the small infusion acquisition we made in the third quarter. Excluding the acquisition, infusion revenue would have still increased by low double digits compared to the prior year.

Oncology sales were up more than 2% year-over-year as the benefit of brand inflation was partially offset by reimbursement compression, prescription volume declines and higher generic utilization.

CastiaRx recorded $82 million in revenue, down $87 million from the prior year, reflecting the impact of previously disclosed and continued loss business. In addition, revenue in the third quarter was negatively impacted by a $4 million litigation reserve.

Taking a look at gross profit and margin. Total company gross profit was $63 million, down 32% year-over-year and gross margin was 4.9%, down 190 basis points compared to the prior year.

Gross profit in the Specialty segment was $65 million, down 4% year-over-year and gross margin in the segment was down 30 basis points to 5.2%, which was similar to the Q2 margin.

Reimbursement pressure in our core specialty pharmacy business continues to drive Specialty segment gross profit and margin performance downward, despite the contribution from higher-margin generics.

Specialty prescription volumes increased 3% year-over-year to 237,000. Infusion therapy volumes grew while most other therapeutic area volumes were down year-over-year.

Gross profit per script in the third quarter of 2019 was $268 per script compared to $287 per script in the prior year period.

CastiaRx recorded a loss of $1 million at the gross profit level in the quarter. The loss was driven primarily by 2 discrete items in the third quarter, 1 of which was the previously mentioned $4 million litigation reserve that negatively impacted revenue and therefore, gross margin.

The second item relates to a contractual volume rebate penalty because we were unable to meet minimum membership level requirements, given the amount of business loss this year. While we have been in negotiations with the third-party to eliminate this penalty and extend our agreement beyond 2019, we were not able to agree to new terms during the third quarter. This resulted in a discrete $9 million rebate penalty for the first 9 months of 2019, which impacted cost of sales in the third quarter.

In addition, a further $3 million penalty is expected to be recorded in the fourth quarter of 2019 in the form of reduced rebates -- reduced rates on rebates associated with this agreement. These impacts are related only to 2019.

Effective January 1, 2020, we expect to implement a rebate agreement with a new third-party at terms more favorable than the current pre-penalty terms.

Total company SG&A was down 10% year-over-year to $75 million, driven by a lower amortization expense, primarily resulting from the prior and current year impairments of intangibles as well as lower share-based compensation costs.

We continue to make progress on our operational efficiency initiatives. We are moving forward with facilities consolidation, including closing down certain pharmacy locations. We are also consolidating functions between major locations and moving work to the most cost-effective location.

We also continue to progress with the implementation of ScriptMed, which is expected to be largely complete by year-end with some spillover into the beginning of the year.

We have generated cost savings related to lower headcount, but these cost savings are being reinvested in sales teams and also have been offset by increased utilization of outside nursing labor to support the continued growth in infused product administration and increased facility costs from opening the new facility in Chandler, Arizona.

As of the end of the third quarter and on a year-to-date basis, we have achieved approximately $6 million in savings related to cost-cutting initiatives. We still expect to achieve $7 million to $8 million in savings for the full year, exiting the year at a $10 million run rate.

Taken together, our consolidated adjusted EBITDA for the third quarter was $11.5 million, down 73% from the prior year period.

The third quarter includes an additional noncash impairment of goodwill and intangibles totaling $156 million associated with our PBM business, due to a lower forecast rate of new wins, lower-than-expected rate of renewals and the reduction in anticipated rebate value in 2019, all of which have contributed to a further reduced outlook for future PBM financial performance.

Net loss in the quarter was negative $177 million or $2.35 per share compared to net income of $169,000 or 0 per share in the third quarter of 2018.

Turning to the balance sheet. Our working capital improved by $79 million compared to December 31, 2018, driven primarily by an improvement in payables and inventories. We will continue to look at ways to improve our working capital position.

At September 30, 2019, net debt, including contingent consideration amounted to $563 million and our total net leverage ratio was 5.7x.

In addition, our interest coverage ratio was 2.6x. We paid down debt -- net debt by a total of $75 million compared to the end of last year, mainly on our revolving credit facility.

Moving on to our outlook. We are adjusting our 2019 guidance figures, primarily to reflect the impact of the litigation reserve and the rebate related item for the PBM business previously discussed, and the third quarter impairments of PBM goodwill and intangible assets.

We are increasing our consolidated revenue expectation and narrowing the range to between $4.9 billion and $5.1 billion versus the prior expectation between $4.7 million and $5.0 billion.

Specialty segment revenue is now expected to be between $4.6 billion and $4.7 billion versus our prior expectation between $4.4 billion and $4.6 billion. The revision to Specialty segment revenue expectations mainly reflects year-to-date performance and the contribution of the small infusion acquisition completed in July.

