Tabula Rasa HealthCare Inc (TRHC) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q4 2017 Tabula Rasa HealthCare Earnings Conference Call. (Operator Instructions)

And I would now like to introduce your host for today's conference, Mr. Kevin Dill. Sir, you may begin.

Thank you, and good afternoon. I'm Kevin Dill, Corporate Counsel and Chief Compliance Officer for Tabula Rasa HealthCare. The company intends to avail itself of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain statements made during this call will be forward-looking statements within the meaning of that law. These forward-looking statements are subject to risks, uncertainties and other factors that could cause Tabula Rasa HealthCare's actual results to differ materially from those expressed or implied by the forward-looking statements. These risks and uncertainties include the developing nature of the market for technology-enabled healthcare products and services and potential changes to laws and regulations that may impact our clients.

For additional information on the risks facing Tabula Rasa HealthCare please refer to our filings with the SEC, including the Risk Factors section of our S-1. A recording of this call is accessible through a link on the Investor Relations Page of our website and it will be available for 90 days.

I'll turn the call over to Dr. Calvin Knowlton, CEO, Chairman and Founder of Tabula Rasa HealthCare.

Thank you, Kevin. Good evening and thank you for joining us for our fourth quarter and full year 2017 earnings call.

With me today are Dr. Orsula Knowlton, Co-Founder and Chief Marketing and New Business Development Officer who'll provide an update regarding our markets; and Mr. Brian Adams, our Chief Financial Officer, who will provide our financial update on the fourth quarter and full year as well as our initial outlook for the first quarter and full year of 2018.

We closed 2017 with another strong quarter where we, again, exceeded our financial expectations, and saw a number of very promising developments within our business. Our revenue of $43.9 million increased 61% from $27.3 million in the fourth quarter of 2016. While we had solid performance in all aspects of the business, our service business was particularly strong. Adjusted EBITDA for the quarter came in at $7 million, a 47% increase from last year.

On the call this evening, I have 4 topics: first, I'll discuss moves we are making to have Tabula Rasa's technology available at the point of care beyond our PACE market; second, I'll review some details of year 2 of the Enhanced Medication Therapy Management program; third, I'll provide an overview of our integration status with SinfoníaRx; and finally, I'll provide some detail around the troubling finding regarding what the NIH terms as the opioid overdose crises.

Before I focus on these 4 points, I would like to begin by referring to a recent conversation I had 2 weeks ago with the CEO of the nonprofit organization called Transformation Health Alliance (sic) [Health Transformation Alliance]. The CEO, Mr. Rob Andrews, was prior to this current role our U.S. Congressman from New Jersey for 24 years. Transformation Health Alliance (sic) Health Transformation Alliance represents 46 of the largest self-insured entities including American Express, IBM and Verizon. When commenting on Amazon's possible entry into the pharmacotherapy market, Rob noted that "the problem with the U.S. pharmacy system is that too many prescriptions are being written that are not right for the patient, and that getting the wrong drug to the patient more efficiently is not the answer to the problem."

In other words, he opined, we don't want to buy a discount fee on the Titanic. Later, regarding value based and at-risk agreements in healthcare, he expanded his comments to say that, "not only do we want the ship to stay afloat, we wanted to get to its expected destination. We want people on personalized medication regimens that target their ailment and are effective." Mr. Andrews could not be more accurate in identifying the problem. He has expanded his definition of an adverse drug event to not just when a patient experiences drug misadventuring, but when the desired result of the medication is not attained. As we shift from fee-for-service to fee-for-value, for every dollar we spend on medication, we cannot continue to spend an additional dollar to clean up the problems caused by the medications. Rob ended our time together with this analogy. "We don't pay football players by the number of plays they run, we pay them by the results." It is time that pharmacy medicine and all of healthcare are paid for their outcomes.

With that health policy background, our first discussion board is advancing our TRHC technology, our Medication Risk Mitigation technology beyond PACE. Toward that end in the fourth quarter, we fully launched our medication risk score methodology, or probably better point as our medication safety score methodology. This medication safety score continues to be the point of entry for us in the health plans and other financially at-risk entities. Having completed risk stratification for over 13 million lives in the last 12 months, we have found that a safety score of 20 or greater on a scale of 0 to 50 resulted in twice the medical expenditures for the plans from emergency department visit, hospitalizations and physician visits compared to those whose risk score was 19 or less. For value based and financially at-risk healthcare organizations, the application of our medication safety score and ensuing Medication Risk Mitigation interventions is gaining traction outside of PACE. Once the medication risk population is elucidated, our board-certified Form Ds and our call centers can apply our medication safety decision support platform on a per-patient basis or we can train pharmacists within the health system to use our platform via licensing.

