OptimizeRx Corporation (OPRX)

Transcription

1 MERRIMAN CAPITAL With Its Burgeoning Network Of Physicians, OPRX Is Poised To Ride The E-Prescription Wave; Initiate At BUY Brian Murphy (646) July 14, 2014 Key Metrics Price: $1.30 Price Target: $ Week Range: $0.86-$2.12 Cash (M): $4.0 Debt (M): $0.0 Net Cash/Share: $0.24 Book Value/Share: $0.20 Market Data Market Cap (M): $30.4 Enterprise Value (M): $26.4 Shares Out (M): 14.8 Float (M): Day Avg. Vol: 48,404.0 Merriman Estimates Sales (M) EPS Stock Performance FY13A FY14E FY15E 1Q -- $1.4A -- 2Q -- $ Q -- $ Q -- $ FY (Dec) $5.0 $7.6 $15.1 EV/S 5.3x 3.5x 1.7x 1Q -- $(0.04)A -- 2Q -- $ Q -- $ Q -- $ FY (Dec) $0.01 $0.02 $0.13 Company Description Founded by a group of pharmaceutical industry veterans, OPRX develops software solutions for the health care industry to facilitate information exchange between pharmaceutical manufacturers and physicians, thereby improving affordable medication delivery and adherence to patients. Investment Conclusion OptimizeRx Corporation provides software solutions that offer pharmaceutical manufacturers direct-to-physician channels for communicating and promoting their products. OPRX's flagship product - SampleMD - allows doctors to access sample vouchers, co-pay coupons, and other patient support through their e-prescribe systems to search, print, or electronically dispense drug samples directly to patients, as well as a network of pharmacies. With the company aggressively expanding channel distribution and substantial operating leverage set to manifest on the P&L in 2H:14, we think OPRX shares are poised to rally. We initiate coverage of OPRX with a BUY rating and $3.00 price target, which is based on 23x our 2015 EPS estimate of $0.13. Investment Summary OPRX s value proposition is aligned well with industry trends and addresses important gaps in the market. As various factors have conspired to restrict the physical access of pharmaceutical reps to physicians over the past five years, OPRX has established a broad-based on-line channel for pharmaceutical manufacturers to interact directly with more than 200,000 doctors. OPRX's "e-coupon" solution dovetails with the rapid adoption of e-prescription systems by allowing pharmaceutical manufacturers to promote their drugs via these systems and, hence, directly within a physician's electronic prescription workflow environment. OPRX is rapidly expanding distribution capacity and expects to reach nearly 400,000 physicians by After years of laying the foundation for its distribution network via integration with more than 350 electronic health/medical record (EHR/EMR) software vendors, OPRX is rapidly scaling client accounts (roughly 65 pharmaceutical brands) and its revenue base (up nearly 150% in 2013). With additional distribution agreements with Quest Diagnostics (Care360) (DGX, $59.40, NR), Nexgen Pharma, and LDM Group set to ramp up in 2H:14, we think OPRX's channel partnerships will extend to nearly 400,000 physicians by OPRX has ample headroom to grow within existing accounts and its technology is extensible into adjacent markets. With the pharmaceutical industry spending $15 billion annually on field reps and about $6 billion on drug samples, we think OPRX is well positioned to garner a much larger percentage of its clients' promotional budgets, particularly as the aggregate number of e-prescriptions is expected to grow at a 25% compound annual growth rate to 2 billion by OPRX also has the opportunity to extend its existing technology into adjacent vertical markets with similar intermediation and value-proposition characteristics, such as the veterinary market, where management sees an incremental $10 million revenue opportunity around prescriptions for heartworm medication alone. OPRX has a debt-free balance sheet and generates positive cash flow. Post a $10 million capital raise in March, OPRX finished 1Q:14 with $4 million in cash and no debt on the balance sheet. The financing allow OPRX to simplify its capital structure and reduce its share count by 7.3 million shares. Additionally, the company has minimal capital spending requirements and is cash flow positive (OPRX generated $1.1 million in operating cash flow in 2013). We initiate coverage of OPRX with a BUY rating and a $3.00 price target, which is based on 23x our 2015 EPS estimate of $0.13 (assuming 29 million shares outstanding in 2015). See pages 9 and 10 for Valuation and Risks 0.5 JUL-13 NOV-13 MAR-14 JUL-14 PLEASE SEE IMPORTANT DISCLOSURES ON PAGE(S) OF THIS REPORT 250 Montgomery Street, 16th Floor, San Francisco, CA (415) Main (415) Fax (800) Trading - twitter - OTCQX: MERR Member FINRA/SIPC

