Revolutionizing Hormone Replacement Therapy With Biote’s CEO

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Terry Weber, CEO of Biote joins Brian Holland, Cowen’s Sustainable Food & Healthy Living Analyst. They discuss how hormone replacement therapy (HRT) has progressed over the past several years. They also discuss key considerations for practitioners and consumers and the future of the consumerization of wellness.

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Transcript

Speaker 1:

Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Brian Holland:

Hello. Thank you for tuning in. My name is Brian Holland, senior research analyst to Cowen. I’m here today with Biote CEO, Terry Weber. Hormone therapy addresses the symptoms associated with menopause and women and andropause in men. Both are naturally occurring stages in life when the body’s reproductive organs produce fewer hormones, which can be associated with higher risk for chronic disease such as cardiovascular, osteoporosis, and breast cancer. This estimated 200 million Americans are affected by hormonal imbalances, 80% of which are left untreated. Within that context, Biote provides a suite of services and related offerings to certified third party physicians and nurse practitioners to create, develop, and implement a personalized program designed to optimize patient hormone levels. Terry, thank you so much for joining me.

Terry Weber:

Thank you, Brian. Good morning.

Brian Holland:

I know I only scratch the surface in my introduction, so I think it might be helpful to kick off our discussion with you providing just a little more background on hormone replacement therapies.

Terry Weber:

Patients aren’t satisfied anymore to live with the often debilitating symptoms of hormone deficiencies. So after the age of 40, most people experience these symptoms or live with somebody who does. 80% of women in menopause experience hot flashes and night sweats. And with hormone optimization, 90% of those patients experience relief from those hot flashes and night sweats, and then they also see similar levels of relief from other major symptoms when they treat hormone deficiency, things like insomnia, depression, lethargy and more, where so many people aren’t knowledgeable that those are hormone deficiency symptoms. And I think in the pandemic, it greatly accelerated people’s desires to take control of their own health. And consumers are actually so hungry for information and I think they feel empowered to really seek true relief. So they don’t want to hear anymore that this is all a normal part of aging and they do not want to age like their parents. So, Biote was created to bring hormone education both to the patients and to the practitioners, and then bring those therapies into mainstream healthcare.

Brian Holland:

Can you talk about some of the negative perceptions that exist around HRT and how you’re working to overcome those?

Terry Weber:

Oh yeah. So, there was a study in 2002 in the US of Women’s Health Initiative study that reported that HRT increased women’s risk of breast cancer and kind of caused widespread panic, and rejection of hormone replacement, kind of across the board. It all became a big media scandal, so doctors and patients just all stepped back and stopped hormone replacement therapy. But since then, that study’s been largely debunked and it really found that women between the ages of 50 and 59, the study found clear benefits of hormone replacement. They found those women had fewer cancers, fractures, and deaths from any cause compared with the women taking a placebo. So, if you deliver the correct hormones in the correct way, it’s not only safe, but it’s shown evidence of preventing that wide range of conditions that we so often associate with aging, cardiovascular events, bone loss, which is so critical to so many women, and cognitive de decline that’s on everybody’s agenda as we age.

And there’s just multiple long term studies that show women who take testosterone via hormone pellets, like our Biote therapy, they showed a 35% and a 39% reduction in breast cancer. So at Biote, we’re continuing to invest in clinical research so that we kind of add to that evidence based science surrounding hormone treatments and the misconceptions around them

Brian Holland:

Appreciate you addressing what Biote’s doing and what’s happening in a broader sense to help sort of remove some of the negative bias. That’s one element to driving adoption. The other one is obviously awareness. And as I mentioned at the top, it’s reported roughly 80% of those dealing with hormonal balances are not treated. I think you made reference to that as well. Is there an awareness or knowledge gap in this space? And if so, why do you think that is, and what can you do to close it?

Terry Weber:

Well, I think we’ve got that knowledge gap on both the provider and the patient, but what’s so interesting, I think, that you probably aren’t aware of and your listeners, is that most physicians have never been trained to treat menopause. So, here is that half the population is going through this and our doctors have never been trained to talk about it. When they did a survey of medical residents, they found 80% reported feeling barely comfortable discussing or treating menopause. And when we looked into it, we found that only 20% of OB/GYN residency programs provide menopause training. And in almost every case, it’s elective. So, here these women are coming to their practitioners. It could be family practice, it could be an OB/GYN, or sometimes the psychiatrist because the symptoms can often be depression. So, if the symptoms are misdiagnosed and the patient leaves with a prescription just to mask a symptom like an antidepressant or a sleeping pill, that just doesn’t work out.

