On Pharmacies

The demand for obesity drugs seems inexhaustible—which has given rise to a confusing situation: an online pharmacy offering off-label versions of a patented drug. Is this legal? Can a compounding pharmacy prepare and sell protected molecules? What even is a compounding pharmacy?

As part of our notes of the US healthcare system (see our earlier pieces on payers, Pharmacy Benefit Managers (PBMs), and providers), today we offer some notes on pharmacies. How did their role expand from the first apothecaries to the modern tech firms tasked with the safe distribution of drugs to the public?


A short history of pharmacies: from local apothecaries to large national chains
In the US, the definition of a pharmacy, also called druggist or apothecary, has evolved since their introduction during the colonial period. In the 1700s, the first pharmacies began as independent drugstores which also typically served as general stores. The professionalization of pharmacies came with specialized education—Philadelphia College of Pharmacy was founded in 1821 as the first pharmacy school in the United States—and standards were set by the newly formed American Pharmaceutical Association (now the American Pharmacists Association). The first chain pharmacies such as Walgreens (founded in 1901) brought further standardization and expanded pharmacy services. The increase in regulation that came from the creation of the Food and Drug Administration (FDA) in 1906 meant that pharmacies were not only responsible for distributing medications but also for ensuring that drugs were sold safely, adequately labeled, unadulterated, and followed the guidelines set forth by the manufacturers and the regulators.

The number of pharmacies grew rapidly during and after WWII partly driven by their role in distributing newly invented antibiotics such as penicillin. The growth continued apace as the number and complexity of medications available continued to rise at a rapid rate. In the 1960s, the concept of the clinical pharmacy emerged, focusing on patient care and medication management. The shift from serving customers to managing patients largely coincided with the retail pharmacy industry transforming from primarily consisting of small, independent, local shops to it being dominated by increasingly large regional and national pharmacy chains.


Today’s pharmacy ecosystem
Today, as the complexity of managing patients drug use has increased (for example, 37% of Americans over the age of 19 are on polypharmacy, defined to be taking five or more drugs) and the modes of purchasing drugs have evolved (including online purchasing), pharmacies have differentiated into a range of different organization types. While they all ensure patients get the drugs they need safely and efficiently, they operate and are regulated very differently:

Retail Pharmacies
Retail pharmacies are still the most common type of pharmacy. They are found in community settings such as drugstores, grocery stores, and standalone locations. While their primary role is still to dispense prescription medications and over-the-counter (OTC) drugs to the general public, they also provide essential counseling on medication usage, side effects, and interactions. They were also an essential part of the immunization effort during the COVID-19 pandemic response. Some of them have also expanded their service offerings to include diagnostic screening services such as blood pressure checks and cholesterol tests, blurring the lines between being a product distributor and a healthcare provider. As mentioned in our earlier notes on payers, providers and PBMs, this trend to offering additional services matches the general push in the industry toward vertical integration as a way to ensure maximal control over supply chains and costs.

Hospital Pharmacies
Hospital pharmacies are located within hospitals and provide medications for inpatient and outpatient use. They increasingly involve multidisciplinary teams to help design and provide the best treatment at the individual level.

Clinical Pharmacies
Clinical pharmacies are usually part of healthcare institutions such as hospitals, clinics, and long-term care facilities. Clinical pharmacists focus on optimizing medication therapy for patients. While hospital pharmacists spend most of their time preparing medications for patients, clinical pharmacies help adapt treatment plans to patients.

Compounding Pharmacies
Compounding pharmacies specialize in creating customized medications by mixing ingredients to tailor the dosage form, strength, and flavor to meet specific patient needs. While the number of compounding pharmacies decreased with the rise of commercially available drugs, they have enjoyed a resurgence due to demand for personalized medicine, hormone replacement therapy, and medications free of specific allergens. Compounding pharmacies can develop their own recipes for copies of patented drugs, but because they are producing customized versions, they do not have to notify or receive authorization from the FDA to make them, and the drugs are not tested either for safety or efficacy.

Specialty Pharmacies
Specialty pharmacies focus on dispensing high-cost, high-complexity medications that often require special handling, administration, or monitoring, such as biologics and medications for rare or chronic conditions. They are key players in managing chronic diseases, offering patient support programs, and ensuring adherence to complex therapies.

Mail-order Pharmacies
Mail-order pharmacies deliver medications directly to patients’ homes through the mail. Most often, they operate as part of insurance plans or PBMs.

Online Pharmacies
Online pharmacies operate via the Internet, allowing patients to order medications online and have them shipped to their homes. Their growth has been fueled by advancements in digital health technology and changing consumer preferences. It took some time for regulators to align the requirements of retail pharmacies with those of the online world.

