Driving Direct-to-Consumer Healthcare
I’ve been touching on this wave with my Request for Startups and 7 Themes posts but wanted to take a deeper dive in D2C healthcare, especially around the repackaging and rebranding of generic medication.
One of the more classic venture heuristics that exists is the Sequoia “why now?” question — the belief that some of the best businesses are the result of opportune market timing. Sometimes that comes in the form of creating value off of expected (or unexpected) regulatory change. As direct-to-consumer healthcare increasingly enters the conversations of the venture world (Direct-to-Consumer Healthcare, Building Brands for Mind, Body, and Spirit), one place to look is the list of drugs coming off patent.
Here’s how this works:
- Once drugs are approved by the FDA, the pharmaceutical company that developed the drug gets a patent on it and exclusive rights to sell and price the medication.
- The drugs are typically marked up at incredible costs, directly impacting patients across the country.
- However, patents typically expire after a certain duration, which allows generic versions of that drug to hit the market with theoretically lower costs.
This explanation removes some of the nuances and complications that take place. This is unfamiliar territory for me, but as I understand it, some of those issues include lawsuits across big pharma, companies losing patents on a tablet form of medication but issuing patents on a capsule version, and generic medication still being delivered at insanely high costs. Additionally, the patents on some drugs might be expiring, but maybe doctors have been averse to them for years. One example of this is Lotronex, a medication that assists with irritable bowel syndrome. It ran into some issues with the FDA years ago and got approved again, but gastroenterologists rarely prescribe it due to certain blockers. In other words, there’s subtleties.
But to be clear, looking at drug patent expirations isn’t a novel concept. In fact, a subscription service called DrugPatentWatch exists. Large pharmaceutical players and hedge funds use this kind of data to plan business strategy and predict market movements, respectively. Their emphasis is different than what I’m trying to look at. I believe there are some serious venture opportunities up for grabs here. Once a drug becomes generic, it is much easier (but still hard) to get it in the hands of consumers and build a brand around it. For example, First Round and Maveron-backed Keeps offers consumers finasteride (for hair loss), which is generic Propecia.
Brand can be a real competitive advantage for new direct-to-consumer healthcare companies. Brands offer product education and hopefully a better value to consumers and patients. Compare the following websites of Hims (focused on men’s health) and Perrigo (big player in the generic space).
Which one’s going to appeal more to millennials?
Another player to keep an eye on in this space is Upscript Health, which is working on a white-label platform that allows pharmaceutical companies to offer this brand-like experience to their customers without a radical overhaul of their business.
In terms of further research, two things I need to get a better sense of are cost structure of manufacturing partnerships and the technology stack that caters to e-prescriptions, tele-health, and compliance. It’s also incredibly important to be conscious of patient and consumer protection. Selling medication online is a different ballgame than selling razors or mattresses. But if you win over a customer, you’ve built a significant moat for yourself.
If this riff excited you or piqued your interest, feel free to get in touch with me at aashaysanghvi[at]gmail.com.
