GoodRx stock tumbles as 2022 revenue expected to take a hit from grocery chain prescription dispute

GoodRx expects its 2022 revenue to take a hit due to recent actions by one grocery store chain that represents a sizable chunk of its grocery prescription business.

The digital healthcare platform, best known for providing prescription drug discounts, disclosed Monday that it is unlikely to achieve its full-year guidance after a grocery chain stopped accepting discounts for certain drugs. In its fourth-quarter earnings call back in February, executives said they projected revenue to grow 23% in 2022, on top of full-year revenue of $745 million in 2021.

Shares were down 23% during Tuesday's trading.

The company did not disclose the name of the grocery chain.

"We recently recognized a grocery chain had taken actions that impacted acceptance of discounts from most PBMs (pharmacy benefit managers) for a subset of drugs. This impacted the acceptance of many PBM discounts for certain drugs at this grocer’s stores, which affected many parties including GoodRx," Trevor Bezdek, co-founder and co-CEO, told analysts during the company's first-quarter earnings call Monday.

"As many discounts found on GoodRx are provided by PBMs, this issue directly impacted consumers," he said.

The issue started happening late in the first quarter and initially impacted a subset of drugs in a subset of the grocery chain' stores and GoodRx experienced an "immaterial impact on Q1 prescription transactions revenue," estimated to be $1 to $2 million, he said. 

"In April, this dynamic intensified, impacting more drugs in more of the grocer’s pharmacies, leading to significant lost volume and an expected greater impact on our Q2 and full-year prescription transactions revenue," Bezdek said.

GoodRx estimates the grocer issue could cost the company $30 million in revenue in the second quarter and now expects Q2 revenue to be about $190 million. Wall Street analysts had projected the company's second-quarter revenue to come in at about $215 million.

GoodRx offers an app that tracks prescription drug prices and offers coupons to get medication discounts. The company expanded its services to provide a telehealth platform, called GoodRx Care, that enables consumers to see a licensed physician for primary care services.

The company declined to provide full-year 2022 guidance on the earnings call.

Bezdek stressed that the issue with the one grocer is an "unusual situation." The company expects growth among new users of its platform to remain relatively unaffected.

"While in the past, a pharmacy has negotiated any changed pricing with one or two PBMs at a time, in this case, this grocer negotiated with almost all PBMs at the same time, this effectively meant that all discount pricing became unavailable to consumers at the same time," he said.

GoodRx also expects Q2 adjusted EBITDA to be impacted roughly dollar for dollar by the revenue shortfall. "We have historically been an extremely high margin company and we do not plan to significantly alter our level of sales and marketing investment due to this grocer issue," executives wrote in a letter to shareholders.

Bezdek said the grocery chain in question represents less than 5% of the pharmacies in its network but made up almost a quarter of its prescription transaction revenue in the first quarter.

"This over-indexing relative to market share is because they offer particularly attractive PBM-negotiated pricing," he said.

Investors voiced concerns that the grocery chain issue was a weak spot for the company and questioned how the grocer accounted for almost a quarter of GoodRx's prescription transaction revenue. 

In a response to an analyst's question about preventing the situation in the future, Karsten Voermann, GoodRx's chief financial officer, said, "We want to provide the best pricing to consumers and if someone has very good prices, that’s a logical place to drive them to. Going forward, we have more and more tools where if consumers begin working with a given retailer, we are able to move them to other retailers. The other strengthen we have is the opportunity over time to be able to govern where they land. You see us doing that with new users and that's why other retailers are seeing a 20% to 30% increase in volume."

Strong Q1 financial performance

Despite the setbacks, GoodRx beat Wall Street estimates on both the top and bottom lines in the first quarter. The company reported Q1 revenue of $203 million, up 27% from $160 million a year ago.

Net income in the first quarter rose 637% to $12.3 million compared to $1.7 million in the prior-year period. Adjusted net Income grew 30% to $41 million compared to $32 million in the first quarter of 2021.

The company's prescription transactions revenue was up 16% year over year to $156 million, with an average of 6.4 million monthly active consumers.

First quarter subscription revenue grew 59% year-over-year to $19.1 million, driven by a 29% increase in the number of subscription plans, totaling 1.2 million subscribers.

First quarter pharma manufacturer solutions revenue grew 150% year-over-year to $23.5 million, driven primarily by deeper market penetration, executives said.

First quarter adjusted EBITDA grew 27% to $64.7 million compared to $51 million in the first quarter of 2021.

In April, the company scooped up vitaCare Prescription Services from TherapeuticsMD to beef up its growing pharma manufacturer solutions business. GoodRx agreed to acquire the company for $150 million in cash, with an additional $7 million consideration contingent upon vitaCare’s financial performance through 2023.

Voermann also said the vitaCare platform “is expected to contribute more than $8 million of revenue in 2022." He added that GoodRx is “confident in our ability to return to revenue growth rates in the mid 20% range in the next few years, albeit potentially off a smaller base than we expected due to the current grocer PBM dispute we’ve discussed.”