In this review, we dive into the details of Ro, a telehealth company. Ro telehealth aims to be a secondary consultation platform for customers by operating a “Direct-to-Customer” Model. We cover all the aspects relating to the business model, problems it solves, the revenue and cost structure, and the scalability aspects of this company.
What Does Ro do?
Ro is a telehealth company that offers a convenient healthcare consultation and prescription service in a digital mode. It has in fact four separate business lines that offer concentrated services.
- Roman is the Men’s Healthcare division of Ro that offers online consultation and the appropriate drug prescription related to Hair Loss, Sexual Health, Skincare as well as Daily Health.
- Rory is the Women Healthcare division offering the same services related to Hair and Skincare, Sexual Health, Daily Health as well as Menopause.
Ro has two other service offerings that cater to curbing Smoking and Weight Control respectively. These are gender-neutral service offerings.
- Zero is the smoking cessation program offered by Ro that focuses on helping its customers quit smoking in 12 weeks. They use Bupropion as the prescribed smoking cessation drug.
- Plenity is an FDA Cleared weight management tool used by Ro to offer Weight Control services.
Problems identified by Ro in the telehealth industry
Expensive and Complicated Healthcare System
The US healthcare system runs on a fragmented network of Publicly and Privately funded patchwork. Insurance plays a key role for people to have affordable access to healthcare systems. Private insurance plays a key role in covering the healthcare expenditures incurred by common people. Vulnerable groups have to depend upon Government Funded programs like Medicaid and Medicare for the same albeit with a poorer network and coverage. Also, the patients are required to pay a Co-pay on each visit such as Ambulance Charges, Bloodwork, X-Rays, etc.
According to KFF analysis, 10.4% of people were uninsured in the USA. They have much poorer access to healthcare systems. In the insured public, Health deductibles, Insurance Premiums, and Co-pays are the major out-of-pocket expenses for a patient. Deductibles is the amount of medical costs that the patient has to pay first beyond which insurance coverage kicks in. This is a yearly expense for the patient. Therefore Higher Deductible implies lower monthly premiums and vice-versa. Co-pays are the fixed Hospital charges that the insured patient has to bear for his/her entire visit to the hospital.
Expensive “Out-of-Pocket” Expenses
According to Debt.org, an average copay for a routine doctor visit in the patient’s network ranges from $15 to $25; for a specialist, $30-$50, for urgent care, $75-100; and for treatment in an emergency room, $200-$300.
Lengthy Waiting Period
According to KFF Analysis, for an insured patient, the average co-payments are $11 for first-tier drugs, $33 for second-tier drugs, $59 for third-tier drugs, and $105 for fourth-tier drugs. The First-tier indicates generic drugs and the specialty of drugs increases as we move towards Fourth Tier Drug.
According to a 2017 survey by Merritt Hawkins of Physicians Appointment Wait Time, the average wait time for an appointment for a specialized visit is around 29.3 days. Also, according to NAMCS, an average patient’s visit to the doctor spans around 13 minutes. According to the Journal of General Internal Medicine, 64% of primary care visits, and 80% of specialist visits, don’t ask patients the purpose of their visit.
Therefore, a patient has to spend exorbitant amounts in deductibles and premiums throughout the year to wait around 30 days to get an appointment. He has to again spend exorbitant amounts as co-pays for hospital usage and prescription drugs. The doctor spends 13 minutes on a 1v1 basis in which the majority of the times, the purpose of the visit is also not being asked.
During a personal visit, the doctor spends the majority of the time looking at his/her computer screen. He has to get the patient’s medical records, tracking progress, and other administrative responsibilities. According to Medscape, Physicians are only able to spend 40% of their time on 1v1 interaction with patients. The rest 60% is spent on desktop medicine and tracking Electric Health Records of the patients. This indicates how the administrative duties are a big distraction while facilitating personal interaction between a patient and his/her PCP.
Solution: Ro Telehealth
Ro offers a telehealth service that ensures that a patient can get a consultation from a specialized doctor in his/her state. They also offer to deliver the prescribed drugs at their doorstep at a cheaper rate. Ro makes the entire healthcare accessible to patients by being the first point of consultation for the patients.
How it works?