2 Company overview OptimizeRx Corporation incorporated in the State of Michigan in October, 2007 and came public via a reverse merger in April, Founded by a group of pharmaceutical industry veterans, OPRX develops software solutions for the health care industry to facilitate information exchange between pharmaceutical manufacturers and physicians, thereby improving affordable medication delivery and adherence to patients. Piggybacking on the boom in eprescribing, OPRX pioneered e-coupons for pharmaceuticals. The company originally offered advertising programs to pharmaceutical and healthcare companies through its consumer website, OptimizeRx.com, but quickly pivoted to providing direct-to-physician software solutions via its flagship application - SampleMD. With SampleMD, pharmaceutical and healthcare companies can expand physician (and patient) awareness and understanding of branded medications with sample trial vouchers and co-pay coupons made available directly to physicians in a user-friendly, searchable format integrated into physicians' e-prescribing or Electronic Medical Records (EMR) applications. OPRX's management team boasts a wealth of relevant industry experience and functional expertise. Operating at the nexus of software development and pharmaceutical marketing, OPRX's management team possesses an abundance of practical industry experience and applicable domain expertise. David Harrell, OPRX's Chairman and Founder, has a deep background in both healthcare advertising (where he ran business development for a top-40 healthcare advertising agency) and pharmaceutical sales, including ten years at SmithKline Beecham. David Lester, COO, has an extensive background in product marketing and software development, including stints at Deloitte and Sun Microsystems. While Terry Hamilton, Director and VP of Sales, has nearly 20 years of experience in pharmaceutical sales and marketing, including as National Account Manager at Glaxo SmithKline pharmaceuticals. Industry overview Disruptions to traditional methods of drug promotion. The pharmaceutical industry's legacy system for promoting branded drugs relied heavily on fielding armies of highly-paid drug reps to call on doctors to deliver samples, vouchers, and coupons for their drugs. These face-to-face interactions were an important mode of building awareness for and transmitting information about new drugs for physicians to consider when prescribing treatments to patients. Referred to in industry parlance as "detailing", this practice by pharmaceutical reps is designed, ultimately, to increase prescriptions of their respective drug brands. However, due to a confluence of economic, technological, and regulatory factors, interaction dynamics between pharmaceutical reps and doctors have changed significantly over the past 5 years. In 2008, the Pharmaceutical Research and Manufacturers of America (PhRMA) revised its code of ethics for pharmaceutical companies, restricting gifts and services to doctors unless they were educationally related. Thus, there were fewer perks and fringe benefits associated with taking calls from drug reps. At the same time, the advent of managed care imposed more time constraints on physicians, while an aging population intensified demand for medical care. In fact, the American Association of Medical Colleges (AAMC) estimates that the United States faces a shortage of nearly 100,000 physicians by 2020 (Exhibit 1.). Thus, the coincidence of increasingly timepoor doctors with diminished incentives to see pharmaceutical reps made it more challenging for pharmaceutical manufacturers to influence prescribing behavior. Exhibit 1. Source: Association of American Medical Colleges July 14,

