Credit Suisse https://www.credit-suisse.com in response to prior notes on Amazon’s entry into pharmacy, we are providing answers that investors have asked which are based on conversations with industry stakeholders and GoodRx (GDRX) https://goodrx.com management.
Amazon (AMZN) https://amazon.com partnered with Inside Rx https://insiderx.com to show a discounted drug price for Amazon Pharmacy https://pharmacy.amazon.com as well as enable Prime users to get prescriptions filled at other pharmacies across the U.S.
Amazon Pharmacy needs a third-party to provide a discounted price so Inside Rx is featuring a discount price for themselves (Amazon Pharmacy) at a price point that they want. AMZN can give directional indications to Inside Rx as to where the price point should approximately be. Additionally, Prime Rx https://amazon.com/primerx must also be available at other pharmacies (i.e. outside of Amazon Pharmacy ) in order for the prices to be considered for the discount card process and not Amazon Pharmacy’s U&C price.
AMZN is unlikely to push Prime Members to use Prime Rx at other pharmacies as that would drive foot traffic to their competitors, such as Walmart, CVS, Walgreens, etc. Amazon would run the risk of consumers purchasing discounted drugs at competing pharmacies and then pick up ancillary products which is counter intuitive to Amazon’s overall strategy of moving consumers away from their retail competitors. As a result, analysts do not see Prime Rx as a direct competitor to GDRX as GDRX primarily focuses on providing discounts to consumers at retail pharmacies.
The question, Is Prime Rx a Price Comparison or Price Transparency Tool like GDRX? The answer is yes for price transparency but no for price comparison. An important distinction between Prime Rx and GoodRx is that Amazon does not show what the Prime Rx price would be if the Amazon Prime Member presents Prime Rx at a participating pharmacy other than Amazon Pharmacy.
For example, a 30 day supply of 20 mg Atorvastatin (genetic Lipitor) posts $14.40 on Amazon Pharmacy. However, Amazon does not feature a price comparison tool that shows what a consumer would pay if they brought Prime Rx at Walgreens, CVS, etc.
Since Prime Rx is administered by Inside Rx, a consumer bringing Prime Rx into Walgreens seems likely to pay the stand-alone Inside Rx discount card price. Credit Suisse sees this as a key distinction between Prime Rx and GoodRx as Amazon seems intentionally not to be showing what a consumer will pay at a retail pharmacy in order to prevent Prime Members from leaving the Amazon ecosystem.
If Amazon is unlikely to encourage Prime Members to use the Prime Rx discount card to fill prescriptions at competing pharmacies then why offer it? Credit Suisse believes Amazon is offering a discount card price to keep Prime Members that may be uninsured or underinsured within the Amazon Pharmacy ecosystem not fill a prescription at Walmart, CVS, or Walgreens.
It is reported that 70% of Americans do not understand that prescription drug prices can vary from pharmacy to pharmacy. Amazon is likely setting Prime Rx prices at a rate low enough so that consumers will assume they are getting a reasonable deal, yet high enough so that Amazon captures incremental revenue without being a loss leader. As a result, analysts do not see Prime Rx reaching price levels that compete with GoodRx Gold https://gold.goodrx.com or the core GoodRx platform.
Another question is, Would the strategy behind Prime Rx change if Amazon were to implement a retail pharmacy at Whole Food’s locations? Amazon would essentially be in the same position as they are currently with respect to needing a third party such as Inside Rx to provide the process for discounted prescriptions. However, if Amazon implements physical pharmacies inside of Whole Foods, Amazon’s Prime Rx price strategy could result in more aggressive cash discounts in order to drive foot traffic, which is similar to Walmart’s strategy with their low cost generics program.
If GoodRx Gold and Prime Rx both use single PBMs for pricing, why does GoodRx Gold have better prices? Similar to Prime Rx using a single PBM (Express Scripts), GoodRx as part of the Gold offering uses a single PBM which analysts believe is OptumRx.
GoodRx Gold which is sold on a subscription basis is meant to offer consumers better prices on prescription drugs irrespective of which pharmacy fills a consumer’s prescription. In the case of Prime Rx which is available to Amazon Prime Members, the understanding is that the core strategy is not to entice customers to fill prescriptions at a Walmart, Walgreens, etc., but rather to offer uninsured/underinsured Prime Members an affordable option at Amazon Pharmacy.
Another question, How does the AMZN announcement impact GDRX’s relationship with PillPack? PillPack https://www.pillpack.com has always accepted discount cards and by default uses GoodRx for non-covered drugs. In fact, PillPack has an API integration with GoodRx where a user can ask what the drug would cost, then a PillPack representative will provide a GoodRx quote to the consumer.
It has been well known that mail order prescription volumes do not make up a material portion of overall prescriptions across the U.S. GoodRx does not derive a significant amount of revenue from PillPack or any other mail order channel. PillPack still accepts GoodRx and has no plans to discontinue accepting GoodRx at this point. In fact, GoodRx management also notes that that the companies intend to continue to work together.
Can Amazon’s entry into pharmacy benefit GoodRx in any way? GDRX management notes that PBMs and pharmacies have contacted GoodRx regarding how they can do more together. Having Amazon in the market offering a prescription discount card makes it possible for GoodRx to offer an affordable solution for prescription drugs.
Will PBMs provide lower prices to GoodRx to combat Amazon? GoodRx already receives very low prices from PBMs for discounted drugs. GoodRx is able to receive lower prices in that pharmacies are able to take lower prices, which leaves room for GoodRx to receive better prices from PBMs. As for GoodRx being able to take a higher take rate (i.e.in the form of GoodRx taking if they take a larger fee from the PBM), GDRX management notes the possibility.
If PBMs provide GoodRx with better prices to mitigate Amazon, will that impact GoodRx’s prescription transaction revenue? Good Rx contracts with PBMs in two ways: 1) Percentage of fee contracts, and 2) fixed fees per transaction. As for the percentage of fee contracts, just because GoodRx is offering lower prices to consumers, it does not necessarily translate to lower prescription transaction fees, as the underlying PBM fee which GoodRx’s fee is based on, is not necessarily a function of the prescription price. In addition, as part of fee contracts, GoodRx is often entitled to a minimum fee per transaction.
Why doesn’t GDRX have a relationship with CVS Caremark? Credit Suisse in discussion with GDRX management reports that the company does not work closely with CVS Caremark as a PBM partner because Caremark does not provide competitive discount prices since they want to keep prices high for CVS retail pharmacies.
According to Credit Suisse analysts, since the AMZN announcement, GDRX shares have been under pressure as several investors have questions revolving around AMZN looking to displace GDRX and/or compete with GDRX for better prices. Credit Suisse at this point, is characterizing the move by AMZN as to the demise of GDRX, might be a little premature. The analysts are not making changes to their estimates however, they are adjusting their TP multiple from 25x to 20x to reflect the AMZN noise.
A 20x multiple on Credit Suisse’s 2022 rev estimate yields a 12 month TP of $49. Risks include AMZN entry into the space impacting our MAC expectations, of higher than expected adoption of mail order prescriptions, etc.
If you have thoughts to share or want to provide feedback, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.