In our first software licensing deal last year with Landmark Health, we trained their physicians and pharmacists to use our platform where he served as backup support as needed. Now we are moving into the next phase of an expanded relationship with Landmark Health, covering an additional cohort of their members. Of interest, the physicians at Landmark that were involved with this coined a new phrase, has the patient been TR-ed yet for Tabula Rasa, has the patient been TR-ed yet. Maybe like Google, TR will someday become a verb.

As many of you know, Landmark's CEO Adam Boehler was recently appointed as the new head of the CMS Innovation Center also known as the Center for Medicare and Medicaid innovation. This is a really exciting development from our perspective given Landmark's status as an early adopter of our technology to identify members of their population at high risk for adverse drug events. We congratulate Adam on his appointment and view him as a major thought leader in healthcare innovation. So not only are we seeing short-term expanded use of our software and medication safety decision support tools with near-term substantial clients, we have developed and launched a long-term plan on how we will propagate this platform over the ensuing years.

We will provide further insight as these initiatives congeal.

Moving on to my second bullet. How our CMS Enhanced Medication Therapy Management, the eMTM finished year one on schedule and we initiated year two in January. Year two of the eMTM program will be the year of the community-based pharmacists. I'm sure many of you've heard the phrase, "healthcare is local." With that in mind, for year two, we've altered our centralized call center intervention model by moving 20% of our medication safety interventions to local pharmacists with support from our centralized call centers.

Additionally, the patients and the patients' caregivers within the population will have access to our individualized MyMedWise Advisor technology on their iPhone later this year. These 2 changes in our approach to year 2 of eMTM represent a sizable increase in the number of users with access to our technology. As such, we will see a slight improvement in our reimbursement revenue as we've broaden the use of our technology into the market.

Turning to my third bullet, an update on the Sinfoní acquisition. We are very pleased that the cultural alignment we expected is becoming realized reality. We also saw expected operational performance from SinfoníaRx in the fourth quarter. We have embarked on the technology infrastructure enhancement for Sinfoní as migration to the cloud. And we will look to start a full integration of SinfoníaRx's companion RX system with our MedWise Advisor system in 2019. We have also experienced cross-selling introductions between SinfoníaRx existing businesses and TRHC.

Earlier this year, we announced the signing of additional Sinfonía contracts that will result in a 30% increase in live service. With these additional lives, we now provide MTM service to 15% of the Medicare population.

Lastly, I would like to end my portion with an important but relatively unknown issue surrounding the misuse of opioids. It has to do with the pharmacokinetic, multidrug preventable medication interaction. Opioids, such as coding and an OxyContin, Percocet, Vicodin, Tramadol and others are all prodrugs. That means that they need one gene to be converted into the active analgesic form such as the gene converts codeine into morphine, which is the active analgesic. And they need another gene to eliminate the drug from the body. The concomitant use of opioids with other medications that happen to tie up the activation gene nullifies the analgesic effect. And when this competitive inhibition happens the analogic effect is lessened, while some of the dangers side effects are still available and triggered by the unconverted prodrug, but this nonactivated prodrug leads to increase in the dosage to try and obtain analgesia. When and if the concomitant interfering medication is stopped, either formally or by the patient's choice, the high doses of the nonactive opioid becomes fully activated causing very high levels of the active opioid. While this common descriptor is termed opioid overdosing, in actuality it's better described as unintentional misuse. The entire process of what's going on is unbeknown to the patient and often to the provider. In 2 large studies we've completed, we've found that 50% of elderly patients, that is 1 of 2 patients over 70-years old in the median age of our study that -- it was treated for chronic pain with opioid. We're taking one or more concomitant medication such as Benadryl or Metoclopra or PROZAC and many others, which blocked the activation of the opioid.

In the second study, in the younger commercial population the average age of 42 years old, we found that 20% of the patients, that is 1 in 5 of the younger patients, also being treated for chronic pain. We're taking at least one concomitant drug that blocked the activation of the opioid. This past January, we sponsored 2 focus groups of about 12 prescribers each in the Midwest. Now one prescriber knew about this multidrug preventable interaction, which has been in the pharmacokinetic literature for 2 decades.

Last week, we were invited to participate in the Lake Nona Impact Forum in Orlando, Florida. A panel moderated by a well-known TV network healthcare position correspondent. Panel consisted of 2 additional physicians, a politician, a healthcare system exec, a PBM exec and an NFL pain specialist spent an hour discussing many facets of the opioid problem. It struck me that this pharmacokinetic issue was never raised. One could conclude that in general, opioid metabolism is largely misunderstood and that the impact of multidrug interactions on opioids is frankly unknown by the majority of the members of the healthcare community. For this reason, we have launched an educational opioid initiative aimed at avoiding and preventing the unintentional misuse of opioids, which puts patients at significant peril. So with that bit of good news, I'll turn the call over to Orsula to share some highlights regarding our markets. Orsula?