3 In early 2013, the Centers For Medicare and Medicaid Services (CMS) released their final regulations on the Physician Payment Sunshine Act that was passed in 2010 as a part of healthcare reform. The PPSA or Sunshine Act mandates that any manufacturer of medical supplies, medical equipment or pharmaceuticals will disclose to the Department of Health and Human Services (DHHS) any payments, gifts, or transfers of value over $10. In order to provide more sunshine on any financial relationships, direct or indirect, between healthcare providers and manufacturers, a database of transaction disclosures was also to be made publicly available. Pharmaceutical reps face increasingly restricted access to physicians. With growing patient requirements constraining the free time of physicians and with a growing regulatory burden to disclose their interactions with drug reps, it follows that doctors have increasingly restricted access to pharmaceutical representatives. Today, nearly 60% of doctors offices restrict or ban access of drug representatives to their practices. This is up from just 23%, in 2008, according to CMI/Compass. Paradoxically, physicians continue to indicate that they value information and samples from pharmaceutical manufacturers as a means to increase affordable access and adherence to their prescribed branded medications. According to a 2012 CMI/Compass study (Promotional Access and Preferences of Physicians) that asked what features would be helpful if integrated into an Electronic Health Record (EHR) system, physicians across 9 of 10 specialties placed the highest value on samples and vouchers. Thus, doctors continue to value information from pharmaceutical manufacturers. However, they appear to prefer an alternative mode of access. reform promotes automation and fosters rapid adoption of EHR/EMR systems. Ballooning healthcare costs, as well as looming reforms and various regulatory incentives, have spurred a wave of efficiency-oriented technology investment over the past five years. In 2008, pharmacies and the largest pharmacy benefit managers (PBMs) came together to create a shared information infrastructure (under Surescripts) designed to boost the number of electronic prescriptions and reduce medication errors. At the same time, the Obama Administration was actively stimulating automation in the healthcare industry to generate cost savings. The 2009 HITECH Act subsidizes the purchase of electronic health records with financial incentives for the meaningful use of certified EHR technology. To receive an EHR incentive payment, providers are required to demonstrate that they are meaningfully using EHR technology by meeting certain measurement thresholds that range from recording patient information as structured data to exchanging summary care records. These policies helped to create a boom of EHR/EMR software adoption, which, combined with the new e- prescription network capacity provided by Surescripts, generated a surge in e-prescription activity (Exhibit 2.). Exhibit 2. 58% of all eligible prescriptions were routed on the Surescripts network in 2013 Source: Surescripts 2013 National Progress Report and Safe-Rx Rankings Pharma's promotional spending mix will likely shift toward alternative vehicles to reflect changing behavioral patterns. According to Cegedim Strategic Data (Exhibit 3.), the pharmaceutical industry spent more than $27 billion on drug promotions in 2012, including $15 billion on field reps ("Detailing") and nearly $6 billion on samples. With the rapid shift to e-prescribing and the proliferation July 14,

4 of EHR/EMR technology, these software systems are increasingly becoming the primary workflow environments for physicians. As field reps endure increasingly restricted face-to-face access, reaching physicians through alternatives methods is a growing necessity. Exhibit 3. SampleMD - how it works. With SampleMD, physicians can search, review, and print sample trial vouchers and co-pay coupons on behalf of their patients. The application can run stand alone on a doctor's desktop, but typically is integrated (via downloadable APIs and simple web services) with the physicians' EHR/EMR software (or e-prescription system). OPRX partners with most major EHR/ EMR vendors to provide this functionality. OPRX's rule-based technology helps physicians find the appropriate voucher or co-pay depending on a pharmaceutical manufacturer's predetermined rules regarding patient eligibility. Offers can be segmented based on geography, patient age, gender, physician specialty or certain unique characteristics. Via eprescription, vouchers and coupons selected by the physician are automatically sent to the pharmacy, where the patient then redeems and fills the prescriptions. Meanwhile, OPRX tracks and reports all impressions, printed prescriptions, electronic transferred coupons and redemptions. Each time an ecoupon or voucher is distributed to a patient or the patient's selected pharmacy, the relevant pharmaceutical manufacture pays OPRX $4-$5 and OPRX awards the appropriate EHR/EMR software partner with a 40%-50% share of the revenue. OPRX also offers a direct-to-consumer website - Optimerx.com, which provides consumers/patients with a centralized portal for aggregated healthcare savings information and access to various prescription and support savings programs. To date, the company has registered over 2.4 million members. OPRX's value proposition is tightly aligned with industry trends and the interests of all constituencies in the prescription process. OPRX's flagship product, SampleMD, is a software platform that allows pharmaceutical companies to replace traditional drug samples by automating the delivery of co-pay savings and sample voucher offers directly into a doctor's electronic prescribing workflow. Via SampleMD, OPRX already has extensive capacity to deliver targeted promotional and incentive messaging to roughly 200,000 physicians and healthcare professionals at "point of prescription" through interoperability with more than 350 EHR/EMR software vendors, including leading players like Allscripts, Dr. First, Quest Diagnostics, and Nexgen Pharma. Additionally, OPRX's patented rules-based technology can customize the delivery of product information, savings and educational support by physician and patient type, providing pharmaceutical manufacturers a direct-to-physician channel for communicating targeted promotions at the optimal point and time in the prescription process. Moreover, with automated tracking of delivery and redemption, pharmaceutical companies can accurately measure the return on various promotional activities. For physicians, SampleMD provides important information regarding drugs and relevant financial assistance available to patients, allowing doctors to choose their preferred drug while maintaining adherence to medication regimens. SampleMD is a virtual "Patient Support Center" that allows doctors access to a universe of sample vouchers and co-pay coupons (through most EMRs and e-prescribe July 14,

