Earnings Call Transcript - OPCH Q3 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the Option Care Health Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Nicole Maggio, Senior Vice President, Finance. Please go ahead.

Nicole Maggio, Senior Vice President, Finance

Good morning. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release as well as in our Form 10-K filed with the SEC regarding the specific risks and uncertainties. We do not undertake any duty to update any forward-looking statements, except as required by law. During this call, we will use non-GAAP financial measures when talking about the company's performance and financial condition. You can find additional information on these non-GAAP measures in this morning's press release posted on the Investor Relations portion of our website. And with that, I will turn the call over to John Rademacher, President and Chief Executive Officer.

John Rademacher, President and Chief Executive Officer

Thanks, Nicole, and good morning, everyone. Before I begin my prepared remarks, I'd like to welcome and introduce some new members of the team. As we announced several weeks back, Mike Shapiro stepped down as CFO, and Meenal Sethna joined us as CFO on October 1. I want to thank Mike for his leadership and contributions over the past 10 years. He has been a great partner to me and our leadership team, and we appreciate his support during this transition period as he steps into his new role as strategic adviser. I'm also excited to welcome Meenal to the Option Care Health team. She brings a wealth of experience leading business imperatives and finance teams across a number of public companies and industries, including health care. Her early career and formative years were spent with a global health care products and services company, and her recent roles in technology, industrials, and electronic manufacturing will bring fresh perspectives and best practices from across her breadth of experience. I'm looking forward to partnering with Meenal as we shape the next chapter of Option Care Health and continue our mission to transform health care by providing innovative services and improving outcomes, reducing costs, and delivering hope to our patients and their families. I'm also pleased to welcome Stephen Shulstein as Vice President of Investor Relations, reporting to Meenal. Stephen is a seasoned Investor Relations executive with experience across health care and other industries, and his primary focus will be on fostering strong relationships across the investment community as we continue to drive shareholder value. With that, let's move on to the third quarter results. The Option Care Health team delivered another strong quarter with balanced growth across the portfolio of therapies. I'd like to recognize our team for their strong execution and continued dedication to providing broad access to quality of care to more patients. As a leading independent provider of home and alternate site infusion services, we are well positioned to leverage our significant scale, diverse portfolio of therapies, and resilient operating model to win in the marketplace, and we demonstrated this again in the third quarter. We continue to benefit from favorable market trends, including the ongoing shift of care to the home and ambulatory setting. Providing high-quality care at an appropriate cost in a setting in which patients want to receive it makes us an important part of the solution to reduce the total cost of care. We continue to capitalize on changes in the competitive landscape and further enhance our partnership with payers and pharmaceutical manufacturers. Our relationships with health plans remain strong. Our ability to provide both acute and chronic therapies on a national scale with local responsiveness uniquely positions us as a partner of choice. The strength of our platform provides a meaningful opportunity to broaden access to their members and provide better, more cost-effective care to help reduce the medical loss ratio and improve clinical outcomes. During the quarter, we expanded the utilization of our bed day management programs and site of care initiatives to deliver value to our payer partners. The robust and resilient operating model we have created enables us to deliver consistent results in any operating environment. We have demonstrated we are well positioned for success as we continue to navigate changes in regulation, competition, and our portfolio of therapy. Meenal will go deeper into the financials in a few minutes, but to highlight some key takeaways. Our revenue momentum continued in the third quarter as we delivered revenue growth of 12% over last year. Acute therapy growth was in the mid-teens, and our team has been able to take advantage of the shifting competitive landscape, allowing us to grow above assumed industry growth rates. Our national scale and local responsiveness are differentiators as we continue to partner with referral sources to safely transition patients out of the hospital setting to the home. As we have mentioned previously, coordinating care for acute patients requires tight collaboration with our referral sources, nurses, and exceptional responsiveness by our pharmacies. This is done thousands of times a day by our teams at the local level, and we believe the investments we have made in our unique platform allow us to be the reliable partner of choice for hospitals and health systems. Our chronic therapies grew in the low double digits. We continue to see solid performance in both our core therapies as well as our rare and limited distribution products. We added new therapies and enhanced services to our platform in this quarter, taking advantage of our focus on providing enhanced clinical programs and data service expansion. We have partnered with specific pharmaceutical manufacturers to develop programmatic support for unique patient cohorts. The demonstration of our clinical capabilities, including our nursing network, payer access, and national pharmacy infrastructure are differentiators as we partner with pharma to gain share in these new-to-world therapies, and we are encouraged by the pipeline of new therapies that are clinically complex and would benefit from our capability set. Part of our differentiation is our ability to have the right clinical resources available to support the breadth and complexity of our patient community and allow for growth. Nursing is at the forefront of our value proposition, and the efficient and effective use of these resources is a key enabler. To this end, we conducted over 175,000 nursing visits with 34% of those in one of our infusion suites in this quarter. Additionally, Naven Health conducted over 55,000 nursing visits in the quarter across their entire customer base, allowing us to capitalize on the positive impact that we can provide at the point of care. We also continued our focus on expanding our advanced practitioner model, which represents an attractive complement to our current home infusion services and provides an opportunity to enhance our clinical competencies to serve higher acuity patients under the oversight of an advanced practitioner. Our investments in our infusion suite platform allow us to leverage our infrastructure more effectively by serving specific patients that benefit from this care model. We believe this will expand our market reach and provide broader access to new patient cohorts. As we near the close of 2025, we have raised the midpoints of our full year revenue, adjusted EBITDA, and adjusted EPS guidance, which reflects our continued confidence in our platform and the execution by our team. With that, I'll hand the call over to Meenal to provide more details.