Thank you. To expand on what Cal was suggesting related to TRHC's role in helping to mitigate the pandemic misuse of opioids, our experience in this space spans 20 years in pain and palliative care management. Prior to starting TRHC, rooted in our former company, we founded Xcellerex and Prior. On this matter, I have 2 highlights to share with you this evening. First, we are in the midst of our opioid quality initiative of physician education and medication-safety reviews for their at-risk patients. This was an end-of-year quality program that was extended through the first quarter of '18 with our eMTM partner.

Second, as Cal alluded, we remain firmly committed to providing an educational solution to this largely unknown but pharmacokinetic root cause of much of the problem related to the opioid crisis. This impacts both the efficacy of medication and the risk of unintentional overdose and death. "If we only knew the precise number of overdoses and deaths each day, it would seem similar to seeing the bodies coming back from World War II," said Dr. Toby Cosgrove, CEO and President of the Cleveland Clinic at the recent Lake Nona Impact Forum in Orlando.

From a new opportunity's perspective, aside from publications and radio interviews, we are launching an opioid safety initiative that we are calling the Optimized Opioid Solutions. Our aim is to assist health plans in identifying people at risk for unintentional misuse of opioids that can occur as a result of multidrug interactions. Our safety software identifies those at risk. Our pharmacists provide direct support to members in the high-risk growth to lower their medication risk while also assisting them with their primary provider communication. We are launching this offering at this year's Academy of Managed Care Pharmacy and Specialty Pharmacy annual conference that will take place in Boston, April 24 through the 26th.

On a new area of focus, similar to the way we approached the PACE market through a more prospective medication safety review lens, we are making strides in pushing our technology at the point of care. Our team has been working to update our API toolkit to enable integrations with larger EHR. As of today, TRHC has signed off on our side of an integration agreement with a very large community-based electronic health record platform. This collaboration will provide physician practices with the option to incorporate our medication risk management tools and visualizations within their EHR platform similar to how we currently work with PACE EHR. This model of integration is also being communicated with at-risk healthcare system with the goal of having them sponsor TRHC into the integration platforms of larger hospital EHRs. The ultimate goal of this initiative is to enter the hospital vertical to help hospitals predict the risk of average drug events thereby enhancing medication safety, reducing hospital length of stay and costly unpaid readmissions. We have solid data from our intervention history to demonstrate positive outcomes. We intend to have a launch pilot in the next 12 months. In our recent penetration into health plans, we continue to see excellent outcomes.

We finished this year with data from 2 post-hospitalization care transition programs intervening with just under 2,000 high-risk patients. In one program, we reduced readmissions by just over 30%. In the other program we reduced readmissions by just under 50% from baseline.

Moving onto PACE. As of December 31 of 2017, the PACE market had 40,893 enrollees across the U.S., and our CareKinesis division services about 25% of that population. Last year, we started 7 new PACE engagements, including the national agreement with Trinity Health, which is now fully implemented and going well.

For 2018, we have 4 clients opening new PACE centers in California, Florida, Pennsylvania and New York. Other clients to have new locations in the pipeline but have not yet identified opening dates. Our backlog includes 4 new startup PACE organizations under contract located in California, Michigan, Colorado and Arkansas, along with an existing PACE organization starting this month located in Pennsylvania.

In addition, as many of you are aware, last summer we entered into an agreement with CenterLight Healthcare in New York City to help manage their medication safety, and in an effort to streamline workflows to improve outcomes for their patients. CenterLight is still in their evaluation phase, however, using data they provided to us, we have reported very promising results during the fourth quarter. The results are similar to or better than what we have seen amongst other PACE clients related to all cost reductions in emergency department visits, hospitalizations and hospital readmissions. Extrapolating these results to the majority of their PACE population would result in millions of dollars saved annually. We have provided the final data elements for the fourth quarter and are awaiting to hear back from them.

Finally, we have several other PACE organizations in our pipeline. We look forward to continuing to demonstrate significant outcomes in collaboration with our PACE clients. In the area of policy, we continue to wait for updates related to PACE conditions of participation and the PACE Innovation Act.

With regard to the proposed rule that would include MTM in the medical loss ratio or MLR calculation, the final call letter will be released in April.

With that update, I'll turn the call over to Brian to provide a detailed review of our fourth quarter and full year results.

Thank you, Orsula, and thank you all for joining the call this evening to discuss our fourth quarter and full year 2017 results.

Before I get into our full year results, I would like to give you an update on SinfoníaRx from a financial perspective, and their performance for the last 4 months of 2017. SinfoníaRx outperformed the guidance we provided at closing and generated $12.2 million in revenue compared to the $10 million we forecasted. And adjusted EBITDA of $2.2 million after accounting for $300,000 of start-up cost for new contracts compared to the $2 million we forecasted.

