Once in an idealized past, Americans lived in mail-order houses lined up in pastel rows within walking distance of a Disney-esque main street. Residents knew one another by name, the local butcher had regulars on file, and milk arrived on your doorstep in reusable containers.
Entrepreneur, Cary Breese wants to bring that back―at least in respect to prescription drugs.
Prescription drug delivery was once a common service offered by most every family-owned, corner store pharmacy, Breese says. It’s only in the last few decades that American society lost this kind of personalized service to prescription pick-up at massive one-stop supermarkets.
After successfully automating and digitizing other services, Breese found himself looking for his next opportunity and asked—why can’t we get the level of customer service and delivery we expect from Amazon, at the pharmacy?
This line of inquiry led Breese to found NowRx, a small but rapidly growing startup in California. But as he and many other founders in the industry have quickly learned, launching an online pharmacy isn’t quite the same as starting any old delivery service—explaining why giants such as Amazon have only recently entered the fray.
There are significant regulatory and logistical hurdles unique to the prescription drug industry that must, one way or another, be addressed. And even once these barriers are overcome, the pharmaceutical industry’s biggest players are not far behind as to be taken off-guard by this trend. Yet, Breese remains convinced: it is the destiny of the internet to make old things new again.
Prescription delivery is the future
On the surface, it may seem like creating an automated pharmacy should follow the path of most any other e-commerce or SaaS startup. But once he started looking more closely at the industry, Breese says, he realized it was going to be a much bigger challenge.
“It’s a bigger problem than they just don’t deliver,” he says. If you just look at a retail pharmacy, for example, “you usually see someone in back counting out pills by hand, someone on the computer or on the phone talking to the insurance or the doctor—just to fulfill the prescription.”
Breese wanted to make it possible for customers to order their prescriptions online, and receive them the next day at no additional cost. But to make the traditional process sufficiently efficient, he realized they were going to need to re-engineer the conventional pharmacy from the ground up, while simultaneously letting go of their vision of a fully automated process.
They knew they needed to keep labor costs low, so one of the first steps in launching NowRx was integrating a robotic dispensing system that can sort, cap, and label refills. They also needed to solve the claims processing process, which required two-way communication to verify refills with doctors and payment from insurance companies.
Once that was solved, there was one final barrier: NowRx wanted to bring back the accessible, same-day delivery of decades past, and they didn’t want to charge a premium for it. To do that, they needed something faster than the postal service and cheaper than most other shipping options. To make their vision possible, Breese says they eventually arrived at an old-school solution made new: they needed “microfulfillment” centers within driving distance of the customers.
This is why, though there are a myriad of similar services cropping up around the US, few are actually available in Utah: the need for physical fulfillment centers means that scaling these online prescriptions services is time-consuming and cost-prohibitive. “Every market we go into, we see huge demand,” Breese says. “We believe this is the new model. The biggest challenge for us is to raise money to get the growth capital to expand rapidly.”
But we still have the regulatory hurdles of the past
While the myriad of physical and logistical challenges associated with a digitized pharmacy may have come as a surprise, there was one hurdle Breese anticipated from the beginning—the intensely regulated nature of the industry.
Pharmacies are subject to regular inspections, they are required to track and manage inventory, have 24-7 security, and coordinate with the local board of pharmacy, Breese explains. And even with extensive automation, regulations require them to keep a licensed pharmacist on the premise at all times the pharmacy is in operation.
Medications considered narcotics, a group of painkillers subject to regulation by the United States Drug Enforcement Administration, proved especially difficult because every individual who handles them must be licensed by the DEA. “Some pharmacies with delivery decide not to do narcotics because the regulatory hurdles are too extreme,” Breese says. NowRx went a different route—they went ahead and got everyone licensed, right down to their delivery people.
“The pharmacy industry has taken steps to instill its own set of standards, specifically with respect to combating the distribution of counterfeit medications online."
As significant as the regulatory hurdles to starting a traditional retail pharmacy may seem, online pharmacies have even more rules to contend with, according to James Ruble, an associate professor in the University of Utah’s College of Pharmacy. Many states, including Utah, have additional rules regarding the kind of medications that may be distributed via online orders, and how those interactions may take place.
Utah’s Online Prescribing, Dispensing and Facilitation Licensing Act, passed in 2010, creates a seven-member board to oversee the operations of online pharmacies in the state and outlines several rules such entities must follow. For example, online pharmacies distributing in Utah must maintain a toll-free number at which a patient can contact a licensed pharmacist. They must also demonstrate that communication is established and maintained with the patient through both electronic and telephonic means and provide tracking numbers to ensure all prescription drugs shipped from online outlets arrive at their correct destinations.
Additional rules apply to an emerging set of businesses that not only distribute prescription drugs but also issue the prescription itself. A whole host of websites pursuing this model have emerged in recent years, with many advertising heavily via social media. These include offerings such as Nurx, which prescribes and fulfills birth control “subscriptions” online, and Curology, which provides online dermatology primarily for the treatment of acne.
According to Utah’s online licensing act, the only prescription drug that may be distributed in Utah without an in-person consultation with a licensed physician is hormonal birth control. The act indicates that Utah is open to other specialty services, but indicates that businesses wishing to offer any other prescription product online must apply to do so by petitioning for the approval of additional drugs.
Online pharmacies and online prescriptions, in particular, are in a sort of regulatory limbo. It’s not an “experiment,” Ruble says, in the sense that some services are permitted to operate legally. But questions remain as to what rules they must follow to ensure these online services are safe and effective.
“To keep labor costs low, NowRx integrated a robotic dispensing system that can sort, cap, and label refills."
