Credit Suisse https://www.credit-suisse.com fielded several investor questions related to the announcement that both Amazon https://amazon.com, and Walmart https://www.walmart.com, have announced programs and updates related to Rx drug savings.
Walmart has added Rx for Less to Walmart’s subscription service while Amazon is now offering Prime members six month prescriptions for $4-$6 (3 drugs for $4, 10 drugs for $6).Credit Suisse analysts fielded several investor questions post these announcements.
Question: How is Walmark+Rx for Less Able to Offer Low Prices?
Answer: Although Walmart is still keeping their $4 prescription offering, they are still doing the same thing as Amazon did with the PrimeRx discount card as part of Walmart+Rx for Less. Discounted prices offered through Rx for Less are administered by Medlmpact and Rx for Less is part of Walmart’s Walmart+ paid subscription. The takeaway is while Walmart is keeping the everyday low price $4 program, there are more drugs on the Walmart+ Rx for Less formulary. Therefore, this can lead to more opportunities for Walmart to attract consumer foot traffic into the stores. This can lead to 1) selling more prescriptions by being more competitive on price in the cash market, 2) selling more non-prescription items via more foot traffic, and 3) NOT impact the U&C price for insurance volume.
Question: Are Amazon PrimeRx-6-month low cost prescriptions a major threat for GoodRX?
Answer: While the prices are certainly attractive and an attempt to disrupt pharmacy, the analysts do not believe Amazon offering 6-month discounted prescriptions will lead to much success on a broad scale. Attempting to fill a 6 month prescription on Amazon Pharmacy, or any other pharmacy for that matter, requires a doctor to have written that prescription for such a long days’ supply. Therefore, for the measly 13 prescription drugs that Amazon offers for $4-$6 prices, the consumer will have to proactively tell their prescriber to prescribe them a 6 month supply. While some consumers might do this, it does create another point of friction for the consumer to receive these already low cost generics at Amazon Pharmacy and via mail.
Based on the analysts catch-up with GoodRx https://goodrx.com management, of the 13 drugs included in the Amazon Pharmacy PrimeRx 6-month formulary, if all of GoodRx volumes on these drugs went away, then it would be an immaterial impact to the business. The 13 drug formulary looks to be more of a pilot for Amazon, which GoodRx noted in not super worried about at this point.
Question: Is Amazon following a “See What Sticks” strategy for their pharmacy?
Answer: Amazon has continued to rollout new features and initiatives when it comes to their pharmacy. At this point, many of Amazon’s announcements seem to be experimental. Some are bound to fall, while others could stick and help Amazon gain traction in pharmacy. At this point, many of Amazon’s announcements seem to be experimental. Some are bound to fail, while others could stick and help Amazon gain traction in pharmacy. At this point, it is still unclear how strong Amazon’s ambitions to disrupt pharmacy really are, and how far they are willing to go, including taking losses on prescription transactions to gain market share and drive awareness to their offerings. Amazon’s 13-drug formulary with sleep discounts for a 6-month supply are hard to beat. However, the $0/free prescriptions that Walmart+Rx for Less and Kroger RxSC (powered by GoodRx) offers are harder to beat.
Question: All-in, who is the bigger competitive threat for GoodRx — Amazon or Walmart?
Answer: without a doubt, both will be important to monitor as their discount card offerings evolve in the near-term, but analysts see Walmart+ Rx for Less as a bigger competitive threat than Amazon. Our reasoning revolves around the fact that GoodRx discounts are actually being used at Walmart pharmacies today. Also, Walmart is a physical/retail pharmacy, which is where the vast majority of the GoodRx volumes are found.
As for Amazon, while GoodRx discounts can be used at PillPack, GoodRx does not have anything close to a material concentration of business with Amazon or in general when it comes to mail order volumes. The analyst’s concern with Walmart is somewhat alleviated due to Walmart having operated prescription savings programs since 2006 when the $4 generics program began and as a result, GoodRx and Walmart have been able to coexist.
Question: What is the near term opportunity for GoodRx with respect to Pharmacy Offered Discount Programs?