Patients want to have the root cause treated and they don’t want to have just one of their symptoms masked with a prescription. So, we now really have to focus on training practitioners because hormone optimization is a complex field and the patients need to know, when they go to the provider, that they understand the solutions. And the other part is men and women have to get comfortable about talking about it because this, in many ways, needs to be destigmatized. Often, a wife won’t even talk to her husband about the symptoms. And we all know about men. I mean, how often do men really talk about the symptoms? You’re not 20, Brian, so I’m not sure you haven’t had some of the symptoms, but I won’t ask you any personal questions. But we do need to talk about these things, and it’s not something your dad talked to you about. So, who do you talk to about it? You can talk to your wife or your practitioner.

There’s a lot of work to be done in destigmatizing these conversations. Growing old or the second half of your life is meant to be phenomenally robust, and I think patients and all of us want to take it into our own hands. We don’t really want to be patients. We want to be proactive in taking care of our health.

Brian Holland:

Yeah, I think… And we’ll talk a little bit more about how we train the practitioners in just a moment, but if we stay focused on, you say patient, I say consumer, potato potato, right?

Terry Weber:

Yep.

Brian Holland:

But Biote’s hormone optimization treatment, utilize the sustain release pellets. Compare and contrast this with the other options in the marketplace.

Terry Weber:

Okay. So, so many of us aware of pills, creams, patches and injectables. These are all available for treating hormone deficiencies. What’s so unique about Biote and why I think we’re positioned to be the mainstream therapy is because we use Biote certified medical practitioners. So, you can often get over the counter, a lot of different types of, no blood tests, various variety of treatments for hormone deficiency. But this Biote, what we do is use a personalized dosing for each individual. And we have this sustained release pellet, like you mentioned, so that pellet gives you a sustained release product over four to six months and it kind of results in strong patient acceptance and compliance. But if you use things such as creams, patches, pills, and injectables, you often have to use one to three pills per day, injections biweekly for men in testosterone, or weekly even, and then using the… Creams are often one to two to three times a day. And so often, those results go up and down. The absorption rates are difficult. There’s problems sharing it with your spouse or your children when it rubs off in a cream.

So, this sustained release product just basically… Our patients come or our consumers come in two to three times per year versus all the other methods that require daily or biweekly.

Brian Holland:

Yeah. And I mentioned the consumer just a moment ago, and I think it’s a good entree here to kind of understand what the profile is. You just talked about the value proposition of the pellet versus other forms. I think there’s an inclination to view hormone therapy more of a discretionary purchase, right? I’m curious whether that buys jobs with the composition of your consumer base. So, to what extent has… So maybe telling us a little bit about the profile of the Biote consumer or patient as it were, and to what extent has inflation impacted how they are thinking about HRT in general and Biote in particular?

Terry Weber:

What’s funny, because I think people often think of a cash pay procedure as only for discretionary or certain income levels, and we don’t find that at all. We began in Texas and spread to contig estates and I looked at our profile of our patient. They sit right between those ages. 75% are between the ages of 45 and 65. And if you look at the income, 50% of our patient base makes less than 100K in household income. So, it’s basically a very affordable program, private pay, but everybody can afford it. It’s $4 a day for women, 4.50 for men, kind of less than a cup of coffee, and we’re absolutely standard of care in some very low income communities. And Brian, patients don’t believe that feeling their best is a discretionary purchase. I think during COVID, we have the best evidence of how recessionary proof we are, because when clinics were shut down, our patients actually helped us get in front of legislators and judges to be listed as an essential business in so many of the states.

Brian Holland:

Is it fair to say that you view the BIOTE method as the company’s biggest competitive mode? And assuming that’s correct, can you just describe all that entails and why it would be so difficult for competitors to replicate what you’re doing?

Terry Weber:

Yeah, I think it is the competitive mode. So, that Biote method and our whole system is really… I think it’s easiest for your investors to think about it as a franchise like business in healthcare. And so what we’ve created is a full end and platform that takes a practitioner from his very first in interest in hormone optimization and takes them all the way through their whole practice management and into growing the practice over 10 years. So, we really give what makes a perfect franchise. You standardize the education. So, no matter what kind of doctor you are, we take you to a very high level of competency for hormone optimization. We also standardize the expectations we have for the clinics, their front and office, back and back office, and the providers themselves. So, clearly documented expectation, which is a wonderful part of a franchise model. We also have long term contracts.