Though not expected to have a material impact on 2019 revenues and volumes, updated guidance does include the expected impact of the previously mentioned large payer network participation loss, effective November 28, 2019.

We continue to expect PBM segment revenue of $325 million to $375 million.

We now expect adjusted EBITDA in the range of $71 million to $74 million versus the prior $87 million to $93 million range. The change is primarily driven by the rebate penalty and litigation reserve totaling $13 million in the PBM business recorded in the third quarter as well as the previously indicated $3 million impact of the rebate penalty expected in the fourth quarter of 2019.

GAAP net loss expectations for the full year are now between negative $368 million and negative $361 million, which translates into a GAAP EPS loss range of negative $4.91 to negative $4.81.

We now expect an income tax benefit of approximately $1 million.

CapEx is still expected to be approximately $21 million to $23 million for the year, and we continue to expect 2019 operating cash flow between $60 million and $80 million.

As previously indicated, any further debt pay down will be dependent on additional working capital improvement and the potential sale of assets.

We are not going to provide 2020 guidance on today's call. However, I'd like to provide some additional insight into some factors that are expected to impact our 2020 outlook.

First, as Brian previously indicated as of November 28, 2019, we will no longer be able to fill prescriptions for patients whose health plans are covered under 1 of our largest payer's group of specialty pharmacy and retail networks.

For the full year 2019, the associated large payer business is expected to generate approximately $700 million in revenue and be approximately breakeven at the operating income level, including the associated corporate costs.

Related prescription volume is approximately 100,000 scripts per year. While the associated revenue and volume loss is not expected to have a material impact on 2019 results, it is expected to significantly impact 2020 revenue and prescription volumes. We do not expect the loss of this business to materially impact the company's profitability in 2020 based on our plan to reduce related costs to service this payer.

Second, you'll recall that in the third quarter, we amended our credit facility to make these covenants, which consist of a net leverage ratio and interest coverage ratio, less restrictive for the third quarter of 2019 through December 31, 2020. As of the end of the third quarter of 2019, we are in compliance with these amended covenants.

While we originally expected to remain in compliance with the amended covenants, we have determined, given recent operating results and deteriorated forecasts, that the company may be in violation of covenants for the period ending December 31, 2019. If we violate our covenants, the lenders would have the right to prohibit borrowings under our revolving line of credit, accelerate the payment of our outstanding debt or foreclose on our assets.

As of September 30, 2019, we have approximately $8 million in cash on the balance sheet and $95 million available under our revolving credit facility.

As previously indicated, we still expect to generate $60 million to $80 million in operating cash flow in 2019. We also expect to generate positive adjusted EBITDA and operating cash flow in 2020. As such, we expect to generate enough cash flow to make our debt service payments on time and as required by our credit agreement. We have a variety of initiatives that we plan to pursue in order to eliminate the potential that we will fall out of compliance with these covenants.

We are working with our administrative agent to initiate the process of amending our credit agreements in order to remain in compliance with our debt covenants. We are doing this while we are actively pursuing cost-cutting initiatives as well as our strategic alternatives process. However, our mitigation plans are reliant on third parties and are, therefore, beyond our control.

Accordingly, we are identifying today in our 10-Q that these conditions raise substantial doubt about the company's ability to continue as a going concern as accounting rules do not permit us to conclude that it is probable that any of our mitigation plans will be effectively implemented prior to any such covenant violation.

It is important to note that absent a transaction, the company would need to further rightsize the business. We would expect to provide further detail on any restructuring initiatives at a later time.

All of us on the leadership team at Diplomat are taking these issues very seriously. We are diligently looking at all options available to us in order to limit the negative impact on our ability to operate as a going concern as well as to ensure a successful outcome going forward for our company, our employees and our shareholders.

Thank you again for your time. I'll now turn the call back over to Brian.

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Brian Thomas Griffin, Diplomat Pharmacy, Inc. - CEO & Chairman of the Board [5]

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Thank you, Dan. Even as we are pursuing the strategic alternatives process, we remain focused on executing our strategy. I believe in Diplomat and the high-quality care that we bring to our patients. Although we are facing and will continue to face a number of challenges, as Dan just outlined, we are thoroughly looking at all of our options. I assure you that the Board, management and I remain committed to doing what is in the best interest of Diplomat's shareholders, employees and all of our other stakeholders.

Thank you for your time, and we look forward to your questions.

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Questions and Answers

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Terri Anne Powers, Diplomat Pharmacy, Inc. - VP of IR [1]

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Thank you, Brian. We'll now move on to Q&A. (Operator Instructions) Lisa, can you please provide the instructions?

