ConnectiveRx Deep Dive: PE Perspective on Hub Services

Company Overview

ConnectiveRx is a leading independent provider of outsourced commercialization services to drug manufacturers, headquartered in Whippany, NJ. The company serves 120+ pharma customers across 530+ brands, with relationships with all top-20 pharma companies.

Led by CEO Jim Corrigan (former CEO of ERT, a clinical trial technology company competing with Signant Health), with COO Bob Shambaugh (also ex-ERT) and Chief Development Officer Jim Mahon (ex-ERT). The management team was brought in during 2021 to scale the business through its next growth phase, having previously run a $600M+ revenue business.

Business Model: Three Segments

ConnectiveRx operates across three reporting segments, each addressing a specific pain point in the patient access and drug commercialization journey:

1. Hub Solutions (46% of 2022E revenue, ~$182M LTM Aug-22)

What it does: Tech-enabled call center and web portal that manages the complex reimbursement process for specialty drugs. Two sub-segments:

Hub Services: Benefits verification and prior authorization for patients picking up drugs at pharmacy (self-administered)
Buy & Bill: Reimbursement management for physicians who purchase and administer drugs in-office (e.g., injectables)

Revenue model:

Fixed monthly management fees (41% of segment revenue) — recurring
Transaction fees per reimbursement step (53%) — re-occurring, tied to script volumes
Service fees for implementation and reporting (6%) — one-time
Cash Claims sub-segment (13% of Hub revenue): % spread on transaction value for drugs without insurance coverage in first 12-18 months post-launch

Unit economics:

Small/mid-tier hubs (CRx sweet spot): $2-8M annual contract, 10-75 FTEs at ~$55k/head
Mega hubs: $10-25M annual contract, 100-300+ FTEs (often require in-house pharmacy; less in CRx’s wheelhouse)
FTE breakdown: ~60% call center, ~20% data management, ~5% program management

Growth: 20% CAGR from 2019-2022, the fastest-growing segment. Driven by specialty drug volume growth and share gains from incumbents.

Margins: ~50% gross margin. Hub contribution margin of 24% and FCF margin of 18%, lower than other segments due to heavy FTE and technology investment. Management pursuing margin improvement plan targeting ~3% gross margin expansion through automation (OCR, call bots, electronic BV) and resource pooling (cross-training FTEs across programs; 51% cross-trained, targeting 70%+).

2. Copay (27% of 2022E revenue, ~$116M LTM Aug-22)

What it does: Designs, manages, and distributes pharma-sponsored copay assistance cards that subsidize patients’ out-of-pocket costs. Integrated with pharmacy systems.

Revenue model:

Fixed monthly management fees (25%) — recurring
Transaction fees ~$2.50 per card redemption (69%) — re-occurring
Cash claims (29% of segment revenue): percentage-based on dollars reimbursed
Service fees (6%) — one-time

Growth: 3% CAGR from 2019-LTM, 5% CAGR since 2015. COVID caused a dip in 2020 due to reduced script volumes. ~96% gross retention; losses driven by LOE churn (copay not applicable to generics).

Margins: 71% gross margin, 57% contribution margin, 55% FCF margin. Highly automated with minimal FTE burden.

3. Awareness & Adherence (28% of 2022E revenue, ~$111M LTM Aug-22)

What it does: Sends clinically-relevant messages (e.g., copay assistance availability, hub enrollment links, dosing information) to prescribers and pharmacists through EHR integrations at time of prescribing or dispensing. Reaches ~70% of U.S. HCPs through its EHR network.

Revenue model:

Transaction fees ~$2.00 per message (98%) — non-recurring, 3-month contract buy-ups
Service fees (2%) — one-time
Some customers use A&A as a strategic tool throughout the drug lifecycle (e.g., Januvia spent $15M/year on A&A before patent expiry)

Growth: 13% CAGR since 2019. ~100% net retention despite shorter-term contracts. Post-COVID expansion of EHR partnerships added 150k providers (~30% network increase).

Margins: 47% gross margin, 38% contribution margin, 37% FCF margin. ~50% of revenue is revenue share with EHR partners.

