Why it matters:
- Online pharmacies have secured more than $3 billion in venture capital funding and account for an estimated $5.7 billion of the $300 billion retail pharmacy market in the U.S today.
- Direct-to-consumer pharmacy platforms lean into consumers’ heightened demand for value-driven digital convenience and personalized service, unlocking growth opportunities for startups like Mark Cuban’s Cost Plus Drugs to big players like Amazon and Kroger alike.
- The DTC trend is poised to shape the next era of growth in the retail pharmacy landscape, “as behavior changes sparked by COVID-19 continue beyond the pandemic,” according to McKinsey.
New direct-to-consumer pharmacy platforms are unlocking growth opportunities for startups like Mark Cuban's Cost Plus Drugs to legacy brands such as Kroger, as industry leaders and disruptors alike answer consumer demand for online convenience, affordability, and personalized healthcare, too.
While online pharmacies have thus far captured a relatively small, $5.7 billion slice of the $300 billion retail pharmacy business in the U.S., the fact that some big names like Amazon have stepped into the fray has made the industry take notice.
Another one of those big names is Mark Cuban, the entrepreneur known for his investing acumen as well as his starring role on Shark Tank.
In 2021 he launched Mark Cuban Cost Plus Drugs with a mission to offer safe, affordable medicines online. They’re now also available in more than 2,000 of Kroger’s grocery stores.
The moves reflect shifting consumer preferences that will shape the next era of growth in the retail pharmacy landscape, according to a McKinsey report. “As behavior changes sparked by COVID-19 continue beyond the pandemic, consumers will continue to demand digital and omnichannel solutions that allow them to receive pharmacy care when and where they need it most.”
Online pharmacies are leaning into that demand, and concurrently, “traditional players such as retail chains have also moved to more omnichannel — physical, online, and mail —options,” the report said.
Those shifts come amid an industry-wide effort to ease and enhance the U.S. pharmacy experience for today’s increasingly convenience- and health-and-wellness minded customers.
CVS, for example, is readying the 2025 launch of CostAdvantage, an evolved pharmacy model designed to “unlock new value for consumers.”
Meanwhile Walmart is testing personalized pharmacy services in select locations via Specialty Pharmacy of the Community Locations (SPOCs), including 70 HIV-focused pharmacies, as well as pharmacies that treat autoimmune diseases.
‘Amazon is built on value, selection, and convenience, and those are the aspects of pharmacy that we are seeking to address’
Although more than two-thirds of consumers who responded to a McKinsey survey said they were satisfied with their primary retail pharmacy, they are increasingly open to new channels of fulfillment.
So it comes as little surprise that new online players have generated more than $3 billion in venture capital funding, according to McKinsey.
Amazon caught the industry’s attention when it acquired online drug provider PillPack in 2018.
It then launched Amazon Pharmacy in 2020, which has methodically expanded, based on the same principles of providing efficient customer experiences that have helped it grow its main e-commerce business.
“Like everything else, we start by looking at what the customer pain points are and try to understand how that experience should be, and how can we at Amazon use technology or scale or logistics to help get there,” Tanvi Patel, Director, Amazon Pharmacy, told CO—. “Amazon is built on value, selection, and convenience, and those are the aspects of pharmacy that we are seeking to address,” she said.
Bringing online convenience and a subscription model to prescription drugs
A key area of focus for online pharmacies has been creating a prescription model that offers consumers both value and convenience.
Mark Cuban’s Cost Plus Drugs, co-founded by CEO and physician Alex Oshmyansky, began with a limited list of generic prescriptions available for delivery but has expanded into more areas of the business, including building a new drug-manufacturing facility in Texas, and forming partnerships not only with retail giant Kroger, but also independent retail pharmacies to offer their customers access to medications through Cost Plus Drugs.
Cost Plus Drugs buys directly from drug makers and adds 15% to its costs for medications, plus a $5 pharmacy fee. In has since expanded to include hundreds of generics and has slowly added some brand-name medications into its offerings.
At Amazon Pharmacy, the focus on affordability has led the company to roll out several programs including RxPass, which provides subscribers access to about 60 generic medications at a price of $5 per month for Amazon Prime members. Amazon Prime also offers steep discounts on certain prescriptions.
Amazon Pharmacy patients can also easily access any of the discount coupons offered from manufacturers. Patel said many manufacturer coupons go unused, either because the patient is unaware of them or because applying them may be too complicated.
“We have simplified that,” said Patel. “When a customer is checking out, if they have any of those medications in their cart, that coupon is automatically applied.”
[Read: 6 Winning (and Adaptable) Customer Acquisition Strategies From Growing Brands]
Amazon Pharmacy patients can also easily access any of the discount coupons offered from manufacturers. Patel said many manufacturer coupons go unused, either because the patient is unaware of them or because applying them may be too complicated.
Hims & Hers: Focused on men’s and women’s health issues via telehealth
Other online pharmacy disruptors have focused on specific healthcare niches. Hims & Hers, for example, launched in 2017 as a telehealth service focused specifically on men’s health needs. It soon expanded to include women’s health issues, and has more recently added services around heart health and mental health. The company offers both prescription medications and over-the-counter health products in its areas of focus.
To provide prescription drugs, Hims & Hers offers a telehealth service through which patients can consult with a health care provider in their state via phone, video, or online chat.
“We have built a platform that supports customers across multiple areas of their health, acquires consumers through some of the most creative channels, and has a foundation from which to bring some of the most innovative, personalized solutions to market,” said Melissa Baird, Chief Operating Officer, Hims & Hers.
The publicly traded company recently said in its second-quarter earnings call with analysts that its subscriber base was up 74% year over year, growing to 1.3 million.
Mental health has been among the fastest-growing service areas at Hims & Hers, Baird told CO—. It includes access to online therapy and psychiatry for anxiety and depression, with the ability in most cases to connect patients with a licensed healthcare provider within 24 hours.
“Since the launch of our mental health offering in 2021, we’ve continued to see tremendous demand,” said Baird.
The company’s expansion to heart health dovetailed with its focus on men’s sexual health, she said, citing studies that suggest sexual health may be linked to heart health. The recent launch of the Heart Health by Hims service seeks to provide personalized treatments for men using medications that address multiple conditions in a single dose.
Next on the Hims & Hers agenda: weight management. The company has hired a team of obesity specialists to help it develop what Baird described as a “highly differentiated and effective approach to weight loss.”
The new program, called Weight Loss by Hims & Hers, launched in early December.
“New innovation in healthcare solutions for weight loss have created immense opportunities for Hims & Hers,” said Baird.
Creating awareness: ‘It’s a matter of educating consumers’ on the online pharmacy option
One of the key challenges online pharmacies are seeking to overcome is generating awareness among consumers that their services are available.
“We have all been programmed to think that you go to your doctor, he or she sends the prescription to your closest retail pharmacy, you wait in line, and you finally find out how much your meds will cost when you see it on the cash register display,” said Eric Levin, CEO of Scripta Insights, which offers what he described as “comparison shopping app for prescription drugs, and recently formed a partnership with Cost Plus Drugs.
“It’s a matter of educating consumers that [online providers such as Cost Plus Drugs] are an option so they change their prescription filling habits, but also finding ways to work within the system itself,” he said. “It’s got to be more of a ‘coopetition’ than pure competition.”
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