[creativ_pullleft colour=”light-gray” colour_custom=”” text=”Episode 033″]
Inspired by the problems facing her youngest brother, Zoë Barry founded ZappRx to streamline the process to secure prescription meds, especially for chronically ill patients who need the meds most.
Steve Krupa: Welcome to the Breaking Health Podcast. I’m here with Zoe Barry from ZappRx. Welcome to the show, Zoe.
Zoe Barry: Hi, thank you for having me.
SK: Yeah, we’re going to talk about something I think we have not really covered before on the show, which is specialty pharmaceuticals. There’s a claim that we’re moving into a new era of specialized and personalized medicine, and my friends tell me specialty pharmaceuticals are going to play an impact on that. So I’d like to start right into since I think it’s a subject matter the listeners haven’t heard much about. So tell me about specialty pharmaceuticals and why it’s a big deal, and why you’ve built a company out of trying to make that market better.
ZB: Sure. So I guess I’ll start by defining a specialty drug. There’s really no set industry definition. There’s specialty drugs are advanced therapy medications, cell therapy, gene therapy, etc. But in general, when you’re talking about a specialty drug, for starters, you’re not talking about pot, so you’re really looking at FDA approved therapies. They are all high cost medications. So on the low end, it’ll be a drug that’s around $4,000 per patient per therapy per year, and then all the way up at the high end is about $750,000 per patient per therapy per year. These drugs are not a pill or a cream that you can pick up in an hour at your local pharmacy; rather, they are sub-q injectables, infused therapies, inhaled therapies. One disease we work with, which is pulmonary arterial hypertension, one of the drugs basically comes as a powder. You reconstitute the powder as a patient. You mix it, you put it into a syringe, and then you inject that syringe directly into three catheters that are in your heart. So again, just the type of medication that it is, not a pill or a cream, sort of large molecule drugs, and they are very expensive. They have limited distribution and they’re lifesaving therapies.
ZB: Very few and novel lifesaving, life altering therapies.
SK: How big do people think the market is for these drugs today?
ZB: You know, we’re looking at specialties growing at about 13 and a half percent annual CAGR, and probably about a $500 billion market by 2022 or something.
ZB: So it was a hundred-billion-dollar market, and is growing hand over fist.
SK: So just give me a quick example of what would be a $750,000 a year therapy.
ZB: Something that treats an orphan condition. So one reason that specialty is exploding is because of the rare and orphan disease act. And maybe I should pause there, take a step back and just define what that is. An orphan disease is a disease where there are fewer than 200,000 patients in the US. And historically, pharmaceutical companies did not want to spend time on manufacturing drugs for orphan conditions because there was not much of a market. You see some diseases where there are only 10,000 patients that have a disease. So 200,000 is the cap, and then it whittles down from there. If you are a pharmaceutical company, it costs a billion dollars to bring a drug to market. It becomes very hard to turn a margin if there’s only 10,000 patients. So historically, pharmaceutical companies shied away from manufacturing these drugs. Then there was a big public outcry, a lot of marketing campaigns, and the FDA created the Rare and Orphan Disease Act a few years back. And that essentially gave a lot of protection to pharmaceutical companies. They can fast track the drugs so they don’t have to go through phase 2, 3, 4 clinical trials. That’s very important because often there are so few patients you literally can’t really even test into a phase 3 or phase 4 clinical trial. And you want to get these drugs approved as quickly as possible for these patients because they often have no other alternative, no other therapies or medications that they can take. So longer patent lives. And then pricing, you know, most orphan drugs are being priced at over $100,000 or $150,000. So if you get to a very small patient population, you see drugs that are at the tipping point of over $500,000 or over $750,000
SK: And is that covered by Medicaid or Medicare for these particular patients? Because it’s a lot of money.