Meenal Sethna, CFO

Thanks, John, and good morning, everyone. I'm excited to join the team here at Option Care Health. I'm looking forward to continuing our strong track record of growth, resiliency, and disciplined capital deployment. As John mentioned, the third quarter was strong, building off the solid momentum from the first half of the year. Revenue growth of 12% was balanced with mid-teens growth in acute and low double-digit growth in the chronic portfolio. Both the acute and chronic portfolios performed well across the board. However, growth in the chronic portfolio was negatively impacted by 380 basis points from the additional adoption of Stelara biosimilars, which carry a lower reference price and reimbursement. Gross profit of $273 million grew 6.3% versus last year. This reflects the benefit from therapy mix with outsized acute and the core chronic therapies growth. Gross margin rate was also negatively impacted by the shifting Stelara dynamics as well as the impact from lower margin, limited distribution, and rare and orphan therapies. Adjusted EBITDA of $119.5 million grew 3.4% over the prior year with the strength of the top line performance and spend management, partially offsetting year-over-year headwinds previously noted. Adjusted EBITDA margin was 8.3%. Adjusted earnings per share of $0.45 grew 9.8% over last year, benefiting from our share repurchases and a lower tax rate versus last year. Turning to our balance sheet and capital allocation. We had another strong quarter of cash generation. Year-to-date, we've generated $223 million in cash flow from operations. We also refinanced our term loan, reducing our borrowing costs and extended the maturity, while adding an additional $50 million in liquidity. Our net debt to adjusted EBITDA leverage stands at 1.9x at the end of the third quarter. As we identify strategic opportunities to deploy capital, our first priority for deployment is internal investments for profitable growth opportunities. In the quarter, we made investments to strengthen our platform. We added new infusion clinics and expanded our advanced practitioner footprint. We continue to look for opportunities to increase both our pharmacy capacity and our presence in key geographies. We also continue to invest in technology, artificial intelligence, and advanced analytics to continue driving operating efficiency. In the quarter, we launched three new enhanced applications that we expect to drive efficiencies in our patient onboarding process, along with efficiencies in our staffing utilization and deliveries. Strategic acquisitions and related investments are our next priority. We've been working through the integration of the Intramed Plus acquisition from earlier in the year. The business continues to perform extremely well, and the team has met or exceeded our expectations as we close out our integration efforts. We remain active in assessing M&A opportunities, focusing on strategic tuck-ins and near adjacency opportunities. We continue to return capital to shareholders via our periodic share repurchases. In the quarter, we bought back over $62 million in shares. The strength of our balance sheet gives us flexibility to execute our growth strategy while balancing return of capital to shareholders. Finally, I want to provide an update on our expectations for the full year 2025. We now expect to generate revenue of $5.6 billion to $5.65 billion, adjusted EBITDA of $468 million to $473 million, and adjusted earnings per share of $1.68 to $1.72. We continue to expect to generate more than $320 million in cash flow from operations. Consistent with our previous comments, our guidance incorporates our current expectations on the impact of potential tariffs, most favored nation pricing, and similar policy changes, which we continue to believe will not have a material financial impact in 2025. Overall, we're excited about our performance and look forward to continuing our growth trajectory through 2025 and beyond. And with that, I'll turn it back to John.

