I’ve been thinking a lot of late about where pharmacy is headed.
A lot has happened this year. Mail delivery to the home has exploded over the course of the pandemic, and I suspect that trend will continue. Amazon moved into the space with the rollout of Amazon Pharmacy. Walmart scaled up health clinics in Georgia that offer affordable pricing for a range of clinical services, including pharmacy. GoodRx went public. And venture investors backed digital pharmacy start-ups like Medly Pharmacy and Alto Pharmacy to the tune of tens of millions of dollars.
Oh, and then there’s a new administration over in D.C., which will have its own agenda around how to manage our ever-growing health care spend.
To figure out what’s next for pharmacy in 2021, I talked to some of the most thoughtful folks I know in the space.
Here’s what I learned:
Could we see any movement to break-up the power of the big incumbents in the pharmacy space? Drug pricing has long been a priority of policymakers, and it’s a hot button issue for consumers.
In normal times, I’d expect to see some movement here. But with the pandemic, I’m not holding my breath. I suspect the new administration will have its hands full with other matters. Moreover, the health care companies have come out as heroes in recent months. Big Pharma developed a vaccine in record time and the largest drug distributors will be in charge of a massive rollout.
When it comes to pharmacists, however, we may see more legislation underway to recognize them as a part of the patients’ care team. Notably, the Department of Heath and Human Services has empowered pharmacists to dispense and administer the Covid-19 vaccine.
Rx will continue to be enticing to investors
Let’s look at the market at a high-level. Pharmacy currently generates an estimated $500 billion in annual revenue, a huge increase from even a decade ago. The majority of it is retail versus mail order, but that’s starting to shift. More than 4 billion prescriptions (!) are dispensed every year.
Almost half of all Americans take at least one prescription drug. About 1 in 3 don’t take them as recommended by a doctor, creating a $290 billion medication adherence problem (as far as I can tell, this seems to be the hardest nut to crack for start-ups).
Most prescriptions - about 90% - that get filled are generics. But the specialty drug market is growing at a rapid clip in terms of spend, despite representing a tiny percentage of overall prescriptions. That’s an area where we could see more investor dollars flowing, as patients will need increased support in both accessing and administering the drug.
P.S. If you’re new to the space and wondering at this stage how the drug supply chain works in the U.S., here’s how my OMERS Ventures colleague Michelle Killoran mapped it out. It’s incredibly complex, but this should get you started:
This new wave of founders will prioritize consumer experience
All of this is attracting a new crop of talent to the space.
Historically, consumers haven’t really been a focus. How was your most recent trip to a Walgreens or CVS? Did you stand in line for twenty minutes? And when did you find out the price?
That’s starting to change. There’s an oft-repeated myth in health care circles that newcomers, particularly those from the tech sector, will inevitably fail because they don’t understand the complexities. It’s true that some start-ups have flopped. But in pharmacy, one of the most regulated and complicated aspects of health care, I see plenty of examples of founders with a tech background that are moving the industry forward.
Consider the example of GoodRx.
Doug Hirsch started the business because of a problem he couldn’t shake. Hirsch couldn’t understand why it was so difficult for consumers to find out the price of their meds before they got to the pharmacy counter. This struck him as a solvable problem - and importantly, Hirsch hadn’t previously spent much time pondering the intricacies of the drug supply chain (fun fact: as the first vice president of product at Facebook back in 2005, he helped invent the infamous photo tagging feature).
“We didn’t know any better,” he told me by phone when we caught up last week. “But it seemed like the most basic human right to me to know the price of a medication before you purchase it.”
GoodRx is now one of the few profitable companies in all of health-tech. And unlike most, his company focuses on a population of patients that are uninsured or underinsured, meaning they have high deductible plans. GoodRx, which has relationships with all the major pharmacy benefits managers, built a special card that Americans can use to access discounts at the pharmacy. And its website (see below for a search of generic Lipitor) displays lists of medication prices at pharmacies like Walgreens, CVS, Rite Aid and Safeway.
A few other names spring to mind: Alto Pharmacy’s CEO Mattieu Gamache-Asselin worked as an engineer at Facebook before moving into pharmacy delivery. Nurx CEO Varsha Rao made her way into the space after working at Airbnb and Living Social. Ro CEO Zachariah (“Z”) Reitano was a serial entrepreneur fixated on consumer marketplaces before he moved into the online prescription space.
What this suggests to me: Patient choice, which hasn’t mattered much in the past, will finally start to dictate the winners and losers. In the words of my OMERS Ventures colleague Michael Yang during one of our brainstorms:
“Whether you want to pick up in-store, whether you want it delivered to your doorstep, whether you want to get it in the mail, the patient will decide. Whether you want fancy packaging, whether you want a cool brand or whether you want an actual consultation with your meds – these are going to be choices that a consumer increasingly can make in the future.”
The role of the pharmacist changes
Growing up in the U.K., I had a very different experience of pharmacy.
