Overview
We spoke to a pharmacy industry veteran with 20+ years' experience working in and around the ecosystem in which GoodRx operates (PBMs, e-prescribing/automating pharmacy, messaging, drug selection, and data), including Blink Health, among others. The drug discount marketplace was born out of the need for lower cost medications, and GDRX has been able to capitalize on the inefficiencies in the pharmacy market since its inception (2011). With the imminent IPO, GDRX looks like a relatively “safe” bet due to its brand and market position. There are risks, including increasing competition and disintermediation, but if GDRX can execute on its pharma strategy, position itself properly with/for RTB (real-time benefit) adoption, and round out its offering with telehealth (the HeyDoctor acquisition looks like a very smart/timely deal), then there will be a lot to talk about (and, GDRX could become an attractive target for a larger PBM or disruptive player like Amazon or Walmart).
Field Notes
The drug discount marketplace born out of the need for access to lower cost medications; pharmacy benefit programs have failed consumers/patients. The structure of pharmacy benefit programs has been the issue (consumers pay more – deductible and copays are up precipitously over several year and remain at high levels). Drug costs, led by specialty, are up. And, as everyone knows, specialty is still a big issue (over 70% of the growth in spend – can’t ignore it).
- GoodRx, WellRx, SingleCare, etc. (other competitors include Optum Perks, RxSaver) are all growing due to the need for lower cost medications, especially generics.
- In most cases, patients that use these apps/services have a drug benefit (they can still get the Rx for a lower cost using the app).
- The situation is not likely to change – growth is expected to continue.
GDRX and Blink contract with pharmacies – chains and independents – for prices but have different approaches.
- GoodRx took the “let’s have as large a network as we can” approach because there are different price points for different pharmacies and chains. Users take the coupon in to the pharmacy to pick up a lisinopril script, for example, then pay $X (whatever the price is).
- Blink offers a consistent experience – lisinopril is $8, and if you want it that’s the price. Also, users pay Blink and take the proof of payment to the pharmacy. It’s an engagement play.
Why do business with GoodRx vs. the others?
- For pharmacies, PBMs offer high volume but lower price points and less profit for pharmacies. In many cases, pharmacies are losing money to get foot traffic. GoodRx is a less efficient buyer but pays better. Branded prices are still high. It’s primarily a generic play.
- That said, GoodRx is focusing their pharma strategy on partnerships to provide discounts. It could be similar to ConnectiveRx.
- Consumers use it despite it being “off-benefit” because most consumers don’t meet the deductible anyway – it’s a “false goal.” The GoodRx payments don’t contribute to deductibles, but HSAs can be used to pay and grab immediate savings.
- There’s value to a PBM for GoodRx to fulfill drugs that might have gone on the drug spend of the PBM – it keeps it off the books.
Could anything change to disrupt GoodRx’s growth?
- The pricing dynamics aren’t expected to change, so it depends on how successful GDRX is with gaining share. They say that over 10MM Americans visit the app and over 4MM use it ever month – that’s a “drop in the bucket” vs. the share of the big PBMs (Express, CVS, Optum – still have ~80% of the market).
- Growth of CapitalRx and other smaller, regional PBMs is slowly eroding the Big 3’s share. CapitalRx with Walmart is interesting – acting as a fiduciary on behalf of clients (none of the big PBMs are). So, they cannot do anything that would take away from the profitability or perspectives of clients. Transparency is mandatory (it’s a very high burden and permeates throughout the organization). There are no mixed incentives - the Big PBMs w/ specialty Rx hubs are still not transparent.
- Specialty is super important in a fiduciary model. The flow of effective but high-price drugs is expected to continue (look at the drugs up for approval by the FDA) – this category will continue to grow and could reach 75% of spend within 5-10 years.
- Generics become more of a commodity = more of an opportunity for GDRX and others to carve them out.
- People want to contract w/ GDRX – direct competition for PBMs, and the pivot toward specialty w/ pharma programs turns it into a different animal (evolves into a direct competition role – this is the natural evolution).
- The biggest risk to growth is growth – if GoodRx, SingleCare, etc. become more significant players, they’ll likely be acquired.
- If GDRX can plug into that substantial PBM margin, it wouldn’t be surprising to see Walmart or Amazon try to buy them. The approach to the constituents seems complementary. If not, one of the Big 3 could/might try.
GoodRx is winning vs. the competition
- SingleCare is making some noise and creating brand awareness (“they’ve done a good job marketing and have some momentum in the field”).