At year-end, we updated our 2018 projection for SinfoníaRx to be a bit more conservative than we had forecasted at closing. And it now only reflects contracts in place at year-end, which still represents approximately 40% growth in 2018. That said, there are a number of opportunities in the pipeline that, if converted, could have a meaningful impact on 2018 as well. We feel this is a prudent approach, and as a result of updating our forecast, you will note that there is a $7.1 million gain on acquisition-related contingent consideration that we realized in the quarter.

This adjustment should not be perceived as a negative reflection on the business in any way. In fact, we expect 2018 to be another very strong year. As we indicated in the press release earlier this year, SinfoníaRx secured a number of new contracts in the fourth quarter that will drive an increase of approximately 30% in the Medicare lives they serve. This positions the MTM service offering to grow substantially for us in 2018.

Moving on to the full year of 2017. We saw revenue grow by 43% to $134.5 million, GAAP net income increased to $14.3 million from a loss of $6.3 million in 2016. Non-GAAP adjusted EBITDA grew 34% year-over-year to $18.3 million. GAAP net income per diluted share of $0.76 compared to a net loss per diluted share of $0.59 in 2016. And non-GAAP adjusted net income per diluted share of $0.27 compared to non-GAAP adjusted net income per diluted share of $0.19 in 2016, based on the diluted share count of 18.8 million and 13.5 million shares, respectively.

For the fourth quarter of 2017, Tabula Rasa generated total revenue of $43.9 million, a 61% increase year-over-year. Product revenue in the quarter was $27.1 million compared to $20.7 million in the same period a year ago.

As a reminder, product revenue was primarily generated through our Medication Risk Management contracts in the PACE market, and the growth this quarter was mainly a result of the expansion within our existing client base.

Service revenue, driven by our non-PACE medication risk management services, which now includes the SinfoníaRx services, risk adjustment and pharmacy cost management contracts came in at $16.8 million in the quarter, an increase of 155% from the fourth quarter of 2016. The increase in the fourth quarter was driven by $9.5 million from SinfoníaRx as well as $3.2 million from our Enhanced Medication Therapy Management contract. This was offset somewhat by $2.5 million from a nonrecurring project in the fourth quarter of 2016.

We generated a non-GAAP gross margin of 32.7% this quarter versus 34.3% in the same period last year. I'll remind you that we had a nonrecurring project last year that carried a higher margin than the offsetting SinfoníaRx business, which realized a gross margin of 36.3% in the fourth quarter of 2017. This represents solid sequential growth over this year's third quarter, which had a non-GAAP gross margin of 29.5%. This quarter, we continue to trend in the right direction as we move closer to achieving our previously stated goal of gross margins in the 35% to 40% range, as service revenue constitutes a greater portion of our business.

Product gross margin was 25.3% for the fourth quarter of 2017, representing a slight uptick on a year-over-year and sequential basis. This result was consistent with our expectations based on new customers onboarded this year.

Service gross margin of 44.7% in the fourth quarter of 2017 compares to 67.6% in the fourth quarter of '16. Although this represents a significant decline from last year, this met with our expectations as gross margin generated by the SinfoníaRx business was 36.3%, which is consistent with our other MRM service contracts. We do expect to generate efficiencies from the combination with SinfoníaRx and expect to see margin expansion in the outer years for these services. In addition, as I mentioned previously, we had a nonrecurring project that had a favorable impact on our 2016 gross margin.

Our operating expenses represented 11.4% of our total revenue this quarter, down meaningfully from the 35.2% in the same period a year ago. The main driver of the reduction is the $7.1 million gain from the change in fair value of acquisition-related contingent consideration for SinfoníaRx, which I discussed earlier. Excluding this one-time item, our operating expenses would have represented 27.6% of revenue, still a very meaningful decrease from last year.

Our GAAP net income of $10.9 million compares to a GAAP net loss of $6 million in the fourth quarter of 2016. As I mentioned previously, a significant driver of the increase in net income in the fourth quarter was the $7.1 million gain from the change in fair value of acquisition-related contingent consideration for SinfoníaRx.

Additionally, in the fourth quarter of 2016, we incurred 2 one-time charges, specifically, $5 million of expense related to the loss of extinguishment of debt, and $3.5 million of incremental stock-based compensation related to the restricted stock grants issued in connection with the initial public offering.

We generated $7.1 million in adjusted EBITDA in the fourth quarter compared to $4.8 million a year ago. The increase in adjusted EBITDA was a function of growth in all of our businesses. Additionally, SinfoníaRx contributed approximately $1.7 million of adjusted EBITDA in the quarter even after accounting for start-up cost incurred of approximately $300,000 to prepare for the new contracts secured by the company that began January 1, 2018.

Adjusted EBITDA margin for the fourth quarter of 2017 was 16.1% compared to 17.5% in the fourth quarter last year. This was in line with our expectations. The fourth quarter of 2016 was impacted favorably by a nonrecurring project, which contributed about 200 basis points.

