There’s a reason why most startup ideas focused on modernizing the prescription drug industry have failed: a byzantine system dominated by a group of all-powerful middlemen make an upstart’s chances of success infinitesimal.
Otto Sipe knows this well from nearly a decade of working for both startups and Walmart in and around the pharmacy and medical care spaces. But he thinks he has the right recipe and momentum to prove that he and his Brooklyn-based company can be one of the exceptions.
Sipe is the co-founder and CEO of Photon Health, a Brooklyn-based startup founded in 2021 that’s long term mission is to make shopping around for the best prices on prescription drugs as straightforward and convenient as online shopping for other products is today. In his telling, that long-term mission would one day manifest itself with the creation of an online marketplace where customers can go to browse the prices and in-stock availability of their prescription medications across pharmacies and choose from options including pharmacy pickup or on-demand home delivery. The hope is by increasing transparency, it might lead to competitive pressure to lower prices.
In short, the mission is to give some power back to the patients who are at the mercy of the $700 billion prescription drug market in the U.S. today. But to do that, Photon will likely need to secure buy-in from the giants of the pharmacy business. And that will take leverage. A lot of leverage.
“The cold-start phenomenon of a marketplace is very, very hard,” Sipe said.
So the startup has entered the space in perhaps a counterintuitive way: by giving patients digital control of their prescriptions so they can easily pivot if their regular pharmacy doesn’t have their medication in-stock, is charging too much, or runs into some other issue filling the script.
This is how the model works. Photon sells so-called e-prescribing software to doctor’s offices and other health providers that allow them to send out a digital prescription for medication. Typically, a doctor would send an electronic prescription directly to a pharmacy but that can turn into a headache if the medication is out of stock or there’s another issue filling it, with a patient needing to get back in touch with a doctor’s office to reroute the electronic prescription to another pharmacy. These stresses compound if a physical doctor’s office is closed.
Instead, doctors who use Photon send their patients an electronic prescription via a text message. The Photon website then lets the patient, or customer, choose from a variety of pharmacies that might include a national chain like Walgreens, a local independent pharmacy, or a modern mail-order provider like Amazon Pharmacy. When the medication is ready for pickup or has been delivered, Photon sends the customer an alert. Photon doesn’t currently route prescriptions for medications that qualify as controlled substances, but Sipe said his company will start doing so in 2025.
Thus far, Photon has focused on building its prescriber base by selling to virtual health providers like Sesame, Summer Health, and WeightWatchers’ clinic arm. In total, Photon is handling more than 70,000 electronic prescriptions in its network each month. That early momentum is important to investors like Nick Chirls, a partner at Notation Capital, a “pre-seed” investor that has now invested more than $3 million into the startup – the most funding his decade-old firm has ever invested in a single company.
“If you can give patients control and visibility over their scripts, they can eventually go shopping like in any other area of ecommerce,” Chirls said in an interview with Fortune. “What does it mean when they can go shopping? They can choose drugs at the cheapest price from the most convenient place that actually has their drugs.”
Notation and the healthcare-focused firm Flare Capital Partners recently led a $9 million round in Photon Health. The startup has now raised north of $16 million in total from these firms and other VCs like Box Group, as well as angel investors including the founders of healthcare-related upstarts like Carbon Health and PillPack, which Amazon purchased for around $1 billion in 2018.
The main incumbent Photon is going after is Surescripts, a literal monopoly that makes software that doctors and other providers use to both deliver electronic prescriptions to pharmacies, and to check a patient’s eligibility for their insurance to cover a specific drug. The Federal Trade Commission sued the company in 2019, alleging that it was illegally maintaining a monopoly – a 95 percent “supershare” to be exact –– through anticompetitive behaviors, including exclusivity agreements. The two sides reached a settlement last year.
“This is a crazy bet for people who work in health care,” Sipe said of Photon. “Surescripts is the untouchable monopoly…and there’s a battlefield littered with startups that have tried to take these guys out.”
“We don’t think we’re smarter than anyone else,” he added. “But we do think we have a different approach at a different point in time…and consumer demand for a better experience is so strong that that’s enough leverage to finally get over the hill.”
