GoodRx Holdings, Inc. (GDRX) Earnings Call Transcript & Summary

Okay. Welcome, everyone. I'm David Goldstein from Credit Suisse. Thanks, everyone, for joining us. I hope you got your coffee. It's the mid-afternoon break. Very excited to have Karsten Voermann. He's the Chief Financial Officer at GoodRx here for our fireside chat. I'll let Karsten maybe spend the first few minutes just giving a quick overview for any of you that are new to the story, and then we'll do a bunch of Q&A and at times can open it up for a question or 2 from the audience. Over to you, Karsten.

Super. Thank you, David. And first of all, thanks very much to you and to Credit Suisse for hosting us. We're extremely excited to be here and have the opportunity to speak with all of you and grateful for the moderation as well. I think we'll likely just go to Q&A versus flipping through the entire presentation. But that said, I'd love to tell everyone just a little bit about GoodRx. GoodRx is now the predominant digital health care brand, consumer-facing health care brand in the U.S. We have millions of monthly visitors and users to our platforms, almost 20 million monthly visitors. We've helped consumers in America fill over 8 million prescriptions a month. And in connection with those services we provide, we fulfill our mission of providing convenient, affordable and accessible health care to all Americans. I may just hit a couple of slides. I think as most folks in the room probably know, the health care market is one of the largest markets in the U.S., and the U.S. health care market is the largest one in the world. That's the market we play in. And I think a lot of folks believe that saving money in health care is something that is primarily focused on uninsured Americans, but it turns out the majority of our users are, in fact, folks with third-party insurance. And that's because we beat people's insurance co-pays in terms of prices for pharmaceuticals by over half, over half the time. So that means consumers are saving $15, $20 more dollars on every prescription they fill with GoodRx with insurance and much greater amounts in excess of 80% of the price they pay if they didn't have insurance. So I don't want to go too far through the slides because I know David has some great questions for us. So I might just leave it at that for now, and we'll probably hit a few others potentially to the extent they help us support the QA. But thank you again for having us. We're really grateful, David.

Great. So Karsten, GoodRx recently celebrated its first year as a public company. Can you speak to the progress you've made towards building the leading digital consumer health care platform?

Sure. No, I'd love to speak to that. I think the last year has been an exciting one for us, our first year as a public company and now the first, I guess, 14 months or so. During that time, we focused our efforts in 3 primary areas. The first area is around research and prevention. The second area that we focus on is -- besides research, and -- well, let me do that one first. On research and prevention, we've done a number of things. We've launched a product called GoodRx Health. GoodRx Health allows health care providers as well as their patients to significantly research conditions and also pharmaceuticals. So in that context, we're able to help pharma manufacturers as well as practitioners and patients understand their conditions and their potential treatments much, much better than they would otherwise be able to. And we've launched this product called GoodRx Health. We also bought an entity called HealthiNation in connection with the research and prevention phase. So we're very excited about both of those 2 initiatives. The next thing we focused on is diagnosis. And there on the diagnosis side, GoodRx has its own telehealth offering, GoodRx Care. That's been an exciting one for us because while we definitely don't want to be Teladoc, we're a tech company primarily, what we do believe is important is helping the patients who either come to GoodRx with an expired prescription or have medical needs that are easily solved through telehealth, where they can then benefit from our other programs like our Prescription Transaction savings or a subscription programs. And in fact, over 60% of the people who come to GoodRx and seek to use telehealth treatment end up procuring another GoodRx service. So over 40% of them are subscription services, which we're very excited about because they have very high LTV. And then finally, we focus on treatment and adherence that's where GoodRx really began in prescription savings. And the reason that was so fortuitous is that's the highest area of interaction between consumers and the health care system. You don't see a doctor 12 times a year necessarily. But most folks in America fill a script, 12 times a year. So that frequency has bred familiarity with GoodRx, spread trust for GoodRx, including our 90 NPS with consumers, which is equal to our 90 NPS with providers, and it's allowed us to expand and offer more services. And there too, we've made a significant number of acquisitions, things like RxNXT, which expand our ability to serve the insured market even further and things like RxSaver, which is another strong brand in the prescription savings space, which is now part of GoodRx.

Yes, I get it. Karsten, you mentioned just the very impressive 90 NPS score, Net Promoter Score, that you have. I think in the third quarter, 25% of the visitors to GoodRx were health care providers. So that number increasing to that is, is quite impressive. What's the value proposition for the health care provider? And how do you plan to continue to expand your presence with those stakeholders?