GAAP net income per diluted share for the fourth quarter of 2017 was $0.55 compared to a GAAP net loss per diluted share of $0.39 for the same period last year. The net income and loss per diluted share calculations are based on a diluted share count of 19.9 million for the fourth quarter of 2017 versus 15.4 million for the fourth quarter of 2016.

Adjusted net income per diluted share for the fourth quarter of 2017 was $0.09 compared to adjusted net income per diluted share of $0.10 in the fourth quarter of 2016. As a reminder, our adjusted net income per diluted share for the quarter excludes stock-based compensation, payroll tax on stock option exercises, transaction-related expenses, loss on extinguishment of debt and changes in fair value of contingent consideration.

Turning to the balance sheet. As of December 31, 2017, we had a cash balance of $10.4 million compared to cash at the end of the last quarter of $5.9 million. The increase is the result of positive cash flow from operations. As of today, we have full availability under our $40 million line of credit, after paying down the $35 million in the quarter from the proceeds of our follow-on offering. Additionally, we have outstanding debt of $1.7 million in equipment leases compared to $1.9 million last quarter.

Before reviewing our financial outlook, I'd like to review our recent follow-on offering. As many of you know, on December 5, we closed our follow-on public offering of 3.45 million shares of common stock at a price of $27.50 per share. This included 450,000 shares sold pursuant to the full exercise of the greenshoe. On the offering, the company sold 1.35 million shares and certain inside shareholders sold 2.1 million shares. Tabula Rasa used the proceeds from this follow-on offering to pay down debt related to the acquisition of SinfoníaRx that we completed in September of last year.

I'll close out my comments today with our initial outlook for the first quarter and full year 2018. For the first quarter of 2018, we anticipate revenue to be in the range of $42 million to $43 million. Adjusted EBITDA to be in the range of $4 million to $4.5 million. Net loss to be in the range of $1.9 million to $1.4 million. Our first quarter and full year 2018 outlook assumes an all-in normalized tax rate of 24% to 26%, and we do not expect to be a cash tax payer in 2018.

The first quarter estimates include the impact of the seasonality of the SinfoníaRx business, which generally has a lighter first quarter as most of the qualification for members that will receive Medication Therapy Management services takes place throughout the first 3 months of the year, which is required before any interventions can take place.

For the full year of 2018, we anticipate total revenue to be in the range of $185 million to $195 million, of that total revenue, we expect product revenue of $115 million and service revenue of $75 million at the midpoint of our range. That represents over 100% growth in service revenue.

One other item to note from a revenue standpoint is that we will experience a slight impact from 606, which as many of you know, addresses the changes in the way companies recognize revenue. For Tabula Rasa, we do not expect a material impact of total revenue we would have historically recognized on an annual basis, but there will be some minor adjustments on a quarterly basis. The most significant change will be the reclassification of the PMPM fee we charge in PACE for clinical services and access to our technology platform. In 2017, this represented approximately $3 million in revenue we recognized in product revenue that will now be reclassified to service revenue. We expect adjusted EBITDA to be in the range of $28 million to $32 million. This outlook does include additional spend required to support the increase in lives onboarded on January 1. The midpoint of our guidance range would equate to 15.2% adjusted EBITDA margin for the full year and 160 basis point increase over last year. And we expect net income to be in the range of $2.4 million to $6.4 million.

Overall, 2017 was a very strong year for Tabula Rasa during which we executed on our strategic plan, extended our leadership position within the PACE market, made significant headway with potential payer partners and expanded our services and opportunities for the future through our acquisition of SinfoníaRx. We've seen continued momentum so far in 2018, and I believe, there's a lot of exciting developments to come throughout the remainder of the year.

That concludes my prepared remarks, and I will turn the call back over to Cal for closing comments. Cal?

Thank you, Orsula and Brian. 2017, indeed was a great year for Tabula Rasa, and I'm very proud of everything we've accomplished from a financial and operational standpoint. The increased awareness of the risk associated with adverse drug events and potential benefits that can be achieved through targeted, personalized effective treatment regimens has opened up a plethora of exciting new opportunities for us.

As always, I want to thank all of our customers, partners and the Tabula Rasa team. I'm eager to see what 2018 has to bring, and I look forward to updating you throughout the year.

With that, let's open the call to questions. Operator?

(Operator Instructions) Our first question comes from the line of Ryan Daniels with William Blair.

Let me start with a big picture one on your more active entry into the commercial market and outside of PACE. Can you talk a little bit more about what product investments or maybe sales or management team investments are being made to capitalize on all these growth opportunities? If you have a head of view in those markets?

