In the United States, annual prescription drug spend accounts for ~10% of all health spending. Decreases in affordability in prescription drug costs make it more difficult for Americans to secure the drugs they need to be healthy, resulting in poorer overall health, which ends up costing society more in the long run – a vicious cycle The pressure of increased drug costs is also felt by government programs like Medicare and Medicaid. Capital Rx is the fast-growing pharmacy benefits manager that utilizes technology to introduce transparency to and make sense of this opaque market. The startup has built the first-of-its-kind Enterprise Pharmacy Platform to unify all facets of the pharmacy benefits management process into a single system, leading to never-before-found efficiency in pricing and improved patient outcomes.
AlleyWatch caught up with CEO AJ Loiacono to learn more about the state of the pharmacy benefits management market, the company’s novel approach to making drugs more accessible, the company’s future plans, and recent round of funding, which brings the total funding raised to $69M since 2017.
Who were your investors and how much did you raise?
Capital Rx’s $50 million Series B funding was led by Transformation Capital, with participation from our Series A investor, Edison Partners.
Tell us about the product or service that Capital Rx offers.
Capital Rx is a health technology company that is leading the transformation of the pharmacy benefits industry.
Capital Rx’s adjudication platform, JUDI™, is the industry’s first Enterprise Pharmacy Platform (EPP) and significantly reduces administrative overhead, advances clinical management, and radically improves customer experience in healthcare. It was designed to unify all pharmacy benefit management operations – underwriting, implementation, claim adjudication, data integration, prior authorization, patient communication, client reporting, invoicing, and reimbursement – in one place to provide a better care delivery system.
Capital Rx’s Clearinghouse Model uses the National Average Drug Acquisition Cost (NADAC), which is a publicly available source for “what drugs cost” to acquire for a retail pharmacy. This allows Capital Rx to remove the middleman “rent seeker” that most PBMs thrive on, while their clients and patients pay for inflated and unpredictable drug costs.
What inspired the start of Capital Rx?
Capital Rx was founded to fix drug pricing in the U.S. The drug pricing system is broken because there are no drug prices in the U.S – two patients could walk into the same pharmacy at the same time to fill the same prescription and pay drastically different prices. An easy way to understand this problem is with a bottle of Tylenol.
When you’re at the pharmacy and you reach for a bottle of Tylenol, it doesn’t matter if you’re insured or uninsured, or if you work for a big company or a small company – you pay the same price! Now walk 50 feet to the pharmacy counter and fill any prescription. As you wait for the price, you are spinning a roulette wheel and the invisible pricing gods (PBMs) are about to decide if you are today’s winner (lower price) or a loser (higher price). A logical and compassionate person would agree, this system must change, and our country deserves far better.
When you’re at the pharmacy and you reach for a bottle of Tylenol, it doesn’t matter if you’re insured or uninsured, or if you work for a big company or a small company – you pay the same price! Now walk 50 feet to the pharmacy counter and fill any prescription. As you wait for the price, you are spinning a roulette wheel and the invisible pricing gods (PBMs) are about to decide if you are today’s winner (lower price) or a loser (higher price). A logical and compassionate person would agree, this system must change, and our country deserves far better.
How is Capital Rx different?
Because of the enormous investment in technology and innovation, I often describe our company as a software company pretending to be a PBM. Clearly, we are a full-service PBM, but through JUDI, our enterprise pharmacy platform, we chose to reimagine the entire pharmacy ecosystem to reduce costs, improve efficiency, and deliver superior service.
What market does Capital Rx target and how big is it?
Capital Rx targets the U.S. drug industry, which is over $500B and growing. We manage the pharmacy benefit workflow for employers, hospitals, unions, municipalities, government entities, and health plans. Capital Rx has achieved significant customer growth, largely driven by its management team’s breadth of expertise in software development, clinical management, and supply chain administration. Since the company was founded, Capital Rx has come to service hundreds of thousands of lives and process millions of prescriptions annually, while maintaining an industry-leading net promoter score (NPS) of 92.
What’s your business model?
Our business model is simple: let buyers and sellers freely communicate on price. While this is not a novel concept in nearly every other industry, the current PBM industry does not permit the employers (buyers) to communicate directly with the pharmacies (sellers). We have removed these obstructive barriers, which were used to punish the pharmacy and employers equally, and deployed an open-pricing framework (Clearinghouse Model) through our proprietary platform (JUDI).
How has COVID-19 impacted the business?
In Q1 of 2020, we started to track a metric that made everyone in our company uneasy. The total number of RFPs (opportunities to bid on an employer’s pharmacy benefit plan) was cut in half compared to the prior year. The impact only became more pronounced with each passing month, but we believed we had a differentiated model and a fanatical client base (our best brand ambassadors) to help tell our story. In the end, the market responded positively to our model, our close rate soared, and Capital Rx grew over 400% in 2020.
What was the funding process like?
Thankfully, there was a good amount of interest in our company and we are thrilled to be working with Transformation Capital.
What are the biggest challenges that you faced while raising capital?
No matter how many rounds of funding you complete, raising capital always takes longer than you think. Time is the most important asset for any growth-stage company and every day spent on fundraising could be allocated towards operations, business development, engineering, etc.
What factors about your business led your investors to write the check?
Since entering the pharmacy benefit management market, Capital Rx has made significant progress in delivering an ethical prescription pricing model and building the industry’s first enterprise pharmacy platform. If there is one common factor with all legacy PBMs, it’s that they are outdated. Their business model is obsolete, their pricing system is archaic, and their core technology is ancient. We often say the PBM industry chose consolidation over innovation, and it shows.
What are the milestones you plan to achieve in the next six months?
Capital Rx will be focusing on accelerating client growth, while releasing new enhancements and services on our JUDI platform. These advances will be designed to handle increasingly complex clients such as Medicare and Medicaid plans, which are in desperate need of not only transparent pricing solutions but also require the technology to drive operational efficiency and improve regulatory compliance.
What advice can you offer companies in New York that do not have a fresh injection of capital in the bank?
This is my fourth venture and I genuinely believe there has never been a better time to raise money. Assuming there is a sound business model to start with, my advice is centered around the simple premise of being prepared. I often speak with first-time entrepreneurs and I am regularly surprised by their lack of preparation. Personally, I was never talented enough to just show up and people threw money at me. I still force myself to write a business plan, practice the pitch deck, and prepare for the barrage of rebuttals that come from skeptical investors.
This is my fourth venture and I genuinely believe there has never been a better time to raise money. Assuming there is a sound business model to start with, my advice is centered around the simple premise of being prepared. I often speak with first-time entrepreneurs and I am regularly surprised by their lack of preparation. Personally, I was never talented enough to just show up and people threw money at me. I still force myself to write a business plan, practice the pitch deck, and prepare for the barrage of rebuttals that come from skeptical investors.
If you are prepared, you will be able to deliver your value proposition at any time, at a moment’s notice. I once found an investor while waiting for a drink at my attorney’s summer party. I wasn’t thinking this was a “pitch event,” but suddenly I had the time it takes for bartender to mix a vodka tonic to present our business model… and it worked. It sounds trite, but do your homework, be prepared, and remember, every conversation could become a pitch.
Where do you see the company going now over the near term?
We will continue to invest heavily in our technology platform (JUDI) and challenge the status quo. If you want to achieve “enduring social change” through ethical drug pricing and innovation, there are no half-measures.
What’s your favorite outdoor dining restaurant in NYC?
The NoMad Restaurant in the NoMad Hotel on Broadway.
