Online Pharmacy Startup PillPack Lands $8.75M, Led By Accel

A lot of technology startups get rightly criticized for not bothering to tackle a problem that will make anyone’s life better. PillPack is not one of those startups.

The Manchester, NH-based company offers a new twist on the concept of a mail-order pharmacy. Instead of sending long-term supplies of drugs in conventional pill bottles, PillPack pre-sorts all of a customer’s medications into small, time-stamped plastic packets that are easy to decipher—open the “8 am” packet, take the pills, and move on.

PillPack also offers a website that lets customers track their orders and bills. But it still takes the personal service side of pharmacy seriously, with pharmacists on the payroll to manage a patient’s refills and answer any customer questions 24 hours a day.

“We couldn’t have done this 10 years ago,” founder and CEO TJ Parker says. “We’re building something that does provide true utility for folks, especially in an industry that hasn’t seen modern technology infiltrate into it.”

PillPack_Packet

A PillPack medication packet

Before starting PillPack, which was part of the 2013 class of Boston Techstars companies, Parker got into the family business as a pharmacist himself. Today, he and his father make up half of the company’s pharmacy staff, which oversees customer orders and communications with doctors out of PillPack’s Manchester offices.

Although he won’t discuss customer numbers, Parker says PillPack is now shipping to customers in 40 states and expects to be available nationwide by early next year—that’s up from 31 states when PillPack officially launched in February.

Venture investors seem to like what they see in PillPack’s growth. Accel Partners is joining the company’s list of backers, leading a new $8.75 million investment. Previous investors Atlas Venture also participated the new round, along with High Line Venture Partners, QueensBridge Venture Partners, Andy Palmer, and David Tisch. The startup has raised $12.75 million since its founding.

There’s a common tie between the two main venture firms being touted with this investment round: Fred Destin, a former Atlas venture capitalist who invested in PillPack before leaving the firm earlier this year to join Accel.

“I think it was a huge win for us to get someone from that good of a fund, who is already in tune with the business and bought in. It worked out very, very well,” Parker says.

PillPack plans to use the money to grow its business on every front. The startup has about 25 people now, split between its pharmacy and shipping offices in Manchester and its software engineering outpost in Somerville, MA.

That growth should be easier now that PillPack has cleared a significant hurdle: it was recently accredited as an online pharmacy by the National Association of Boards of Pharmacy, a year-long process that endorses PillPack’s bona fides as a legitimate business.

Why is that bit of arcane industry vetting so important? Google and Facebook don’t allow companies like PillPack to advertise their services without that accreditation, Parker notes.

Those policies are aimed at keeping the online advertising giants from butting heads with regulators—Google paid $500 million in 2011 to settle federal charges that it was allowing illegal pharmacies to advertise to Web users, and has been accused of being too lax in the following years.

Being able to use those platforms for advertising should be a big boost for PillPack, especially when you consider that another common way of finding customers online—sending out e-mail solicitations—can be tough when the subject is mail-order prescriptions. “Being an online pharmacy makes spam filters lots of fun,” Miller says.

One major change PillPack has made since launching the company earlier this year is a big price cut. At its public debut, PillPack was charging customers a $20 monthly subscription fee for its service, on the theory that people would pay more for a more user-friendly product and around-the-clock service.

That turned out to be wrong, and PillPack has since dropped the extra fees entirely.

“The folks that we thought would use PillPack the most were more sensitive to the fee than we anticipated,” Parker says. “They’re spending so much on meds and doctors that spending another $20 was more impactful to them than I think I realized.”

Now, the startup charges only a regular co-pay, which patients would normally encounter when filling prescriptions (PillPack says it works with “most prescription drug insurance plans, including a majority of Medicare Part D plans”). That cuts down the up-front revenue, but is apparently a better way to grow the “lifetime value” of each customer, one of the key measurements of any e-commerce business.

PillPack is one of those intriguing young businesses that are attempting to improve an established, important industry by injecting a next-generation dose of better technology, improved design, and the efficiency of digital tools.

The difficult-to-master basics of dispensing prescriptions, shipping packages, and building software are falling into place now, Parker says, leaving him optimistic that the new investment cash can help PillPack expand much more quickly. Being able to finally advertise online won’t hurt, either.

“We’re very much about building awareness that the product exists,” he says. “We’ve found that customers absolutely love it, and we’d love to get it into more customers’ hands.”

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