Step 1: Questionnaire Filling
Ro asks the patient to fill a detailed questionnaire regarding their condition. The questionnaire is extremely dynamic and adaptive in nature. It asks all the questions regarding medical history, demographics, symptoms, etc. The patient’s questions depend on his/her answers. For Example, If a patient has diabetes, questions relating to sugar levels, drugs prescribed, etc. On average, a patient takes 20 minutes to fill the entire questionnaire.
Step 2: Automatic Back-end Analysis
The system, in the back-end, automatically checks for eligibility of the patient for a digital mode of treatment. It does it by running the responses against a large data set of acceptable responses and stores the responses and results accordingly. The system then automatically routes the patient’s response to a registered doctor in the same geography.
The doctor receives an analyzed report of the responses of the particular patient. The system automatically removes those applications which it deems unsuitable for telemedicine. This reduces the administrative work of the doctors significantly. The doctor also receives the EMR of the patient from SureScript with the complete history of all prescription drugs. This enables doctors to have an access to the complete history of the patient with no error. In this way, the doctor is equipped to spend more time personalizing the experience of the patient.
Step 3: Doctor-Patient Interaction
The doctor then responds within hours and interacts with the patient over a call, text, or video call. The patient then receives the prescription for the required drugs with the dosage and risks specified. The patient can choose to purchase the drugs from his/her own network or opt for Ro’s pharmacy. Ro offers free 2-day shipping for the delivery of the prescribed drugs.
The entire service does not require any insurance and cash is the preferred mode of payment. Also, the entire online doctor visit costs $15 for a patient. Further, all the consecutive follow-ups with the doctor are completely free. Even the prescription drugs are cheaper as these drugs are bundled in accordance with various treatments that the company offers. In this way, Ro offers quality healthcare and a first consultation opinion at an affordable rate at the comfort of their home. The doctors on the other hand spend more time on patient interaction with their administrative responsibilities handled by Ro.
Understanding the addressable Market Potential
Ro’s positioning pre-COVID
Ro started out in 2017 as a telehealth service focused on male problems related to sexual health, Hair and Skin problems as well as Daily Health. Over time, Ro expanded into women’s healthcare as well as particular conditions related to Weight Loss and Curbing Smoking. According to Singlecare, there are 30 million cases of ED in the USA. Cleveland Clinic estimates that 1 in 10 males is expected to encounter ED at some stage of their life.
Similarly in 2017, according to the CDC, there were 2.3 million reported cases of STD among the women.
According to the CDC, the prevalence of obesity in males was around 42.4% in 2018, up from 30% in 1997. The statistic was similar for females as well. The annual average medical cost of obesity was around $147 billion. In general, the US population spent a lot on their obesity-related medicines which at times required separate insurance coverage.
Also according to CDC, in 2018, 14 in every 100 adults smoked cigarettes. This puts the total smoking population of around 34.2 million. Smoking was the leading cause of preventable diseases with 480,000 deaths every year.
This shows clear evidence about the number of people suffering from broad categories of diseases covered by Ro telehealth. With an expensive healthcare system based on insurance and co-pays, Ro set out to be the primary consultation point of the patients.
Ro telehealth’s transformation since COVID
Since the pandemic, the physical 1v1 interaction with the physicians has been extremely limited. In fact, there has been an immense shift towards telehealth and Digi-health services. Patients and doctors both had to rely on remote interactions to facilitate treatment. The reliance on telehealth platforms increased to the tune of more than 1000% on a monthly basis
The prescription drug delivery distribution also enjoyed increased demand. People preferred to have drugs delivered at their doorstep. This increased the number of orders placed in the entire industry significantly. This has permanently planted Ro as the point of the first call for the patients all over the country.
Post pandemic, there’s a clear indication of a change in consumer buying patterns. More and more people have grown to understand the convenience that a telehealth company offers. According to a survey by JMIR, many people indicated that they will route their medicine purchases via online channels. They stated increased convenience as the major reason for this shift.
Therefore, we believe that going forward the market size for telehealth companies will be huge. They will directly compete with traditional healthcare facilities and pharmacies for the market share. Different telehealth companies will establish their niche in their particular service offerings. The full-stack model that facilitates the patient’s interaction with the Ro’s network will be the key differentiator.
Understanding the Complete Business Model of Ro
Ro Telehealth’s Revenue Model
Ro charges $15 per customer. If the physician deems the customer not fit for a telemedicine treatment, this $15 is refunded back to the patient. The customer is free to have multiple follow-ups with the physician at no extra cost. Ro routes this entire $15 to the corresponding doctor. In this way, it ensures that the doctor’s commission is not prescription based. It is Ro’s way of compensating doctors for their consultation.