ZB: Yes. Typically, these drugs, when you deal with formularies, insurance is putting these drugs on formulary. And if they are not, then there are patient assistance programs, which is essentially financial aid to help with the coverage of these drugs. Again, a lot of insurance companies, they’ve got their actuarials, and they’re very cost-sensitive. You take a look at some of these patients, and it costs more to not pay for the drug. So again, we’ve done a lot of work in pulmonary arterial hypertension, and our stats show that the average PH patient makes something like 40 to 50 hospital visits a year. So that’s almost one per week. And the drugs cost – one oral just launched is $170,000, but if you compare the cost of not paying for the drug and then paying for that many hospital visits, almost one per week, at a certain point it becomes less expensive to cover the cost of the drug. And it certainly leads to a better outcome for the patient, better quality of life, things that are very important and should not be ignored.
SK: Sure. Just a couple more questions just to give some more essential aspects about the market. So I’m guessing at these price levels, obviously one way to build a market big enough to warrant research and development is to have higher prices, so you get sort of at the same place. But I’m assuming that even though there are public assistance funding for these therapies, that there is or isn’t significant regulation on pricing.
ZB: There’s also – I just want to clarify something. There’s also the patient assistance programs are private foundations. And that will really help cover the cost of drugs. The idea is to never deny patient access to a specialty medication if they cannot pay for it or if there are challenges with reimbursement and the insurance companies. In terms of pricing, that’s very much more of an art versus a science. Pharmaceutical companies do a lot of studies to try to show the outcomes for patients. I think you’ll probably hear a buzz word starting now called real-world evidence, which is what is the actual real-world evidence that shows a patient is having a healthier outcome, and by paying for very costly medication, you’ve actually reduced overall costs to the patient and healthcare system. And that, real-world evidence is becoming a trend that’s very hot in specialty right now because of the negotiations that are going back and forth as it relates to pricing between the pharmaceutical companies and the payers.
SK: OK. So how did you come to this market? What problems are in the market that you’re planning to solve?
ZB: Sure. So I came to this market very much from the patient experience. And it was sort of an accident, I would say. I stumbled into it. You probably hear many entrepreneurs saying they were solving a problem they faced themselves, and that was certainly the case for me. So my youngest brother was diagnosed with severe epilepsy when he was 5 years old. And he was a totally healthy child, running around, having fun, growing, healthy in every regard. And he started having these seizures, and he began to deteriorate. And it took 9 months before he was officially diagnosed, so he saw 3 specialists in that time period. Each one had a 3-month wait. First a pediatrician neurologist, pediatric neurologist. And then it took another 6 months to actually get him on therapy from that point. So you recall in the beginning of our conversation I said specialty drugs are not drugs that are pills or creams that you can just pick up at any pharmacy an hour later. There’s very much a reimbursement gauntlet that one must go through, and then an on-boarding process, patient education in how to take these therapies and how to administer them. And that all feeds into delays in access for patients. So essentially, almost a year and a half later, my brother was successfully on therapy, and the seizures stopped, and he was able to make a full recovery. But in that time period of waiting to get on drugs, he began to develop a stutter, he had short term memory loss, he couldn’t learn how to read, he didn’t remember what happened the day before, which was devastating. And in that entire time period, he was at risk for a seizure so severe that he would have permanent, irreversible brain damage. So we literally waited every day, hoping and praying that that would not happen to him. And we were very, very lucky. So I founded ZappRx, coming at the perspective that why is it that when a patient is very sick and needs a medication that – you read about it – is life altering or potentially lifesaving, and why is it so hard to get access to that drug. And that was the premise for starting ZappRx, to make it easier, faster, and more transparent for patients to get on these medications.
SK: Yeah. So let’s start there. First of all, wow, what a story. And it’s not unusual, frankly, for entrepreneurs in healthcare to have a personal story that sort of led them to wonder how they can solve the problems. So I think it’s amazing that you’re applying yourself to this problem after what you experienced. But why is it so hard? What are the difficulties around getting to these therapies? And how do you think you’re going to be able to solve that?