I would turn to our community pharmacist for advice about meds, and pepper him with questions about my general health. He knew all about my medical history, including my frequent strep throat infections, and warned me about the dangers of taking antibiotics too frequently. A careers site for the National Health Service perfectly sums up the job of the community pharmacist: “you’ll be an expert in medicines and offer health advice to patients on issues such as sexual health and giving up smoking.”
Outside of the U.S., the scope of practice for pharmacists tends to be much greater. Here, it’s been more limited for a variety of reasons. This is a shame. As Nikhil Krishnan has pointed out in his newsletter - and I highly recommend you subscribe -Medicare beneficiaries, who are more likely to take multiple meds, will see their pharmacist twice as often as their doctor. In rural areas, it’s even more frequent.
Plus, look at this survey from Boehringer Ingelheim, the global pharma giant, which found that most people shop at the pharmacy once or twice a month. That’s far more often than many of us see our primary care provider.
To me, that represents a major missed opportunity for pharmacists to have conversations with their patients about their medicines.
Fortunately, we’ve seen gag order laws lift in various states, which effectively barred pharmacists informing patients that a cash price might be cheaper than their co-pay. Change is underway on a state-level, but it’s been slow. As Timothy Aungst, a Massachusetts-based pharmacist, explained it to me:
“I practiced in a state where I could order and interpret labs, change, add and remove therapy for my patients. Then I came to Massachusetts … the laws were stringent and I have to have an insurance coverage limit that prevents really anyone from engaging in collaborative practice agreements up here. So it is state by state. I miss being able to do more.”
Krishnan argues - and I agree - that software take on some of the burden, and therefore free up time for our pharmacists. In theory, a machine could visually inspect scripts, or the number of pills in a bottle.
Outside of investing in tech, it may be a matter of necessity that pharmacists are given more time for patient care. As Yoona Kim, CEO of Arine, a company that has developed a virtual pharmacist, puts it: “We’re seeing an increasing recognition that the pharmacist is integral to the care team, and we’re seeing plans leveraging them to improve cost and quality.” Kim points out that states are increasingly recognizing pharmacists as health care providers, making reimbursement for services easier. Plus, we do tend to see pharmacists playing a bigger role when it comes to patient consults in more integrated systems like the VA/Kaiser.
A lot more cash
Ro, a start-up based in New York, started off selling medications online that millennials were too embarrassed to talk to their doctor about in person. Now, the product suite has expanded and there’s even a full-fledged pharmacy division.
Stephen Buck, who runs Ro pharmacy, joined the team earlier this year to build out a cash-only offering for generic meds. Yep, you read that right. Buck won’t be managing relationships with pharmacy benefits managers, at least in the near future. Instead, Ro is growing its business by offering consumers a flat price: $5 per script, per month.
Buck remains bullish on the opportunity for growth in the cash market, particularly if employers come on board: “Industry estimates suggest that over 1 billion scripts are already paid 100% out of pocket,” he wrote to me in an email. “I would say that every employer should consider adopting a deductible based benefit design to accelerate this trend.”
As Buck argues, the more consumers that are purchasing generics on a cash basis, the more competitive the out-of-pocket prices will get. And, of course, the rise of cash pay in pharmacy will also be accelerated by some of the larger retailers, including Walmart and Amazon.
The Amazon effect on the market
My last scoop before I left CNBC was about four years in the making: the launch of Amazon Pharmacy. The product offering in a nutshell: Consumers can now pay cash or use insurance to get their prescription medications shipped to their home, and some will qualify for Prime discounts. There’s also a card that can be used online or taken to the pharmacy to access savings.
So what does all this mean for the pharmacy space?
Well, here’s a few thoughts I’ve been mulling on:
It’s “Day One”. Amazon often uses that term to refer to its product categories. When it makes an announcement, that’s typically just the beginning. So I strongly suspect the team to iterate over time. Where I see the company going next is brick and mortar. Why not add pharmacies to Whole Foods groceries? It solves the problem for those who need medications acutely - and I can’t see Amazon ignoring that customer segment.
Integration with telemedicine, diagnostics. Amazon is also trialing a telemedicine service on its own employees, called Amazon Care. I wouldn’t be surprised to see a major expansion in the works, as Amazon has a history of testing out new product lines on its own workers first. The company has also been building standalone diagnostic testing labs over the course of the pandemic, and no doubt is learning a lot in the process.
Amazon could be a big threat in this space. Or the company could fail because of the complexities. But I’m personally not counting Amazon out because the PillPack team lives and breathes this stuff, and leadership has learned some hard lessons over the years. Back in the 1990s, Jeff Bezos got involved with Drugstore.com, one of the early companies selling prescription drugs online, and it wasn’t a huge success. Arguably it was ahead of its time. Read more about it here.
I asked Hirsch about whether he sees Amazon’s pharmacy move as potentially competitive to GoodRx. After the news hit, his company’s stock took a big hit. “If I only sold mail order prescriptions and they came in as mail order sellers, that might be something to consider, but that’s not what we do,” he told me.
