Introduction
The Oncology Institute, Inc. (TOI) is a leading value-based oncology group that has been transforming the cancer care landscape since its inception in 2007. With a mission to deliver highly specialized, evidence-based treatment in the community setting, TOI has emerged as a trailblazer in the oncology industry, offering patients access to cutting-edge therapies and innovative care models.
Founded on the principle of providing exceptional care close to home, TOI has steadily expanded its reach across the United States, now operating 86 clinic locations in 14 markets and four states. The company's network of 120 employed oncologists and advanced practice providers serve a population of approximately 1.9 million patients under value-based agreements, a testament to TOI's unwavering commitment to transforming the delivery of cancer care.
Company History and Growth
TOI's journey from a community oncology practice to a publicly-traded company has been marked by significant milestones. In 2019, TOI became a publicly-traded special purpose acquisition company, formerly known as DFP Healthcare Acquisitions Corp (DFPH), with the aim of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination. On November 12, 2021, DFPH merged with TOI Parent, Inc. (formerly known as The Oncology Institute, LLC) in a series of transactions, resulting in DFPH emerging as the parent of the combined entity. Following this merger, DFPH was renamed The Oncology Institute, Inc., and its common stock and public warrants continued to be listed on Nasdaq under the ticker symbols TOI and TOIIW, respectively.
Comprehensive Cancer Care Approach
TOI's comprehensive approach to cancer care is evident in its medical centers, which provide a complete suite of medical oncology services. These services include physician services, in-house infusion and pharmacy, clinical trials, radiation, educational seminars, support groups, counseling, and 24/7 patient assistance. This holistic approach aligns with TOI's mission to heal and empower cancer patients through compassion, innovation, and state-of-the-art medical care.
Expansion and Challenges
The company's growth trajectory has been impressive, with its presence expanding to 86 clinic locations across four states - California, Florida, Arizona, and Oregon. However, TOI has faced various challenges along the way, including the need to integrate and operate its acquired practices, navigate the complexities of value-based care models, and manage the impacts of the COVID-19 pandemic on its operations. Despite these hurdles, TOI has demonstrated resilience and continued to grow its footprint while expanding the range of services provided to patients.
Business Segments
TOI operates its business through three main operating and reportable segments: dispensary, patient services, and clinical trials other.
The dispensary segment generates revenue from the sale of oral prescription drugs prescribed by doctors to their patients. These drugs are sold directly through TOI-affiliated physician-owned professional corporations' (TOI PCs) dispensaries. Revenue is based on fee schedules set by various Pharmacy Benefit Managers (PBMs) and other third-party payors, subject to Direct and Indirect Remuneration (DIR) fees. For the three and nine months ended September 30, 2024, the dispensary segment generated revenue of $48.21 million and $132.33 million, respectively, representing 48.3% and 45.1% of the company's total operating revenue.
The patient services segment generates revenue from capitation and fee-for-service (FFS) arrangements. Capitation revenue consists of fees for medical services provided under capitated arrangements with managed care organizations, paid monthly based on the number of enrollees. FFS revenue is earned for specific medical services rendered by TOI PCs' employed physicians. For the three and nine months ended September 30, 2024, the patient services segment generated revenue of $49.75 million and $154.67 million, respectively, representing 49.8% and 52.8% of the company's total operating revenue.
The clinical trials other segment generates revenue from contracts to perform clinical research trials. Revenue is recognized based on the state of the trial, as established under contract with the customer. For the three and nine months ended September 30, 2024, this segment generated revenue of $1.94 million and $6.15 million, respectively, representing 1.9% and 2.1% of the company's total operating revenue.
Financials
TOI's financial performance has been marked by consistent growth, with revenue increasing from $203.0 million in 2021 to $324.2 million in 2023, representing a compound annual growth rate (CAGR) of 26.2%. In the most recent fiscal year (2023), TOI reported a net loss of $83.07 million, with operating cash flow of -$36.32 million and free cash flow of -$40.88 million.
In the third quarter of 2024, TOI reported total revenue of $99.90 million, a 21.8% year-over-year increase, driven primarily by an exceptional 79.9% growth in its dispensary segment. This strong performance was partially offset by a 1.7% decline in patient services revenue, as the company experienced fluctuations in member enrollment and the loss of a contract. The net loss for Q3 2024 was $16.11 million, primarily due to a $1.28 million increase in the change in fair value of conversion option derivative liabilities.
TOI's management team has remained focused on executing its value-based strategy, signing an additional three capitation contracts across two states during the quarter, bringing the total number of new capitation contracts signed in 2024 to 13. The annualized revenue of the new capitation deals signed so far this year is over $50 million.
Liquidity
As of September 30, 2024, TOI reported cash and cash equivalents of $47.40 million. The company's debt-to-equity ratio stood at 7.94, while its current ratio and quick ratio were 2.49 and 2.27, respectively. These liquidity metrics indicate that TOI has the ability to meet its short-term obligations, although the high debt-to-equity ratio suggests a significant reliance on debt financing.
One of the key highlights of TOI's recent performance was the company's certification to begin administering radiopharmaceutical therapy in its California radiation oncology practices. This milestone positions TOI as one of the few community-based oncology practices on the West Coast to offer this cutting-edge treatment, which has traditionally been limited to hospital settings. The company expects this new service to contribute over $1 million in adjusted EBITDA in 2025, further strengthening its financial profile.
Guidance and Future Outlook
TOI has provided limited forward-looking guidance, focusing on specific areas of its business. The company expects revenue of more than $75 million from its California pharmacy in the current year. Additionally, TOI anticipates significant improvement in its net loss in Q4 and beyond, due to the new capitation contracts they have signed.
Despite the challenges presented by the COVID-19 pandemic, TOI has demonstrated its ability to navigate turbulent times and continue to grow its business. The company's focus on value-based care, strategic partnerships, and expansion into new markets has positioned it well for long-term success.
Looking ahead, TOI remains committed to its mission of providing high-quality, accessible cancer care to communities across the nation. The company's recent CFO transition, with Rob Carter assuming the role, is expected to further strengthen its financial leadership and support the execution of its strategic initiatives.
As TOI continues to innovate and expand its reach, the company's ability to navigate the evolving healthcare landscape and deliver value to its patients, partners, and shareholders will be closely watched by industry observers and investors alike. With its strong market position, growing service offerings, and focus on value-based care, TOI is well-positioned to capitalize on the opportunities in the oncology care market and drive sustainable growth in the years to come.