ZB: Sure. So there are lots of challenges. And I’ll try not to get technical here, but as you may know, there’s lots that is not automated in healthcare. And healthcare software and technology is woefully behind the times. Compare it to what we’ve seen in travel or even finally banking and payments. I mean look at Venmo trouncing PayPal, etc. But essentially, e-prescribing, which is a way to electronically generate a prescription, the technology that powers that today is a one-way ATI, which means it’s the equivalent of a doctor emailing a pharmacist, and a pharmacist not being able to reply to that email. So not really a big deal if you’re prescribing a medication that’s a traditional retail drug like birth control or Lipitor or a Z-Pack. But it is a big deal if you’re trying to prescribe a $100,000 medication. Insurance companies require lots of additional information in order to cover the cost of these drugs. That was some of the real-world evidence that you and I were talking about earlier. So if you’ve ever dealt with a car claim or a home claim for 10,000, $20,000 that was one-off, imagine dealing with something that’s going to be annual recurring at $100,000, and you may need combination therapy on top of that. So overall as a patient, you’re probably taking $300,000 plus worth of drugs. So insurance requires a lot of information. So they require lab tests, diagnostics, proof of failed therapy, prior authorization. I mentioned that some of these drugs get approved and are fast tracked, so they don’t go through the full gamut of clinical trials. The FDA has created a REMS program. REMS stands for Risk Evaluation Mitigation Strategy. It’s essentially a fancy way of saying patient consent. And patients will consent to taking a therapy that has not been fully tested or gone through the same rigorous clinical trial process as Lipitor has, for example, because there’s no other therapy in the market, there aren’t enough patients to test, and there’s no other therapy. So you want to get them on a drug as quickly as possible. So you compile all this information, and add on top of it the complexity of distribution and payer networks, which means – I mentioned not all these drugs are readily available; they’re not going to be dispensed at your traditional retail pharmacy on the street corner. So there are going to be limited distribution drugs. Which pharmacy has them? How do you get the order to that pharmacy? Is that pharmacy in network with that payer? Your insurance, did they approve that pharmacy or not? You go through all of those challenges, and what we have uncovered is that you just really can’t e-prescribe these medications. And so it forces the doctors and nurses outside of their EMR, and they start manually filling out paperwork. And that’s where you really begin to see the problems start that ZappRx is striving to solve.
SK: So if I think about this, and by the way, I listened to that list of issues. What really happens is, right, these patients that are going to get prescribed these therapies, they will become case management patients if they’re getting a reimbursement from an insurance company, just by virtue of the cost of the drug. I mean the moment that that prescription, if you will, crosses through to the payer, and they see a $100,000 a year price tag on that, then that becomes a very interesting patient to them, and they are going to get involved with pretty much every expenditure for that patient going forward.
SK: So is it your idea that you can begin to sort of anticipate the red tape, if you will, for lack of a better word, and be prepared with the data, the information, the forms and so forth, so that when that patient presents themselves, you will become sort of their ombudsman in the process of getting the therapy. Is that the idea?
ZB: Yes. So that’s exactly accurate. So what we looked at today – and we went and visited many clinics and spent a lot of time researching, and sort of as an anthropology project, understanding the life journey of a prescription and all the stake holders that touch that prescription, and we do call it the fulfillment gauntlet. But you start with compiling all that information. We found was that it’s an average of three and a half minutes per page, 19.2 minutes on average to compile a specialty prescription order. That 19.2 minutes is not done in one sitting; rather, it’s done over the course of ten days. So for a nurse or doctor to even complete an order and fax it to a pharmacy, on average our survey showed that it was taking about ten days to compile the order and send it to the pharmacy. Which is astounding.
SK: Yeah, it is. And it’s more or less just the fact that the very nature of the order is creating a disruption into somebody’s workflow, or many people’s work flow, right? They have to stop what they would ordinarily be doing and pay attention to this odd situation that comes across their desk.
ZB: And some people may be listening and thinking, well, that’s just crazy. You’d think you’d get better at filling out these orders if you saw a couple of patients and you prescribed the drug beforehand. So I’ll just note that every insurance, they don’t have all 100% of the same requirements. So it’s very much a make your own adventure, you know, pulling together what’s going to be required for this drug for this payer.
SK: So are you offering the product to the providers? Are you offering the product to patients, payers? Who do you – who is the target audience for this product?