Sure. Yes. No, we're very excited about the health care provider audience we have. We have over -- we have patients of over 2 million health care providers who use GoodRx to fill prescriptions. So significant number of health care providers who have patients on the platform, a significant number of visitors as well. And the reason that's so important to us is that health care providers were the first evangelists of GoodRx. Before we could afford to spend new money going back 10 years to promote the brand through mass media or any other mechanism, health care providers are the ones who proactively solicited collateral from GoodRx to bring in their offices. So we now have over 400,000 physicians' offices that effectively promote GoodRx to their patients. And since physicians are just so trusted, that's been just an amazing source of new patients and new users for GoodRx, generally speaking. Now the health care providers have a few challenges. Some of the challenges are that it's important to be well informed on medications and on treatments for patients. It's also very important that patients actually take their treatments, particularly as health care providers more and more are paid either on a capitated basis or paid in some way correlated to patient outcomes. So GoodRx helps , first of all, the health care providers' patients get on and stay on medication. About 30% of scripts are left unfilled at pharmacies because people can't afford them. Bad for the patient, bad for the health care provider. Second thing is health care providers use different avenues to gain new information. It used to be that pharma detailers used to go into a health care provider's office. These are drug reps. Health care providers really don't like that. It wastes a bunch of time. It takes time away from seeing patients, and it's not really that helpful. So GoodRx has developed what we call a pharma manufacturer solutions offering, which 19 of the largest pharmaceutical -- 19 of the top 20 largest pharmaceutical manufacturers leverage. And that offering exists to be able to educate both the health care providers and the patients about the benefits of different medications, the trade-offs between one and another and to provide affordability solutions. Because even though we saved consumers over 80% on the price of their medications, if their medications are very expensive, one that might cost thousands of dollars a month like a Humira and Enbrel or even more expensive ones, 80% of that is still too much for most Americans to afford. And that's where the manufacturer deductible and co-pay assistance programs that can bring the cost for a patient down to 0 are so important both for the patient and the provider. The other area we focus on is saving providers time and creating better experiences for their patients. So an example of that is patients often aren't familiar with using self-injectable medications, which are becoming more and more common. One of the most common, of course, is insulin. So we have video information on our platforms, particularly through our HealthiNation acquisition that allows us to create video content providers can use with the patient to say, "Hey, when you get your prescription for insulin from, say, Sanofi, here's a video that shows you how you should take it." And the reason that health care practitioners do that is because, otherwise, they get a call from a patient when the prescription arrives saying, what do I do now? Having that video available helps a health care provider by having something that shows the patient what to do and a link that the patient can save and then leverage once the prescription arrives. So it saves a health care provider time, gets some better outcome for patients, and it makes the patients much more adherent, which creates better health benefits for the patient and of course, a greater -- more LTV for the health care provider since the patient stays on the prescription for a longer period of time.

Excellent. We all probably need to use that app more. The strength of your subscriber growth continued in the third quarter is adding more benefits to Gold, instrumental in keeping that growth rate up for the business. Or is the value proposition already good enough for the consumer to continue to convert into a subscription plan?

Yes, great question. So the reality is that we've aggressively priced relative to the services we provide our subscriptions offering. In fact, if you compare the prices on the regular GoodRx, which are already, like I said, over 80% savings versus the cash price on medications on average to the subscription pricing, the subscription pricing is dramatically better such that if you're on one chronic generic prescription like an atorvastatin, which is the generic Lipitor, you will likely save enough even from the regular GoodRx to the subscription price to be able to cover the cost of your subscription. And the reason we did that is twofold. One is that we're able to monetize subscriptions a little differently through a recurring monthly fee. It's $5.99 for an individual versus by making a little bit on each prescription fill. The second reason we do it is because we believe it not only creates better outcomes for patients because most patients are on more than one prescription, so they'll definitely be ahead by using our subscription program, it also creates better outcomes for us. We've experienced that we -- our LTV associated with subscriptions patients is almost 2x the LTV -- excuse me, it's over 2x the LTV of our Prescription Transactions patients, so quite high. And that helps us in the short term. But in the longer term, the other benefit is that it creates a different kind of a relationship where savings on Prescription Transactions is largely one of a transactional nature. Someone comes, they put the name atorvastatin to continue the same example of the app and they save a significant amount of money by showing the app and having the pharmacist scan the barcode, that's great. But it's sort of a one-way relationship. When they subscribe, it becomes more of a 2 way relationship. And the reason that's important for the future is as we make forays into things like insurance and other business lines outside the prescriptions, which we just launched some time ago on the insurance side, the subscriber has a higher propensity to be expecting that kind of interaction from us. And when you think about it, we, even on our Prescription Transactions business have the benefit of knowing who the patient is, who the provider was, who wrote the prescription through their NPI and what pharmacy the patient picked their prescription up at. So if a consumer in America has tried to decide, say, between 2 health care plans, 2 Medicare plans, say, since we're in Arizona where there are a number of retired folks knowing that your prescriptions and that your providers are going to be covered by a plan is the most important thing. And we kind of house all that data. So that's one of the reasons we partnered up with GoHealth to begin to explore the insurance space more deeply, which we plan to continue to do, again, leveraging the great data we have to help consumers make better informed health/financial decisions.