Consolidated Financial Performance

Metric	2019	2020	2021	LTM Aug-22	CAGR (‘19-LTM)
Revenue	$300M	$321M	$381M	$413M	13%
Revenue Growth	8%	7%	19%	15%	—
Gross Profit	$172M	$181M	$212M	$228M	11%
Gross Margin	58%	56%	56%	55%	—
EBITDA	$98M	$100M	$123M	$132M	12%
EBITDA Margin	33%	31%	32%	32%	—
Capex	$12M	$23M	$16M	$20M	—
FCF Conversion	88%	77%	87%	85%	—

EBITDA walk (LTM Aug-22):

Reported EBITDA: $121.6M
Level A EBITDA (with slam-dunk addbacks): $131.0M
Level B EBITDA (with executed pro forma adjustments): $131.7M
Level C EBITDA (with post-transaction savings): $137.5M
Buyside EBITDA: $139.4M

Capex: Growth capex primarily related to Hub platform re-platforming ($5.8M in 2022), Hub CRM ($5.2M), and Enterprise Data Warehouse ($2.9M). Growth capex expected to decline as these initiatives complete. Maintenance capex only ~$6M/year.

Market Positioning

Total Addressable Market

ConnectiveRx addresses a ~$3.0-3.5 billion served market growing 7-9% CAGR (2022-2027E), expected to reach $4.0-5.0B+ by 2027.

Market breakdown by segment (2022):

Hub Services: ~$1.6B (growing 7-9%)
Buy & Bill: ~$0.4B (growing 8-11%)
Copay: ~$0.8B (growing 3-5%)
A&A: ~$0.4B (growing 7-9%)

Market Growth Drivers

Specialty Rx volume growth: Specialty drugs now represent >50% of drug manufacturer net revenue (up from 28% in 2010). Specialty drugs require more wrap-around services.
Rising patient costs: Employer-sponsored deductibles have increased at 4x the pace of worker earnings, increasing need for copay assistance.
Increasing reimbursement hurdles: PBM-induced formulary exclusions (1,156 medications excluded from Big 3 formularies in 2022, up from 109 in 2014) make access support more critical.
Outsourcing penetration: Rates across all service lines projected to increase as payer complexity grows.

Competitive Landscape

CRx is positioned as the leading independent provider with strong capabilities across all core service offerings:

Hub Services: Fast-growing independent platform; competing against larger players who often bundle with specialty pharmacy
Copay: Top-3 provider
A&A: Top-2 market position
Win rates: CRx winning ~40-50% of all business they compete for across services

The company is favorably positioned for bundled sales — while services are typically sold separately, customers indicate increasing willingness to pursue bundled purchasing. CRx is building an Enterprise Data Warehouse to improve data visibility across solutions.

Key Competitive Advantages

Only independent provider with strong capabilities across all three service lines
98% customer retention driven by high switching costs
~4 brands per customer with ~1-2 programs per brand (room for penetration growth)
68% of revenue recurring/re-occurring (monthly management fees + transaction fees tied to script volumes)
Programs for chronic condition specialty drugs drive multi-year revenue visibility

Customer Metrics

120+ pharma customers across 530+ brands
Relationships with all top-20 pharma companies
~98% customer retention overall
100%+ net retention for Hub and A&A segments; ~96% for Copay (LOE-driven churn)

Top customer concentration (2022E):

Novo Nordisk: 13% (Ozempic 4%, Rybelsus 4%)
Amgen: 12%
AbbVie: 8%
UCB: 7%
Genentech: 5%
Top 10 customers: ~65% of revenue
Specialty drugs: 65-77% of revenue (77% excluding A&A segment)

Revenue mix: Hub Solutions 46%, Copay 27%, A&A 28% (shifted from Hub 37%, Copay 36%, A&A 27% at 2019 close)