Ro actually makes money from the doctors. It charges a percent from the Physician’s practice for offering the entire back-end services. This includes automatic storing and analyzing responses, accessing the patient’s EMR, administrative works, etc. This helps them to facilitate better-personalized interaction and quicker response with the patients.
Ro also makes money on its pharma delivery business. The patient has the option to either choose Ro and have the medicines delivered to home or use their own pharmacies in their network. As explained previously, Ro’s drug is cheaper as it sells bundled medicines catering to specific diseases. In fact, Ro Pharmacy offers more than 500 generic drugs at $5 per drug per month. The company started this service in March 2020 and has seen a 130% increase during the past 4 months. This service offering has shown significant out-performance since its inception. We expect the same trend to continue going forward as well.
Ro telehealth has established multiple tie-ups over the years. Its most recent tie-up was with Pfizer’s subsidiary company called Greenstone. The tie-up helped secure the procurement of Sildenafil, the active ingredient of Viagra used to treat ED. The relationship has further extended to other generics as well for blood pressure and cholesterol. These tie-ups ensure that the Ro passes the low cost onto the customers after appropriate bundling.
Ro also has a tie-up with Ribbon health to help patients better navigate between telehealth and personal care. Ribbon Health is a health care data platform that provides the critical infrastructure that payers, providers, and digital health companies need. The tie-up now offers a better solution to finding accurate information on providers such as contact information, services offered, accepted insurance, and quality indicators. In this way, Ro increases the convenience of its patients and helps them navigate the complex healthcare system.
The major cost involved is customer acquisition cost (CAC). The entire telehealth industry is ripe with direct and indirect competitors. Players such as Him & Hers, Amazon Care, Amwell, etc directly compete for the same users and revenue pie.
Ro chooses to fight the competition by offering higher convenience to its customers. It allows exclusive features to its customers such as
- Delaying or Cancelling of shipments of drugs prescribed from Ro Pharmacy.
- Patients have the option to choose their own network pharmacy over Ro Pharmacy.
- Free 2 Day shipping when the entire industry is offering only 1 Day free shipping at max.
- Patients receive the full details and qualifications of the doctor who will be treating them, beforehand.
Besides CAC, other costs include backend infrastructure and servicing offered to Doctors. It requires the installation of servers and data protection tools in place to better facilitate the administrative needs of the Doctor. The good thing about this cost is that, with scale, these costs will go down. Therefore as size kicks in, there is considerable opportunity to reduce this cost.
The entire end game is of acquiring as many users and doctors in their network as possible. Ro does this by offering better convenience and cheaper rates to its patients than their peers. The Doctor chooses Ro because of its consultation based compensation system as well as the convenience of reducing their administrative duties. The LTV of the users is much greater than CAC as users will keep approaching the trusted telehealth platform for all of their diseases.
Potential and Challenges to Business Scalability
Revenue Growth Opportunities for RO in telehealth
This channel offers the best mode of revenue-generating opportunities. In fact, the number of users directly determine the proceeds that go to the Doctor’s practice. This will actually help to attract more doctors towards Ro and help generate revenues by charging a percent for offering back-end services
More number of users also translates to more number of orders for prescribed drugs from Ro Pharmacy. This is the major revenue-generating area for the company. The company earns on the spread due to a direct tie-up with the manufacturer and bundles the drugs w.r.t the disease requirements. The company incurs a fixed charge by setting up a relationship with the manufacturer. Therefore operating leverage kicks in as more users subscribe to its platform and help the company earn on the spread.
Ro telehealth currently has 2 tie-ups with Pfizer and Ribbon Health. The tie-up with Pfizer ensures generic drug procurement for Ro Pharmacy. These tie-ups are crucial for ensuring a low-cost model for prescription drugs. These low costs of generics are the major USP for Ro Pharmacy. As the company forays into newer services and adds more diseases to its portfolio, Ro needs to add the generics as well to its Ro Pharmacy’s drug portfolio. We believe that such tie-ups with particular generics manufacturers are the key to controlling margins and increase user subscriptions as well.
Tie-ups with organizations like Ribbon health offers better convenience to its user-base. Ro telehealth in particular has chosen more convenience and transparency as its competing strategy in the industry. We believe that such tie-ups in the future will be important in reinforcing the same level of convenience as well. This will be key in increasing the userbase and help gain market share for the company.