I've also noticed, Karsten, over the last few quarters, you've announced partnerships with very impressive companies, DoorDash, USAA, most recently Fetch Rewards. Can you walk us through your broader demand aggregation strategy?

Absolutely, yes. I think that demand aggregation is exactly what it is. I think when we began the company, we focused very hard on having direct relationships with consumers and with providers, with health care providers as well. I think now our brand has become sufficiently big that other entities are looking to partner with GoodRx in different ways to leverage that brand and that ranges from entities like Rite Aid, who wanted to benefit from GoodRx's brand and took on our GoodRx subscription program, GoodRx Gold, and became a partner in that to entities like GoHealth that I mentioned a minute ago. But the core model here is that while we've always gone direct-to-consumer, there are also ways to aggregate bigger groups of consumers and therefore grow more quickly through partners like USAA, which is a [Sterling] brand, like DoorDash, which lets us aggregate gig economy workers. And we actually bought a little company called RxNXT for the same reason. So RxNXT sits at the intersection of third-party payers, so insured payer health care and cash pay health care so that employers can, for example, offer a free benefit, which is offering their employees GoodRx and GoodRx cheaper than the co-pay on their health plan or offering their traditional health plan at the same time. And that's the biggest source of potential aggregation of users because there are just so many insured Americans here in the country. And like I said at the beginning of the call, given we can beat the insurance co-pay by over 50%, most of the time, over 50% of the time, being able to aggregate employed Americans and help them out even more than we do today is a huge opportunity for us and one that we're pursuing very aggressively.

Excellent. I just want to open it to the audience maybe midway. There's a mic right in the middle, if you don't mind.

Or we can repeat the question if you don't want to get up.

Do most of the consumers go to the store to pick up the drugs? Or can they get them delivered?

Either way. The massive majority do still go to a store not just with GoodRx, but in America generally. During the pandemic, delivery and mail order sort of combined rose a little bit. Now it appears to be receding a little bit again post-pandemic, but it was always in depending on whose data you look at sort of mid- to high single digits of the prescriptions market broadly speaking. I think we built our own delivery and mail functionality in the context of GoodRx. It's actually bundled in with GoodRx Gold as well, our subscription program. And we did that accidentally presciently in late '19 and early '20 before the pandemic. And we also saw some uptake in it. But interestingly, that model hasn't really stuck that much, neither for us nor for anyone else in the space. And there have been a number of studies on the part of the sell side analysts on our own that seem to indicate that unusually consumers find convenience one of the primary reasons they pick it up in brick-and-mortar. And it appears to be that they sort of drop off the script, do their grocery shopping, pick up the script. And that appears to be more convenient for a number of reasons. Two that I found particularly interesting were in a lot of cases, it's challenging to be there in the case of expensive prescriptions, if you have to sign for the script, like if you have to be home to actually provide a wet signature. And conversely, if you don't have to be home to provide a wet signature on this left, there's significant fear of someone else potentially grabbing your prescription and stealing it, which is obviously terrible. So those controls are some of the reasons that consumers appear to be electing to stick with a brick-and-mortar model significantly, both for us and again, in the marketplace much more broadly. Great question though. Yes, sir.

A simple question on why do the PBMs want to work with you? Is it just the revenue that they get sort of on the fly from all the customers that you aggregate? And then the second question is around data. What do you collect from your customers? What's your policy on sharing? Are you affected by IDFA at all?