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Operator [2]

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(Operator Instructions) And our first question today comes from the line of Lisa Gill from JP Morgan.

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Lisa Christine Gill, JP Morgan Chase & Co, Research Division - Senior Publishing Analyst [3]

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Brian, I know you don't want to comment about the client loss, but I'm just curious, you talked about the ability to still serve some of those members and patients. Is that -- do I think about that as being the Part D business where there's an any willing provider component to it?

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Brian Thomas Griffin, Diplomat Pharmacy, Inc. - CEO & Chairman of the Board [4]

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Lisa, it's -- it probably includes that, but really what we were referring to is for this specific payer, for lack of a better term, there are sub networks where we can still participate in those networks. And for this payer, we also have direct contracts with some of their clients, and we'll be able to continue to participate in those networks.

I'd love -- to your point, I'd love to be able to provide more detail around this. But again, we're precluded from doing that based on our contract with this payer.

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Lisa Christine Gill, JP Morgan Chase & Co, Research Division - Senior Publishing Analyst [5]

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Okay. And then just my follow-up would be on the $4 million litigation reserve. Can you just give us more color around what that's for?

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Daniel Paul Davison, Diplomat Pharmacy, Inc. - CFO & Treasurer [6]

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Yes. Lisa, this is Dan. It's related to a former client -- PBM client, where we have a dispute over the sharing of rebates.

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Brian Thomas Griffin, Diplomat Pharmacy, Inc. - CEO & Chairman of the Board [7]

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So Lisa, we've made the decision. Obviously, we tried to negotiate to a resolution with the client and unfortunately, we were unsuccessful in doing that. We've made the decision to bring it into arbitration, and we feel like we've got a really strong case around it.

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Operator [8]

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Our next question comes from the line of Ricky Goldwasser from Morgan Stanley.

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Rivka Regina Goldwasser, Morgan Stanley, Research Division - MD [9]

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So I understand that you don't expect material impact on profitability from the loss of the contract. But if we think about it, you will lose 10% of your scripts with this contract, about 10% next year. So can you talk a little bit about how should we think about the implication to your supply chain purchasing cost? What gives you the confidence that next year you won't see increased rates or fees from your channel partners? Is that just because you just renewed the contract? And how should we be thinking about the other implications outside just servicing this specific contract?

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Daniel Paul Davison, Diplomat Pharmacy, Inc. - CFO & Treasurer [10]

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Yes. Thanks for the question, Ricky. This is Dan. We have looked at this. We are confident we will still be compliant with our purchasing agreement next year in terms of volume commitments. So we don't anticipate an impact from the loss of this payer to our purchasing.

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Rivka Regina Goldwasser, Morgan Stanley, Research Division - MD [11]

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Okay. And when we think about -- this seems to be just for the 2020 renewals. So are there any other large contract renewals that are up either in 2020 or in 2021 that should we be aware of?

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Daniel Paul Davison, Diplomat Pharmacy, Inc. - CFO & Treasurer [12]

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For the most part, we've renewed all of the material contracts.

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Operator [13]

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And our next question comes from the line of Charles Rhyee from Cowen.

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Charles Rhyee, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [14]

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Yes, Brian, if I could just ask real quickly on the contract loss for next year, does that -- when you talk about the impact for next year, does that include any potential volume rebate penalties there as well?

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Brian Thomas Griffin, Diplomat Pharmacy, Inc. - CEO & Chairman of the Board [15]

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I lost the last part of your question, Charles.

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Charles Rhyee, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [16]

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Well, you talked about sort of this year, obviously, we're having an impact with a rebate penalty. Does that -- is there any risk for rebate penalty next year with this -- as you think about next year, sort of what does that incorporate in terms of overall rebate levels to meet volumes?

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Brian Thomas Griffin, Diplomat Pharmacy, Inc. - CEO & Chairman of the Board [17]

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Got it. Okay. Yes, thanks for the question. Yes, relative to the rebate penalty, again that was contained to 2019. As we look into 2020, we're expecting to execute and implement a new agreement, which would actually create more value than the pre-penalty value under the previous agreement.

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Daniel Paul Davison, Diplomat Pharmacy, Inc. - CFO & Treasurer [18]

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And Charles, I would just add that the new contract also has more favorable terms, not just in terms of rebate value, but in terms of minimum commitments and so on. So we believe we will not have any issues next year.

