[Updated 12/5/18, 5:16 pm. See below.] The pharmacy industry’s transformation is accelerating, as traditional drug retailers strike deals to expand their businesses and fend off technology startups encroaching on their territory.
The latest salvo in the increasingly competitive sector is a $50 million investment in Alto Pharmacy, a San Francisco-based “digital pharmacy” startup that has offices in Denver. Like others in its industry, Alto offers online ordering and delivery (including same-day delivery) of prescription drugs.
Alto launched in 2015 under the name ScriptDash Pharmacy, initially offering a mobile app-enabled prescription delivery service in the San Francisco Bay Area. In conjunction with a $23 million venture investment it received last year, the startup changed its name to Alto Pharmacy and expanded its delivery service to the Los Angeles area. It also launched a software product to help doctors manage prescriptions and coordinate with patients’ insurance providers, TechCrunch reported.
Alto’s ambitions continue to grow with the $50 million Series C round announced Wednesday. The company plans to offer prescription delivery in more cities, and it’s introducing a mail-order prescription service for patients located outside of large metro areas, according to a press release. Alto also said it’s expanding the number of specialty drug therapies available through its platform.
Alto’s financing came from traditional venture firms: the investment was led by Zola Global and Greenoaks Capital, which were joined by Jackson Square Ventures, Olive Tree Capital, and other backers. But the funding follows a spurt of much larger deals involving pharmacy retailers that could shake up that industry.
CVS Health (NYSE: CVS), the Rhode Island-based retail pharmacy giant, closed its $69 billion acquisition of health insurer Aetna (NYSE: AET) last week, although there may be a hitch. On Tuesday, a federal judge reportedly raised questions about the transaction’s legality under antitrust rules, and he has yet to bless the U.S. Justice Department’s approval of the deal. Meanwhile, Cigna (NYSE: CI), a leading health insurer based in Bloomfield, CT, signed a $52 billion deal in March to acquire Express Scripts (NASDAQ: ESRX), the nation’s largest pharmacy benefits manager. Last month, the companies extended a deadline to close the deal from December 8 to June 8, 2019, although the businesses said they still expect the transaction to be finalized this year. The Justice Department approved the deal in September.
And then there’s Amazon (NASDAQ: AMZN), which in June inked a deal to purchase PillPack, a New England-based online pharmacy startup. The deal opens the door for Amazon to sell prescription drugs, and is one of the clearest signs yet of the tech firm’s healthcare aspirations.
Alto and PillPack are part of a wave of startups rethinking the ways people access prescription medications. Other players include Boston-based ZappRx, which is trying to simplify the process of filling prescriptions for specialty treatments, like drugs for rare diseases. There’s also a host of startups offering prescription-delivery services, including Phil, Nimble Pharmacy, ScriptDrop, Zipdrug, and Capsule, which raised a $50 million funding round in August.
As the convenience of online ordering and home delivery services, led by e-commerce firms such as Amazon, is spreading to healthcare, traditional brick-and-mortar pharmacies are following suit. CVS launched a next-day, nationwide medication-delivery service in June, and it has been rolling out same-day delivery in select cities. Walgreens also offers next-day prescription delivery, and it has been experimenting with same-day delivery at certain stores, including through a partnership with startup Deliv, which has offices in the Bay Area and Atlanta.
The startups and big companies are all vying for a piece of a huge market: Prescription drug sales are expected to exceed $800 billion worldwide this year, according to market research firm Evaluate Pharma. And when patients don’t correctly and consistently follow their treatment plans, it costs the U.S. healthcare system hundreds of billions of dollars each year, according to some estimates. This “non-adherence” to treatment plans can be the result of patients improperly using their medications because of circumstances like confusion or forgetfulness, said David Frankel, a managing partner with Founder Collective, which led the Boston-area venture firm’s investment in PillPack. [Added this paragraph and subsequent Frankel comments.—Eds.]
“That’s a huge opportunity for tech, whether it’s an app, device, or an end-to-end system like the one PillPack developed,” Frankel wrote in a statement e-mailed to Xconomy.
But the pharmaceutical industry “is a uniquely difficult market for startups to crack,” Frankel added.
“A big part of the reason PillPack succeeded, while many other consumer-focused pharma startups fail, is that [PillPack CEO and co-founder] TJ Parker is a second-generation pharmacist,” Frankel wrote. “The industry is so big, so complex, and so heavily regulated/subsidized that it’s almost impossible to succeed without an innate understanding of the players and their motivations.”
For its part, Alto says its software has helped clinicians and insurers save time on administrative tasks, and it claims its products and services have helped boost the rate at which patients stick to their treatment plans. Alto says its app makes prescription costs more transparent for patients, and they can also connect on demand with trained pharmacists employed by Alto, either through the app or on a phone call.
In markets where the company offers same-day prescription delivery services, orders are fulfilled at a nearby distribution center operated by Alto.
“Alto can cover the same geography as 400 chain pharmacy locations with one fulfillment center and same-day delivery,” CEO and co-founder Matt Gamache-Asselin claimed in a prepared statement. The $50 million investment “will allow Alto to reach more patients across the country and fill additional gaps in today’s pharmacy experience.”
Alto intends to add same-day prescription delivery service in Colorado and unspecified large cities on the East Coast, according to an e-mailed statement attributed to Gamache-Asselin. The company currently employs 200 people, and it’s hiring for roles in engineering, marketing, sales, and customer support, he added.
The $50 million investment was led by Zola Global and Greenoaks Capital, which were joined by Jackson Square Ventures, Olive Tree Capital, and other backers. To date, Alto has raised a total of $73 million in venture capital, according to the press release.