John Rademacher, President and Chief Executive Officer

Thanks, Meenal. In closing, I want to highlight our success that's ultimately driven by our responsiveness and strong execution. We have demonstrated our ability to take advantage of market opportunities through our day-in and day-out focus and consistency. And we continue to grow the business, overcoming challenges and headwinds within the marketplace. I am proud of our accomplishments this quarter, and I'm excited about the momentum we are building to deliver on our promise to expand access to the extraordinary care we can provide and to serve more patients and their families. With that, we'll open up the call for questions.

Operator, Operator

Operator Instructions] Our first question comes from the line of Pito Chickering with Deutsche Bank.

Pito Chickering, Analyst

I guess what is the uptake of the Stelara biosimilar at this point? How do you think that evolves in the next 12 months? And is it fair to think about the economics of Stelara biosimilars following the same path as REMICADE?

John Rademacher, President and Chief Executive Officer

Pito, it's John. I want to highlight a few points. First, I'm really pleased with the progress the team made this quarter and the balance in our portfolio. As Meenal mentioned in the prepared remarks, we are beginning to see an increase in the uptake of the biosimilar, which, because of its lower reference price, will impact both revenue and gross profit, as we noted. We observed an uptick at the end of the second quarter, which has continued into the third quarter. Our expectations moving forward, as reflected in the guidance we provided for 2025, include a continued gradual increase during this process. With the start of the new year and the IRA impact, we anticipate a further decrease in the price of Stelara, and the biosimilars should continue to gain traction. While we are not ready to offer guidance for 2026 or to estimate the impact on Stelara, I can say that given our portfolio's balance and the momentum we are experiencing, we expect growth. We will keep focusing on minimizing the impact as we proceed and continue to support the extensive formulary we have, while strengthening our relationships with prescribers, payers, and pharmaceutical partners.

Pito Chickering, Analyst

Okay. And then a quick follow-up here. I mean just we talked about the Stelara impact for '25. It was like $5 million in the first quarter and then $20 million sort of in 2Q, 3Q, and 4Q. As you're moving into the Stelara biosimilars and talking about sort of the gross profit sort of impact there, what would be the Stelara year-over-year headwind in the fourth quarter now that you're moving into the biosimilars?

John Rademacher, President and Chief Executive Officer

Yes. We initially projected revenues of $60 million to $70 million, and we confirmed at the end of the second quarter that we expected to be at the high end of that range, specifically for the Stelara segment. This does not factor in the expected conversion rate for biosimilars. When we shared those initial figures, our sole focus was on the discount we were receiving on that product, which we anticipated would change, making it difficult to predict the uptake of biosimilars. We recognized this as a revenue event, which is likely to impact our numbers negatively. As mentioned, we have accounted for this in our guidance for the remainder of the year, and we are currently working hard on the budget. As we review all variables for 2026, we aim to provide an updated position when we are prepared to do so.

Operator, Operator

Our next question comes from the line of Joanna Gajuk with Bank of America.

Joanna Gajuk, Analyst

So regarding Stelara for a moment, the 380 basis points this quarter suggests that we should expect additional headwind as the conversion progresses, correct? Is that how we should interpret that comment about next year?

John Rademacher, President and Chief Executive Officer

That is correct, Joanna. We expected to experience some challenges. Revenue will be impacted, and we've been discussing this since the announcement of the IRA, anticipating a decrease in the reference price as we move forward. This expectation was taken into account when we established our guidance for the remainder of the year, and we're confident in our ability to adjust and raise the midpoint accordingly. We're actively working through this, and it was factored into how we've communicated our guidance for the company.