Cary Breese from prescription delivery business NowRx agrees that it won’t be an easy road ahead, even for a company as dominant as Amazon:
“Amazon will gain market share, particularly for low priced generic/cash paying customers, however, they will struggle with customer service issues regarding coordination between physicians, patients and insurance for much of pharmacy, where a much higher touch is required.”
Other 2021 predictions
More mail delivery: Via a Twitter poll I put out this week, it seems that many of you in the health-tech world are confident that consumers will continue to get their medications delivered via mail rather than stopping by a pharmacy in person. I agree with you. The Boehringer Ingelheim survey reports that more than a third of consumers have increased their online/mail order pharmacy usage in the past 12 months. More than a quarter of respondents said it’s because they didn’t want to have to go to a store during the pandemic, but others were attracted by the convenience or navigated to mail order by their health plan.
Telemedicine and pharmacy converge: The telemedicine companies are all moving into pharmacy delivery, in part thanks to the rise of services like TruePill. And those that started off with pharmacy, like GoodRx, are acquiring or building out telemedicine services. It’s all coming together.
Lyft/Uber make moves: The big ride-sharing companies could make a dent in this space. Why not partner with a retail giant and leverage the driver network to deliver meds? We’ve already seen Instacart and Costco teaming up to deliver medicines to people’s homes.
Medication management baked into iOS/Android: Apple hired former Mango health founder Jason Oberfest a few years back (as reported by yours truly). Mango was working for years on the problem of medication adherence, and looking at it with a rather unique angle by using game dynamics to drive behavior change. So I wouldn’t be surprised to see Apple take on this problem in a more direct way.
Pharmacies do more follow-up care: I could see pharmacies adding more capabilities around diagnostic testing. As health care increasingly moves into the home with telemedicine, there’s going to be a need for more infrastructure to support those who need followup care.
More retail pharmacy experiments: Walmart and CVS have spent a lot of time thinking about the future of the pharmacy. Frankly, it’s counterintuitive to sell candy in the same retail locations where people are prescribed medication. Whether these efforts scale up or not is an open question. Retail sites do make money by putting the pharmacy in the back, forcing consumers to pass through aisles of magazines, makeup and toothpaste. It’ll require a true commitment from the top to see meaningful change. But Breese from NowRx predicts that large retail chains must adapt or “perish the same way as Blockbuster.” As he explains: “Critical features they must develop include fast reliable, automated dispensing; more convenient interactions with customers; providing same-day delivery without extra fees being added (free same-day delivery), as well as better coordination with insurance and physicians to minimize friction and increase transparency.”
Employers flexing their muscle: WithMe Health’s CEO Joe Murad has spent a lot of time working closely with employers as they consider shifting away from traditional pharmacy benefits managers. These employers haven’t historically had the power to dictate terms, and Murad thinks that may change. “We’ve seen in health care that a lot of innovation and transformational change has come from the big employers,” he told me. Another big shift is the availability of health data. Murad said it’s becoming easier for newer players to really prove outcomes and show the benefit, and that will help these companies gain market momentum. (WithMe is an OMERS Ventures portfolio company).
Pharmacists will deliver more clinical services: Kim from Arine thinks we’ll see pharmacists working closely with patients with conditions like diabetes, particularly given the current shortage of primary care docs. “Clinical pharmacy will be a key service provided to patients in pharmacies by plans to ensure that the chronic conditions are managed appropriately,” she told me.
Payers and plans will put pressure on biopharma companies to enter into value-based contracts: Kim thinks real world evidence will really take off in 2021. If a high-cost specialty drug isn’t working, it won’t be paid for.
Things we’re less bullish on (for now):
Medication kiosks: A good idea, in theory, but we haven’t seen these go mainstream. Although, we do like the companies that are thinking through the telemedicine component, such as this team called OnMed. There’s a robotic mini-pharmacy to dispense the meds, but also private booths where patients can interact with a doctor or nurse in real-time.
App-only approaches to manage medication adherence: A nudge is not going to do the trick for most patients. Alas, we’re going to need some humans in the mix. Kim from Arine makes the case that it’s not enough to push on adherence. Instead we should be thinking through questions like: “Is it the right treatment and dose for the patient? And are there de-prescribing opportunities where a lifestyle change is more appropriate?”
Digital pill mills: We’re not looking at models where the clinicians are relegated to the background and expect to prescribe, prescribe, prescribe. This isn’t going to fix the fundamental health care problems that we face.
And some questions we’re contemplating to leave you with:
How many digital pharmacies can the market support? Can Amazon, Capsule, Medly, Alto, NowRx and others all succeed?
How much of the market can cash-pay penetration get to and are we just bifurcating the market going forward? And therefore, where will innovation come from?
Let us know what you think by commenting here. Or get in touch via Twitter at @Chrissyfarr.