Santa Monica-based GoodRx Holdings Inc. shares plunged 26% on May 10, the day after the company reported in its quarterly earnings letter to shareholders that an issue with a grocery chain discounting drug prices could result in a $30 million revenue hit for the second quarter.
GoodRx didn’t identify the grocery company, but said the chain “had taken actions late in the first quarter of 2022 that impacted acceptance of discounted pricing for a subset of drugs from PBMs (pharmacy benefit managers), who are our customers, and whose pricing we promote on our platform.”
GoodRx’s main business line is its app platform that allows GoodRx customers to comparison price shop for the best deal on thousands of prescription drugs at more than 70,000 participating pharmacies.
Because this grocery chain’s actions occurred so late in the first quarter, the impact on first-quarter revenue was “immaterial,” the letter to shareholders said.
But, “In April, this dynamic intensified, impacting more drugs and more of the groceries and pharmacies, leading to significant lost volumes and an expected greater impact on our Q2 and full year prescription transactions revenue,” co-Chief Executive Trevor Bezdek told analysts in a subsequent earnings teleconference call. “We are still doing significant discount volume with this grocer, but it is currently substantially decreased from typical levels.”
As a result, the company has lowered revenue guidance for the second quarter by
$30 million to $190 million, a drop of 13%.
The company also withdrew its second-half 2022 guidance, saying only that performance could be negatively impacted, depending on whether and when the issue with this grocery chain is resolved.
As for why the actions of one grocery chain can have such an outsized impact on overall revenue, Bezdek said, “While this grocer represents less than 5% of the pharmacies in GoodRx network, it made up almost one-quarter of our prescription transaction revenue in the first quarter. Its over-indexing relative to market share is because we had particularly attractive PBM negotiated pricing.”
Within hours of this announcement, analyst firms RBC Capital Markets and Evercore downgraded GoodRx shares from “outperform” to “sector perform” and “in-line,” respectively. GoodRx shares opened trading on May 10 down 31% and stayed down much of the day, closing at $7.97, down 25.9%.
The market’s harsh reaction was due in large part to the uncertainty.
“Part of this is because the S&P 500 is down 17% (YTD) as of this writing and professional money managers are more acutely averse to
uncertainty than normal. Therefore, by withdrawing guidance at this time, GoodRx was bound to get hammered,” wrote Jon Quast, a contributor for the Motley Fool investment guidance website.
For GoodRx investors, this is the second major dose of unwelcome news this year. In February, as part of its fourth-quarter and full-year 2021 earnings report, GoodRx lowered its 2022 guidance to 23% growth over 2021, down from the 35% actual revenue growth in 2021. That news sent GoodRx shares plunging 39% on the following trading day.
This continued a downward slide that began in October, when GoodRx shares peaked at $47. Since then, the share price has tumbled 83%.