Joanna Gajuk, Analyst

And then as we think about the gross margin because like you said, the biosimilar is a revenue event, there's a headwind to revenue, but the gross margin, I guess, so you had a step down on the Stelara on the brand and because of J&J actions. But now I guess, with the biosimilars coming in, is that also working the other way on the gross margin percentage? Or it's too early to talk about that? Or I guess...

John Rademacher, President and Chief Executive Officer

It's too early to talk about, yes...

Joanna Gajuk, Analyst

How should we think about that gross margin, yes...

John Rademacher, President and Chief Executive Officer

Yes. It's too early to talk about that, Joanna. And as you would expect, there's a range of outcomes. Each of the biosimilars have a different profile on that. So too soon.

Joanna Gajuk, Analyst

Okay. And so another, I guess, topic. So you mentioned dynamic regulatory environment. So are there any areas you focus on the most? And I guess, kind of how is your thinking about high-level changes that might be coming that would impact that business?

John Rademacher, President and Chief Executive Officer

Yes. I mean we're continuing to keep an eye on what's going on in Washington, a very dynamic environment from that standpoint. And as we said, we think we've been able to navigate pretty well some of the uncertainty that exists within the rhetoric that's coming out of Washington. There certainly are competitive dynamics in which we're seizing on opportunities within that. We continue to expand our portfolio of products, both from a limited distribution as well as deepening our partnerships with pharma. So all of those things are within the realm of the things that we're dealing with on a daily basis. But we've demonstrated time and time again our ability to have a resilient platform and a resilient operating model that can take on and seize on opportunities that are presented as well as minimize and mitigate wherever we can when it's a headwind against us. So I feel really good about the execution of the team. I feel good about the strength and the momentum in the quarter and carrying that into the fourth quarter, knowing that we've got some of these other dynamic environments that we're going to have to continue to work through and capitalize on where possible.

Operator, Operator

Our next question comes from the line of David MacDonald with Truist.

David MacDonald, Analyst

A couple of quick questions. So John, look, we've seen the impact this year of a sizable competitor exit on the acute side. And we do hear from time to time reports of select provider exits in other markets. I'm just curious, do you expect to see an ongoing opportunity on the acute side, maybe obviously, maybe not to the same degree you saw this year, but just what you're seeing on that front? And then a follow-up question to that is, is it having any impact on pricing or conversations with payers in terms of just that business line, either the growth rate or the profitability of that business line?

John Rademacher, President and Chief Executive Officer

Yes, David. So first and foremost, we do really feel strongly about the platform that we have put in place and the investments that we've made and the capacity that that provides us to capture market demand. And the team has executed extremely well, as you said, given the sizable exits that we saw this year. Our expectations are we're going to continue to capitalize on the strength of our national network, but our local responsiveness and expectations are that we're going to continue to move that, albeit at probably a lower pace than this year and carry that momentum into 2026. We've talked about the three legs of the stool of our reimbursement and how we have been focusing around certainly making certain that we're paid fair value for the value that we deliver. But the opportunities to engage with our payer partners to articulate the value of the balance of our portfolio and how we can help with programs like I highlighted in bed day management and site of care initiatives are one that continues to deepen our partnership and the value that we can bring to them. With that, we're always looking to make certain that we're extracting fair value for the value that we're giving. And I think that puts us in a position to remain in network to continue to be part of the overall solution as they're thinking about management of medical loss ratio and the total cost of care. And we're going to continue to emphasize really the strength of the breadth of our portfolio in the way that we're engaging with them and we're negotiating to make certain that we're in network and we're in a preferred position.

David MacDonald, Analyst

And then, John, I have a couple of other quick questions. Specifically about the advanced practitioner model, could you provide some details on how many locations are currently involved? Also, when we look ahead to the next 12 to 24 months, how aggressively do you plan to roll out that model? Lastly, have there been any observations since the acquisition that have been better, worse, or different from what you initially expected?

