A major grocer could threaten GoodRx results

  • GoodRx is bracing for a $30 million cut in revenue after a grocer suspended discounts on certain drugs.
  • Analysts believe the grocer is Kroger, which accounts for 25% of GoodRx’s prescription volume.
  • GoodRx shares fell this week as investors feared the effects of the dispute would be lasting.

The nation’s largest drug discount card is caught in the middle of a drugstore chain’s price battle, and it could cause long-term problems for the company.

GoodRx shares fell 28% on Tuesday after the company revealed disputes Monday night with a major grocer that planned to cut $30 million from second-quarter revenue.

GoodRx said the anonymous grocer was renegotiating its price contracts for a number of drugs, forcing GoodRx to remove those discounts from its platform. Analysts believe the grocer is Kroger, which accounts for nearly a quarter of GoodRx’s total prescription volume. Kroger did not respond to multiple requests for comment.

GoodRx provides patients with deep discounts on prescription drugs by working with players in the healthcare system, not disrupting it. By partnering with these players, the consumer-focused company has exploded in popularity, leading to its $1.1 billion initial public offering in 2020. But investors fear that if the grocer in question decides to no longer accepting these drug discounts, core GoodRx business will take a big hit.

Focus on the middleman

When consumers use drug discount cards like those provided by GoodRx, pharmacies pay fees to Pharmacy Benefit Managers, or PBMs, the middleman between drug companies and the pharmacy. GoodRx makes a lot of its money by partnering with PBMs to take some of those fees in exchange for marketing the rebates to consumers.

These partnerships are an integral part of GoodRx’s business, and the company has spent years amplifying the reach of PBMs.

“They’re the number one player in the rebate business, and they’re able to demand certain things, given the volume they’re able to give a PBM,” said Michael Rea, CEO of Rx Savings Solutions. , which provides medicine. rebate software for employers and health plans.

Now, a major drugstore chain appears to be renegotiating its contracts with “almost all” PBMs at once, which GoodRx said was an unusual situation because these contracts typically don’t align with each other.

GoodRx did not provide details on the duration of the negotiations. Trevor Bezdek, the company’s co-founder and co-CEO, said on Monday’s earnings call that the grocer appeared to be making “substantial progress” in “finding a resolution” with PBMs. Still, the company couldn’t say how the changes might affect earnings.

An uncertain future

If the grocer in question is Kroger, it’s also unclear what the dispute would mean for the Kroger Rx Savings Club, Kroger’s drug discount program powered by GoodRx. This program is expected to last until 2023, depending on the companies’ contract renewal in 2020.

Some analysts have speculated that the conflict may not be between the grocer and PBMs, but between the grocer and GoodRx.

In a Monday night earnings note, George Hill, chief executive of Deutsche Bank, said it appeared Kroger was still accepting other drug discount cards.

“We wonder if the dispute might just be that GoodRx sees PBMs as its primary business partners, as opposed to pharmacies, and Kroger is increasingly uncomfortable with that dynamic given the degree to which GoodRx monetizes the grocer. between the number of prescriptions he fills to the relationship of businesses around the Kroger Savings subscription product,” Hill wrote.

Rea said Kroger is less likely to directly challenge GoodRx than PBMs.

“The problem is likely with PBM contracts, but GoodRx has accelerated the use of these contracts,” Rea said.

GoodRx said in a statement to Insider that the company is still offering a “significant” number of discounts through the grocer.

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