CORTADO VENTURES

Improving Health Outcomes: Prescription Adherence with PatchRx

Cortado Ventures investment in PatchRx addressing a $500B problem

At Cortado Ventures we invest in ambitious companies tackling big problems and in teams with the “right stuff” to make it happen. I will use this platform to discuss our thinking behind our investments. It is my pleasure to have considerable help from Harvard Business School Research Associate Patrick Sweeney to bring together the research and narrative. Stay tuned for a later announcement about his work with Cortado Ventures.

We recently announced our investment in PatchRx. This company is taking on a big problem in healthcare and co-founders Andrew Aertker and Gavin Buchanan and their team are on a mission.

The Problem that PatchRx is Tackling

U.S. health expenditures exceeded $4 trillion for the first time in 2020. This amounts to almost $12,000 per person and 17.7% of U.S GDP as of 2020. Expenditures are expected to continue growing at an average annual rate of 5.4% over the next eight years reaching $6.2 trillion by 2028.[1] One of the key areas where costs could be reduced is nonadherence. About 66% of adults in the U.S use prescription drugs, but many of them fail adhere to taking their prescriptions as directed. This results in billions of dollars in additional costs and hundreds of thousands of unnecessary deaths every year. In fact, a 2018 study by University of California San Diego’s Jonathan Watanabe and Jan Hirsch and Value Based Care, Laboratory Corporation of America’s Terry McInnis found that nonadherence was responsible for over 275,000 deaths per year and costs an estimated $528.4 billion in 2016.

Pharmacies are one of the key stakeholders that could benefit significantly from higher adherence rates as this would increase refills and the potential for patients to make additional in-store purchases. This also would lower the amount of direct and indirect remuneration (DIR) fees they pay. DIR fees are additional fees that the pharmacy benefits managers (PBM) may charge outside administrate fees and are collected after point of sale. These fees eat into pharmacies profit margins and are often tied to performance of medication adherence. In fact, in 2019 pharmacy DIR fees hit a record $9.1 billion.[2] PatchRX a San Antonio, Texas based startup has an innovative and simple solution to increase patient’s adherence which will result in fewer deaths and lower costs to the pharmacies.

Introduction to PatchRx

PatchRX is the developer of a prescription adherence platform that integrates their smart pill bottle cap technology, PatchCap with their web-application which helps ensure that medications are taken at the right time. PatchCap is about the size of a quarter and fits easily to the underside of any size pill bottle cap. Once PatchCap is installed it records every time a patient takes their medication via Bluetooth in the PatchRX mobile app. This data is then transmitted in real-time to the pharmacy facing side of the platform where their employees can track patient’s adherence to prescriptions, view trend data, and notify a patient immediately if they’ve forgotten to take their medication.

PatchCap

Pharmacies can either use the PatchRx API to seamlessly integrate their own electronic health record management system or they can use the PatchRx web-application and dashboard to view patients data. Pharmacies can also aggregate patient data to analyze demographics, medication type, and geography to promote better health outcomes. Additionally, PatchRx incentivizes patients to take their medication by rewarding strong adherence with gift cards for hundreds of brands or in-pharmacy purchases. These rewards can be tracked within the mobile app where patients can also place prescription refill orders.

Market and Trends

Digital health startups saw demand skyrocket during the COVID-19 pandemic as healthcare providers pivoted towards telehealth and remote patient monitoring (RPM) devices. In particular, COVID-19 accelerated the transition of RPM devices from uninsured pilot programs to mainstream insured devices. For example, the Centers for Medicare & Medicaid Services (CMS) expanded RPM coverage to acute conditions. An additional tailwind for digital health space is the aging populations of the developed world. According to the U.S. Department of Health and Human Services’ National Institute on Aging there were 500 million people globally 65 and older in 2006 and by 2030 that number will reach 1 billion or 1 in every 8 people on earth. This represents a 140% increase in the elderly population which will lead to the greater prevalence of chronic diseases and increased demand for pharmaceutical drugs.[3] In 2020, approximately 4.5 billion prescriptions were filled in the U.S. and that number is expected to reach 5 billion by 2025.[4] Additionally, in the U.S. there’s just over 62,000 pharmacies with 39,000 being owned by a big chains and 23,000 being independently owned and operated.[5]

The Team

Co-founders Andrew Aertker and Gavin Buchanan are impressive entrepreneurs on a mission to use technology to improve peoples health outcomes. They have assembled an outstanding team. Andrew and Gavin first thought of the smart pill bottle as a solution to substance abuse after reading a 2009 Oxford University study which found making pill bottles harder to open decreased suicide rates by 43 percent. They met while in school at Trinity University in San Antonio, where PatchRx got its start at Trinity’s Center for Innovation and Entrepreneurship. Gavin was one of four chief engineers in a NASA competition that led to his TEDx talk “How to End World Hunger from Space”. He also lost a close family member in 2017 as a result of nonadherence. And when Gavin and Andrew met during the biggest spike in the opioid epidemic, they realized that there was a big issue at hand with just taking prescription medication. For them, PatchRx is on a mission, and they are stewarding their immense talent as inventors and entrepreneurs to solve a real problem.

References

1. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet
2. https://www.drugchannels.net/2020/02/pharmacy-dir-fees-hit-record-9-billion.html
3. https://www.nia.nih.gov/sites/default/files/2017-06/WPAM.pdf
4. https://www.statista.com/statistics/261303/total-number-of-retail-prescriptions-filled-annually-in-the-us/
5. https://www.pcmanet.org/wp-content/uploads/2020/03/FINAL_Independent-Pharmacies-in-the-U.S.-are-More-on-the-Rise-than-on-the-Decline.pdf