John Rademacher, President and Chief Executive Officer

Yes. So our growth of our infusion suite opportunity, we're going to continue to go at that pace. As we had called out, we're at 175 facilities today. 24 of those are advanced practitioner or infusion center capable at this point in time. And we're going to continue to look to expand that as we move that forward. Part of that will be operating and utilizing the infrastructure that we have. Some of it will be greenfield as we're looking to expand into different markets. I think as we called out before, Dave, there are corporate practice of medicine and other things that have influence on the path and the pace in which we're going to be executing around that. But we look at this as being extremely complementary to our pharmacy capabilities, both in the home and the infusion suite. We think it expands access to a broader set of patients. And we think for more clinically complex therapies and clinically complex patients, that ability to have that advanced practitioner oversee higher acuity patients, we think, is part of a comprehensive strategy and part of our growth as we're thinking about moving forward. So excited about where we are, learned a lot through the Intramed Plus acquisition as well as the Wasatch acquisition of years ago, and we're taking the best practices and applying that as we're looking to expand across our network and continue to advance this as part of our comprehensive strategy.

David MacDonald, Analyst

Okay. And then just last one. You mentioned in the prepared remarks, the bed day management program. Just in terms of some of these programs that you're working with payers on, are you seeing more impact around some of those programs in terms of share gain? Is it helping kind of grease the skids in terms of pricing conversations and profitability? Just any additional detail in terms of kind of further integrating yourself with the payers around some of these initiatives?

John Rademacher, President and Chief Executive Officer

Yes, Dave, it’s somewhat difficult to determine the immediate impact due to the current market conditions and the competitive landscape. However, to address your question, we observe it across all relevant dimensions. We believe it provides value to the payers. For hospitals and health systems utilizing DRG for certain patients, it also offers advantages by facilitating a safe and effective transition of patients from the hospital to home, which is a more cost-effective setting. Therefore, we notice benefits for both the payer side and the hospitals and health systems. We feel it enhances our partnership, instilling greater confidence in our position. Additionally, we regard it as an integral part of the solution as payers and health systems seek to manage overall care costs while delivering optimal clinical outcomes to their patients and members.

Operator, Operator

Our next question comes from the line of Matt Larew with William Blair.

Matthew Larew, Analyst

The first question, just on the cost side. G&A is up about 10% on a TTM basis. Could you break out what core G&A has been tracking at? Because I assume Intramed is a piece of that. And then absent other M&A, I guess, when would you expect to kind of get back to that longer-term target of kind of inflation plus for G&A?

Meenal Sethna, CFO

Thanks, Matt. Let me provide some insight into the G&A. In the quarter, I mentioned during the prepared remarks that we conducted some debt refinancing, which adds some complexity to the numbers. One major factor is the Intramed acquisition from 2025, which brings additional costs and growth that weren't present in the previous year. Another point is that we were below our target for variable compensation last year, so to return to a normal rate this year, we need to account for an increase. Additionally, we are investing in our growth, including the advanced practitioner model and new therapy launches. We are also making various technology investments aimed at enhancing operational efficiency. Some of our partnerships, like those with Palantir, and our investments in automation and machine learning are contributing to higher costs as well. However, we are observing improved leverage, with our leverage declining both sequentially and year-over-year. While G&A costs might appear higher on the P&L, we are also seeing benefits in our cash flow generation, which is a core aspect of our company. Overall, I’m confident about the improvements we are making in operational efficiency, which gives us greater flexibility in capital allocation.

Matthew Larew, Analyst

Okay. And then just another one on Stelara. And again, I appreciate given the moving pieces with biosims and heading into pricing changes next year that you're not going to put guardrails around it at this point. But I guess just at a high level, do you view '26 as another year where the size of the impact or the ranges of the impact will be of the magnitude that you need to call out like you did this year, some range because it is so disruptive to what investors view as the Option Care growth algorithm? Or is it a year where, yes, there's some uncertainty, but you still think you can track to kind of your stated long-term algorithm without having to box around what the impact is going to be?

