On track to hit $1B in revenue this year, Alto Pharmacy tapped an Amazon exec to lead its next phase of growth

Seven years ago two software engineers-turned-entrepreneurs had an idea to simplify the pharmacy experience for both doctors and patients.

But there was a problem—neither one understood the ins and outs of pharmacy operations.

Jamie Karraker and Mattieu Gamache-Asselin, who both previously worked at Facebook, bought an independent "mom-and-pop" pharmacy in San Francisco's Mission District to learn the workflows and pain points for consumers, doctors and pharmacists.

"We learned by fire how pharmacy works by owning and operating our own pharmacy and we learned all the nuances of the industry," Karraker said in an interview with Fierce Healthcare. 

Karraker and Gamache-Asselin wanted to use their skills and experience in technology to have a meaningful impact and improve people's lives. Healthcare stood out as a market that needed innovation and the pair saw the $500 billion retail pharmacy sector as a massive opportunity to disrupt the status quo.

"One of our biggest insights was pharmacy is not actually eCommerce, it's not a customer store transaction. You have a different person choosing the product, the doctor, a different person paying for the product, the insurance, and a third person getting the product, the patient, and someone has to coordinate between all of these parties for the transaction to actually happen. And no one was really managing any of that coordination and most of that coordination was getting done almost entirely by fax and phone call," he said.

The burden for managing that process typically falls on patients, especially for patients managing complex and chronic conditions. "Patients were expected to be experts in this complex supply chain just to get the medications that they need," he noted.

Karraker compared the typical in-person pharmacy experience to using a Blockbuster in the 1990s in a world that is now largely digital. The average net promoter score of drugstores and pharmacies is 29, according to the annual NICE Satmetrix Net Promoter Benchmarks report. 

"We said, 'We can we build a better way' and leverage technology to connect all these different stakeholders and help manage that coordination in a way that's effective and scalable, but also efficient and cost-effective," Karraker said.

Fast forward to 2022 and the pair built up the fast-growing digital pharmacy startup Alto Pharmacy, previously called ScriptDash. The company is now considered a digital health "unicorn" with a valuation above $1 billion and has raked in $550 million in venture capital funding backed by SoftBank Vision Fund, GreenOaks Capital, Jackson Square Ventures, Olive Tree Capital and Zola Global, among other investors.

Alto Pharmacy built a tech-enabled solution providing lower costs and free same-day delivery on prescriptions. But the company is not alone in its ambitions to take on industry giants CVS and Walgreens in the pharmacy space. Other well-funded digital pharmacies include Capsule, Truepill, NowRx, Medly Pharmacy, CapitalRx and Fullscript in Canada. 

Amazon also got into the game with its 2018 acquisition of online pharmacy Pillpack, which it has since rebranded Amazon Pharmacy. Walmart snapped up a prescription management app from startup CareZone in 2020, the same year that UnitedHealth Group acquired home-delivery pharmacy DivvyDose for $300 million.

But Karraker, the co-CEO of Alto Pharmacy along being a co-founder, says the company has a unique approach and a differentiated business model.

"Today we are the only pharmacy company that has a fully integrated end-to-end software system, from the doctor's office through the pharmacy and insurance and into the patient's hands. That enables us to manage all of that coordination, effectively, efficiently, reliably, cost effectively and to provide a much better experience to patients," he said.

Along with free same-day prescription delivery services, the company also provides patients with access to a pharmacist and applies discounts to lower prices on drugs. Alto says its unique delivery-first, app-based pharmacy model has driven strong results to date, helping patients save more than $53 million on medications, driving 30% better medication adherence than the industry average on first fill, and delivering more than two million prescriptions. The company boasts a net promoter score of 90, executives said.

For doctors, Alto has helped automate administrative and care coordination processes that takes a "massive amount of work off their plates," Karraker said.

"That's allowed us to unlock this extremely efficient growth channel and no one else in the space has really figured this out," he noted. "We don't do any direct-to-consumer marketing. All of our growth comes from doctors recommending us to their patients at the point of prescription."

That unique doctor-driven growth channel has helped Alto Pharmacy rapidly expand its business.

The company is now in 13 markets and is on track to cross the $1 billion revenue mark by the end of 2022, Karraker said. Alto's revenue has doubled year-over-year since the company started seven years ago, he noted. Also has delivered 4 million prescriptions for a "few hundred thousand patients." The company now has about 1,200 employees.

"There are no signs of slowing down anytime soon," he said.