New healthcare offerings are evaluated on three tenets, Ruble explains: whether they are cost-effective, whether they are accessible to patients, and whether they result in quality outcomes. With respect to online pharmacies, there’s really no question as to whether they’re more convenient or accessible for patients.
However, some questions remain as to whether they are really more cost-effective than traditional offerings. It seems like they should be, Ruble says, but the literature has yet to conclusively prove that they are.
The real hurdle, he says, is the final one: there are doubts as to whether the level of care provided by online pharmacies is of sufficient quality. “I’m not suggesting it’s not appropriate quality right now,” he says, “but I think over time, as we have more comparisons about the quality of the delivery of care, that will help to greater prove and facilitate this concept as an important means of healthcare delivery.”
The current restrictions on what can be sold and distributed online, Ruble says, are intended to be a set of safeguards while this data is collected. Only time can tell whether state regulators will approve additional controlled substances for online distribution.
But the global economy is large and unwieldy, and the internet even more so, Ruble says, so it’s not always possible for regulators to police every new offering that is appearing online. While many online pharmacies are legitimate, he says, there are those that skirt the laws.
In the meantime, Ruble says, the pharmacy industry has taken steps to instill its own set of standards, specifically with respect to combating the distribution of counterfeit medications online. The National Association of Board of Pharmacy, for example, has created a verification program through which pharmacies can gain access to the exclusive .pharmacy domain name.
This program is largely seen as successful in combating counterfeits, Ruble says, but it does put the onus on the consumer to “do my own research and due diligence.” “Consumers should have a reasonable expectation that things they are buying on the internet are as safe as they can be, to promote their health,” he says. “But consumers also have to be wary of red flags and other kinds of things that could potentially pose risks to them.”
Amazon gets in the game
Whether the industry is truly ready for prime time or not, the digital transformation is already in full swing. Since launching their first distribution area in the Bay area in 2016, NowRx has already delivered more than 150,000 prescriptions to 22,000 customers, has surpassed $10 million in annual revenue, and recently launched a second distribution area in LS. “Customer demand has been huge,” Breese says.
Naturally, in a market this large, competition has already begun to emerge. In addition to social media presences like Nurx and Curology, direct competitors to NowRx, including companies with operations in Utah, are already in play, including PillPack, an online pharmacy acquired by Amazon in 2018.
PillPack, founded in 2014, uses its own set of software to coordinate with doctors and insurance companies and manage multiple prescriptions, which it packages according to time of day and ships in a monthly subscription that comes with automatic refills.
“We offer home delivery because, for many of our customers, the process of going to the pharmacy multiple times per month was a barrier that made it more difficult to take their medications as prescribed,” a PillPack spokesperson says.
The company expanded its operations and opened an office in Utah in 2017, PillPack CEO TJ Parker says, because the local culture made Utah a “natural choice.” “Our business is based on promoting better health with personal support that makes it easy for people to manage medications,” Parker says. “Along with being incredibly friendly and service-oriented, people here understand a core benefit of PillPack: it enables individuals to help themselves. Our pharmacy and medication management tools aren’t about poking or prodding customers, but making sure the healthy choice is also the easy choice."
Against competitors like PillPack, Breese believes NowRx has a secret weapon in its promise of free same-day delivery. Large industry players, especially brick-and-mortar giants like Walgreens or CVS, just aren’t going to take that step, he says. “They have an incentive scheme that is designed around bringing customers into the store,” he says. “They don’t mind if you’re waiting in line, because they are counting on you buying other products in the store. They won’t go to the free same-day model any time soon. They would no longer need 10,000 stores, and I don’t believe they’re going to do that.”
There may be just one flaw in his logic: some major retailers are already headed in this direction.
Walgreens, in addition to its 9,500 physical stores, has also launched delivery services via Walgreens Express, which allows customers to pay for their prescriptions online and choose between in-store pickup, or home delivery via FedEx. Next-day delivery is available for $4.99, and, according to a company spokesperson, Walgreens is piloting other delivery options, including drone delivery, and a possible partnership with Postmates.
“We believe a customer-first approach and personalization is key, no matter how, when, or where our customers are engaging with us,” said Rebekah Pajak, senior manager of pharmacy and operations communications for Walgreens. “With consumer needs and behavior continuing to evolve, we’re providing more customer choice as part of a modern, differentiated retail experience—whether it begins on our app, our website, the phone or in store. The shift toward an omnichannel focus includes services like prescription delivery, express pick-up in store, telehealth, and more.”
“Against competitors like PillPack, Breese believes NowRx has a secret weapon in its promise of free same-day delivery."
Still, Breese believes charging for delivery will eventually become a major sticking point for today’s consumers, who expect free same-day delivery due to services like Amazon and DoorDash. And so long as they remain committed to retail stores, Breese believes his competitors will be forced to charge for delivery to pay for overhead. “Physical stores are not the answer,” he says. “That’s the Sears model. Sears thought they could keep people coming into a store, and now they’re bankrupt and out of business.”
On the other hand, Amazon and Pill Pack don’t bother him, Breese says, because while Amazon may do free shipping, Pill Pack is too slow—fulfillment can take up to 14 days. “That doesn’t work for a mom that has children with an ear infection—they’re not going to wait three days for a prescription. You have to provide same-day delivery if you want to replace the pharmacy experience customers are used to,” he says.
And even if the competitors do move into the same space, Breese says, the market is large enough for multiple companies to claim a share. “Several startups are scaling up rapidly,” Breese says, “and I think in three to five years, we will see a transformation of the entire industry.”