Sure. Yes. No, happy to answer those. I'll take them in that order, which I think are PBMs, data and IDFA. So first of all, on the PBM side, the reason we began leveraging PBMs is we wanted GoodRx to be ubiquitous. And when GoodRx is small, that meant leveraging the PBM network to have relationships with pretty much every pharmacy in the States. You can use GoodRx at over 70,000 pharmacies was the right way to go. The reason that PBMs went to partner with us is because of the incremental volume. So there's 2 dimensions to that. One dimension is the fact that 30% of scripts get unfilled due to price. And if you make the price cheaper, that 30% shrinks, creates more prescription volume for the PBMs as well as for drug manufacturers and us. So great alignment there. The second source of incrementality is, particularly if you're a smaller PBM, it's advantageous to you to partner up with GoodRx and pick up more volume because it lets you negotiate better with drug manufacturers to get better pricing. So even if you price GoodRx customers at your cost, your marginal cost, the fact that you've got more volume, which allowed you to compress pricing with the drug manufacturers would make all of the rest of your deals with your health plans, employer/payers, others would make all of those other deals more profitable than they would otherwise be. So you can generate the margin there, again, even if you're not making much of GoodRx, though we believe that PBMs actually are because we've never had a PBM terminate on GoodRx, and we keep on adding them. We just added a couple in the last quarter again. And the reason for that is that even though we push them and we increase the savings rate for our users, we are growing faster and driving more volume their way than the degree to which we're pushing down on their margins. So every year, the person at PBM who's responsible for the GoodRx business looks good because it's a part of the prescriptions market that's actually growing and actually growing both in revenue and contribution terms for them, we believe. I think moving on to data and IDFA, I mentioned that in the context of our ability to help consumers make insurance decisions that we collect information that includes who the user is, who the prescriber is and what the pharmacy is. We obviously know the prescriptions too because they flow through GoodRx, but we do not share that information. That stays within GoodRx's walls. And that's also why, from our perspective, when we can help pharma manufacturers, IDFA doesn't impact us because we're doing all of the pharma manufacturer interactions both with physicians and patients in the context of GoodRx's 4 walls. So that uniquely situates us because we kind of have all the data we need or pharma manufacturer needs to be able to interact with a given category or type of patient without having to go externally at all. There's no following patients across a bunch of different websites and trying to figure out what condition they might have. We pretty much know based on the data that exists in our own platform. Is that helpful?

Yes.

Super, super.

[One of your slides] show how complex the channel is. And what I'm trying to understand better is just why the drug prices are so different that’s across [indiscernible]? Why is that?

Sure. The question is around why the drug price is so different in...

[indiscernible]

I don't think I have that slide you're mentioning in this deck. But I know the one you mean very clearly. And so I can still answer the question. So hopefully, folks who haven't seen the slide will bear with us. If you're looking for it, it's in our investor presentations on our website and the slide deck called GoodRx 101. But I think the question goes -- the heart of the question is why do prices vary as much as they do and how can we penetrate through that? So taking that in reverse order how we penetrate through it is that we take 230 billion-plus data points every day, which is pricing by geo, by drug, by pharmacy, by dispensing size, by supplier in many cases, et cetera, for like every pharmaceutical product in every geography across the U.S.

How do we get that?

How do we get that? Through integrations with all of the different PBMs we have and with the pharmacies we work with, which is everybody basically. And that's -- it's a huge barrier to entry because like if you pull up the GoodRx app, if any of you have it, you can misspell the name of a drug. I'll keep going with the atorvastatin example. And no matter where in the U.S., you’re able to get a bunch of cheap atorvastatin prices that are right at the pharmacy you go to that match up. And the reason is because...

That is the slide. Yes, this is from your presentation.

Yes. Let me -- I thought we didn't have that...

No, it's not there. I went to your website.

Yes, exactly. It's on Slide 19 is what David was saying, of our website presentation. But where it's heading with this is pulling those 2 billion data points and getting it accurate is very challenging. What's also tough is like with Google Maps versus Apple Maps, you need enough people in the early years using the product and telling you when you're wrong be able to fix all the errors, right? So luckily, we've penetrated through that now, so it's pretty much universally correct, but bigbarrier to entry for others. The reason for the pricing variability, though, is because of the complexity of price setting and the number of players involved fundamentally. So the same CVS or 2 CVSs in Santa Monica, where our office is based, they might be 2 miles apart, may buy a different pharmaceutical from a different manufacturer, which will result in different pricing. They might also buy buy different quantums from the same manufacturer, which will result in different pricing. And that's 2 CVSs in the same geography even. So that's one point example. But then if you expand across that to different PBMs who each negotiate a lowest price on a different part of their formulary. Like if you're PBM 1, this is slightly oversimplified, but you serve, say, Rust Belt clients predominantly, say, UAW type folks; and PBM 2 serves primarily folks based in -- let me think of a good example, Austin, Texas, the part of the formulary that you'll focus on lowering price on will be very different. It might be the atorvastatin example, generic Lipitor for the folks based in Detroit, and it might be more acute medications for a bunch of young people in Austin who mountain bike too much and crash. So PBMs, even though they may not be larger or smaller than each other, will still negotiate different pricing with drug manufacturers for different parts of the formulary because both the PBM and the manufacturer are looking for an average return across all the stuff they're buying and selling to each other, not a specific return for a specific medication, and that too creates a significant amount of price divergence. So those are a few examples. And you think over time that price divergence would compress, but we're really not seeing that. The slide in the deck hasn't changed a whole heck of a lot over the years, and the price divergence has remained quite high and much more expensive than GoodRx if you do cash pay.