John Rademacher, President and Chief Executive Officer

Matt, I'll take this one and Meenal can add any insights afterwards. We aren’t able to provide guidance for 2026 at this time, and I appreciate the question and how it was posed. To answer, I want to clarify the factors we're considering. First, we need to assess the census at the year's end and the exit rate. Secondly, we are looking at the adoption of next-generation products for chronic inflammatory diseases, including TREMFYA, Skyrizi, and ENTYVIO, which play a crucial role. The third factor is the adoption of biosimilars and which ones patients are transitioning to, as they all influence the chronic inflammatory disease therapeutic category. We're evaluating all these components right now. I want to emphasize the positive momentum of the business and the growth we saw in the third quarter, which even surpassed the 380 basis points impact from Stelara. This reflects the strength of our portfolio and our capabilities in executing therapies beyond that as we progress. We anticipate this momentum to continue into 2026. We're committed to refining our strategies regarding reach and frequency, capturing market demand, and strengthening our partnerships with referral sources and payers through various initiatives. Overall, I'm very optimistic about the strength of the quarter and the momentum we are building. At this junction, it's too early to provide guidance for 2026, but this organization has shown a capacity to adapt and grow, even when faced with changes in specific therapies or therapeutic categories. Meenal?

Meenal Sethna, CFO

Yes. I'd like to add a few comments. In the first 30 days, we have discovered a lot. One of my top priorities is to look ahead and understand the business dynamics toward 2026. I agree with what John mentioned; I feel confident about the business's momentum and the foundation we have established. We have navigated challenges in the past, and I fully expect us to do so again in 2026. To reiterate John's points, we do anticipate growth moving into 2026, without a doubt. We are currently analyzing the various mechanics and drivers at play. As soon as we have clearer insights, we will continue to share those with you, maintaining our commitment to transparency regarding what we observe and when we learn it.

Operator, Operator

Our next question comes from the line of Charles Rhyee with TD Cowen.

Lucas Romanski, Analyst

This is Lucas speaking on behalf of Charles. My earlier question was addressed, so I’m unsure if you have already provided information for this quarter. Should we expect the impact of Stelara on gross profit to be similar to what you mentioned in the second quarter, around $20 million?

Meenal Sethna, CFO

I'll take that question. Last quarter, we estimated a range of $60 million to $70 million. We projected that the impact in 2025 would be around $65 million to $70 million, likely at the upper end of that range. Our updated guidance suggests that it will be closer to $70 million for the year, which is reflected in our forecasts. You can see the effects of this in Q3 and in Q4 as well. Specifically, that translates to just over $20 million in both Q3 and Q4.

Lucas Romanski, Analyst

Okay. I appreciate it. And then I guess at this point in the year, do you guys have a good sense on the moving parts as to what would drive that to maybe above the $65 million to $70 million range that we're now looking at or below? And I guess what could be the moving pieces within that?

John Rademacher, President and Chief Executive Officer

Yes. So I think we feel pretty strongly about it being at the upper end of the range on the impact of the Stelara. We know from what the discounts that we were able to negotiate on that, which is why we've been able to have a firm view around that range. And as Meenal said, we now expect that it will be at the upper end of that range for the full year of 2025. The variables that we don't have a line of sight into, and again, trying to answer, I'm not providing '26 guidance, but the view as we move forward is there are just a lot of variables that will go into not only the patient census that we have under management, the products that they actually transition over to, and then some of the economics associated with the discounts in which we're able to buy the various therapies at that are all kind of at this point in time, under negotiation or moving around from that standpoint. So again, as Meenal said, I think we feel very confident in the upper end of the $65 million to $70 million as being what we'll see on the Stelara impact for this year, and that's been built into the full year guidance. And now what is still kind of moving forward, but we have included in our thinking is that transition over to the biosimilar and some of the impact that that will have on the revenue and then more importantly, the drop-through on the gross profit.

Operator, Operator

Our next question comes from the line of Constantine Davides with Citizens.

Constantine Davides, Analyst

John, can you discuss the M&A opportunities you are considering? Are they mostly aligned with your core business, or are you also looking at adjacent areas? I'm interested not only in understanding the pipeline but also in how the current private transaction multiples, which are twice what you're trading at, are influencing your decisions on capital deployment. What are your thoughts on this growing disconnect?

