GoodRx filed its S1 and is listed on Nasdaq as GDRX five years after incorporating in Delaware in 2015. This is a highly anticipated listing as one of a few IPO companies that are profitable prior to listing. The company started as a price comparison tool for prescriptions helping reduce the 30% of prescriptions never picked up in this country and since then their product offering has exploded.

Their impact on the healthcare system is impressive with $20 billion in savings tremendous downstream impact in reduction of emergency room visits and reduction of total cost of care for chronic disease due to non-adherence which the company did not measure as of yet.

The company is only in the beginning of its growth curve, with revenue growing >50% every year since 2016 reaching $388 million in 2019 with a net income of $66 million. Almost 15% of what consumers spend using the platform comes back to GoodRx as revenue. Their business model is clever and disruptive to PBMs--we’ll break it down for you. 

GoodRx is the #1 most downloaded medical app with 5 million monthly users and processes more than 150 billion drug price data points DAILY.

GoodRx Holdings is the parent company and its products consist of:

GoodRx prescriptions: free price comparison tool and drug discounts

In a letter from co-founders and co-CEOs Doug Hirsch and Trevor Bezdek, they describe their solution as follows:

“We can reduce the cost of virtually every generic and brand prescription by more than 70% off the list price, resulting in a price that’s often less than a typical insurance co-pay. Our discounts can be used at over 70,000 pharmacies in America. Out of refills? Our platform allows patients to see a doctor within an hour for as little as $20 from the comfort of their own home. Looking for a specialist, labs, or therapy? Choose from dozens of providers offering more than 150 medical conditions. No insurance required, no approvals necessary — you don’t even need to sign up.”

What’s the business model?

It is very simple, but before we share that, it’s important to understand the prescription drug value chain. The model is slightly complicated but to simplify--drug manufacturers sell drugs to pharmacies which then sell them to patients who split the cost with their insurance company. Insurance companies negotiate discounts and better rates via a pharmacy benefit manager (PBM).

Now, the PBM makes money twice--first through rebates based on a % of drug cost from the manufacturers for getting their drug on a formulary that an insurance company will pay for and secondly through paying pharmacies less than what insurance companies (or consumers) would pay if they paid them directly--in essence a negotiated rate. To incentivize insurance companies to convince their members to buy a specific manufacturer’s drug, they share the rebate with the insurance company who then puts the drugs that result in savings (Rebates - cost of drug vs. no rebate - cost of another drug) in a formulary.

The formulary has different tiers with the highest tiers containing drugs that have the best cost savings for an insurance company and cost little to nothing for consumers in the form of co-pays or co-insurance. Clever right? 

Let's Simplify:

Manufacturer-->PBM-->Pharmacy-->PBM-->Insurance-->Healthcare Consumer

If we wanted to MAXIMIZE savings for the consumer, then we would just shorten this to:

Manufacturer (example: Pfizer, GSK, etc) → Healthcare consumer

What GoodRx did is ‘borrow’ the PBM negotiated price/volume contracts with pharmacies, such that each time a healthcare consumer uses GoodRx to buy a discounted drug, the PBM get’s a cut and GoodRx gets a cut (about 10-15% based on the S1). So they effectively changed the model to:

Manufacturer -->PBM-->GoodRx-->Healthcare Consumer

Why are they able to meet your insurance company’s negotiated price with the pharmacy at times? Because GoodRx is contracted with multiple different PBMs across 70,000 pharmacies with real time data on different prices at different pharmacies. Incredible.

Final Discussion Point:

There is significant risk to their business model because of increasing consolidation and integration in the healthcare market. Walmart, Walgreens, and CVS some of the country’s largest pharmacies can offer membership based savings like an ‘amazon prime’ and/or integrate with a PBM or insurance company. That is why, GoodRx is working on building that direct connection to manufacturers through their GoodRx manufacturer solution. Remember if they can build a strong relationship with manufacturers and acquire a mail order pharmacy, they can essentially get to

Manufacturer (example: Pfizer, GSK, etc) → Healthcare consumer