RO Telehealth’s key Competitive Advantages
The entire telehealth industry is ripe with multiple direct and indirect competitors. The overall endgame of all the players is to get as many users to switch to their platform as possible. Ro also does the same in the telehealth industry.
Ro’s Unique Business Model in the telehealth industry
Ro’s business model is very different from its direct competitors. Hims & Hers is its direct competitor competing in the telemedicine space. But it has a traditional business model of just connecting the patient to a physician in a virtual platform. It charges the customer for it and shares the revenue with the doctors. It also offers the same prescription drug to be delivered at the home of the patient with one-day free delivery. Nowhere in the industry doctors completely receive the proceeds from the patient. Therefore Ro becomes an attractive option for doctors as they have higher earning opportunities. Also, the menial administrative responsibilities are handled by Ro which further eases the entire process for both the doctor and the patient.
Larger Geographic Presence
The current regulations mandate that prescriptions are valid only if both the patient and the doctor are from the same state. Therefore, to serve more patients, the doctor’s network in the company has to be geographically diverse. The business model of Ro telehealth has helped it attract doctors and physicians from all the 50 states in the country. Ro is fully operational in all 50 states thus having an access to the majority of addressable potential users. Hims & Hers, its closest competitor, is active only in 24 states as of now.
Transparency and Convenience
Ro has been extremely adamant about being more transparent to its patients and build trust accordingly. That is why it has given features such as easy delivery cancellation, 2-Day free shipping, Delayed Delivery, Option to choose Network Pharmacies, etc. These options actually add to the CAC. Some of these options go against the business acumen of retaining customers. But the convenience offered as a result is unparalleled which has played a big role in its entire journey. Ro has more than 5 million digital healthcare visits and more than 46 million patient touch points. Going forward, we expect it to significantly build on its current user base.
Cross Selling Opportunities
Ro has a dedicated prescription drug treatment program for ED. ED is actually an early indicator of health-related problems. It also is caused by excessive smoking. So while interacting with an ED patient, Ro’s network identifies whether the patient is a regular smoker or not as well. The doctor then prescribes him/her to join Zero, the smoking curbing program of Ro. In this way, the customer receives a solution for both ED as well as chain-smoking. The company also generates multiple revenues from having a customer sign up for multiple treatments.
Therefore we believe that the business is scalable because of its competitive advantage and business model. Patients and Doctors both form a key component for scaling their business.
Traditional IPO – The best way forward for RO in telehealth?
We believe that Ro is poised for an IPO. The entire industry has been on an uptick especially since the COVID. Stocks of companies like Teladoc, a remote healthcare service, more than doubled since the pandemic. Also, many players like Amwell, Hims and Hers, etc are rumored to be filing for IPOs soon. Even the investments in the telehealth industry have increased. His and hers recently completed its private equity round at a valuation of $1 billion, approximately ~2x of its previous round’s valuation.
Ro is expected to generate $250 million in revenues in 2021. This is on the back of a 130% monthly increase in its prescription drug delivery orders since the pandemic. Even though profitability has not yet been achieved, the current trends project a favorable scenario for the company. The market is extremely receptive to telehealth and health-tech stocks. We believe the company is well-positioned to capitalize on the same in the near future.
Potential M&A with the bigger traditional healthcare players?
Ro started out as a cheaper secondary consultation option for its patients. But since COVID, it has been able to re-position itself as the primary point of contact for the patients. This is a problem for traditional healthcare players. Many patients will consult with Ro’s physicians whether they can be treated via telemedicine which is much cheaper. Only after getting a go-ahead from the Ro’s doctors, the patient will book an appointment with his/her PCP.
Therefore, we believe that Ro can be an acquisition target for traditional healthcare providers. They can incorporate Ro’s services into their offerings and extend their entire portfolio. There is a potential opportunity for such players to create a bigger ecosystem of various healthcare services with Ro at its front. Ro telehealth actually has the detailed data and history of patients suffering from diseases such as ED, STDs, etc. That makes it more valuable for a drug company to route its drugs via the Ro Pharmacy network.
Build its own Healthcare Ecosystem?
Ro currently facilitates only cash-based transactions. It does not allow insurance-based payments as it majorly offers generic drugs. But moving forward, with the complete details of its patients, the company can actually prescribe specialty drugs also. Insurance companies can offer Specialty drugs as they are more expensive. Having specialty drugs in its offerings automatically increases the margins and growth opportunities.
