NowRx - Same day prescription delivery

[LearningMachine]

I'd like some help of our collective wisdom to figure out the probability of profitability and valuation for NowRx.  Here are some links for more info:

• https://www.seedinvest.com/nowrx/series.b.2
  
• https://sec.report/Document/1702206/000114420419045501/tv529845_253g2.htm
  

 

Pros:

• Decent Customer satisfaction: They are claiming decent NPS.  I haven't had first hand experience with their service but can relate to pain of picking up medication in person during Covid situation.
  
• Low Real estate overhead: They are claiming lower real-estate overhead, but I'm wondering if Walgreens and CVS are able to achieve effectively no real-estate overhead costs for pharmacy part of their store through sales of higher-margin merchandise to heavy foot traffic.
  

 

Cons:

• Higher Operating Expenditures: Their Operating Expenditures look high given their claims of low OpEx.  I'm wondering if part of it is because of the costs of drivers to ship, which Walgreens called out in a recent quarterly call as one of the reasons they prefer customers to come to their store.  Will they ever become decently profitable without diluting again and again? 
  
• Lower Gross Margins: Their gross margins were lower than other pharmacies in one of the docs I came across.  They claimed it is because they sell more branded medication.  I also wonder if their little negotiation power won't be able to compete with higher-share retailers like Walgreens and CVS in negotiating lower prices on both branded and generic medications.
  
• Continuing Losses: The company has been making losses each year and projected to continue to make losses for now.  Doesn't surprise me given high operating expenditures and lower margins above.
  
• Strong Competition: Can Amazon just kill NowRx along with killing Walgreens and CVS by introducing Same-day 2-hour Prime shipment from their PillPack acquisition?  Amazon has already started getting licenses in each state.  Now, they just need to have a pharmacist in each MSA just like NowRx.  Capsule is also getting higher funding already, and planning to grow nationwide.
  
• High Executive compensation from raises: Is it to too early for exec team to be taking high compensation from raises?
  

[Jurgis]

I wouldn't invest in this. IMO there's very little novelty, there is no moat, there's not much benefit for customers, there's huge competition and they are unlikely to become profitable soon (or at all).

 

That's not to say they cannot be acquired or get a huge follow up rounds from someone (Softbank, cough, cough).  ::)

 

 

[LearningMachine]

Thanks Jurgis.

 

I was thinking moat is in switching costs for their customers.  Their # of customers is growing exponentially.

 

Regarding novelty, I was thinking it is not a prerequisite for a good investment.  I understand idea is easy to come up with.  I've seen small local pharmacies offer same day delivery, but it has been like what the taxi-business was like - business with low customer satisfaction and time wasted in coordination.  Currently, there isn't a nationwide company offering the services that are a combination of Walgreens/CVS combined with Uber/Lyft, and there is a need in the market for that.

[Jurgis]

If you want to analyze this, you perhaps should figure out who their customers would be: people comfortable with tech? people uncomfortable with tech? etc. You should realize that they are entering area where a lot of companies tried and are still trying. Oh look: https://en.wikipedia.org/wiki/Nuro

(But then you could argue that Nuro is valued at 2.7B by Sh1tBank and NowRx is raising at 65M pre money...)  ::)

 

If it's "idea is easy to come up with", then you are betting on execution. How good is the team and how well they can execute?

 

"Nationwide" has the same issues Uber/Lyft have: there's really no benefit of offering service nationwide. Customer from LA does not care about service availability in NYC.

And the cost issues are similar to what Uber/Lyft have: they have to have delivery transportation and drivers. They can outsource that to Uber/Lyft or whatever platform(s) other delivery services use, but that does not reduce costs.

 

On the positive side Uber/Lyft could acquire them. ::) It is somewhat natural extension to UberEats.

 

Anyway, yeah, if they manage to grow and they market themselves well, they could go to huge valuation. Yet OTOH if they raise a lot (even at higher valuations), then you gonna be diluted. And you cannot sell until they either IPO or are trading on "private" markets. So even if they raise at 2B or whatever, it's still not a real gain. Your exit is either a sale or IPO or active "private" market if you're not restricted to sell on such.

 

Just ignore my thoughts though. You don't want to end up "I passed on 200x bagger next-Amazon because Jurgis was so negative".  8)

 

[Spekulatius]

Seems like a tough area to enter,I agree with Jurgis here. I know that CVS/ Walgreen/Amazon/ United Health all are looking at this problem from different angles.

 

One thing I noticed that they claim to be tech driven with software, automation, robotics as the secret sauce, but none of the founders seams to have any expertise in these areas. Perhaps you politely ask them who is doing this work?

 

Yours sincerely,

The always skeptical Spekulatius.

[LearningMachine]

Thanks Jurgis and Spekulatius for your wisdom.  I was looking for someone to talk me out of it. 

 

You're right on about execution being key here.  You're also right there are several players looking at prescription delivery from different angles, and a lot of money is chasing same-day prescription delivery companies, some of which might execute better than NowRx.  Because it also impacts Walgreens/CVS, I'll raise it there.