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Back to obesity drugs
Given the current range of pharmacy types, how are we seeing compounding pharmacies making and selling obesity drugs such as GLP-1 receptor agonists? Technically, if they meet requirements set forth by the Federal Food, Drug, and Cosmetic (FD&C) Act, compounding pharmacies are allowed to produce versions of a brand name drug when it is in shortage. And, as of May 2023, Ozempic and Wegovy are listed on the FDA’s Drug Shortages list. Understandably, compounding pharmacies have rushed to fill the huge demand for these drugs by creating and selling their own versions. The trend to meet the market demand/solve for the shortage of the branded versions via compounding has been amplified by online pharmacies with large-scale operations and other less scrupulous shops advertising competitive prices for these drugs.

The legal grey areas introduced via these compounded products have created some safety and financial issues for patients in the past and may put more people at risk in the future. The FDA recently warned that compounded medicines are not FDA-approved, and the agency lacks oversight to control composition and manufacturing methods. The statement outlines that some compounding pharmacies produce semaglutides using salt forms of the compounds which have “different active ingredients than [are] used in the approved drugs.” The FDA suggests that patients consult BeSafeRx before purchasing medications from an online pharmacy, medical spa, wellness clinic, or other sellers. Patients can also find legitimate local compounding pharmacies through referrals from their prescriber or by using resources such as the Alliance for Compounding Pharmacy.

With obesity touching more than 40% of the American adult population, demand for medicines that combat type-2 diabetes and obesity has put a burdensome strain on the supply side of the pharmaceutical industry, and the manufacturers of approved drugs have had trouble keeping up production. Compounding pharmacies have taken up this manufacturing challenge, but sometimes they are using dangerous shortcuts to maximize short-term profits. The scale of the problem has only been aggravated by the reach and success of online pharmacies.

Pharmacies in their many modern forms are essential for the provision of safe and scaled distribution of drugs to the public, and increasingly for the delivery of critical screening, diagnostic, and disease management services. However, this expansion of their role as a critical part of the healthcare system raises the bar for pharmacy professionals and regulators to make sure that all of these organizations are held to a high professional standard.

– Jonathan Friedlander, PhD & Geoffrey W. Smith



First Five
First Five is our curated list of articles, studies, and publications for the month.

1/ Heat it to see it
It seemed logical that proteins might shift their conformation depending on the temperature, with their physiological functions being best performed at the temperature of the human body. However, until now technical limitations required scientists to keep proteins cold or frozen to stabilize and study them. A recent Nature publication described a new way to study proteins at body temperature and revealed that some proteins drastically alter their structures when warm.

2/ A clock to rule them all
The difference between the chronological and biological clock is not a new concept. While one is easy to measure (in days), the other has to be based on measuring biological changes: epigenetic, genomic, protein accumulation, etc. Recently, a team of scientists described a biological clock based on the accumulation of stochastic variation at the cellular level. The study, published in Nature Aging, showed that accumulating stochastic variation in purely simulated data was sufficient to build aging clocks. These aging clocks can be constructed from different data types including variations in DNA methylation or transcription levels.

3/ Less pain and fewer complications during labor
A retrospective study published in the BMJ showed that having an epidural could reduce the risk of serious childbirth complications by 35%. As many as 567,000 women in labor were followed during and after giving birth over 12 years. Women who received an epidural analgesia during labor were much less at risk of severe maternal morbidity (SMM). The effect was particularly pronounced for women with preterm births. The study suggested that expanding access to epidurals could improve maternal health.

4/ A cellular IT system
Cells have to integrate different signals to initiate a response. Some communication is based on physical cues, and some on chemical signals. While differences in electrical gradient across the cell membrane were thought to be used only for communication by neurons, it turns out that other cell types use this property to transmit and integrate information. A study in iScience showed how transmembrane ion fluxes as a carrier of information is a general strategy to produce a rapid response to external stimuli.

5/ Fitness in the cells
Sure, exercise is good for you. But how good? A (big) team of scientists from the Broad Institute profiled the temporal transcriptome, proteome, metabolome, lipidome, phosphoproteome, acetylproteome, ubiquitylproteome, epigenome and immunome in whole blood, plasma and 18 solid tissues in male and female rats over eight weeks of endurance exercise training. The huge study published in Nature highlighted meaningful differences in all tissues, many of them relevant to human health, and the trove of data can now be used as a new benchmark to measure the effect of exercise on human health.



Did you know?
In this section of our newsletter, we hope to demystify common terms and notions in our work as investors.

Investment stage
Venture capital investment stages mirror the chapters in a company's narrative, each with its own unique challenges and milestones. The story begins with the seed stage, where the initial idea takes root, and venture capitalists provide the crucial funding to kickstart the journey. As the company evolves, it progresses through early and late stages, expansion phases, mezzanine financing, and ultimately, the pre-IPO phase. At each stage, venture capitalists act as key characters, shaping the company's plot and providing the resources needed to navigate the challenges and opportunities encountered along the way. The narrative metaphor highlights how venture capital investments span a company's entire journey, from its inception to its transformation into a well-established enterprise or a public entity. Venture capitalists serve as storytellers, helping companies craft their narratives and supporting them through the twists and turns of their growth and development.

– Haiming Chen & Dylan Henderson

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