5 systems) to search, print or electronically route directly to patients and a national network of pharmacies. Moreover, SampleMD eliminates the need for physicians to manage and store physical drug samples by offering a more convenient and efficient way to allocate, administer and track samples and co-pay savings provided to their patients. For channel partners, SampleMD provides complimentary and coveted functionality to EHR/EMR systems, as well as incremental revenue that can be generated from existing EHR/EMR system installations. Integration of SampleMD with EHR/EMR systems is relatively seamless, requiring just a few web services calls. For patients, it provides overall lower cost of prescriptions, improving adherence and outcomes. For pharmacists, it provides instant notification to avoid re-doing claims. Overall, SampleMD serves the economic interests of all process stakeholders, notably without threatening the interests of a powerful incumbent system provider. The following illustration (Exhibit 4.), drawn from OPRX's U.S. patent documents, compares SampleMD's value proposition with legacy processes for providing drug samples. Exhibit 4. Source: U.S. Patent Documents July 14,

6 Growth opportunities The shift toward e-prescribing provides a powerful secular tailwind for OPRX's organic growth. With government initiatives driving adoption and more than 70% (Exhibit 5.) of healthcare providers now e-prescribing, the number of e-prescriptions has grown from just 68 million in 2008 to more than 1 billion in Surescripts estimates that the e-prescriptions will double by 2016 (Exhibit 6.), a compound annual growth rate of more than 25%. Exhibit 5. Exhibit 6. Source: Company presentation Additional channel partners extend OPRX's reach. OPRX continues to build out its leading network of physicians, which comprises roughly 200,000 healthcare professionals. The company recently signed an agreement with Physicians Desk Reference (PDR) to embed SampleMD into PDR's downloadable applications used in physicians offices. PDR has a vast user base, which extends OPRX's reach by upwards of 100,000 doctors. In March, 2014, OPRX struck an agreement to integrate its capabilities with Quest Diagnostics' EMR and e-prescribing systems, which would immediately extend OPRX's reach to an additional 30,000 doctors. In addition, the company sees opportunities to embed (via widget technology, etc.) its functionality more broadly into Quest's vast healthcare network. July 14,