[lotsofguts]

I'm an angel investor and have owned pharmacies and medical centres but not in the US.

 

There are many challenges to this business model. PopRx tried this model in Canada and eventually went bankrupt.

 

A better business model would be for a company such as Teladoc or a clinic chain to build an online pharmacy because it's really the physician that owns the customer relationship.

 

 

[Spekulatius]

I'm an angel investor and have owned pharmacies and medical centres but not in the US.

 

There are many challenges to this business model. PopRx tried this model in Canada and eventually went bankrupt.

 

A better business model would be for a company such as Teladoc or a clinic chain to build an online pharmacy because it's really the physician insurance that owns the customer relationship.

 

The US isn’t like Canada.

[Spekulatius]

CVS - free one day or two day delivery in my area:

https://www.cvs.com/content/delivery?eval=40A50HhmBxkBF+ajmu95bWe3dRQ6vEzpfwxceAlMKO8=&WT.mc_id=EM_RX_200905_All_the_Ways_to_Shop

 

I do think that same day delivery is just a matter of time.

[Cigarbutt]

Disclosure: i've owned pharmacies (stocks) in the past, have followed the sector including CVS and Walgreens for a while and have recently looked into the business fundamentals of home deliveries for grocery stores.

 

Short version: the business environment is changing and the home delivery's market will rise but, unless there's something very specific and very special about NowRx, the prescription delivery market is getting very crowded, some larger players are getting involved and, in the end, the end-consumer will capture the value of the commoditized service.

 

Longer version: Online delivery is nothing new but perhaps we've entered a phase with a different slope. The prescription delivery market is getting a lot of attention (and capital). Competition is coming from many directions: the insurers, the wholesalers-distributors, the pharmacy retailers, and new ventures with deep pockets. For the grocery retailers i looked at, the stores simply need to adapt to evolving trends (some consumers will become on-line only and some will become hybrid consumers) but, in the end, they will end up selling as many products as before. Some grocers are deciding to develop in-house models and others simply outsource as there are many competitors available in most markets. For the prescription side of the industry, you have the additional dimension that pharmacy retailers will tend to lose business with online deliveries as they rely on the consumer to buy extra stuff on their way to the pharmacy counter placed at the back-end of the store. So pharmacies will try to fight this somehow. An interesting aspect for the prescription industry is that it's unclear who the consumer is (who pays) with the black-box value chain. An argument could be made that whoever has a profit opportunity within the chain may capture the value of the last mile delivery within its framework even if it has value for the end-customer and even if it is, by itself, a break-even type of proposition.

 

i've looked at the PillPack model to some degree and they appear to be a potentially formidable competitor.

https://people.com/lifestyle/amazon-pharmacy-pill-pack/

[dwy000]

Just adding my less than 2 cents here but the other interesting tidbit is that online prescription fulfillment has not been growing.  That may have shifted during Covid but through last year the % of scripts being filled online has stagnated.  People seem to want to talk to the pharmacist at first fill and then just keep rolling.  The big growth online has been in $ since most specialty drugs are fulfilled onlinr as opposed to in store.

 

Finally, telling that CVS, through Aetna is now offering plans with lower co-pays and pharma costs if you fill thru CVS. 

 

 

[Spekulatius]

Just adding my less than 2 cents here but the other interesting tidbit is that online prescription fulfillment has not been growing.  That may have shifted during Covid but through last year the % of scripts being filled online has stagnated.  People seem to want to talk to the pharmacist at first fill and then just keep rolling.  The big growth online has been in $ since most specialty drugs are fulfilled onlinr as opposed to in store.

 

Finally, telling that CVS, through Aetna is now offering plans with lower co-pays and pharma costs if you fill thru CVS.

 

There was a large push a few years ago from PPO and PBM (hard to tell who really is in charge here) to push online. most of the “savings” came from going from 30 to 90 day refills. I think this came to a halt somehow. Maybe the saving weren’t really there due to waste? It’s really hard to tell.

[investmd]

Learning Machine: I'll add my 2cents as an Angel Investor and echo sentiments posted causing you to think carefully about the investment:

1) Pharmacy can compete on Speed, Price, Service, drug quality/safety - NowRx seems to be focused only on speed

2) https://www.goodrx.com competes on price

3) As an Angel investor, I presume you have a portfolio of companies ? The investment should be one company out of at least 10-20 companies in your startup portfolio

4) Investing at Series B level is usually for larger VCs that can help the company on path to IPO. Upside is not huge, but there is substantial de-risking. Individual Angel Investors likely want to buy in earlier.

5) I'm not familiar with Seed Investor, but it seems to take >7% of your investment in fees plus takes equity from the company.

6) Mike Maples from Floodgate talks about whether founders are "living in the future" or merely addressing an existing problem. As an Angel Investor you may want to seek out the former.

7) Their stated strategy of use of data to make an impact in future seems weak and purely theoretical at this time. They have not elucidated a thought through data strategy.