All of this is kept in a long term contract with obligations on both side. We provide them with full suite of software packages, it does all of their practice management, keeps up with all of their procedures, all the financial end, all of the compliance end, all the regulatory end, no matter what state they’re in, and then provides them with a whole suite of clinical decisions software. So, when they have hard to treat cases, we give them a software package that literally has algorithms in it that we’ve developed from 2.5 million procedures on our patients. So that’s all in the software suite. It also provides a consistent experience for patients. If you’re a Biote patient and you spend your winners in Florida and your summers in Michigan, you get the same experience from a Biote certified provider. So, that’s wonderful. And also, we have gives you high quality consistent vendor sourcing, right, with no issues to supply chain.

And in these years that’s very important in healthcare, and probably any businesses, that you don’t have any interruption in the supply chain. And it’s given us a 90% retention rate. So, we have a 90% and had for years clinic retention rate. So, it’s working.

Brian Holland:

Yeah. So, maybe just digging into that a little bit further, the retention rate on the practitioner side. I mean obviously, so you’ve laid out the relevance of Biote to consumers. What’s the value proposition of practitioners? And so I’m thinking about unit economics and other components of this from a financial standpoint because I think qualitatively we understand what the bio method is doing to train and educate and give the practitioners the weapons. So, that’s one side of it. The other side of it is obviously the financial component, so maybe if you could talk just a little bit about that.

Terry Weber:

Oh yeah, I think that’s a very interesting part because I think every one of us, all your investors are going to be aware of the pressure, the downward pressure on declining reimbursements on practitioners so often they struggle to keep their practices alive. So, what we did at Biote is… We were started about 10 years ago, so we created, in a time of reimbursement issues as well, we created a business model that actually delivers real provider clinic economics in a material manner. So, we have this cash paid business model and it offers this profitable therapy to the practice from day one after they leave our Biote certification training. So, what it is that practitioners share, and Biote shares in the profit from each procedure that patient pays for. And it’s a cash paid business. So, our average clinic is making about a hundred thousand in Biote profit annually. And this is often critical income to a practitioner in light of all this declining reimbursements and inflation nowadays.

And practitioners tell us that their Biote patients are really their most satisfied patients and are very grateful for this life changing therapy. Sp, no, we all give them a very profitable practice, but on the other side, their patient outcomes make it a very attractive patient practitioner relationship. As the Biote patients come back

Brian Holland:

Now, we understand what tools you’re giving to the providers to help the conversation with consumers or patients. We know what the financial benefits are to a successfully engaged practice. So, it seems to me that the model sort of hinges most directly on your ability to convert providers, bring them into your network. What investments are you making to that end to attract providers?

Terry Weber:

Well, one of the things is that we are growing our sales department. I think we committed to growing our sales department 50% in 2022. So, a lot of it is getting very experienced medical sales professionals out there to really talk to the providers in their offices and to help them understand what hormone optimization is. And then we built up this infrastructure to support that growth of sales. Our marketing team uses state of the art technology. We actually created an in-house agency, and their sole purpose is to engage with practitioners and patients kind of right where they want to meet, kind of in this very digital omnichannel strategy, right? So, we operate also a very large training center in Dallas where we train 200 providers and their staff every month in Dallas. And then we’ve got… We actually created five regional training centers, and then employed 17 clinical staff members. And we also have 69 experienced mentors who are placed out in the communities to really support those practitioners in the field. So, we really continue that training and evaluation, lots of customer support, lots of research to support it.

So, I would say that we’ve got a very robust model to support that growth and get enough providers out there to treat the patients, which has been an issue, is making sure we get enough providers educated and trained so we can treat the patients that are showing up at those practitioners offices.

Brian Holland:

Just pivoting a bit, given Biote has both consumer and healthcare attributes, I think the regulatory landscape feels like a bit of a gray area. If you could provide some clarity on what the considerations or risks are to your business. So specifically, how and to what extent are your pellets, nutraceuticals, which we’ll get to a little bit more in a moment, devices and software all regulated?

Terry Weber:

So, I think it’s not very gray how we’re regulated. I think it’s a little different than what you see with the just a prescription drug because we’ve got bioidentical hormones, and those are really regulated and the manufacturing is regulated very strictly regulated under the FDA. It’s just not Biote, right? Biote, we aren’t the manufacturer. So, that’s probably where you see there’s a gray area. But we have three vendors who are highly regulated by the FDA under a 503(b) permit around the use of bulk substances. So, they’re subject to regular inspection, and they’ve all had their visits from the FDA this year. And I think we really are very comfortable that we keep three highly qualified manufacturers in good standing with the FDA so that we can kind of ensure that our practitioners have the best quality product available to them at all times in all 50 states, we are regulated directly by the FDA, Biote is, on our nutraceutical business.