7 OPRX already has over 20 leading pharmaceutical clients and approximately 65 brands on its platform. OPRX has quickly attracted a critical mass of leading pharmaceutical clients (Exhibit 7.) and marquis brands to its technology platform. As OPRX continues to broaden its distribution coverage of physicians, we think the company's large base of reference-able customers will facilitate continued growth of its pharmaceutical customer list. Additionally, with account penetration of most of these customers still in the early innings, OPRX appears to have considerable green field to grow within its current account base by gaining more wallet share of these customers' massive promotional budgets. Revenue from OPRX's largest customer already approached $2 million in 2013, which illustrates the ample headroom OPRX has to grow in its existing account base. Exhibit 7. Source: Company presentation OPRX's existing technology platform is extensible into adjacent markets. With a firm beach head already established in the physician's workflow, OPRX is identifying opportunities to extend its existing technology into adjacent markets that have similar intermediation opportunities and value-proposition characteristics. In April 2014, OPRX launched "VoucherDVM" to help veterinarians provide automated savings on pet medication. The size of the pet care market in the U.S. is pegged in the vicinity of $50 billion, with veterinarians facing the same types of challenges that doctors face with respect to prescribing drugs. Competition from online pet pharmacies and big box retailers has pressured veterinary profit margins and complicated relationships between veterinarians and the pharmaceutical representatives who call on them. Powered by OPTIMIZERx's proprietary SampleMD platform, VoucherDVM provides a proven, efficient way for animal product manufacturers to offer automated savings to veterinarians and their customers to encourage more affordable and convenient point-ofcare purchases for their products. At the same time, the system allows veterinary practices to provide significant savings to customers and compete more effectively with online pharmacies and third party pet retailers. As with SampleMD, VoucherDVM integrates easily into veterinary practice management software or via a downloadable desktop application, providing a presence in daily workflow of practitioners. The company is already in discussions with leading platforms with opportunities to roll out on an national and international basis. Though opportunities in the veterinary space remain in the early stages, OPRX management thinks they have a $10 million revenue opportunity around Heartworm prescriptions alone. New professional services capabilities should help build switching costs over time, while patent protection raises barriers to entry. OPRX has recently launched a consulting practice - OPTIMIZEHR, which educates and assists pharmaceutical manufacturers with identifying, formulating, and implementing new erx media strategies for promoting their respective products. Soon after the launch of this offering, OPRX secured engagements with high-profile customers, including Lilly and Astellas. We think such engagements will facilitate greater customer use of OPRX's products, strengthen the connective tissue between OPRX's systems and its customers' promotional activities, and help build switching costs over time. A recent tie up between OPRX and WPP/Grey Group helps to strengthen OPRX's consulting capabilities, including expertise in developing and launching EHR strategic promotional and implementation plans. In 4Q:12, OPRX was awarded a patent for its SampleMD solution (US Patent No. 8,341,015). The awarded claims cover the company's ability to electronically process, display and distribute eligible prescription savings on the medications and therapies healthcare providers July 14,

8 wish to prescribe for their patients. OPRX is working with Harness, Dickey & Pierce, a nationally ranked IP firm, to further expand and protect its intellectual property. With OPRX's early lead in the space, these efforts to fortify its IP portfolio should help OPRX erect barriers to entry into its niche. After years of laying the foundation for growth, OPRX is demonstrating strong momentum in its core business metrics. OPRX's revenue growth is driven primarily by its SampleMD content delivery solution. In 2013, OPRX delivered more than 1.1 million new eprescriptions with co-pay coupons or free sample vouchers (Exhibit 8.), more than 4x the number delivered in Consequently, revenue grew 150% to nearly $5 million in With incremental revenue growth requiring little in the way of additional operating expenses, OPEX increased just 30% in 2013, demonstrating the substantial operating leverage inherent in OPRX's business model. Exhibit 8. Source: Company presentation Financials Recent results have been strong. Revenue grew nearly 150% in 2013 to $5 million, as OPRX's e-prescription transactions more than quadrupled to approximately 1.1 million. We estimate that roughly 70% of OPRX's revenue is currently related to e-prescription prints, with the remaining 30% of revenue related to system installation and set up. The substantial operating leverage inherent in OPRX's business model was manifest in 2013, as operating expenses grew just 28% allowing the company to post a modest operating profit of $216,000 and EPS of a penny, compared to a loss per share of $0.03 in In 1Q:14, OPRX posted revenue of $1.3 million, up 97% versus the prior year, despite some significant account-related hiccups that shaved at least $400,000 (by our estimate) from the top line, during the March quarter. Specifically, Alcon-Novartis, one of OPRX's largest clients temporarily halted their program (for the entirety of 1Q:14) to study the program's promotional impact and return on investment. Additionally, Allscripts (NASDAQ: MDRX, $15.75, NR), OPRX's largest EHR channel partner, was offline for about a month, during 1Q:14, as it resolved some HIPPA-related compliance issues. Both of these issues, however, were favorably resolved, as Alcon- Novartis subsequently confirmed (via an independent analytics firm) an ROI high enough for Alcon to later tout the results at an annual Pharmaceutical EHR conference. Meanwhile, Allscripts eventually resolved its compliance and related technology issues in such a way that additional benefits are set to accrue to OPRX. Namely, Allscripts began activating SampleMD's ecoupon automation unless July 14,