John Rademacher, President and Chief Executive Officer

We are continuing to explore a wide range of opportunities, as Meenal mentioned in her prepared comments. We believe there are plenty of prospects worth pursuing. As we move forward, we will be disciplined in our approach. We view these opportunities as small additions that will allow us to utilize our existing scale and infrastructure effectively. Our primary focus is on selecting the most valuable assets we have and maximizing their potential. We are always on the lookout for such opportunities. We recognize there are near adjacencies, and we are actively considering how technology can impact our business positively. Additionally, we are evaluating ways to support manufacturers or payers that fall within these near adjacencies. However, I want to clarify that we are not seeing anything that represents a major transformation or substantial change from our established strategy, which includes enhancing clinical capabilities, pharmacy services, and technology that strengthens our relationships with patient groups and other stakeholders.

Constantine Davides, Analyst

Great. You mentioned the ongoing shift to home and ambulatory settings. How do you see that unfolding over the next few years? As we approach the end of '25, is there a significant change in health plan willingness to embrace site of care initiatives compared to a year ago, or are we seeing more gradual progress?

John Rademacher, President and Chief Executive Officer

Yes. I do think that when you're looking at high-quality care at an appropriate cost in a setting in which patients want to receive it, our solution checks those boxes, right? And so there is going to continue to be a movement towards these lower-cost settings, and we're on the right side of those conversations and the right side of the ledger when you're looking at from that perspective. I do think that in the conversations we're having with our market access team with our payer partners, they're looking for partners to help reduce the total cost of care. It's well documented some of the challenges that they're having with medical loss ratio and utilization rates. And when they're looking for who can help to drive a better clinical outcome at a lower cost, we're part of that conversation. And so we're seeing an increase in the level of the conversations that we're having. As I called out in my prepared remarks, we're seeing increased utilization of our capabilities for site of care initiatives and bed day management programs. And we expect that's going to continue to carry forward as they're looking at ways to support their members and do it in ways in which they have high-quality care and consistent clinical outcomes.

Operator, Operator

Our next question comes from the line of Brian Tanquilut with Jefferies.

Brian Tanquilut, Analyst

John, maybe to follow up on your answer to Matt's question from earlier. As we think about just the dynamics in terms of where patients end up, whether that's Stelara, biosimilar, TREMFYA, Skyrizi, how does that all work out? I mean maybe what I'm trying to figure out is, is there a way for you to encourage greater biosimilar utilization back to your point on payers focusing their MLRs. Maybe that's one. And then I guess the second part of the question is, is there a world where you just say Stelara economics are not enough for us to stay in the therapy and we just exited, I mean down to like, what, 6% to 8% of EBITDA at this point? So just curious how you're thinking about all that.

John Rademacher, President and Chief Executive Officer

Yes. Thanks, Brian, for the question. To be clear, our relationship with Janssen and the margin profile of the product is one in which it's still a benefit to us economically and again, a benefit to the patient. So our pharmacists are part of the care team. And they're always working with prescribing physicians around helping to select the best product that's available. Certainly, there are influences by some of the payers around product selection through that process. And so we love the breadth of the portfolio that we have and the access to all of the biosimilars and the product portfolio. We certainly have strong relations with the branded pharma manufacturers, whether it's Janssen or whether it's AbbVie and continuing to look for ways to support their patient cohorts and capitalize on the strength of our platform, both clinically as well as the national presence that we have in that local responsiveness. So we feel really well positioned to continue to deepen the partnerships with the payers, with the pharma companies as well as with the prescribers and health systems to help bring the best clinical outcomes and align the best products to the patients through that process as part of the care team. So all of that, I think, factors into where we can help to influence, we will for those clinical outcomes. And the economics are one in which, yes, there is a step down given some of the changes in the discount that we're able to enjoy. But Stelara is still a very good product for us and a part of our portfolio as it moves through this transition and has biosimilar competition.

Brian Tanquilut, Analyst

That makes sense. And then maybe, John, as I think about the fact that you're generating a decent amount of free cash flow, back to Constantine's question earlier on deal multiples are in the high teens range, it seems like. So how are you weighing now like the buyback versus M&A capital deployment position?

