Overview
Our long thesis on GoodRx had a number of intersecting drivers. The first was an expectation that the post-COVID return of in person care would drive accelerating prescription volume. We continue to see delayed care and telemedicine, which seems to result in fewer scripts per visit, as a drag on market volumes. Our survey work also suggested the TAM of potential users for drug discount cards was far larger than the uninsured and cash pay populations. Lastly, we expected brands that could attract and retain medical consumers would continue to disrupt and take share from legacy providers. All of that remains reasonably accurate, but we pushed GDRX to the bench as we haven't seen the transaction volume and accelerating MAC growth that we expected from the reopening of the US Medical Economy so far in 2021.
SHIFTING ATTENTION TO PHARMA SERVICES
GoodRx has made a significant effort to turn investors' attention away from their Prescription Transaction business and encourage focus on the Pharma Services business. On the 2Q21 earnings call, management broke out the historic revenue and the mechanics of the model. Their value of providing a pharmaceutical marketing team access to a someone while they are shopping for a medicine seems reasonably obvious. However, GoodRx needs to keep growing its MAC and subscription users to sustain and grow the pharma services revenue. For more detail on the strategy, CLICK HERE to see GDRX's presentation.
3Q21 AND Beyond
Guidance for 3Q21 looks reasonable based on our updated model which includes the recent breakout for subscription and pharma services revenue. Between the acquisition of RxSaver, a less worse trend in app downloads, and Google Trend flat to up, 3Q21 revenue of $200M looks reasonable. However, consensus for 4Q21 looks like more of a stretch, and from there, conditions deteriorate further in 2022. We suspect the Pharma Services revenue contribution won't be able to drive enough revenue to hit consensus in the absence of a material acceleration in MAC growth that consensus is modelling. We still believe it is likely MAC growth will accelerate alongside #ReOpen and pent-up medical utilization, but we haven't yet seen a clear break out with delta variant subduing growth in the shorter term.
EXECUTIVE INSIGHTS
As we noted a couple of weeks ago, CapitalRx is launching a coupon program of its own (strictly fee-based - starting at $0.99), and we were fortunate enough to catch up with CEO AJ Loiacono last week. We vetted the GoodRx/PBM relationships risk during our initial field work on GDRX and came to the conclusion that interests are aligned enough for the status quo to persist. That said, we also think a fixed/flat rate, transparent model vs. all the other programs is a very interesting twist worth monitoring. Here are a few takeaways/comments from our discussion with AJ:
- PBMs have grown-up and tech has improved, a lot has changed over the last few years. Look at the Optum Store - not bad execution there.
- GDRX is a marketing machine - the industry standard for D2C. "They are incredible/the best in health care at D2C marketing."
- A risk is that low-cost operators and resellers will catch up. An analog is retail brokerage commissions, in AJ's opinion. Commissions have gone to $0 even at Chase (it's not just Robinhood).
- HIMS and Zocdoc are two that consumers seem to trust,, for example (everything that goes after them - have to watch HIMS in particular).
- Truepill, 30 Madison, and HIMS - the latter two have full circle fulfillment. People are chasing the "elusive healthcare consumer" and living between funded and unfunded.
- Amazon has yet to find or get up to speed, and we must watch Walmart too.
Key Slides
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Best,
Thomas Tobin
Managing Director
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