Answer: Management noted that what GoodRx plans on doing in the near term would be on a similar wavelength as the Kroger Rx Savings Club (Kroger RxSC), but with more of the GoodRx brand presence on the forefront. With GoodRx’s consumer NPS of 90 and consumer traffic which is specific to prescription, the platform represents a unique place of engagement for the pharmacies where people inevitably fill their prescriptions using a GoodRx discount.
One of the challenges pharmacies face is around consumer engagement and getting consumers to opt into programs. This is a core reason going forward that subscription partnerships with pharmacies are unlikely to follow the Kroger RxSC (powered by GoodRx) approach.
Management indicated that the market is shifting to a world where pharmacy partners view the GoodRx brand as positive for them. In Walmart’s case, which opted to use Medlmpact for Rx for Less, Walmart tends to view their own brand as very critical to their offering, which is not the case across all of the top 10 pharmacy chains in the country.
Question: What are the key drivers for the sequential pick-up in MAC outlook in 2H21?
Answer: While a majority of users of GoodRx are on chronic medications, a lot of people with acute prescription needs use the platform as well. The younger demographic in particular tends to be a heavier user of acute medications. As these cohorts return to seeing healthcare providers, engage in more physical activities (e.g., sports for instance with more injuries requiring medication), GoodRx should see incremental volumes.
Overall, as healthcare activity picks up, more people will need medications, including previous users of GoodRx who have gone dormant throughout the pandemic. In addition, another catalyst for GoodRx will be the new prescriptions themselves, which represent opportunities for people to become GoodRx users (MACs or subscribers).
For example, take someone who has been on a chronic medication for several years and has become used to paying whatever they have been paying for that drug. When that person gets a new prescription for some other condition or ailment, a healthcare provider or pharmacist might recommend GoodRx. Similarly, the pure sticker shock of a new medication can prompt an individual to search for a cheaper alternative (i.e., GoodRx).
Question: How disruptive could it be for GoodRx if their exclusive PBM for GoodRx Gold walks away?
Answer: As part of the GoodRx Gold subscription program, GoodRx’s PBM partner is DST Pharmacy Solutions (which we found via the GoodRx Gold Terms of Service). As the analysts have discussed previously, GoodRx Gold utilizes the singular PBM model to create a limited network, creating competition for pharmacies to be included and drive preferred pricing rates. However, GoodRx also maintains a backup PBM in case something were to happen with DST.
While no volumes/pricing go through this backup PBM, this entity essentially stands by to take over and ensure continuity of the GoodRx Gold subscription program although GoodRx has never lost a contract with their PBM partners and the relationships remain intact. As for the structure in the Kroger RxSC, Good Rx negotiates the prices with a PBM which Kroger then utilizes without affecting the U&C price.
Credit Suisse analysts think that while much has been debated over how much of a threat Amazon and now Walmart+ is to the GoodRx model, analysts also see an opportunity for GoodRx to capture incremental market share gains as more awareness is made that consumers can save money by opting not to buy drugs with their insurance. With 70% of consumers not knowing that prescription prices can vary significantly across pharmacies, and GoodRx having prices for nearly every pharmacy, every PBM analysts see the business model as in a good position as healthcare utilization recovers from the pandemic.
The analysts will continue to see how things progress with Amazon Pharmacy/PrimeRx and now Walmart+ Rx for Less. The point is that since the launch of Amazon Pharmacy, analysts have visited the website nearly every day and sees that the same holds true for GoodRx and more recently to Walmart.
Comparing the user experience (e.g., look/feel, search capabilities, extent of information and helpful tips, etc.,) between the three., GoodRx is far and away the more enjoyable and easier platform to use. While a qualitative metric, the ease of use, the extent of information available on the website/app displays, how far ahead GoodRx is, and the fact that other discount cards don’t come near the volumes that GoodRx has.
The question is will Amazon, Walmart, and other pure play discount cards continue to update their platforms? Absolutely, but so will GoodRx. Further, Amazon is still learning when it comes to pharmacy and learning even more when it comes to discount cards.
The updated thoughts are available in the note “You Ask, We Get the answers: Addressing Key Investor Questions Post AMZN/WMT Announcements.” For more information, ask questions, provide feedback or news, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.