Meenal Sethna, CFO

I'll take that one, Brian. As part of my prepared comments, I want to clarify our capital allocation strategy. We believe there are many opportunities for investment in our own operations, whether through organic growth or technology upgrades. John discussed the advanced practitioner model, which is about expanding our reach. I mentioned earlier that we see potential for operational efficiency, which will improve our operating expenses and help generate additional cash flow. We're also gaining insights from our partnerships in this area. Our primary focus is on these investments, which will be reflected in our capital expenditures and free cash flow as well. Secondly, acquisitions remain a priority for us. This approach aligns with our ongoing strategy of pursuing tuck-ins and near adjacencies that enhance our portfolio. We are not looking at radical changes but rather at opportunities that complement our existing capabilities. Share buybacks will likely follow these initiatives. It's a balancing act; we always seek ways to return capital to our shareholders. However, we believe that investing in ourselves, whether organically or through mergers and acquisitions, will yield better returns for our shareholders in the long run.

Operator, Operator

Our next question comes from the line of Michael Petusky with Barrington Research.

Michael Petusky, Analyst

John, I'm just curious, given the talk about Stelara, not just on this call, but over the last year, I mean, would it make sense as we enter '26 to just sort of be more granular about the revenue attached to the business and patient census and just things that maybe could help investors have a better sense of sort of true sort of longer-term exposure to this issue?

John Rademacher, President and Chief Executive Officer

Yes, Mike. Look, it's always a balancing act of how much information we can provide into the public markets and still stay competitive and be able to have our differentiators in the marketplace on that. So we're always going to try to provide as much transparency as possible and provide insights around that. I guess as we enter into '26 and kind of move beyond, the reality is the size just continues to diminish. It becomes a smaller part of our overall portfolio. And you've seen the growth in the other therapeutic categories that we've had. We've called out that there is no other product in our portfolio, no other therapy that has over 5% of the revenue. It's no longer that we have a profile of one product like we had with Stelara. So we'll do what we can to make certain that we give line of sight around the drivers of the business and why we're as confident around the growth trajectory and the areas that we're investing in that are going to bring that sustainable growth. But as we enter into '26 and beyond, it honestly just isn't going to be as big a part of our portfolio. So spending a lot of time going deep on something that just has a smaller amount of impact just will weigh your comments accordingly.

Michael Petusky, Analyst

Okay. And if I can just sort of follow up on some of the earlier questions around capital allocation. I'm just curious, John, like obviously, a few years ago, you guys made a run at more of a transformative asset in home health. I'm just curious, the adjacent markets that maybe you're most interested in, I mean, can you just sort of call out a couple where, hey, these are markets that are interesting to us?

John Rademacher, President and Chief Executive Officer

Yes. Well, without trying to increase the multiples of areas that we're looking at on that, I mean, I'm not going to give you the pipeline of organizations. But as we've called out before, I mean, when we talk about near adjacencies, and I tried to articulate that. We certainly have depth of relationship with manufacturers and having additional things to support manufacturer services are areas that we're always looking at. The platform that we have, the clinical capabilities from our pharmacists, our dietitians, our nurses, our advanced practitioners, all of that kind of fits into what we think is a comprehensive strategy to support. And there are things that we can be looking at that could help enhance or accelerate some of our capability sets there. We have done acquisitions of nursing agencies, which is an adjacency but an enabler of our capability set along that. We continue to look for those tuck-in and other pharmacy that can bring us either density in a market or in some instances, some difference in their operating model. So those are the things that we're looking at. As both Meenal and I have said, nothing on the horizon on a transformative standpoint. All of these things we look at as being additive and accelerants to some of the strategies that we put in place. And we think that there are ample opportunities for us to think about in a disciplined way, deploying capital in order to help grow the business and return value to our shareholders. So that is the goal, and we're going to continue to operate with that mindset.

Operator, Operator

I'm showing no further questions at this time. I would now like to turn it back to Nicole Maggio for closing remarks.

Nicole Maggio, Senior Vice President, Finance

Thank you all for joining us this morning and participating in our call. We appreciate your interest in Option Care Health. We will be participating in a number of conferences in November and December and look forward to speaking with you then. Conference information as well as other company collateral will be posted on the Investor Relations portion of our website. Take care, and have a great day.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.