I have previously discussed, in relation to Eli Lilly (LLY), my expectation that the GLP-1 drug class should readily exceed $100 billion in revenues by the end of the decade, due to the impressive data being generated regarding weight loss. Not only should Novo Nordisk (NVO) and Eli Lilly do well, but there are several companies that are likely to benefit from this trend. I believe that LifeMD (NASDAQ:LFMD) is positioned to grow rapidly, as it recently introduced a weight management program.
LifeMD has two operating divisions. The first, a physician telehealth network, offers telemedicine, laboratory and pharmacy services, focusing on primary care, men’s health, women’s health, allergy and asthma and dermatology. It accounted for $83 million in revenues in 2022. The company offers three plans, which are TotalCare ($39 per month), ConciergeCare ($99 per month) and FlexCare (urgent care visit for $139). The other division, WorkSimpli, is a provider of workplace and document Software-as-a-Service offerings. It had revenues of $36 million in 2022, and management is guiding to $53 million in 2023, with an adjusted EBITDA of $15-18 million. LifeMD has a 73% ownership of this enterprise.
In April, LifeMD introduced a weight loss management telehealth program. It charges $129 per month, providing for a full range patient support, including customized treatment plans, interactive tracking tools and treatment information. If deemed clinically appropriate, eligible participants are provided access to GLP-1 medications. LifeMD has pilot program partnerships with Nutrisystem and Medifast (MED). In the four months since introduction, new client signups have increased from 50 per day to 100 per day, and management’s goal is to increase this to at least 400 per day by the end of 2023. To illustrate the revenue impact, LifeMD recorded revenues of $69 million in the first half of this year, and management is guiding to $146-152 million for 2023, with an adjusted EBITDA of $10-13 million. It is worth noting that, on an annual basis, 10,000 patients equates to $15 million in revenues.
In 2022, LifeMD had revenues of $119 million, a gross profit margin of 84% and consolidated adjusted EBITDA of ($15 million). For 2023, management guidance is for revenues of $146-152 million, a gross profit margin of 87%, and consolidated adjusted EBITDA of $10-13 million. The consensus forecast for 2024 is for revenues of $175 million, whereas I am estimating $205 million, with the incremental difference driven by the weight loss management program. Currently, there is incredible interest in weight loss medications, yet only two are approved by the FDA, namely Saxenda and Wegovy, with Wegovy being far more effective at 16% weight loss. Late this year, Lilly’s tirzepatide should be approved, and it is superior to Wegovy regarding efficacy. I therefore expect significantly greater demand for GLP-1 prescriptions to be generated at that time. Furthermore, insurance companies continue to serve as a barrier to access, given concerns over cost. LifeMD has initially been effective at qualifying its clients for approval, with a 30% success rate. Finally, the GLP-1 medications are in short supply, and LifeMD has a relationship with a compounding pharmacy (although LifeMD does not directly sell the medication to the patient).
LifeMD has a market capitalization of $160 million. In the fourth quarter of 2022, it recorded revenues of $28.1 million, and for the first time in the company’s history, it recorded an adjusted EBITDA profit, which was $0.6 million (versus a loss of $8.2 million in the year ago period). The improvement continued in the first quarter of 2023, with revenues increasing sequentially to $33.1 million, and adjusted EBITDA profit rising to $2.0 million. Free cash flow, net of discretionary timing-related accounts payable paydowns and accrued expenses was ($0.7 million), which represented a sequential improvement of $3.5 million. In the recently reported second quarter, revenues advanced to a record $35.9 million, adjusted EBITDA was $1.7 million (versus a loss of $6.9 million) and there was positive free cash flow of $2.3 million. It is worth noting that, as compared to the fourth quarter of 2022, active telehealth subscribers increased from 169,000 to 193,000, and active WorkSimpli subscribers, from 168,000 to 171,000. Management stated on the second quarter conference call that WorkSimpli remains on track to generate over $15 million of cash flow in 2023 which is being reinvested in the core telehealth offerings. For the third quarter, management is guiding to revenues of $37.5-$38.5 million, and adjusted EBITDA of $2.5-$3.5 million. While it is currently investing in the weight management program, this effort should achieve EBITDA of over $10 million in 2024 on at least $60 million in revenues. Additional revenue generation could come from the two pilot program partnerships noted above. There are 5,000 people enrolled in the weight loss management program at this time, which equates to $7.5 million in annual revenues. Overall, in 2024, the company could achieve adjusted EPS exceeding $0.50, suggesting that the stock could trade over $8.
I believe that LifeMD is at the beginning of a period of favorable revenue growth, driven by the recent introduction of a weight loss management program. It has forged partnerships with two leading weight loss companies and it is experiencing increasing interest in its own offering. WorkSimpli is growing rapidly (revenues advanced by 66% in Q2) and it generates significant cash, having an adjusted EBITDA margin exceeding 30%. The stock is not widely covered, and if I am correct, analyst forecasts are too conservative. Should the stock price increase as I expect, it is likely that management would raise cash to bolster the balance sheet. However, the cash flow from WorkSimpli provides significant funding in the near term, and in 2024, the weight management program should become a cash generator. My larger picture view is that the GLP-1 drugs, given the efficacy and tolerable side effects for most patients, will prove to be the largest pharmaceutical class ever. Just as there were derivative beneficiaries in 2020-2021 regarding COVID-19, the same holds true in this instance. With the demand for these drugs increasing dramatically, combined with insurers reluctant to provide coverage and supply shortages, LifeMD is well positioned to benefit from the interest in weight loss medications. I forecast another major positive inflection point to occur in the fourth quarter, when it is likely that Lilly receives FDA approval for tirzepatide for obesity. Finally, LifeMD is seeking to be qualified to serve the Medicare population in 2024. My recommendation of LifeMD stock is predicated on my forecast for the GLP-1 drug class, as without these new medications, people would be unlikely to spend $129 per month for weight management consultative services. However, I note that consensus Wall Street forecasts for the GLP-1 class are increasing, though still not as high as my estimate. Additionally, all three major drug distributors specifically called out the GLP-1 class on their most recent quarterly conference call as driving stronger revenue growth.
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