- Blink had momentum but burned through too much cash - it’s not clear if they are a real player (for the long run).
- ScriptSave WellRx, owned by Medimpact, is trying to be responsive.
- Magellan, another PBM, has Magellan Rx (SmartSaveRx) – there are opportunities for mail order w/ the PBM-owned ones (good for them, as consumers don’t go to retail).
Big PBMs failed clients on drug savings but made them money
- Employers and consumers lose when Rx gets filled. It’s become untenable at this point. Companies have figured out how to save money in better ways.
- We may not be at a tipping point yet (in favor of GoodRx and more transparent PBM models – i.e., lower margin models) but the situation with copays and deductibles is not sustainable. Must be close.
GoodRx brand marketing – differentiated and people like them
- Contracted with many of leading EHR companies – created messaging and awareness at point of prescribing to raise awareness of savings. This has helped them capture share. If the doctor is writing a script, he/she can tell the patient, “GoodRx can get this for $10” because it’s tied in w/ Epic or Cerner – patient capture is key. Physicians must be aware/engaged.
- There’s space but competition there – ConnectiveRx. The market is 100s of thousands of MDs that have APIs in the e-prescribing - talking about copay programs w/ pharma at Point-of-prescribing. GoodRx w/ generic and ConnectiveRx w/ branded means there’s not a lot of overlap today. This could change when GoodRx ties to broaden its programs.
- Look at the market - generic vs. brands; 80-85% is generic but 15-20% is where all the money is (and higher profits). That’s a challenge.
- Doctors love GoodRx – they like advising patients and can take credit for saving them money – it makes the physicians look good. Pharma likes GDRX because of market access (>10MM app users to market to and knowing what medication patients are on).
- w/ ConnectiveRx, also has APIs in EHR message w/ brand copay.
- If the API that GoodRx has allows them to segment messaging for specific specialists, medications then they have competing product.
APIs lose in long run because of RTB
- RTB will likely be significant for patient capture. This is an up-and-coming tech within EHRs at the end of the e-prescribing process. Previously, APIs occur during drug selection. With RTB at the end, and mandates from CMS for Part D and Medicare Advantage (one vendor Jan 1 ’21, likely going to 25-35% of members having RTB vendor to offer lower cost alternatives in ’22).
- 35% of the EHR marketplace has RTB – this will grow significantly over NTM.
- The big EHR vendors are monetizing RTB real estate in response – APIs could go by the wayside. It’s entrepreneurial: APIs become less important and ultimately are abandoned/replaced by RTB response. Will be more competition for brands and generics as GoodRx, Blink, etc. want their programs in that space. The EHRs will be gatekeepers and make more money.
- This is a risk for GDRX if they aren’t savvy about it. It looks like they could be in a prime/pole position though. They want to be at the top of the list. Good advertising/brand, scale (members) = permanent advantage.
- E-prescribing workflow is key - last thing done before Rx is sent. If an alternative is selected, the doctor would have to rework the Rx, pharmacy, day, dose supply, etc. (not convenient to select an alternative).
GDRX Growth
- It took GDRX nine years to get to 10MM users – it won’t take that long to add another 10MM.
- That said, if they start taking meaningful money from PBMs, they may not get the chance to double the user base.
- The more awareness of the business and share GDRX takes, the more likely it is they become a target.
Walmart or Amazon could invent it…
- Amazon could have reinvented PillPack but wanted the state licenses. It’s a good foundation to build on.
- Walmart has been way more aggressive: opened up health centers, selling insurance, led the way with $4 generics, initiatives on the pharmacy side, etc. that suggest more partnerships or M&A are likely. GoodRx could be a good fit w/ an “always lowest price” approach.
- Getting into doctors’ offices with RTB.
GoodRx & Telehealth
- The acquisition of HeyDoctor in late 2019 was a smart move. It’s not clear how GDRX will monetize it, and it seems limited (regional) for now.
- Directionally, tying everything together is the correct play. Should be good for concierge prescribing and medication management (big trend).
- Expanding to national is hard – hire MDs, make sure all prescribing is on same page, then capture market. Similar to EXAS w/ “self-referring” or Roman w/ ED medications and capitalizing on the telehealth wave.
- Medication management is where HeyDoctor may play better – especially for Part D and Medicare Advantage as they pay for the service more generously than commercial or union plans. If GDRX can parlay to those markets, it will absolutely be in a unique position.
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