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The San Francisco-based pharmacy startup raised $250 million from investors including SoftBank's second Vision Fund, according to CNBC.
And this isn't global investment titan SoftBank first vote of confidence in a digital health firm: For example, SoftBank looked to invest $150 million in home healthcare startup Honor in December 2019 and led a funding round in which health benefits startup Collective Health bagged $205 million in June of the same year. However, SoftBank's investment in Alto represents its first pharmacy play - and the market opportunity is huge, with the US alone spending $335 billion on prescription drugs in 2018, per CMS.
Despite the hurdles dotting their path to success, we've seen a string of pharmacy startups gain steam as of late. The pharmacy space is a complex one to enter, as a number of established players like pharmacy benefit managers (PBMs) and traditional retail pharmacies are standing in the way of tech-focused entrants' success.
For context, PBMs act as the middlemen of the pharmaceutical industry and are tasked with negotiating the costs of drugs for payers - and we've seen them lock horns with pharmacy startups in the past: For example, PBM Express Scripts removed startup CareZone from its nationwide network after claiming CareZone misrepresented itself as a retail pharmacy, per CNBC.
And on top of contentious relationships with PBMs, pharmacy startups are also entering a firmly entrenched space: As of 2017, retail pharmacies Walgreens, CVS, and Rite Aid controlled over two-thirds of the US pharmacy market. But despite these hurdles, pharmacy startups have managed to see some recent success: For instance, NYC-based Capsule nabbed $200 million in its latest funding round and plans to expand its same-day prescription delivery services beyond NYC, while direct-to-consumer pharmacy Hims & Hers announced plans to roll out its offerings nationwide.
But pharmacy startups are also facing off against fellow upstart PillPack, which comes with the Amazon brand attached - and this brand power, along with several other advantages, could put less established pharmacy startups at risk.
PillPack could benefit from Amazon's massive customer base and brand power to rope in convenience-hungry customers: Amazon could, for instance, target ads to is massive Prime subscriber base of 105 million US consumers to convert some of those users into PillPack users.
And this may not be a difficult task, considering those who use PillPack are satisfied: In late 2019, Blue Cross Blue Shield of Massachusetts integrated with PillPack - and it later relayed to Forbes that among its members, PillPack had a higher "net promoter score," which indicates the likelihood a consumer would recommend a product or service, than other pharmacies like CVS and Walgreens.
So, while pharmacy startups like Capsule and Hims & Hers have experienced recent wins, Amazon's backing of PillPack - and the resources and mindshare that Amazon holds - could be a hurdle that is too high for competing startups to clear.
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