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Charles Rhyee, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [19]

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Okay. And as a follow-up, you talked about you're in 3 more limited distribution networks, which -- for 3 drugs. If I recall in the past, you've talked about your ability within limited networks to gain sort of outsized market share in sort of -- particularly in oncology. And I'm just curious where -- how do you see where your market share stands in a lot of these limited network drugs given sort of the shifts we've seen more broadly with, obviously, these vertically integrated competitors that are kind of pushing share into their own networks? How does your market share stand compared to maybe a few years back in these drugs, particularly?

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Brian Thomas Griffin, Diplomat Pharmacy, Inc. - CEO & Chairman of the Board [20]

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Well, we continue to have a very strong share within oncology. And I think given this new relationship that we're announcing this morning relative to the new PBM relationship where we'll be managing the oncology care component that I think underscores our competitive position as it relates to oncology, but that is our strongest franchise. We continue to grow LDDs in that franchise, and our field organization has been successful, obviously in this situation with a new value-based model, but in discussions with other health plans and PBMs as well.

So I think we'll maintain a very strong competitive position despite the broader macro competitive pressures.

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Charles Rhyee, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [21]

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And maybe just -- I'm sorry, 1 quick follow-up there. Could you envision yourself being really just an oncology-only player? I mean is there -- do you think the market can support that kind of -- type of service in the market?

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Brian Thomas Griffin, Diplomat Pharmacy, Inc. - CEO & Chairman of the Board [22]

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I think it is feasible. We have certainly in our strategic discussions, evaluation of each of the key therapeutic categories that we have big franchises in. We've evaluated whether we should focus on oncology care, given the strong portfolio that we've got there. I would say a market differentiating clinical model. So you could envision in the future us becoming very focused on that and continuing to be very strong and continue growth in that area. Ultimately, obviously, in this new PBM relationship, it is a value-based model. And to the degree that we can demonstrate our success here with the value-based approach, obviously, I think that, that will create a nice growth opportunity for us in that segment, meaning the oncology segment.

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Operator [23]

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Our next question comes from the line of Courtney Owens from William Blair.

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Courtney Patrice Owens, William Blair & Company L.L.C., Research Division - Associate [24]

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So I guess clarifying question. So with the lower I guess gross profit than expected in the PBM business, was that just solely the result of that litigation and rebate charge? Or were there other things kind of in that, that caused that miss?

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Daniel Paul Davison, Diplomat Pharmacy, Inc. - CFO & Treasurer [25]

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Courtney, this is Dan. No, it was primarily those 2 items that caused the decrease.

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Courtney Patrice Owens, William Blair & Company L.L.C., Research Division - Associate [26]

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Okay. Got it. And then just a follow-up to the PBM business broadly. Now I guess when you're kind of looking out outside of the, I guess the business that you called out, that's eroding, that you expect to continue to erode in 2020, outside of that, I guess is that business concentrated in a few specific contracts or is that just more broad-based?

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Brian Thomas Griffin, Diplomat Pharmacy, Inc. - CEO & Chairman of the Board [27]

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Well, it's actually somewhat concentrated. As we think about the PBM business, we are being impacted by larger M&A consolidation. So you've heard us talk about our TPA relationships. We've had very strong relationships with a number of TPAs that drive our PBM business. And just as 1 example, 1 of those key partnerships was just acquired by 1 of the larger vertically integrated players. And so we -- as a result, we lose that TPA volume and continued growth.

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Operator [28]

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(Operator Instructions) Our next question comes from the line of Jason Adler from JP Morgan.

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Jason Adler;JP Morgan;Credit Analyst, [29]

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Just one more question about the contracts that's going to lapse at the end of the month. As we think about the specialty infusion business, is there any direct impact on any of your contracts there? Or any volume that you expect to see on that side?

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Brian Thomas Griffin, Diplomat Pharmacy, Inc. - CEO & Chairman of the Board [30]

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Yes. No, we do not expect to see any impact on our infusion business.

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Jason Adler;JP Morgan;Credit Analyst, [31]

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Okay. And then maybe just a follow-up there. I don't know if you're able to, but can you give any color in terms of what the contribution margin is there? Revenue, EBITDA or anything like that about that segment specifically?

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Daniel Paul Davison, Diplomat Pharmacy, Inc. - CFO & Treasurer [32]

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No. We're not able to comment on infusion business separately, part of the specialty segment.

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Operator [33]

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We have no further questions in queue. I'll turn the call back to our presenters for closing remarks.

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Brian Thomas Griffin, Diplomat Pharmacy, Inc. - CEO & Chairman of the Board [34]

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Well, thank you very much for your time today. We'll be available after the call for any further questions, we're available all day. Really appreciate your joining us today. Thank you.

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Operator [35]

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Thank you for participating. This concludes today's conference call. You may now disconnect.