So, the FDA directly regulates us on what they call dietary supplements. We all call nutraceuticals. And these nutraceuticals and cosmeceuticals are complimentary to our hormone business. And they’re fully regulated by the FDA. Formulation, development, manufacturing, packaging, distribution, advertising is all regulated by the FDA. So, we keep very strict compliance. We also provide a disposable, what’s called a trocar. It’s a device for inserting the pellets. And that’s a class one device for the FDA. So, it’s a medical device in the lowest class of, the lowest risk of regulation with the FDA, but we stay in full compliance there. And then our software isn’t considered a medical device, but we always keep a watch on the FDA, make sure as they look into the use of software, as we all are looking at software, right?

So, we kind of keep a close watch because so much of our software is something we want to keep on the right side of the FDA. And as a healthcare education company, Brian, we have all of our product marketing materials, any product materials is a hundred percent reviewed for compliance with FDA regulations. So, it may seem great to you, but we are fully regulated.

Brian Holland:

Yeah, no, I should have… Forgive me Terry, I should have said that it’s a gray area insofar as I think from how investors interpret it. They see it as a gray area. It’s obviously very clearly laid out for you and I appreciate you providing the reasons behind that. And you’ve touched on this a couple times, but I want to focus more clearly on it because I think supply chain has been a big topic of conversation in the consumer world. Has Biote seen any disruption over the past couple years? And what have you done to mitigate risk to that end?

Terry Weber:

I always watched supply chain. I mean, I came out of a consumer world years ago before I got into healthcare, and I’m very, very well aware of what supply chain can do to stop the business, as you can see all over as people report their earnings. But what I did when I came to Biote was really create this redundancy in our suppliers. So, what we have is long term contracts, kind of negotiated the way you’re used to in consumer. I’ve taken that into the healthcare world, looking at long term supplies and very, very clear cut contracts with those manufacturers. And I’ve continued to add manufacturers. So, instead of allowing any type of exclusiveness, I have redundancy and competitiveness. So, I not only look at a far window on my supply chain keeping that open, I also have a nice way to keep my margins where they need to be in terms of my ability to have a competitive bidding situation to not only ensure supply chain, but also long term margins.

So, I’ll continue to do that. We haven’t seen any interruption, I’ll always watch it. We stay very close to our manufacturers and I’ll continue to create redundancy in the nutraceutical world as well.

Brian Holland:

So, let’s roll this forward. How big is Biote’s addressable market? I’m also curious how far along you are in attacking that opportunity. How would you frame that? And finally, what are you doing to close the gaps between where you are today and where you think you can ultimately get to?

Terry Weber:

Well, Biote for your investors, it’s just we’re really at that growth phase. And one of the things that is so interesting about Biote is even though we’ve already got 300,000 patients and 5,300 providers already in our core area, we haven’t touched the market. So if you were to look at, we talked earlier about the total addressable market in terms of the consumers. Just in the US alone, all the research points to 200 million Americans, 80% untreated. So, you’ve got 47 million women in the US are affected by menopausal symptoms and only 28% are going under treatment. The other issue is… We just talked about men earlier and men’s lack of compliance. Men experience a similar reduction in testosterone between the ages of 30 and 74. So, 40% of men over 45 have these conditions and only 10 to 12% are receiving any kind of testosterone therapy. So, it’s a really big market, not only just the us, but as Biote grows and after we’ve established our deep US market, the international market is a lot of opportunity.

We have 200 successful clinics in Puerto Rico. So, that addressable market is there internationally as well. And then you look at the other side of the coin, is how far have we gotten into those potential providers? What’s the TAM or breakdown on those potential provider market? Well, I talked about 5,300 practitioners. That is less than 2% of our target addressable market. And when I say target addressable market, I’m only talking about a narrow group of practitioners that we target, family practice, OB/GYN, internal medicine, and urology. There’s over 260,000 of those specialists in the US alone. And if you look at our other types of providers that are coming to our training, like cardiologists, functional medicine docs, nurse practitioners, so we’ve added then to that universe can grow up to about 1.2 million potential providers in the US. So, we haven’t even touched it, so big growth market on both the patient and the provider side. So, that’s why this is such an important story and such a growth investment.

Brian Holland:

So, you alluded to, a few moments ago, the franchise model. I’d love to have you conceptualize the financial model at a high level. What are the key drivers and attributes of the financial model going forward that that would allow investors to sort of assess and judge your performance and progress?

