As our Luke Lango has written, investing in NowRX today could return 1,000% over the next several years.
The reason has to do with how pharmacies are regulated and the cost of overcoming that regulation to provide the service.
How It Works
Every state regulates pharmacies differently. While PillPack from Amazon (NASDAQ:AMZN) can deliver drugs, it’s just a fulfillment service, not a dispenser.
NowRX is a dispenser, so far just in California. It has 5,000 square foot automated warehouses, staffed by real pharmacists. It also has a fleet of delivery vehicles staffed by employees, not gig workers.
This means a Californian can have their doctor file a prescription with NowRX, and then use an app to schedule the delivery when they arrive home. Once a delivery is scheduled through the app, it usually takes place within the hour. NowRX makes its money the same way Walgreens Boots Alliance (NYSE:WBA) does, buying in bulk, selling at retail.
The pandemic has increased demand for NowRX far beyond private equity’s ability to deliver. That’s why the company has gotten $3 million from Decathlon Capital, based on its receivables. This is debt financing, not equity.
NowRX is still small. It claims 18,000 customers and 150,000 deliveries, after operating for nearly five years. You’re still getting in on the ground floor, even for California. The hope is that NowRX can use your equity to set up in more states, eventually becoming a nationwide chain that can compete with Walgreens, Rite Aid (NYSE:RAD), Amazon and CVS Health (NYSE:CVS).
The Risks in a Crowded Space
While this looks promising, it’s no slam dunk.
For starters, there’s Amazon. Then, if the NowRX model works, CVS or Walgreens could quickly copy it.
While telemedicine is becoming popular, regulation provides an enormous hurdle that must be jumped state-by-state, and sometimes drug-by-drug.
That sounds bad but could be good. Once a state opens to its type of delivery services, NowRX could get in quickly, grabbing market share before bigger competitors ramp up. The problem there is that NowRX will need a lot more than the $20 million Series B round it’s raising to grab those opportunities.
The Bottom Line
NowRX offers an interesting mix of risk and reward if you want to invest in a start-up.
Understand that such investments are inherently risky. Don’t put up anything you can’t afford to lose. Know that NowRX will need lobbying help and a lot more capital to disrupt the $330 billion retail pharmacy business.
You’re not just betting on the business model, but the ability of the NowRX team to execute it, to compete as competition increases, and to know if it’s time to sell out to a larger company.
All that said, equity crowdfunding is a venture capital game. If you want to do it seriously you want to buy into several start-ups, each as promising as NowRX. If you are serious, however, this is a name worth considering.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in CVS and AMZN.