Ryan, this is Brian. So I think that there's a few things to talk about there. One, we've kind of stratified these into shorter-term and longer-term opportunities. The ones that we're focused on right now are these efforts provider groups and the health plans. Both of which we feel like we've got adequate staffing and product offerings in place today that I think we'll be able to grow nicely without significant investment. As we look a little bit more longer term, as Orsula was describing in some of her commentary, to the hospital market and some of these other spaces. There certainly is going to be some investment needed there. We would like to align with channel partners more so on the sales side, folks that are maybe already in the hospital space that we can leverage versus building out a sales force here. So I think the investment would be really just on the product side to make sure that we've got something that is -- fits well into the workflow and meets the needs of those new clients, but that's certainly a little bit more longer term for us.

Yes, this is Cal. I think that the -- as we move to -- continue to move to health plans and payer provider markets. And new technology -- the new technology -- the technology we have has to be integrated. So it's kind of -- it's the same thing that we've been using but has to be integrated. And that then opens the door for us to access, particularly institutional markets and health care systems. So it's not clearly anything new. It's kind of upgrading what we have. Now having said that, we do continue to immensely upgrade our Medication Risk Mitigation system. Recall that we only have right now metabolic enzymes in your genes. We're not doing (inaudible) genes yet, we're not doing receptor genes yet. We're not doing proteins yet. So there's a long pathway along continuing to grow the science. We right now have -- last point is, we right now have a system that very adequately and uniquely looks at drug combination and assesses risk of the -- to optimize the drug regimen. But where we have to go with that after that is to appropriate dosing, which is also a kinetics thing. So we have really a lot of time to do -- a lot of work to do on moving into another phase of our software into dosing.

And just to round out the conversation on marketing and sales, we have made significant investments from a marketing perspective. We didn't attend any conferences last year, as an example. We're attending a half dozen this year. From a sales perspective, we are hiring additional sales folks. We have added 2, and we're going to add a couple more right before the end of this year.

Okay, great. That's all very helpful color. And then maybe a bit of a follow-up. I know last quarter, you discussed another eMTM provider that was interested in some elements of your technology. And I'm curious if that discussion advanced at all or if it's brought into any of the other providers in the market either for year 2 back half of the year, end of year 3?

The -- the answer to your question is we are still in conversation and meetings with the group that was interested in working with us. And as recently as just this week, we had another call with them. But we haven't come to any firm concluding decision yet. But I think something is going to happen out of it.

Yes, I think one of the challenges that we're running into there -- and it's a great opportunity for probably 2019 is that we had to prepare the budgets for these plans very early on in the year last year. So these were things that were baked essentially last February. So the unfortunate part for us was they kind of had a construct in which they needed to work in. And so there wasn't really much ability to kind of move some things around. And -- but I think 2019, it's a strong possibility for us.

Okay. And then final question, and I'll hop back in the queue. Just regarding the MTM patient qualifications, I think you said that'll take place during the first quarter. Can you go into a little bit more on that process? Not something I'm aware of, I guess I'm curious if that has to happen every year for every member or is that just for the novel awards that have taken place. So any color there, any -- how that will manifest in the revenue ramp through the year?

Yes, sure. So the basic construct there is that you have the full population or membership. And only a portion of those individuals are going to receive or be eligible for the MTM benefit. And there's a few different criteria in which they are established as qualified members. And so that's generally on number of medications or highest cost or a number of diseases. And so this is an annual process in which you look at the membership for now, the 2018 year, and you would historically go back and look at information related to those individuals. And then you would qualify a certain -- that certain group that met those criteria. And then those are the individuals that would receive the services. So there's a process at the beginning of the year. It actually takes place throughout the year as new members come on where you're qualifying certain individuals to be eligible to receive those services. So what's happening right now, and really in January and part of February, is that whole qualification process is pretty intensive. And so after you qualified a member, you would reach out first with a letter or a call, in many cases both, and let them know that they are eligible for this benefit, and then they would receive those services. So up until that point, the revenue would not be as significant because those interventions, which is really the mechanism on which we are recognizing revenue, are not being performed as they will be throughout the rest of the year. So there is a lighter period in the first quarter followed by 2 more intensive quarters. And then it gets a little bit lighter towards the end of the year.

And our next question comes from the line of Matthew Gillmor with Robert W. Baird.

I wanted to get an update on the cross-sell opportunity with SinfoníaRx. Cal had mentioned some introductory conversations. And I was curious where you're seeing the most traction with those conversations. Is it with the Medicare Advantage population, given that they have the in-patient risks or you're also seeing some dialogue on the Part D plans? And then second, related to that, given the selling season's kind of weighted to the back half, do you think if you do get traction, will we see some announcements in the first half of the year? Or will we see that sort of in the back half, hopefully, for 2019 revenue?

Matt, this is Cal. We have a few things we are going over with SinfoníaRx. The integration with HR, culture, finance, that's fully accomplished now. The cross-selling is in process with one large client that they have, 1 pharmacy client, and we've been -- had a number of meetings with them. So that's still in process. We are also co-launching. Orsula talked about our optimized opioid solution. We'll be co- launching that with SinfoníaRx in the middle part of this year. And then, as I'd mentioned before, we won't really be doing any further integration until after the earn out. And so we'll start that integration with RX companion and our software in 2019. So we have seen some cross-selling movement so far. Orsula, do you have any other follow up?

