GoodRx, a digital health company that offers low-cost, mailed prescriptions, filed to go public Friday.
GoodRx is just the latest in a larger startup parade towards public markets, with telehealth startup American Well filing to go public on Monday.
We read the 185-page filing to find 6 critical details about the company’s plans to take on affordable healthcare.
Click here for more BI Prime stories.
Digital health startup GoodRx is going public.
The startup, which provides telehealth services and discount prescription services, filed paperwork to go public Friday. It would trade on the NASDAQ under the ticker “GDRX.”
GoodRx now joins the growing parade of companies in healthcare and technology that have filed to go public in 2020, marking a banner year for public offerings as markets continue to surpass all-time highs.
Digital health and telehealth companies, in particular, have seen a surge in public market activity as the coronavirus pandemic has ushered in what some are calling a new era for the healthcare industry. Coronavirus-induced shutdowns have driven wary patients from doctor’s offices and waiting rooms in favor of at-home care, spurring growth in an industry that had been previously considered niche.
GoodRx’s filing comes just days after telehealth giant and Teladoc competitor American Well filed to go public with $100 million in funding from Google, an unusual deal that spoke to the tech giant’s optimistic outlook on telehealth even once the pandemic subsides.
GoodRx is best known for pulling together cash prices for medications at different pharmacies as a price-comparison tool for people paying out-of-pocket, but recently added virtual visits and other elements of telehealth to its services. It has also been adding direct-to-consumer prescription services, like Lemonaid and Hims, to its comparisons.
“We spend a lot of time trying to decrease the cost of healthcare,” GoodRx cofounder and co-CEO Doug Hirsch told Business Insider in March 2019. “But if someone can make available more convenient and affordable ways to get prescriptions, that’s music to our ears.”
GoodRx’s S-1 filing provides a detailed look at its financials, risks, and vision for the future. Here are six takeaways from the filing.
GoodRx is profitable
According to Friday’s filing, GoodRx has been profitable going back to 2016, the earliest year for which it was compelled to provide financial information.
In 2019, GoodRx had operating income of $139,676,000, almost double its operating income of $77,251,000 in 2018. Revenue kept pace with increased costs in administrative areas and ultimately offset a substantial increase in sales and marketing costs incurred in 2019.
The company is an outlier among its startup peers that have long struggled to turn a profit and have even admitted in similar filings that they may never be profitable.
Although the filing doesn’t specify revenue streams, the bump in 2019 corresponded to the GoodRx’s increased interest in other avenues beyond discount drug sales, namely telehealth services and partnerships with other direct-to-consumer startups.
The pandemic has been beneficial for new users coming to its service
As the pandemic took hold in the US in the first half of 2020, users flocked to GoodRx in droves, Friday’s filing shows.
Monthly active users, defined in the filing as someone who “used a GoodRx code to purchase a prescription medication in a given calendar month and have saved money compared to the list price of the medication,” saw a significant spike in the first three months of 2020, and continued to hold with a small dip through June 30.
More than 4.8 million users logged on through March 31, a slight peak compared to the 4.4 million that used GoodRx between April 1 and June 30.
Overall, GoodRx nearly doubled users in the first half of 2020 compared to the same period in 2019.
The spike comes as much of the country locked down in an effort to contain the spread of the novel coronavirus. Many doctor’s offices postponed elective procedures and canceled preventative care in preparation to help conserve medical supplies during the initial shortage. Of note, telehealth users are not included in this count.
But the company’s future is staked in the continued growth of telehealth that may not be sustainable
In September 2019, GoodRx announced that it was wading into the growing sector of telehealth that allowed doctors to prescribe certain medications following virtual consultations. The model was popularized by startups like Hims and Ro but gained enough traction in recent years to catch the eye of GoodRx.
In Friday’s filing, the startup indicated that it has bigger ambitions than its current offerings, including expanding its telehealth services to meet rising demand. In addition to discount prescriptions and consultations, the startup indicates that its future lies in offering a much wider range of telehealth services similar to the likes of American Well.
