On January 7, 2019 Diplomat Pharmacy, Inc. (NYSE: DPLO), is reported its 2018 financial guidance and providing a preliminary 2019 outlook in connection with its presentation today at the JP Morgan Healthcare Conference in San Francisco (Press release, Diplomat Speciality Pharmacy, JAN 7, 2019, View Source [SID1234532529]).

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Diplomat now expects 2018 revenue to be at the lower end of the previously communicated $5.5 to $5.7 billion range and adjusted EBITDA to be at the higher end of the previously communicated $164 to $170 million range.

2018 revenue is expected to be within the range of $5.5 billion and $5.6 billion.
2018 adjusted EBITDA is now expected to be within the range of $167 million and $170 million, an increase of at least 64% based on the low end of the 2018 range vs. 2017.
Diluted GAAP EPS 2018 is expected to range from ($0.08) to $0.00.
Net debt, including contingent consideration at December 31, 2018 is expected to be approximately $630 million.
The company also announced that Joel Saban, president of Diplomat, and Albert Thigpen, president and chief operating officer of CastiaRx, are leaving the company effective immediately. The company has initiated searches for their replacements. Chairman and CEO Brian Griffin will directly oversee CastiaRx and the operational review of that business pending completion of the search.

Griffin commented, "Diplomat delivered strong revenue and EBITDA growth in 2018 despite challenges in our CastiaRx PBM segment. 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 that Diplomat has been selected by Hospitality Rx as the exclusive provider of specialty pharmacy services for its UNITE HERE HEALTH (UHH) plan members. UHH is a multiemployer union plan that provides health benefits to approximately 250,000 members across the nation.

In addition, Diplomat announced a partnership today with CSI Specialty Group, a globally recognized specialty pharmacy consulting firm. Diplomat will provide 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," said Griffin. "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."

Preliminary 2019 Outlook

In 2019, Diplomat expects:

Revenue in the range of $5.6 billion to $5.8 billion, representing an approximate 3 percent year-over-year increase based on the midpoints of 2018 and 2019 guidance ranges.
Flat to low-single-digit percent year-over-year adjusted EBITDA growth compared to the mid-point of updated 2018 guidance.
Achievement of net debt/EBITDA below 3.0x by the end of 2019.
Griffin commented, "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." In 2019, Diplomat also expects:

Continued sales growth in specialty pharmacy, supported by further penetration in the payer space, particularly with health plans, as the company leverages coordinated sales and clinical efforts across specialty and infusion.
Specialty infusion growth should also benefit from growth in key therapeutic areas, additional sales resources added in 2018, further traction from biosimilars, and new limited-distribution drugs, with the potential to expand therapeutic areas and geographically via tuck-in acquisitions.
A realignment of the PBM to increase win rates and offset lost business. The company expects to significantly expand experienced sales and account management resources to drive business wins and position the business to return to growth in 2020.
The preliminary 2019 outlook assumes a revenue contribution from CastiaRx of $450 million to $500 million. The revenue range expected to be generated by CastiaRx includes approximately $200 million in previously disclosed Medicare Part D contract losses, an additional $120 million combined revenue impact from client losses impacting 2019 and the pricing impact of contract renewals, $35 million in January 1, 2019 new business, as well as further awards given a strong pipeline for the remainder of 2019.

Management Changes and CastiaRx Review

"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," said Griffin. "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."

Commenting on the departures of Saban and Thigpen, "They have contributed much to Diplomat during their tenure and we wish them the best for the future."

"2019 will be a critical year for CastiaRx to demonstrate positive momentum and I will be personally leading the CastiaRx business on an interim basis, while we evaluate options for permanent leadership. We are focused on finding the right talent to maximize value for patients, payers and shareholders," concluded Griffin.

Presentation Information

As previously announced, Brian Griffin, Chairman and CEO, and Atul Kavthekar, CFO of Diplomat Pharmacy, Inc., are scheduled to present at the 37th Annual J.P. Morgan Healthcare conference on Monday, Jan. 7, 2019, at 8:00 a.m. PT. The related presentation materials are available on the investor relations section of Diplomat’s website at ir.diplomat.is. A live audio webcast of the presentation will also be available on the investor relations section of Diplomat’s website at ir.diplomat.is. An archived audio recording and related presentation materials will be online for 90 days at the same URL.