As we had envisioned during our last call, probably the end of the year is more likely than any time soon.

Yes. Matt, it's Brian too, just on the future revenues. You're right in that it's back-end loaded in terms of when the contracts are being signed. So we feel good about the numbers that we're projecting for 2018. Although, I will say that there is definitely upside potential. There are a number of opportunities, many of them Medicare Stars program related that would take place in the latter half of the year. Also a number of our clients may need more support. So there is an opportunity to grow with some of those as well. So I think that you'll see some announcements throughout the year.

Okay, that's helpful. And then, as a follow up, I did want to ask about the Express Script's relationship with Sinfonía. There's obviously been some developments there with Express potentially being merged into Signa. So what's -- maybe just taking a step back so remind us how that's -- some of your business is contracted through Express or just that process? And then is there any implication or any perspective you had on the merger? And whether that will impact you or similarly with the Anthem contract, how that plays out? So just an update there would be great.

Sure, so we've got a 5-year agreement with Express, so we feel very good and secure in that position. Even with this potential merger. Signa is actually indirectly a client through one of our Sinfonía clients. So I think we feel pretty secure that there's going to be no real shift there. And with Anthem, we were actually a provider to Anthem prior to them going to Express. And so we've maintained a very strong relationship with them. So we would expect that on the back end of their relationship ending with Express that we'll still be in a good position to provide MTM services to them. So I think very little risk in our opinion related to that.

And our next question comes from the line of Sean Wieland with Piper Jaffray.

So the discussion on opioid overdose is I thought was super interesting, Cal. My question is how do you take that domain expertise and capability? And where does the rubber hit the road? Where are the avenues in your business that you think you could monetize that? Is it within the PACE organizations? I know you did a presentation there last quarter. How does that go? Where's the -- where can that iron strike?

Yes. Thanks, Sean. We're working on 2 things right now with that. We're working on physician education, and we were fortunate to get a grant from one of our partners for the fourth quarter that extended in -- as Orsula mentioned, extended into this first quarter, so we've already started that quite a bit, with the focus groups we've done in opioids and some one-on-one calls with physicians we've been doing. So a lot of that is going to happen in the Midwest where we have the eMTM footprint. We also are doing tremendous amount of pharmacist education. I'm going to give you an example. Last week, we had a conference call webinar. We have one a week now, and we had over 100 physicians on the one last week. But it's really -- we're getting it out. We've done a couple of radio interviews that have or will be aired. And we've done some other marketing material -- we have a lot of marketing materials. And we're really working through the channels we have. Recall that as we're restratifying these large insurance -- these insurers' health plans, and we've not only showed them -- and we've done over 13 million last year now of patients, but we not only give them a histogram of who's at high risk on that 0 to 50 scale, but we also point out the opioid, the burden of opioid risk they have. And we also are going down and drill down and show them that this person take other meds that are going to interfere with the activation of it. And so we're training them that way. As far as the dollars and cents of it, Brian, it's probably going to be in the same range as the PMPM, what do you think?

Yes, I mean, in terms of how we would structure a contract, it would be similarly off of the PMPM-type model. And I would say there's a ton of opportunity in the space. And it really kind of brings us maybe more so even into the commercial arena versus where we've been playing a lot more so in the Medicare space. But I think there's a ton of opportunity especially to leverage the Sinfonía clients today.

Great. And then Brian, one more quick one for you. You mentioned I think that Sinfonía is going to grow 40% next year. Is that a pro forma from full year '17 to full year '18 revenue growth or just...

Yes, it is.

And our next question comes from the line of Jamie Stockton with Wells Fargo.

Just maybe, just as a quick follow-up to what Sean just asked. Brian, the pro forma revenue for 2017. Was that in the ballpark of $32 million or $33 million? What was that number?

That's right. It was about a little over $32 million. That's correct.

Okay. That's great. And then, maybe just a bigger picture question. When you see these relatively high-risk scores, I know you guys do in many cases some genetic testing to determine if the mix of medication needs to be changed for an individual. Can you talk about whether or not that testing is becoming less expensive? And more broadly applicable as a result of it or have we not reached that point with personalized medicine in society at this point?

This is Cal. Hopefully, the last 10 years it's come down from close to $800 or $900 for the test for the array of testing to about $200 to $300 is what we're seeing now. Years ago, when I did my father in the late '90s, it was about $400 per gene. And now we're spending $200, $250 for all the genes to work with getting rid of poisons in the blood, all the drug metabolizing enzymes, for example. So it's really come down a lot. We've seen it come down 10% to 15% every year. And I think it'll probably continue to do that.