But the demand may not sustain GoodRx’s ambition. Although telehealth services have spiked in the wake of the coronavirus, many industry experts predict a leveling off of adoption once states begin to reopen and Americans feel more comfortable venturing outside their homes.
“The telehealth market is relatively new and unproven, and it is uncertain whether it will achieve and sustain high levels of demand, consumer acceptance, and market adoption,” the filing says.
It continues: “The success of our telehealth offerings will depend to a substantial extent on the willingness of our consumers to use, and to increase the frequency and extent of their utilization of, our platform, as well as on our ability to demonstrate the value of telehealth to employers, health plans, government agencies and other purchasers of healthcare for beneficiaries.”
GoodRx relies on just three pharmacy benefit managers for almost half of its revenue
Pharmacy benefit managers [PBM] are essentially the middleman between pharmacies that fulfill prescriptions and the insurance companies that pay for them. They are a major, largely unseen force in the healthcare industry that makes sure the right person pays the right price for a given drug at a given time.
In the case of GoodRx, these companies are one of the single biggest revenue streams. In fact, Friday’s filing showed that GoodRx got nearly half of its revenue, more than $186,347,00, in 2019 from just three such companies.
That could put GoodRx in a difficult position should any one of those three companies renegotiate deals with any one of the 77,000 pharmacies that GoodRx works with. The filing specified that two of the three managers have contracts that give GoodRx a percentage of sales, while the other is fixed. A change in those figures could easily hurt GoodRx’s growth in the future.
“If we are unable to retain favorable contractual arrangements with our PBMs, including any successor PBMs should there be further consolidation of PBMs, we may lose them as customers, or the negotiated rates provided by such PBMs may become less competitive, which could have an adverse impact on the discounted prices we present through our platform,” the filing says.
Rising drug prices could put a dent in GoodRx’s revenues
The discount pricing model GoodRx uses for discount prescriptions is vulnerable to price swings set by pharmaceutical companies, drug manufacturers, the US government, and any other major stakeholder in drug creation and distribution, the filing said.
Although both political parties have committed to lowering drug prices during the 2020 presidential campaign, it is not clear what formal policies would be once the election is decided. That could make for a less favorable situation for GoodRx to navigate without much guidance.
“Our ability to present discounted prices through our platform, the value of any such discounts and our ability to generate revenue are directly affected by the pricing structures in place amongst these industry participants, and changes in medication pricing and in the general pricing structures that are in place could have an adverse effect on our business, financial condition and results of operations,” the filing states.
Drug pricing has remained a focus area for politicians during a contentious election year where common ground is hard to find. The ability to propose policies that align even marginally could offer a positive outlook to GoodRx insomuch as concrete policy promises can.
“We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could impact the amounts that federal and state governments and other third-party payors will pay for healthcare products and services or require us to restructure our existing arrangements with PBMs and pharmaceutical manufacturers, any of which could adversely affect our business, financial condition and results of operations,” the filing says.
Its founders don’t retain much control of the company
Over the course of its nine years, GoodRx has raised more than $180 million in private financing from venture capitalists and private equity. According to Friday’s filing, it appears that cofounder and co-CEOs Doug Hirsch and Trevor Bezdek ultimately gave up ownership along the way.
The two cofounders retained just 1.3% ownership each prior to the offering, a departure from a relatively new tradition of founder-controlled startups like Uber. However, the cofounders are owners and managers of Idea Men, a limited liability corporation that owns just under 19% of GoodRx shares, according to the filing.
Instead, a majority voting share lies with private equity firms Silver Lake and Francisco Partners. Depending on how the company performs, that could easily leave Hirsch and Bezdek out in the cold.SEE ALSO: Investors are cautioning against the unstoppable rise of an IPO alternative that has already won over some healthcare startups
Join the conversation about this story » NOW WATCH: Here’s what it’s like to travel during the coronavirus outbreak