Tuesday, July 08, 2014
10 Fun Financial Facts from Diplomat Pharmacy’s IPO Filing
Everyone interested in specialty pharmacy economics should study Diplomat’s filing. To help you get started, I’ve highlighted 10 fun financial disclosures about Diplomat’s business. They include unprecedented details on revenues, profit margins, business mix, executive salaries, and other intriguing items.
Congratulations to Phil Hagerman and his team for bringing Diplomat to this point! Read on for a peek behind the counter at the country’s largest independent specialty pharmacy.
Click here to read the entire S-1 submission from the SEC site.
Here are 10 things I learned:
1) Diplomat’s 2013 revenues were $1.5 billion, up 34% from the 2012 total. (My January 2014 estimate was pretty close.) Based on this year's first quarter, Diplomat’s 2014 revenues will exceed $2.0 billion.
2) In 2013, Diplomat dispensed 707,000 prescriptions, up 5.7% from the 2012 figure. In the first quarter of 2014, prescription growth was up 6.9% compared with the first quarter of 2013.
3) In 2013, average revenue per dispensed prescription was $1,984. Gross profit was $117 per prescription, which equals a 5.9% gross margin. These margins are consistent with the estimates in Chapter 7 of the 2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies.
4) In addition to dispensing, Diplomat also provides specialty pharmacy service for 8 retailers and independent pharmacy groups, representing approximately 4,500 stores and 48 hospitals and health systems. Retailers include the pharmacies of Fred’s, Safeway, and Target. In 2013, Diplomat serviced 223,000 such prescriptions and earned an average fee of $28 per prescription.
5) Bottom-line profits are accelerating. In 2013, earnings before interest, taxes, depreciation, and amortization (EBITDA) were 1.25% of revenues. In the first quarter of 2014, EBITDA was 1.76%. I presume Sovaldi helped these results, per the analysis in PBM-Owned Specialty Pharmacies' Financial Win From Sovaldi.
6) Three conditions account for about 80% of Diplomat’s revenues. Oncology accounts for nearly half of Diplomat’s revenues. Immunology and multiple sclerosis account for an additional one-third of sales. This concentration is higher than the industry-wide data published by Express Scripts. (See Untangling Express Scripts’ 2013 Drug Trend Report.)
7) Diplomat bought 58% of its specialty drugs from AmerisourceBergen and 19% from Celgene. Diplomat’s five-year contract with ABC expires on December 31, 2016, and obligates Diplomat to purchase an average of $700 million per year. In 2013, Diplomat purchased $827 million from ABC.
8) Diplomat’s executive salaries are comparatively modest. Founder and CEO Phil Hagerman’s salary was $372,524 in 2013. Of course, he and the other executives will be very wealthy (on paper) from the proceeds of the IPO offering.
9) Diplomat has just purchased MedPro, which was one of the fastest-growing independent specialty pharmacies on the 2013 Inc. 5000 list. (See Say Hello to the 12 Fastest-Growing, Private Specialty Pharmacies.) Diplomat’s payment included $52.0 million in cash, 84.31703 shares of Class B Nonvoting Common Stock (valued at approximately $12 million), and up to $11.5 million of consideration that is contingent on the achievement of certain revenue and gross profit targets.
10) Phil Hagerman personally controls 73% of the pre-offering share total. After the IPO, members of the Hagerman family will still collectively hold more than 50% of the voting stock. Thus, Diplomat will be a “controlled company.” Surprisingly, Diplomat has not yet appointed independent, outside directors to the board—rather poor corporate governance, IMHO.
These are just a sampling of the many interesting items in the S-1. Please post anything else you deduce in the comments below. It's elementary, dear reader.
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