9 healthcare providers specifically opt out of the feature (this function was previously "opt in"). OPRX management estimated that once this process is completed, Allscripts opt-out function could extend OPRX's reach to an additional 20,000 physicians. On the expense side in 1Q:14, a one-time payment of $400,000 to LDM Group to settle an intellectual property dispute accounted for half of OPRX's $0.04 loss per share in the March-quarter, while non-cash stock-based compensation awards of $422,000 reduced bottom line results by $0.03. The LDM settlement grants LDM a 10% royalty on e-prescription transaction revenue, which will be recognized in revenue share expense. However, the agreement provides OPRX with promotional access to an additional 100,000 new healthcare providers via LDM's network. Thus, the LDM settlement removes OPRX's litigation overhang (and related expense) and substantially expands OPRX's market reach, in exchange for a share of e-prescription sales. The fundamental outlook looks promising. Supported by the secular tailwind of an estimated 25% compound annual growth in e-prescriptions (to a projected 2 billion aggregate e-prescriptions by 2016), we expect OPRX's revenue to grow in excess of 50% in 2014 to $7.6 million, over a tough growth comparison with Factoring the 10% royalty to LDM, we anticipate that OPRX's gross margin will decrease to roughly 55% for the remainder of 2014, compared to 62% in 1Q:14 and 64% for full-year However, due to OPRX's high operating leverage, we think the company can aggressively scale its top line with relatively modest incremental increases to its expense base. We model full-year 2013 expense growth of 32% (including the substantial one-time payment to LDM), which will help OPRX exit 2014 with a healthy operating margin and full-year 2014 EPS of $0.02, in our view. In 2015, we look for OPRX's new distribution agreements, which should come online in 2H:14, to be fully ramped up. Additionally, we expect OPRX's foray into the veterinary market to begin to bear fruit and to contribute modestly to full-year 2015 results. With the benefit of this added distribution capacity and fresh addressable market opportunities, we think e-prescription distributions can double to roughly 3.6 million, over the approximately 1.8 million distributions we model for 2014 (e-prescription distributions in 2013, totaled 1.1 million). In addition to this sharp increase in e-prescription transaction related revenue, we think OPRX's recently-formed professional services business will begin to make meaningful contributions to top-line growth. Overall, we model revenue growth of 99% (to $15.1 million) in We expect the gross margin to remain stable in the 55% range, but we think the surge in revenue that we forecast can be supported with relatively modest incremental operating expenditures (up just 12% over 2014, by our model). As such, we look for operating income to grow more than ten fold to $3.7 million, yielding full-year 2015 EPS of $0.13. The balance sheet is in relatively good shape and OPRX is generating cash. Post a $10 million capital raise in March, 2014 that allowed OPRX to exercise a buyout option with Vicis Master Capital Fund to redeem its convertible stock holdings and warrants, OPRX now has a much cleaner capital structure and fewer fully diluted shares. In addition to reducing the share count by 7.3 million shares, the deal also added $3 million to OPRX's debt-free balance sheet. At quarter-end 1Q:14, OPRX had $4 million in net cash. OPRX has relatively modest capital spending requirements and is cash flow positive. The company generated $1.1 million in operating cash flow in 2013 and $227,000 in 1Q:14, despite the customer hiccups noted above, as well as the large one-time payout to LDM. Going forward, we think OPRX's cash flow from operations will be sufficient to fund growth initiatives. Valuation To value OPRX, we consider the company's growth opportunity and margin profile, as well as its early leadership in a rapidly growing niche market. We think OPRX's growth opportunity is closely tied to the secular growth in e-prescriptions, as well as the continued adoption of EMR systems. For purposes of comparative valuation, we note that OPRX has no publicly-traded, pure-play peer. As such, our peer group contains publicly-traded (mostly small-cap) companies in the EMR space with gross margin profiles similar to OPRX (Table 1.). Our peer group currently garners an average forward P/E multiple of 23x. Given that we think OPRX's superior revenue growth profile and operating leverage offsets the risk of its relatively smaller size and earlier stage of maturation, we value OPRX using an in-line multiple with our peer group. Thus, our $3.00 price target is based on 23x our 2015 EPS estimate of $0.13 (assuming an estimated share count of 29 million in 2015). Over the past year, OPRX has traded in a range of $ $2.12 and the stock currently trade roughly 35% off its 52-week high. With more than 100% upside to our price target, we initiate OPRX with a BUY rating. July 14,

