What’s Next for Diplomat Pharmacy After Poor Results in Q2 2019?

Diplomat Pharmacy’s (Diplomat) second quarter 2019 performance has prompted its Board of Directors to conclude that a broad review of strategic alternatives is in the best interests of the company and shareholders. Recently, Diplomat has had discussions with several parties who see value in acquiring the company or certain of its businesses.

Diplomat’s revenue in the second quarter of 2019 decreased 9% from $1.4 billion to $1.2 billion and gross profit decreased from $98 million to $73 million from the prior-year quarter. Adjusted EBITDA was $19.3 million compared to $42.7 million in the prior-year period, and earnings per share were $2.13.

Second quarter revenue was comprised of $1.2 billion from the company’s specialty segment and $90 million from its pharmacy benefit manager segment. The PBM segment was down from $189 million for the prior-year period.

During the board’s review process, Diplomat will focus on growing its specialty pharmacy business with health plans and hospital systems, positioning the PBM business for growth and improving operating efficiency.

Diplomat is finding success from hospital systems for Limited Distribution Drug (LDD) access, clinical services and 340B services. Company growth is primarily from infusion therapies, increasing network access with major health plans nationwide as a specialty infusion provider.

Diplomat has recently announced an innovative agreement with Allergy Partners, the largest allergy and immunotherapy practice in the U.S. to provide in-home or in-office infusion services for their patients. Diplomat will provide clinical oversight and staffing and nursing services on behalf of Allergy Partners’ 128 practice locations.

The company expects this agreement to help drive Diplomat’s continued growth in infusion therapies by offering broad national access and a partnership with a physician organization. Diplomat expects clinical outcomes to be the key driver of the growth opportunity.

Diplomat said the decrease in its specialty segment was driven by payer reimbursement compression and the conversion of brand name drugs to their generic equivalent. Diplomat’s core specialty pharmacy performance is being negatively impacted by increased competition, specifically by member channel management and efforts by larger, vertically integrated peers to push volumes to their specialty pharmacies.

Diplomat, to improve the performance of its specialty business, developed a new set of strategies that the company began to execute last year with the focus on health plans and hospital systems. The company’s investments in data and analytics really are being counted on to support Diplomat’s clinical value proposition with health plans.

Diplomat is also planning to leverage its  infusion offering in partnership with a health plan to manage the benefit across both the pharmacy and in medical benefit.