GoodRx Holdings Inc at Citi Global Healthcare Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Nice reading Okay. Let's kick off with a question just on the retail environment because I think that's been causing a lot of volatility, obviously with you guys, not just this year, but over the past couple of years. But I think this year, specifically, there's been 2 big challenges that you've called out. One, store closures, and that's across Rite Aid with their bankruptcy, but also others like Walgreens and CVS have had issues and are closing stores. And then the second big issue is it seems, at least from your commentary on last quarter's call, pharmacies are being more aggressive with their negotiations with PBMs and they might be having a little bit more success this year than past years in terms of pushing back on some of the admin fees. And it seems like the latter challenge is what's causing some of the volatility on the top line, namely, I think you mentioned that next year, we should think about top line growth in the single-digit range. So let's start there. What changed this year versus prior years that will potentially give pharmacies the upper hand in negotiating with PBMs?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Yes, that makes complete sense. When do you think you will have more insight into how those negotiations have turned out?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Yes, yes. And you've also mentioned that you think this is kind of a onetime reset. And so we're not going to have these further degradation in admin fees likely. What gives you the confidence that this isn't a recurring theme with pharmacies and PBMs. So this is a reset year, and from here, we can grow.

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Yes. Yes. And given that you're kind of arm's length from these negotiations, what can you do now to help your pharmacy partners, to help your PBM partners to offset some of these pressures?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Are you agnostic as to if this -- if pharmacies contracted with you directly or go through your PBM partners? Or do you have a slight preference for one or the other?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Yes. Yes. And I know this is probably a difficult question to answer right now given there's so much unknown about how these negotiations between pharmacies and PBMs actually turn up. But how do you think direct contracting is going to change next year? Because I guess you could feasibly see if the PBMs are pushing back hard on the renegotiated admin fees, you see these direct contracting volume accelerate. Whereas if the pharmacies are more successful, you might see that moderate a bit. How are you thinking about direct contracting given the negotiations that are ongoing right now?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Yes, yes. And I'd like to stick to kind of the direct contracting and the potential economic effect on you guys, you mentioned you're kind of agnostic that it doesn't really have that big of an impact on PTR per MAC. But it was, I think, a tailwind at the beginning of the year and then it flipped to a headwind in the third quarter a little bit. Can you just walk us through kind of the economics of a direct contract? When is it a tailwind? When is it a headwind? And how can you kind of manage some of that uncertainty?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Yes. So it sounds like pharmacies have, all else being equal, have a preference to direct contract with you. You guys have a preference to direct contract with pharmacies, all else being equal. I guess that kind of begs the question, and I think I asked this each time we have one of these discussions. But at some point, do you think that, that starts to kind of cause a little bit of abrasion on the PBM side that, hey, now we're competing with GoodRx who before was more of a partner.

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Yes. Makes sense. Okay. Let's stick with the retail channel. And Karsten, you mentioned at the outset that $5 million headwind this year in the second half because of Rite Aid store closures. I guess I want to focus on how we should think about this not for necessarily this year, which has gone as you expected, but for next year. So obviously, $5 million is a second half issue. Should we just think about next year, annualizing that $5 million. So you have an additional $5 million headwind next year? Or are you recapturing some of that volume? How should we think about that for '25?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Yes. It might be too early to have data on this. But of those early store closures, Rite Aid store closures, any idea on where those patients are going and what your recapture rate has been for those patients?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Are you able to disclose anything around kind of the percent recapture or where these folks are going? Or is that proprietary?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Got it. Okay. Okay. I want to focus on Kroger as well because this has obviously been an issue for you guys for a while now. You signed a direct contract with Kroger recently. I think perhaps that has developed a little more slowly than you had anticipated or perhaps TheStreet had anticipated. And I think there's probably still a little bit of confusion at the Kroger level of, "Oh, can we actually accept GoodRx again." So maybe if we can just get an update on how that contract is progressing? And how long do you think it will take for Kroger to get to kind of equalize with its overall market share and the claims flowing through GoodRx?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Fair to say a couple more quarters for it to normalize or equalize?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Got it. Let's turn over to the integrated savings program, Karsten, you mentioned this so, with Romin, on kind of your deeper relationships with PBMs. That seems to have done as you expected and quite well. I think at the Investor Day, you noted I guess it would be around 5% of your marketplace revenue this year, and it would grow at a 60% to 90% CAGR through 2026, which is obviously a great growth rate. Any changes to those targets and how you're thinking about the program in '25 and '26.