Terry Weber:

I think investors are really going to love the way we created this simple business model with long term contracts with our providers. So, one of the wonderful things is a 90% clinic retention rate, and we have long term contracts with those providers. So, we share in the profit from each procedure with the provider. So, the procedure’s done, we share in that profit, and a full 98% either pay through credit card or ACH. We have an incredibly predictable business model. Patients come back two to three times a year over a long span of their midlife area. So, we’ve got this predictable business model and predictable patterns of revenue growth. We’ve got a wonderful FPNA model. With that high clinic retention rate, we’re very capital light. Few operating variables and we’ve expanded with real discipline. So, if you look at our quarter to quarter performance in year over year performance, you’ll see that steady pattern of accelerating growth in both revenue and EBITDA. And as we look at this growth, we talked about that addressable market.

So, you’re really talking about the lever being adding sales people. We’re on track for adding those experienced sales people and we’re going to continue our growth into the white space. So, we couldn’t be more excited about… We’re P&L leverage story, capital light business, quick turn on cash flow and the new territories.

Brian Holland:

And aside from HRT, what other revenue streams exist for Biote today? And can you also tease what what’s in the pipeline?

Terry Weber:

Yeah, so we have trocars, which is small piece of business, education, which we charge for. There’s increasing demand for that. You look at about 20% of our business is dietary supplements, and those are very supportive to this hormone therapy. So, we are always adding. It’s been a very successful business for us, and also a successful business for our providers because it gives them additional income, and then our patients are getting healthier. So we are always evaluating new nutraceuticals. We’ve got a bank of new ones coming out in Q1, and I’m excited to see where that goes. So, you and I are both big fans of the consumer wellness market and we’ll continue to make sure we invest in getting the best products to our patients and providers.

Brian Holland:

The other growth vehicle is obviously scaling the geographic footprint here. I think within the context of everything you gave about the consumer profile, I think one would be inclined to believe that hey, this starts in the Northeast or in California. But really, the core of your business or the core of your consumer base sort of originates in the mid south. As we think about rolling that forward, what are your plans to scale this business?

Terry Weber:

Yeah, so we started in the mid south. We started in Texas and then spread continuously. So, our core market’s about 10 states, but what we’ve seen is we have been adding, since COVID, new sales staff into the northeast, into the west coast. And we really look at taking this geographic scale model we have that’s so predictable and rolling it to all 50 states. But we’re really focusing, just like you said, where probably one should have started if you had the ideal model… West Coast, the Midwest has been a wonderful expansion area for us, mid-Atlantic and then going to the northeast, which was the slowest area to open up after COVID.

Brian Holland:

And just putting this all together, sort of in closing, what is Bio’s financial profile today? If we could just understand kind of what the revenue and EBIDA and CAGR have been. What’s the gross margin on this business, et cetera?

Terry Weber:

So Brian, I think if your investors know that what Biote is all about is this predictability of our whole growth model and how simple it grows forward when you add sales people. And we’re very resilient. Providers and patients really look to keeping this as not an optional to feel their best patients are voting by coming to the clinics, making sure they stay open. We saw that with the hurricanes. People just don’t want to skip anywhere their procedures. So, we’ve really built Biote on top of a robust financial footprint. I’m an operator. We’ve invested in profitable growth, and so you’ll see we have both revenue and EBITDA performance. And so both have been growing at a 20% CAGR since 2019. So, this is very interesting that we’ve got that kind of growth even through COVID. And as I mentioned, our Q3 results on our earnings call early this week, we’re guiding to finish 2022 at the upper range of both revenue and adjusted EBITDA.

So, my forecast is at the upper range revenue between one 60 and 166 and adjusted EBITDA between 47 and 51 million. So we’re an asset light franchise like model, which produces predictable cash flow streams that are really allow us to scale the business profitably in the months and years to come. And one thing we didn’t talk about, Brian, which I’m sorry you didn’t ask about, but what’s the potential for the brand? Biote has absolutely got the potential to grow that brand name in hormone optimization, the years to come. As we go nationally, we believe that Biote will be the name that represents hormone optimization. So, that’s an interesting part of the investment thesis as well.

Brian Holland:

Understood. As we wrap up here, anything else that either we didn’t touch on or any final messages you would want to leave the audience with today?

Terry Weber:

And just looking at the consumer wellness and healthcare trends, I think we’re going in the right direction as a country, Brian, where people are really taking care of their health and demanding that providers know how to help treat them. So, I think this is all going to be exciting for Biote and the US as a whole, as we all get healthier.

Brian Holland:

Great. Terry, I want to thank you so much for your time today. Look forward to watching Biote’s progress. All the best to you and your team. And thanks to all those of you out there who took the time to listen. I hope you found this useful.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of Cowen Insights.


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