10 Risks that could impede the realization of our price target The company is small with limited resources. Loss of key management personnel could detract from the company's operational capability. Encroachment on OPRX's technology and value proposition by EHR/EMR software channel partners or pharmaceutical customers could pressure margins and impede sales growth. OPRX faces potential litigation risk surrounding its proprietary technology. Customer concentration is high, with two customers accounting for 58% of sales in 2013 and three customers that accounted for 44% of revenue in 1Q:14. Unfavorable consolidation in the EHR/EMR space (i.e. OPRX channel partners acquired by vendors who do not utilize OPRX' technology) could cause potential disruption for OPRX's distribution capacity. July 14,

11 Optimizerx Corp., (OPRX) Income Statement ($000s except per share data) MarA Jun Sep Dec Net revenue 1,112 1,989 4,957 1,317 1,575 1,995 2,730 7,617 15,120 Revenue share expense NM 115 1, ,229 3,334 6,804 Gross profit NM 1,874 3, ,097 1,502 4,284 8,316 Advertising Professional fees ,000 Consulting Salaries, wages and benefits 865 1,184 1, ,499 1,750 Rent Depreciation and amortization Stock-based compensation General and administrative Other Total operating expense 2,565 2,329 2,974 1, ,912 4,400 Operating Income (1,454) (455) 216 (653) ,916 Total other income (expense) (667) Pretax income (loss) (2,121) (455) 215 (653) ,066 Income tax benefit (expense) (387) Net income (loss) (2,121) (455) 215 (653) ,679 Diluted EPS ($0.15) ($0.03) $0.01 ($0.04) $0.01 $0.01 $0.02 $0.02 $0.13 Diluted share count 13,922 14,211 14,713 16,684 25,000 26,000 27,000 23,671 29,000 Growth (year over year) Sales growth NM 79.0% 149.2% 96.8% 42.7% 45.3% 50.8% 53.7% 98.5% Operating expense growth NM -9% 28% 101% -8% -41% NM 32% 12% % of sales Gross margin NM 94% 64% 62% 55% 55% 55% 56% 55% Operating expense 230.8% 117.1% 60.0% 111.7% 43.8% 40.4% 34.6% 51.4% 29.1% Operating Income % -22.9% 4.3% -49.6% 11.2% 14.6% 20.4% 4.9% 25.9% *Source: Company reports and Merriman Capital estimates July 14,

12 Optimizerx Corp. (OPRX - Balance Sheet) Mar Jun Sep 2013 MarA Balance Sheet ($000s except per share data) Cash and cash equivalents ,118 4,031 Accounts receivable ,149 1,567 1,111 Prepaid expenses Other current assets Total current assets 1, ,348 1,662 2,697 5,154 Property and equipment, net Patent rights Web development costs, net Security deposits Other assets Total assets 2,892 2,175 2,142 2,496 2,824 4,008 6,515 Accounts payable-trade Accounts payable-related party Accrued expenses Revenue share payable , Deferred revenue Other Total current liabilities 1, ,969 1,913 Total liabilities 1, ,983 1,913 Common stock Stock warrants 20,827 20,058 20,058 20,058 18,317 18,148 3,148 Additional paid-in capital 5,126 6,165 6,165 6,204 8,449 8,727 27,156 Deferred stock compensation (233) (234) (454) Accumulated deficit (24,378) (24,832) (24,846) (24,492) (24,481) (24,616) (25,270) Total stockholders' equity 1,589 1,405 1,391 1,784 2,066 2,039 4,603 Total liabilities and stockholders' deficit 2,892 2,175 2,142 2,496 2,824 4,008 6,515 *Source: Company filings & Merriman estimates July 14,

