Weekly Reads - May 8, 2023
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PBMs are helping drive lower systemwide drug prices creating a more efficient healthcare system despite recent public scrutiny and regulatory headlines.
PBMs have been the historic punching bag for politicians who are pushing for more affordable healthcare and more system transparency. In April, Senator Bernie Sanders introduced a package of legislation aimed at lowering prescription drug prices by increasing the oversight of Pharmacy Benefit Managers (PBMs). This law coined as the PBM Reform Act proposes to limit pharmacy spread pricing, require pass-through of all rebates to plan sponsors, require PBMs to publish lengthy annual and semiannual reports, and commission studies to analyze PBM activities. This law prevents PBMs from charging insurance or beneficiaries a price greater than the price paid for a prescription drug paid by the PBM to the pharmacy. Additionally, PBMs will need to pass through all rebates they received from the drug manufacturer to the end user which decreases the price paid at checkout for their prescription. These new regulations sound daunting but, it’s business as usual for many of these PBMs as most PBMs claim to pass through rebates to consumers and do not mark up prescription drugs. PBMs already generate some of the smallest margins in healthcare and have been a positive driver for lower prescription drugs over time. Net drug prices have declined in the last four years as PBMs have made prescriptions more affordable by helping users get easier access to rebates through healthcare platforms like GoodRx. The demand for more disclosures and studies isn’t likely to uncover any foul play but just adds more bureaucracy to a system that is already drowning with complexity and bureaucracy. Over time we expect these negative headlines driven by the upcoming election cycles to disappear as the public realizes that PBMs are not the problem but the solution to lower drug prices.
WhatsApp’s journey in becoming an emerging markets super app could be a major growth catalyst for Meta that the market is not focusing enough on.
2023 has been labeled the year of AI and the death of the Metaverse. Meta has been in the public spotlight as recent cost cuts have boosted investor sentiment despite struggles in their Metaverse business and questions about their AI strategy. Lost in all this noise has been WhatsApp which has continued to outperform expectations and shown evidence it could be a major long-term growth catalyst for Meta. WhatsApp is still known as a communications app in the U.S. but has evolved into a financial platform in emerging regions like Latin America and India. WhatsApp has now partnered with Stride to enable businesses in Singapore to accept payments directly in chats with customers. Most people in Singapore use WhatsApp for communication so it's beneficial for businesses to allow users to pay through WhatsApp on their phone since they already have the app downloaded. Paying through WhatsApp is also much safer than carrying cash or a credit card in many of these emerging markets. WhatsApp has ingrained itself in the daily life of many users in the largest countries in the world, now it's up to Meta to continue expanding the platform's functionality and monetize its mass user base. So far the results have been great and this opportunity could be larger than what the market is pricing in.
The plummet in Lyft’s stock price and sell-side price targets show that investor patience for unprofitable companies in competitive markets is waning thin.
Lyft is laying off over 1,000 employees as the company seeks to reduce fare prices in order to improve their competitiveness versus Uber. This cost cut will also help the company pay drivers more so they can increase their driver supply and provide a better service. The issue with this strategy is Lyft is at an inherent disadvantage to Uber due to their lack of food delivery service. Uber drivers are constantly busy with both mobility and delivery business versus Lyft in which they are stuck just doing mobility. For the average driver, Uber will be a more attractive venture because they have the option of doing rideshare and/or Uber Eats. In order to be competitive Lyft is going to need to offer better promotions and rates to drivers in order to pull drivers away from Uber. These promotions will kill take rates and delay the company’s path toward profitability. Investors patience for unprofitable companies is at an all-time low and with no clear path toward profitability Lyft is seen as dead in the water by investors. Lyft has also denied speculation that they are looking to sell the company, which disappointed investors who view the company as an attractive takeover for a larger tech company. The future for Lyft is hazy and it seems like the company is paying for the operational and strategic failures of the past management team.