So, that you, how do you get money and how much is you say for the customer and just the seller get money to?

Sure.

Revenue model.

Yes. So the revenue model, I'll hit it on our Prescription Transactions business, which decreased from sort of 100% of revenue down to now about 3/4 of revenue as our other businesses have continued to grow. So starting with Prescription Transactions on that, when there's a given price for pharmaceutical, we negotiate with PBMs to take that price down. So on average, their savings rate for consumer is a little over 80%. Our take rate, which is the proportion of GMV we keep, has hovered between around 12%, 13% and, call it, 14%, 15% over the years. So we basically split the total amount of savings we create and give the massive majority of it to the consumer and then keep a little bit for ourselves in the form of a take rate on the Prescription Transactions business. On the subscriptions business, we actually give up our take rate and trade it off to get even lower pricing from the PBM and instead get the $5.99 a month for an individual subscriber on GoodRx Gold. And on our manufacturer solutions business, that's the highest margin business of all. There, we basically leverage the 20 million almost visitors to our platforms, of which many of them are health care providers in order to connect up drug manufacturers with potential patients and with the HCPs -- with the health care providers. And there we have a dozen or so sales folks who are the essentially entire cost of that business. And in return for that, we pick up revenue, particularly associated with unique products that only we can provide, like messaging and education health care providers want to go to both patients and to consumers in a coordinated way. There's very few properties that have access to both those constituencies or that have the ability to target consumers who have a prescription in hand and are often just looking for a way to price -- a way to afford potentially an expensive branded medication that they couldn't otherwise. Hopefully, that's helpful. Thank you. Yes, it will help everyone else here the question.

I just wanted to ask. So I noticed recently, you guys kind of merged the GoodRx Care app into the core app. And it seems like the holy grail is to start a doctor visit -- virtual doctor visit and then obviously fulfill through the GoodRx app at a local pharmacy. What percentage or is there a way to quantify how much of scripts are potentially filled through GoodRx Care or a virtual doctor through your app? And have that be the addressable market that flows through to the actual script filling?

Sure. I think I followed. I think the questions around the intersection between GoodRx Care and the prescription is driven by that as a proportion of total prescriptions in GoodRx and how that might evolve, if I understand it right?

Yes. I guess what I tell of the holy grail, like I never have to visit a doctor [indiscernible] show up on the app and then you'll tell me if the rate go back and you pick your drugs, how addressable is that [indiscernible]?

Yes. I think in our case, we view telehealth as an integral tool in our tool chest, but we don't seek to become like a Teladoc. That's not our model. So we focus fairly narrowly on low-risk prescription associated conditions and serve those particularly. So examples of those are things like refills on existing prescriptions.

Acne.

Sorry, acne, yes, or birth control or there are a variety of them that are relatively low risk where we can be very helpful. There are certain conditions that will never be served by telehealth, and there are even more conditions that we don't seek to serve because, again, we're focused in areas of helping consumers in the majority of conditions, which are these low-risk ones. In that context, when someone comes in through the telehealth offering about 60% plus attached to some other GoodRx offering, 40% plus to a subscriptions offering where they might subscribe to their subscription programs and then either pick up a prescription at a brick-and-mortar pharmacy or have it sent us -- have it sent to them if it's a recurring one, like a birth control one, for example. But I think the one place where I'm in a slightly different place is we view our telehealth offering as relatively cost neutral marketing, meaning people come in through our telehealth offering, they pay us for that, that roughly offsets the cost. And then we get a new user for our Prescription Transactions or subscriptions or other offerings. So our real focus is around leveraging it to bring new users in across our entire platform. And I think the clock says 0, but I don't know if we can take a last one, but maybe there aren’t any anyway.

Is there anything else in the audience?

I'd say that we're really grateful for everyone coming to see us today. And I'm personally grateful to David for jumping in and moderating this session and to Credit Suisse. They’ve been great partners to us over the years. And we appreciate it. We go back a long ways after all.

Thank you.

Thank you very much, folks.