Growth Strategy

Organic Growth

Hub segment share gains: 38 brand wins in 2021, 31 in YTD Q3-2022. Sweet spot is large pharma’s small/mid-cap assets requiring 10-75 FTE hub programs.
Hub margin improvement: COO-led initiatives targeting ~3.1% gross margin expansion through:
- Resource pooling / cross-training (targeting 85% utilization)
- Tools consolidation (single CRM for case management)
- Electronic benefit verification (eBV) replacing manual FTE processes
- OCR for automated data input ($3.4M annualized savings)
- Call monitoring and bot software ($1.3M savings)
Bundled selling: Leveraging multi-service platform to drive enterprise-level pharma relationships
Clinical pipeline alignment: Business mix overlaps with Phase III clinical assets in Oncology, CNS, Autoimmune, Metabolic/Endocrinology

M&A Strategy (Kohlberg Value Creation Plan)

Priority adjacency: Specialty Pharmacy acquisition to expand Hub addressable market (many mega hubs require in-house pharmacy)
Hub add-on acquisitions for therapeutic area expansion (oncology is primary focus)
Leverage Kohlberg portfolio company Trinity Life Sciences for pipeline intelligence and vendor assessment

LOE Risk Management

Brands facing LOE from 2022-2024 represent ~22% of 2022E revenue
Probability-weighted pipeline coverage of 2.2x for 2022 LOEs and 1.1x for 2023 LOEs
Biologics (a growing share of CRx’s mix) face less generic competition post-LOE, retaining ~50%+ revenue through 2026 per Trinity analysis
A&A exposure is limited by shorter contract terms (3-month buy-ups)

Key Risks

Customer concentration: Top customer (Novo Nordisk) at 13% of revenue; top 5 at ~45%
LOE/patent cliff exposure: 22% of 2022E revenue from drugs with LOE in 2022-2024 window
A&A contract duration: 27% of revenue tied to 3-month contract buy-ups (non-recurring)
Cash claims duration: 14% of revenue from programs lasting 12-18 months
Regulatory risk: Although current federal/state outlook is favorable, changes to drug pricing or copay assistance regulations could impact demand
Hub margins: 50% gross margin with significant FTE cost base; margin improvement depends on execution of automation initiatives
No services for generic drugs: All revenue tied to branded/specialty drug lifecycles

Precedent Transaction Multiples

The IC memo included comparable transactions for pharma services companies:

Company	Buyer	TEV/EBITDA
CareMetx	General Atlantic	25.5x
MMIT	Evaluate	25.0x
GoodRx	Silver Lake	23.3x
Trinity Life Sciences	Kohlberg	22.3x
Medical Knowledge Group	Novo Holdings	22.1x
InTouch Group	Eversana	21.3x
Lockwood	Ares	21.5x
Mean		19.2x
Median		18.8x

Key Takeaways for Rx Almanac

Hub services is a high-growth, high-margin business with strong structural tailwinds. The $3-3.5B TAM growing 7-9% is driven by specialty drug volumes and increasing payer complexity — these trends are accelerating, not decelerating.
The independent hub model is viable and differentiated. CRx proves that a non-pharmacy-affiliated hub provider can win and retain business at scale. The 40-50% win rate and 98% retention validate the competitive moat.
Hub economics are FTE-intensive but improving. The path from 50% to 55% gross margin depends on automation (eBV, OCR, call bots) and resource pooling. This is the central operational challenge for all hub providers.
Copay is a cash cow; A&A is an underappreciated asset. Copay at 71% gross margin and 55% FCF margin is extraordinarily profitable but low-growth. A&A with its EHR network covering 70% of U.S. HCPs is a unique distribution channel.
The market values bundled capabilities. CRx’s positioning as the only independent provider across all three service lines (Hub, Copay, A&A) is its core strategic advantage. Pharma buyers are increasingly willing to consolidate with providers who offer integrated data visibility.
Specialty pharmacy is the key missing piece for hub providers without one. It limits addressable market for mega-hub programs and is the priority M&A adjacency.
PE valuations of 19-25x EBITDA for pharma services companies reflect the mission-critical, recurring-revenue nature of these businesses and the strong growth outlook.

Sources

ConnectiveRx Investment Committee #1 Memo, HP SCF / Stone Canyon, October 31, 2022
ConnectiveRx Investment Committee #2 Memo, HP SCF / Stone Canyon, November 7, 2022
Capstone regulatory outlook analysis (referenced in IC #2)
Trinity Life Sciences LOE and pipeline analysis (referenced in IC #2)