ZB: Yeah. So I’ll say this with the caveat that not all – no great company was built in a day. So we’ve started with the provider side. And what we do is look at a specialty disease and we put 100% of all specialty drugs on our platform, and then have a rules engine that basically says this drug, this insurance, this is the information that’s required. And we guide the doctor and help reduce the actual guess work. Our tool has been able to show that we can generate a prescription in about 2 minutes, which is down from the 20 minutes that it was taking previously, and we are 95% accurate when sending it to the specialty pharmacy, compared with about 30% of prescriptions are rejected or sent to the wrong pharmacy today, and 50% require additional information if done manually and sent to the pharmacy today. So we’ve started with the provider side, and we are continuing to build the product. We are beginning conversations now with specialty pharmacies. They really see the value in receiving accurate prescriptions. I could go into many details about specialty pharmacies and their trials and tribulations on their side, receiving prescriptions that are inaccurate, illegible, filled out manually – everyone’s heard how poor doctors’ handwriting is – the amount of time they spend going back and forth. On average, every prescription needs 3.9 touch points, and it’s about a day and a half turnaround minimum per touch point.
SK: That’s fantastic. So the specialty pharmacies are who ultimately gets the prescription. Is it up to them at that point to get the utilization management – get through utilization management and case management at the payer? Or are you providing those services as well?
ZB: Yeah. So that is the specialty pharmacy deals with the insurance company. We have not built out the payer strategy yet. To be very candid, we initially thought the payers were really going to hate ZappRx because you could look at this and say they are banking on the fact that it takes 30 plus days to get a prescription through the process; therefore, they only have to cover 11 months versus 12 months of drug for a patient. So we take care of all the sort of mess that happens between the doctor and the pharmacy. What we’ve found is that the payers are actually reaching out to us and are eager to work with us because they want to get these patients on these therapies faster, because they are looking at it from their side, saying it’s more expensive to not cover these patients that are very high risk, and they need to get on therapy as quickly as possible. I’d say that was something that we basically learned, or refined our perspective on in the past year, and that’s been very exciting. We’re just in very early conversations with a couple of payers, which is exciting to see that there’s utility for our platform and our tool beyond just the providers and the pharmacies and into the payers as well.
SK: That’s very cool. So it seems to me, if I understand the service that you’re providing, you’re actually delivering value to all 3 of the constituencies. On the provider side, you’re saving them the time and the effort of preparing the prescription. On the specialty pharmacy side, you’re delivering a completed prescription, so it’s easy for them to get reimbursed and get the drug to the patient. On the payer side, I think it’s correct. I think payers have evolved to realizing that large cases are much more about getting the patients on appropriate therapies because the cost of not being on the therapies, if you are evidenced – I’m trying to remember your acronym –
ZB: Oh, real-world evidence.
SK: Real-world evidence. If the real-world evidence is in fact true, then being on the therapy is cheaper than not being on the therapy. And then of course the patient benefits so that the situation that you experienced with your brother doesn’t have to take place, where they suffer on their way to getting treatment.
SK: That’s sort of the measure from my perspective of a good business idea in healthcare. If you can get all of those – deliver value to each one of those parties, you’ve got a very good shot at having a good business. So when did you get started? When did this all come together?
ZB: Yeah, so I worked – I did a short stint at Athena Health with everyone’s favorite, John Bush, in 2011. And then I left Athena and founded ZappRx in 2012. So been at it for a couple of years now. I am full founder, so I spent the first year of ZappRx doing the entrepreneur hustle. I ate peanut butter and jelly sandwiches at my kitchen table. I took the Fung Wah Bus back and forth between Boston and New York, if you can believe that. It’s since been shut down. I was able to raise $160,000 in friends and family financing at that point in 2012. And then was backed by Atlas Ventures in 2013. And so, raised some seed money and then we did a series A, and we raised just over $12 million so far.
SK: All right.
ZB: So yeah, it’s been very exciting.
SK: Can you tell us who you raised the money from or is it still a secret?
