With biopharma IPOs surging, GoodRx guns for $750M raise
The 2020 biopharma IPO wave has picked up a company or two that doesn’t look like your traditional drug developer. In June, most notably, Royalty Pharma, a company that has made a tidy business over the years buying up future royalties for approved and experimental drugs, nabbed the largest biotech — if you can a call it a biotech — IPO in history at $2.2 billion.
Then on Friday, after a week dominated by small-cap offerings like Virios Therapeutics, GoodRx announced they too would try to go public. And although they don’t quite have Pablo Legorreta-like ambitions, the consumer prescription drug platform and drug price watchdog is reportedly still shooting well above Moderna: $750 million.
GoodRx was one of two notable biopharma companies to file on the SEC late Friday, along with the UK-based psilocybin biotech Compass Pathways. Both jotted $100 million for their goal raise, although that figure has become a standard placeholder for biotechs this year, before companies fully gauge interest and replace it with a more headline-grabbing number. Rennaissance Capital expects GoodRx to collect up to $750 million.
That figure — three times what, say, leading Covid-19 vaccine developer CureVac, raised — may be surprising for a company that might be most known for putting out annual lists of the world’s most expensive drugs and helping folks, particularly seniors, compare prices for their prescription medicines. But GoodRx has in fact become quite profitable over the last four years. In 2019, they raked in $388 million, for a profit of $66 million. Through the first of half of this year, they were on track to take in $500 million and pocket $100 million.
How do they do that? Although the company says on its site that they make money from “advertisements on our site and referral fees,” the vast majority of revenue actually comes from the latter, as they acknowledge in their IPO. When people use the GoodRx platform to find drug prices lower than what pharmacies set, they can then use the GoodRx code to buy the drug at that price. Pharmacy benefit managers will then pay GoodRx a portion of the fee they get from the pharmacy. Because most prescriptions repeat, it creates a stable source of revenue.
On Twitter, Adam Fein of Drug Channels outlined the approach in greater depth.
Wow. Insanely profitable! EBITDA = 40%
1. Consumer uses GoodRx
2. Pharmacy pays #PBM
3. PBM pays GoodRx $$$
The following tweets explain how our crazy drug channel system enables this business pic.twitter.com/5x28NuLbVt
— Adam J. Fein (@DrugChannels) August 29, 2020
Compass, by contrast, is a more classic drug development raise, though biotech deviates some from the traditional. As researchers and mental health providers have rekindled interest in the therapeutic applications of psychedelics, they have become perhaps the most closely-watched psychedelic drug developer. Partially owned by ATAI, which has been amassing a portfolio of biotechs focused on alternative mental health approaches, the company patented a method of producing psilocybin in a lab, a key step for assuring it can be mass-produced and profitable. (Psilocybin, a natural product found in mushrooms and discovered decades ago, is not patentable on its own, a stumbling block for industry.)
The company, which is also backed by Peter Thiel, most recently raised $80 million in April to move into Phase III for treatment-resistant depression. Their drug has already received breakthrough designation in that field, and they’ll use proceeds from the round to push through clinical testing and into other neurological indications.