We recently wrote an article on the marketing strategy of hims that led to rapid growth and a public listing just three years after launching! Today we look at its biggest competitor in the direct to consumer space. In March, Ro announced it has raised a massive $500 million Series D round of funding co-led by General Catalyst, FirstMark Capital, and TQ Ventures. This is 4 years after launching in 2017.
CEO and Co-Founder Zach Reitano describes his company as powering a patient revolution. In different public statements, he hones in on the problem that health insurance companies make a lot of money but they don't actually manage the health of their patients. It is almost like health insurance companies take on very little risk and they themselves are not paid based on value although they require the doctors they work with to get paid based on value. There is this arrangement called shared savings where the insurer would share some of the savings with a provider if their actions lowered overall patient costs. Seems noble in its effort to incentivize value based behavior, but in reality the patient still pays the same premium. So there may be something to the philosophy of Zach.
So how does Ro offer value to patients? Through a vertically integrated telehealth, pharmacy distribution, and in-home care network. Similar to hims, it created multiple products focused on a specific segment of the population.
Its flagship service is Roman a telehealth service and medication delivery for men with hair loss or erectile dysfunction. It has since expanded to also include genital herpes and cold sores (both available in Rory as well), and premature ejaculation. Hims offers the same products as well as treatment for anxiety, depression, and skincare (if you're wondering--men's skincare is targeted at acne, wrinkles, and sun damage).
Another service is Rory, a digital health clinic for women that treats a broad spectrum of conditions from menopause to sexual health and skin conditions like eczema and dandruff.
It has the same model that starts with a telehealth visit, sends prescription medication to your home, and then has follow up telehealth visits for continued treatment.
Because of Ro's recent growth initiatives which we'll talk about later in the article, it changed its business model to make money off the prescription drugs and instead offer FREE online doctor visits. This significantly lowers the barrier to access and can prove successful in their continued membership growth. Note that Hers (the hims service for women) offers similar services as well as mental health and primary care calls.
It's third service is Zero which a smoking cessation telehealth and prescription drug delivery service. Zero is a 12 week program that consists of a combination of bupropion and nicotine replacement therapy. The company says the combination of these two drugs can increase chances of quitting by over 3x.
Because they offer generic prescriptions, you would assume their prices would be pretty amazing. That is not the case. Bupropion is sold at $45/month while GoodRx which we also profiled previously, says the average retail price is $21 and that they can get you up to 62% off that price. The link to see these numbers is here.
Of course, one should factor the value of convenience so it's not an apples to apples comparison.
Lastly, Ro launched Ro Pharmacy that carries 500 generic drugs live in 25 states. Their marketing strategy is pricing every medication at $5 per month. Part of the recent funding will support opening 10+ new pharmacy distribution centers so that home deliveries can be as little as next-day.
Interestingly, Bupropion here costs $5 per month. On Amazon Pharmacy (also a digital pharmacy), Bupropion costs $4.93 with Amazon Prime and $18.96 without prime. $5 seemed to be the magic number for generic drugs until Walmart started a $4 list for a limited number of drugs. With so many companies offering $5 or less generic drugs, it seems that you shouldn't pay more at the retail pharmacy.
How Is Ro Differentiating Its Value Proposition From Hims? Because they are similar enough, it will come down to growth and margins for the investor. What we're seeing is that Hims is trying to expand horizontally to cover as much of the telehealth landscape as it can. They both haven't touched big chronic diseases such as diabetes, congestive heart failure, and kidney failure among others. Ro, on the other hand is doubling down on vertical integration by expanding its pharmacy distribution, expanding in-home services, and building a back-end population health analytics platform.
Both Ro and Hims jumped at the opportunity to offer at home Covid-19 diagnosis tests, but Ro in its move to expand in-home services also offered vaccination in the home and piloted its service in New York this year. Its recent acquisition of Workpath in 2020 further clarifies its plans. Workpath offers both in-home blood draws and in-home nurse visits. If Ro continues its push towards increased vertical integration, then one would assume acquiring or building a laboratory for blood tests would be on the horizon as well. Workpath currently works with existing 3rd party labs.
Ro will likely drive significant margin improvements over time. These strategic initiatives will be interesting to monitor, and we will break them down in the future as we did in this article. Rumor has it they are looking to list publicly via a SPAC-- if that happens, we'll be able to get a better sense of their margins and I bet it will be an interesting story.