ZB: Oh, sure, I’m sorry. SR1, which is the venture arm to GlaxoSmithKline.
ZB: So the pharmaceutical companies very much understand these problems of investing in a drug that’s going to be not blockbuster by the traditional term blockbuster, but blockbuster by sort of the new age term of these orphan, rare diseases and specialty drugs. And they are very frustrated by the process of getting the drugs that they’ve created and gotten approved and getting them to patients. And they live and breathe this.
SK: Yeah. So I’ve got a couple questions, just based on those points. First of all, I’m assuming that management at Athena Health know what you’re up to. Hopefully, they’re supporting you.
ZB: Oh, yeah, yeah, most definitely. I mean we’re working on some fun stuff with them, and I’m actually going to be heading over to Athena later on today. I have a huge amount of respect for John Bush and what he’s built with Athena Health, and I’m excited to have ZappRx be potentially a part of that soon.
SK: So in light of the comment that you made, no company is built in a day, give me a sense for your vision as to where you’d like to see your business go and as you begin to expand your capabilities into this market.
ZB: Yeah. So high up on our priority list is integrating and working directly with the specialty pharmacies. Our goal is to get fully bidirectional electronic communication between doctors and pharmacists. So right now, the provider side is electronic from what they experience and what they see, but we want to make that truly electronic, as opposed to sort of fake bidirectional, and get those two stakeholders fully connected. So that’s number one on our priority list. Nothing happens quickly in healthcare, so wrangling the big guys on the specialty pharmacy side takes a while. It’s very much an enterprise sales cycle. But we’ve had very positive conversations with the top 3 largest specialty pharmacy companies. And so that’s been very exciting. Part of our vision is to make it easier, faster and more transparent for the patient to know where their drug is in the process. So we’ve actually built the patient app, which we’ll be launching soon. We affectionately call it the Domino’s Pizza Tracker for $100,00 medications. We’ve had patients reach out to us on Twitter, social media, desperate to know where their drugs are. And there in diseases that we haven’t built yet. So we built the platform for pulmonary arterial hypertension and launched that platform, which is an orphan condition. And then we have 2 more that we are launching this year, and we’ll be raising money to build out more indications going forward. We’ve mapped out the top 5 largest ones, and basically we’ll be building overall commercialization strategy to hit all the specialty drugs. My personal goal is to cover 100% of all specialty drugs in 2 years. My Chief Commercial Officer sort of pushes back on that and says, you know, let’s make sure it’s all the relevant ones.
ZB: And just so you know, I hired Laurie Carr, who was at Walgreens Specialty Pharmacy. She ran specialty there, so managed about a $9 billion P&L, and has really lived firsthand what it’s like to be on the specialty pharmacy side. And before that, she was at Millennium, now Cicada, which had oncology products. And so she’s seen the challenges from multiple stakeholder perspectives. And only joined ZappRx a couple months ago. So excited to have her on board.
SK: Terrific. And how many indications or how many drugs are there that you need to build out to get to 100%?
ZB: So that’s an interesting question because it depends how you characterize it. So there’s what we call 5 major category areas, so larger therapeutic categories, which is gastro, pulmonary, oncology, rheumatology, and neurology. And then there are sub-indications underneath that. So if you look at rheumatology, there’s rheumatoid arthritis, [ankylosing?] spondylitis, psoriatic arthritis, lupus all fall under that. So when I look at it, I want to cover all of rheumatology. And we didn’t touch on what exists in the marketplace today so much, but perhaps, if it’s helpful, I can share that today the way pharmaceutical companies are solving for the challenges of getting these specialty drugs to patients is by building hubs. And hubs will support ordering and fulfillment of just one product. So whatever specialty products it is that that pharmaceutical company has manufactured. And the idea is that hubs are a concierge service that will help shepherd a drug through the fulfillment process, that was a great idea 10 years ago, when there were very few specialty products. But now that you’ve seen specialty just – basically the market explodes, and I mean that in a good way, you see a hundred drugs, a hundred portals. And doctors just stopped using them. And drugs might be used across multiple indications because again, given the fact that these diseases are so complicated, you actually do see the drugs being used across indications, which is unique and interesting. But our approach of putting all specialty drugs in a platform and having one-stop shopping for the doctors is very novel in solving the problem in specialty.