Cal, does that cost -- does it matter at this point to clients? Is that a dollar amount where it's still meaningful as a barrier or is it really not an issue?

No, it's not an issue. The barrier is still, frankly, Jamie, the barrier is still education. Because there's 2 ways to do this. One is a drug gene pair, which is the traditional way, and there still is a lot of noise in the signal on some of that. So people back away from it. But the second way to do it is with competitive inhibition like we do. But then when you look -- and that's more common and more interesting, actually, and more -- very, very common. But the problem is that the providers have not been educated in kinetics or genomics, and so that's been our biggest opportunity is to provide education. And about what is it entailed with competitive inhibition just like we talked about with the opioid conversation and stuff. So I still think that the problem really is education of the providers. I'm finding-- a lot of consumers are into that. That we've had a number of people that have followed what we're doing that we don't even know that have called and asked us to help them with genotyping, and so we do that. But and I still think it's healthcare professional education that's lagging this.

And our next question comes from the line of Mohan Naidu with Oppenheimer.

Cal, just on the MTM side, it's getting a lot of attention. And now that it could get rolled into MLR, it could attract more. As a broader theme, how do you see competition here and competitive for yourself -- competitive barriers that you can stand up against any new entrants?

Thank you for that question. You have to be careful how you answer this. You don't want to be -- have too much hubris or haughty, but no one's really doing what we're doing yet. And therefore, what our goal is to try and embed this into other systems. Like Brian was saying, we don't need to be -- we can be Intel inside Dell, for example. And we've met with numerous organizations over the last quarter and this quarter. And that's what we've put forth is that we don't need to be out front. We can teach your pharmacists how to use it, we can teach your physicians how to use this system. We can help. We can do it for you if you want us in one of our call centers. But we're really into propagating it and being or having the first mover advantage to do it before someone will work on the science as hard as we have and try and -- to catch up with us. But at this point, Orsula maybe you know a little bit more about the market, but I haven't seen anything on our heels at this point.

Well, it does provide us with opportunities within our own client base, especially Sinfonía with multiyear contracts where they could, as Brian mentioned earlier, expand the number of clients who receive MTM, that's one of the goals of MTM to the MLR is to expand the percent of people who are actually touched by the whole experience. So it certainly is an opportunity in that regard, but also to add on things like focusing on opioid use within the MTM offering.

I would just add too that I think Sinfonía has been extremely successful in capturing market share. And the part of the reason that they've been able to do that is because their -- the completion rates in the number of individuals that they're actually touching is much higher than most of the other providers. And so I think that we're very well positioned to take advantage of a new regulation that's going to provide for more access to more people. So they're going to need providers that can really help to touch more folks. So I think that we're very well positioned with Sinfonía to do that.

That's great. Maybe just a quick follow-up. Orsula, you talked about integrating into an EHR. Can you talk about how you're going to price that?

Well, that is a good question. I would say to be determined, we're working with a partner to identify how we would price that. We would be in one of their solution packets that could be added on to the EHR with this particular company that we're speaking to. So we're working through the pricing model with them.

And our next question comes from the line of Frank Sparacino with First Analysis.

Just one for me. I wanted to go back to the comments around the eMTM program. And I assume the change in terms of the call center model was contemplated already heading into 2018. But I guess I want to know how that sort of impacts the pricing revenue? And then also what's sort of driving that change from CMS?

Well -- Brian can probably add on. But generally, it doesn't affect us with the pricing model or because the funds come through us to the pharmacies. And so I think that we're not seeing any impact or impairment.

Yes. No, we included an additional fee going into 2018 to contemplate managing a network of our pharmacists. And so we don't see any material change to the margin profile of this contract. But we do expect to see some incremental revenue as associated with it, probably into the 10% range over what we've realized last year.

(Operator Instructions) Our next question comes from the line of Steven Wardell with Chardan Capital Markets.

I'm just wondering, could you help summarize what you're expecting from the managed-care opportunity in front of you in 2018, '19? What are you expecting -- how is that going? What are you hearing from prospects in terms of the products that they're interested in. Just a helpful summary. And I'm sorry if you've already covered some of this.

Well, I -- this is Cal. We've had nothing but good velcro from our contacts that we've made that are interested in optimizing the Medication, just reducing risk and reducing the downstream cost.

So I think the only thing that I would say -- this is Brian, is that we continue see an acceleration of the number of managed-care players that are interested in what we are doing. And so we're pretty excited and bullish on the next couple of years, because we certainly haven't seen any sort of slowing the number of contacts. And in fact, only have seen that increasing recently. So I think you're going to see some good announcements come out from us over the next 18 months or so. But I think we're going to make some nice traction into the market and really be disruptive.

And I think we have -- Steve, remember that we're doing this on an ingredient basis. So that the market, when you're working on ingredients, not branding, it's very large. It's not just in the U.S., it's a very large market so.

Thank you. And that does conclude today's Q&A session.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.