The San Francisco-based company reportedly considered a merger last year with a blank-check firm backed by billionaire Alec Gores, according to Bloomberg, but the deal was said to have fallen through in later months.

Alto continues to build on its technology and launched Alto Connect, a mobile app for doctors offices. Alto says it was the first pharmacy in the U.S. to offer a prescriber-focused pharmacy communication platform when the original desktop-based AltoMD product launched in 2016b and Alto Connect is an evolution of that software. The company also launched Alto Essentials to enable consumers to buy over-the-counter health and wellness products along with their medication delivery orders.

The startup also inked a deal in December with the New York City Health Department as the exclusive provider of the city’s supply of COVID-19 anvitirals.

While hitting $1 billion in annual revenue is a major milestone Alto Pharmacy still represents just a sliver of a massive market, Karraker pointed out.

"We are still in very early, very early innings and we're just getting started," he said.

Landing a top tech executive

To help steer the company's next chapter of growth, Alto Pharmacy tapped Amazon alum Alicia Boler Davis as its new CEO. With a resume that boasts spending 25 years at General Motors, Boler Davis previously led all of global fulfillment at Amazon. During her two years at the online retail giant, she became the first Black executive to join its senior leadership, known internally as the S-team. She oversaw Amazon nearly doubling its fulfillment network capacity over the last two years while managing a team of over 800,000 people. 

Boler Davis told Fortune last week that she turned down Fortune 500 CEO jobs to work at the startup. “I didn’t want to do anything that felt like I was just taking something and continuing on a path it was already on. I wanted to do something more impactful and transformational," she told Fortune in an interview.

Slated to start Sept. 1, Boler Davis is the "perfect fit" to lead Alto Pharmacy's next phase of growth, Karraker said.

"When you look at the scale of the opportunity ahead of us and the scale of the problems that we're starting to solve for, it's just getting bigger and bigger, which is one of the reasons we're really excited for her [Boler Davis] to come on board because she's got a ton of experience operating at massive scale in extremely complex operational environments," he said.

The former Amazon executive is "one of, if not the top operator in the world at those types of problems," he said, citing her leadership of global fulfillment at Amazon as well as global manufacturing for General Motors. "Pharmacy is a hard business, but I can almost guarantee you that car manufacturing is harder."

"With Alto, there's this opportunity to not only transform this massive industry and build a really great big, valuable business and also actually make a meaningful difference in people's lives," he said. "I think the combination of those things was exciting for her and allowed us to recruit someone who, on the surface, seems a bit out of our league." 

The telehealth pharmacy startup is focused on continuing its upward growth trajectory, aiming for 100% year-over-year top-line growth and improving its unit economics as it automates pharmacy backend operations. The company is planning to expand into new markets in 2023.

"We've been driving massive progress on our unit economics as we've gotten more scale. Those two factors simply multiply to pipe down to the bottom line and get us closer and closer to full company profitability," Karraker noted, saying Alto is on track to get into the black in the next "few years."

Alto also wants to expand its business lines and services on top of its core pharmacy business with an eye toward connecting patients with digital therapeutics.

"There are all these new waves of therapy that are coming onto the market that are showing huge clinical efficacy and potential but they're all struggling with distribution. These digital therapeutic companies are struggling to find the patients that need them the most and get to them and it's costing them tons of money to do distribution," he said. "We've already built that distribution channel for physical medication. That's what a pharmacy is. We have this really powerful platform and distribution platform that over time we can leverage to distribute all types of therapy, not just physical medications. That's an important part of our vision as well." 

Alto Pharmacy can leverage its data on hundreds of thousands of patients to help connect digital therapeutics companies with the right doctors and patients who could benefit most from those therapies. As an example, a patient living with diabetes could benefit from using a digital health platform that provides nutritional coaching and meal plans. "We can help connect all the dots and just be a win-win-win for all the players involved," he noted.

Even with Amazon and other big healthcare players muscling into the retail pharmacy space, Alto executives don't seem to be sweating the competition. 

"Our goal is to help accelerate the shift of this industry from an old, antiquated brick-and-mortar terrible experience to a modern digital  delivery experience. It's very clear to us and a lot of investors that the pharmacy industry will shift. Today, we're the market leader and we're very proud of that and we're going to maintain that market leadership. With players like Amazon and others getting into the space, we're really excited about that because it's going to accelerate that shift and, ultimately, patients are getting a better experience than the status quo," Karraker said.