SK: Very good. So last set of questions here. It’s always very interesting to me – I think you’ve given us a good background on how you got into this. But now that you’re in it, the first question I would say –
ZB: In it to win it.
SK: In it to win it, exactly. The first thing is that nobody gets to have a market all to themselves. People are going to enter in and competition will ensue across any good idea. As you think about your business, where do you think you’ve got competitive advantage? Where are you building out your differentiating capabilities, so when that competition starts coming at you, you will be well positioned?
ZB: Great question. Our current competition is the fax machine. So –
SK: So far, you’re in good shape.
ZB: I often joke that our greatest competition right now is the fax machine, which is rampant in healthcare. And one of our headlines for ZappRx had been Turn Off the Fax Machine. And so I don’t assume that the fax is going to continue to be my competition going forward. But one thing I wanted to share: you know, I didn’t talk to you much about the team and some of the people that have joined ZappRx. But we talk a lot about healthcare being woefully behind the times and there’s a dearth of technology in healthcare. One thing I’ve done is hire a really robust tech team. So I hired Scott McKay, who was the Chief Architect of ITA Software, and actually helped bring .com number one to market. So he’s a very seasoned technologist, disrupted and innovated a lot of industries. And ITA was actually a software company that helped revolutionize the way airplane tickets are booked. So if you’ve ever used Google Flight Tracker, that would be ITA technology. And Google had acquired ITA for just under a billion dollars in 2011. One thing that I’ve done to maintain our competitive edge is really my focus on bringing true technology, true fully bidirectional electronic technology to market. And that’s the long term vision for ZappRx. It’s actually harder to execute on than most people would think, given the hurdles and challenges in healthcare. But I did convince a large group of Google engineers to leave Google in 2014 and come join ZappRx. And so my first method of starving the competition, so to speak, is to hire really great engineers that are behind the mission of ZappRx. And then I have to say in full honesty, in healthcare it is very hard to execute and very challenging. Because ZappRx has buy-in from so many stakeholders, this is very much a company of partnerships, deals and acquisitions. And so our long term focus on growth, and my long term focus on growth will be executing in those channels. So competition is healthy. Right now I’m enjoying the fax machine as the competition, but I don’t expect that to stick around going forward.
SK: Cool. Last question. When you start your own company, it’s a little bit like founding your own country, to create your own sort of constitution and culture. And every CEO and every entrepreneur has a different approach to that. What’s your culture like there, and obviously it must be pretty cool if the Google guys came on board.
ZB: Yeah, we definitely have some perks that line up with the Google guys. Unlimited vacation days and flexible office hours. Although I find that having those perks has resulted in people being absolute workaholics, and not necessarily unplugging as much as they should. But when I hire people, I really look to see if they meet 3 core tenets of ZappRx, and it’s foundational to our culture. So I’m looking at this poster that’s in my office right now, and there are 3 circles, sort of a Venn diagram, if you will. And one says, Dream Big. One says, Know How to Have Fun. And the third one says, Get Shit Done. And in the middle is our logo and a line that says, People I Most Enjoy Working With. So we work incredibly hard. Certainly we’ve got people who are on late at night, early in the morning, burning the candle at both ends. But it’s so exciting and exhilarating when we see the results of getting patients on these drugs, and the testimonials that we have from the patients and from the doctors. It really makes the work really worth it. And I’m so happy with what we’ve been able to accomplish so far, and really looking forward to more growth and more success in the future.
SK: Terrific. I like it. Congratulations on starting your company. Thank you for spending time with me. I really enjoyed learning what you’re up to, and good luck getting shit done. I like it.
ZB: I’ll let John Bush know that tonight. We’re going to get some shit done.
SK: Thanks for joining me. I appreciate it.
ZB: Thank you, Steve. I appreciate it. Have a wonderful rest of the day.
SK: You too.