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Research analysts are not directly compensated for specific revenue generated by the firm s investment banking transactions/activities. General Disclosures Merriman Capital, Inc. expects to receive or intends to seek compensation for investment banking services from all of the companies in its research universe in the next three months. Investors should assume that Merriman Capital, Inc. is soliciting or will solicit investment banking or other business relationships from the company covered in this report over the next three months. Security prices in this report may either reflect the previous day s closing price or an intraday price, depending on the time of distribution. Designated trademarks and brands are the property of their respective owners. Specific Disclosures OptimizeRx Corporation currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Merriman Capital. Merriman Capital provided non-investment banking securities-related services and non-securities services to OptimizeRx Corporation. July 14,

14 Merriman Capital has coordinated research coverage for OptimizeRx Corporation. The research reflects the independent opinion of the research analyst and Merriman Capital has not represented to OptimizeRx Corporation that the research will recommend an investment in OptimizeRx Corporation s securities or be otherwise favorable to OptimizeRx Corporation. OptimizeRx Corporation currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Merriman Capital. Merriman Capital provided investment banking securities-related services to OptimizeRx Corporation. Merriman Capital has coordinated research coverage for OptimizeRx Corporation. The research reflects the independent opinion of the research analyst and Merriman Capital has not represented to OptimizeRx Corporation that the research will recommend an investment in OptimizeRx Corporation s securities or be otherwise favorable to OptimizeRx Corporation. Merriman Capital received compensation for products or services other than investment banking services from OptimizeRx Corporation in the past 12 months, including, among other things, corporate services and advice on strategic initiatives, financing solutions, capital structure and publishing research. Merriman Capital Inc or its affiliates expects to receive or intends to seek compensation for investment banking services from OptimizeRx Corporation in the next 3 months. Merriman Capital, Inc. has received compensation for investment banking services within the last 12 months from OptimizeRx Corporation. Key to investment Ratings (expected total share price return inclusive of dividend reinvestment, if applicable). As of February 1, 2013 Merriman Capital LLC added Speculative into its rating system. As of December 23, 2013 Merriman Capital LLC added Unrated into its rating system. : Merriman Capital, Inc. expects the stock price to appreciate 10% or more over the next 12 months. Initiate or increase position. Speculative : Merriman Capital, Inc. believes the stock price could appreciate 15% or more over the next months if anticipated contingencies materialize, however, investors are cautioned that initiating or increasing a position presents a significantly higher degree of risk than our recommendation. Neutral: Merriman Capital, Inc. believes the stock price is fairly valued at current levels. Maintain position or take no action. Sell: Merriman Capital, Inc. expects the stock price to depreciate 10% or more over the next 12 months. Sell or decrease position. Unrated: Merriman Capital, Inc. currently has no opinion regarding the future price of this stock. Investors are cautioned that initiating or increasing a position in such a security presents a significantly high degree of risk and may be unsuitable for certain investors depending on their risk profile. Ratings Distribution & Investment Banking Disclosure Rating Count Ratings Distribution Count *Investment Banking % % Spec % 0 0% Neutral % 0 0% Sell % 0 0% Unrated % 0 0% * Percent of companies under research coverage from which Merriman Capital, Inc. received compensation for investment banking services provided in the previous 12 months or expects to receive or intends to seek in the next three months Merriman Capital, Inc. archives and reviews outgoing and incoming . Such may be produced at the request of regulators. Sender accepts no liability for any errors or omissions arising as a result of transmission. Use by other than intended recipients is prohibited. The information contained herein is based on information obtained from sources believed to be reliable but is neither all-inclusive nor July 14,

15 guaranteed by Merriman Capital, Inc. No independent verification has been made as to the accuracy or completeness of the information. Opinions, if any, reflect our judgment at the time the report is first published and are subject to change without notice. Merriman Capital, Inc. does not undertake to advise you of changes in its opinion or information. Member FINRA/SIPC. Copyright All rights reserved. Additional information supporting the statements in this report is available upon request. July 14,