Best,

[investmd]

In my years of reading this Board, this is the first time that I've come across an Angel Investment thread. I've always thought this was a space for exchanging ideas on the public markets.

I now wonder if there would be interest in starting an Angel Investment/Private investments title under General Category? I know Sanjeev is planning on some website changes. Would there be interest in discussing private investments on the new website??

If so, I'd love to contribute.

Best,

[LearningMachine]

In my years of reading this Board, this is the first time that I've come across an Angel Investment thread. I've always thought this was a space for exchanging ideas on the public markets.

I now wonder if there would be interest in starting an Angel Investment/Private investments title under General Category? I know Sanjeev is planning on some website changes. Would there be interest in discussing private investments on the new website??

If so, I'd love to contribute.

Best,

 

Thanks investmd. Yes, sure, I'd be interested if we can get enough of a quorum.  I'm thinking folks might be more interested after public equities have gone down and back up to stable levels.  Currently, folks might be focusing on public equities getting priced correctly soon :-).

[Jurgis]

In my years of reading this Board, this is the first time that I've come across an Angel Investment thread. I've always thought this was a space for exchanging ideas on the public markets.

I now wonder if there would be interest in starting an Angel Investment/Private investments title under General Category? I know Sanjeev is planning on some website changes. Would there be interest in discussing private investments on the new website??

If so, I'd love to contribute.

Best,

 

There was a thread or two in the past.

 

I am interested in talking about Angel investment opportunities.

However, there are issues:

- For a lot of Angel investment opportunities, information is not openly available. It's possible to share info between friends, but it's harder to post information on public forum. There can be multiple parties upset about it.

- As you may have seen on CoBF it's difficult to talk about companies managed by people who read/post on CoBF. This is an issue talking about Angel investment opportunities. From my experience even in non-recorded public meetings people usually tip-toe around the negatives of startup companies - nobody wants to offend and nobody wants to be kicked out of future contacts, allocations, board seats, etc. This is again magnified by posting on public forum. Jeff Bezos does not care what we say about Amazon on CoBF. Joe StartupCEO might care a lot.

- Unlike public companies, the opportunities to invest into a startup are only open to qualified investors and only for certain amount of time. So there might not be much interest in companies that are not raising money currently. And for companies raising money currently, see my points above.

- Edit: Point above is exacerbated for foreign investors. Not sure if you're in US or Canada, but cross-border angel investing AFAIK is even harder to discuss and accomplish.

 

Anyway, I'm willing to try somehow, feel free to start thread(s), feel free to PM me if you want to talk in private.

BTW, there's an Angel investing event on Wednesday that netnet posted about: https://www.cornerofberkshireandfairfax.ca/forum/events/life-science-investor-meeting-sept-2-and-sept-9/  You can ask netnet if it's OK to talk about the companies that present afterwards. (I may have to miss part of the event  :( )

[investmd]

In my years of reading this Board, this is the first time that I've come across an Angel Investment thread. I've always thought this was a space for exchanging ideas on the public markets.

I now wonder if there would be interest in starting an Angel Investment/Private investments title under General Category? I know Sanjeev is planning on some website changes. Would there be interest in discussing private investments on the new website??

If so, I'd love to contribute.

Best,

 

There was a thread or two in the past.

 

I am interested in talking about Angel investment opportunities.

However, there are issues:

- For a lot of Angel investment opportunities, information is not openly available. It's possible to share info between friends, but it's harder to post information on public forum. There can be multiple parties upset about it.

- As you may have seen on CoBF it's difficult to talk about companies managed by people who read/post on CoBF. This is an issue talking about Angel investment opportunities. From my experience even in non-recorded public meetings people usually tip-toe around the negatives of startup companies - nobody wants to offend and nobody wants to be kicked out of future contacts, allocations, board seats, etc. This is again magnified by posting on public forum. Jeff Bezos does not care what we say about Amazon on CoBF. Joe StartupCEO might care a lot.

- Unlike public companies, the opportunities to invest into a startup are only open to qualified investors and only for certain amount of time. So there might not be much interest in companies that are not raising money currently. And for companies raising money currently, see my points above.

- Edit: Point above is exacerbated for foreign investors. Not sure if you're in US or Canada, but cross-border angel investing AFAIK is even harder to discuss and accomplish.

 

Anyway, I'm willing to try somehow, feel free to start thread(s), feel free to PM me if you want to talk in private.

BTW, there's an Angel investing event on Wednesday that netnet posted about: https://www.cornerofberkshireandfairfax.ca/forum/events/life-science-investor-meeting-sept-2-and-sept-9/  You can ask netnet if it's OK to talk about the companies that present afterwards. (I may have to miss part of the event  :( )

 

Jurgis, thanks for bringing up good points around posting publicly about Angel investments as one does want to remain cordial. I've generally tried to stick with categories of "Strengths" and "Areas of Concern/to work on" when giving opinions on startups. I've signed on the  link you kindly shared for a healthsciences event next week.

Will take you up on offer to connect via PM. Thanks.

Best,