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Got it. Let's stick with the base ISP, but I do have some questions on the Wrap product as well. So I think you've said that there are 5 main levers to drive growth in ISP, adding PBMs, adding employers' plans, adding pharmacies, adding drugs covered and increasing the win rate. Can you kind of force rank those levers on kind of what do you have the most control of, what's most impactful for you and what you're focused on? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 1:45PM, GDRX.OQ - GoodRx Holdings Inc at Citi Global Healthcare Conference

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : As you do more of that direct outreach, do you think you'll have to spend to invest in more sales folks.

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Yes, yes. And full disclosure Citi has -- uses Caremark, who has the ISP program. And I have no idea if I'm using it because we don't know as consumers if -- what price I'm getting. But I guess it seems like a no-brainer to me on the employer side. Like when you do get push back, if you do get pushback on this program, where is it from? And as an employer, why wouldn't an employer want to adopt this?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Got it. Got it. Okay. Now let's shift over to the Wrap product because I do think that is a very interesting extension of ISP. Can you remind me which PBMs are on the Wrap product, and for the ones that aren't currently, what's the kind of fear there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 1:45PM, GDRX.OQ - GoodRx Holdings Inc at Citi Global Healthcare Conference

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Got it. And as both these products grow, ISP base, ISP Wrap, how do you think that changes your business model? Because presumably, if we do see more volume come through the ISP versus the, call it, the core products, you would have to spend less on direct-to-consumer marketing. So you become more efficient from a marketing perspective. So just talk to us about how your model may change as volume increases through the ISP.

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Got it. Okay. Okay. I do want to touch on Medicare because there has been some changes in Part D plan design. In 2024, there's a $3,500 out-of-pocket maximum cap on beneficiary spending, it's going to drop to $2,000 next year. Presumably, this may make GoodRx a little less impactful for Medicare beneficiaries. But can you just remind us, one, what percent of your users are Medicare beneficiaries, and have you seen any drop this year as that kind of benefit change is phased in? And what are your expectations for next year?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Got it. And I presume no change that you -- no meaningful change in what you've seen this year out of Medicare. If we were to look at Medicare beneficiary utilization in 2023, 2022, it would be around that 28% to 30% or so.

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Got it. Okay. That's good to hear. Let's switch over to Pharma [Mansal], which has been a nice growth driver for you guys recently. I think this year, if you exclude the [vitaCare] business, you're going to grow kind of in the mid-20s percent next year. You said you expect that business to grow 20%, which is faster than the rate of the overall kind of market for pharma advertising budget. So can you kind of parse out that growth for us, how much of that growth is due to just overall market growing? How much of it is from you taking share? And from that bucket of taking share, where is that coming from? Who do you compete against? And who are you winning from?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Yes. Yes, makes sense. And I want to stick on that point-of-sale discount point because that is a really innovative approach that you guys are taking. And I should mention before we get into that question, you guys recently put up on your website a whole hub dedicated to Pharma [Mansal]. So I encourage everyone listening in to visit your website in the Investor Relations site and look at that because there is some great data there. But now you do have 72 point-of-sale discounts whereas before we -- I think at the beginning of the year, what was it -- so it's been a very fast-growing area for you. Can you just describe what that is and why a pharma company would want to use that and how the price they get from going through

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Got it. Got it. Helpful. Okay. Let's turn to GLP-1s because you mentioned that button issue. It does seem like constraints are -- supply constraints are easing a bit, that more competition is coming into the market. Pharmacies are still struggling and oftentimes are underwater on their GLP-1 products. So talk to us about what you're doing with the GLP-1 manufacturers, how can you help your partners with this product. And as we think ahead to 2025 and '26, as we see supply constraints ease, as we see more competition coming to the market, how is that going to change for you?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : And presumably as compounding comes to an end, your solutions become a little bit more impactful?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Okay. Okay. Last question here. I think we're just about out of time. But I do want to talk about your capital deployment priorities, given you are free cash flow -- you throw off a lot of free cash flow. And you don't have debt coming due until 2029. How are you balancing investing in the business organically, M&A, perhaps share repurchases given where the stock has traded recently?

Question: Daniel Grosslight - Citi Investment Research (US) - Analyst : Yes. Yes. All right. We are officially out of time. Karsten Romin, thank you so much for joining us at our conference this morning. And thank you, everyone, for listening in.