A separate insurance coverage alongside a subscription-based model can lead to the formation of Ro’s own healthcare ecosystem. But Ro will then have to work with Pharmacy Benefit Managers who manage prescription drug benefits on behalf of health insurers. They have a history of contract disputes with PillPack and CareZone as the latest examples.
Zachariah is the CEO and Co-founder of Ro Healthcare. He started this company as a sexual health awareness start-up for men as he himself suffered from ED. Zachariah is 29 years old and he did his Bachelor’s in Arts from Columbia University, New York.
Previously, he was also a co-founder of another start-up called Shout Inc. It is a technology company that allows people in close proximity to connect and exchange. Zachariach was also named as one of 30 under 30 list by Forbes and was a finalist in EY’s Entrepreneur of the Year.
Saman Ramanian is the Co-Founder and the Chief Product Officer of Ro healthcare. He has previous start-up experiences in 2 other start-ups. He was the co-founder of Q, a smart office service company that provides the cleaning and other smart services to help office operations. Saman was also a Partner at Prehype. It is a venture development firm that builds startups with global corporations and entrepreneurs.
Saman has previous work experience in Advertising agencies as well. He did his BSc at Brunel University London.
Ro Telehealth’s Financial Snapshot and Funding History
Ro Healthcare’s is aiming to earn $250 Million in revenues during the financial year 2021. This is a steep increase from the previous years because of COVID Pandemic. There has been a monthly 130% increase in the Ro Pharmacy business since March.
Ro has raised more than $376 million since its inception in 2017.
- It raised a seed round capital of $3.1 Million on Nov 7 2017 with General Catalyst as the lead investor. 9 investors participated in this round
- Ro raised $88 million from Series A Funding on Sep 18 2018 with FirstMark as the lead investor. 12 investors participated in this round
- Ro raised Series B Funding on April 16, 2019. It raised $85 Million was FirstMark as the lead investor once again,
- Ro recently completed its Series C funding on July 27, 2020. It raised $200 million at a valuation of $1.5 Billion. General Catalyst was the Lead Investor. FirstMark Capital, Torch, SignalFire, TQ Ventures, Initialized Capital, 3L, BoxGroup, and Chernin Group also participated.
Ro indicated that it will use its fund to improve its infrastructure so that it can vertically integrate into the changing Healthcare System affected by COVID-19. The company also announced the hiring of key personnel such as Stephen Buck. Stephen is a veteran of the drug supply chain has and multiple stints at companies like GoodRx and Mckesson.
RO Telehealth’s Investment Risks
Highly Competitive Industry
The telehealth industry has multiple direct and indirect competitors from Ro’s perspective. Players like Hims & Hers, Amwell, Teladoc, Amazon’s PillPack, and Walmart’s health kiosks. Startups like Hims & Hers have secured investments at attractive valuations and became a unicorn. They are rumored to go public via SPAC. Walmart directly competes with its low-cost offerings of generics. Amazon has launched its PillPack services to its employees and is looking to extend to Prime Customers as well. This points out how the industry is stacked with big players and start-ups backed by big players. We believe that the entire industry is set for consolidation and there is an inherent risk of Ro losing out to one of its competitors.
Copying by Competitors
Recently, a trend of copying was observed. Hims and Hers’ portal interface was strangely similar to that of Ro. We believe that competitors are trying to copy the strategy enforced by Ro. This poses a risk as the company may lose some of its potential gullible users to its competitors. Recently, even Zachariah Reitano, CEO of Ro, retaliated to these practices of Hims and Hers. But, it cannot patent the portal settings and interface. Ro can do nothing to stop its peers in this regard. It has to bank on its business model which cannot be copied by its peers.
There is an inherent risk of data privacy for every telehealth company. Ro has access to sensitive data of its patients and it should protect at all costs. The data is so sensitive that the entire patient’s trust is built upon this. Any external hacks or mishaps in this regard can deteriorate the entire brand that Ro has created over the years. This translates to a higher magnitude of risks to investors as the entire business is built upon trust.
Ro is currently at a critical juncture. The COVID pandemic has transformed its entire business model and industry trends. There’s been a significant inflow of investments in this industry and multiple peers are trying to capitalize the same. We believe that Ro has the correct business model and competitive advantages built-in place to glide its way through consolidations. Ultimately, the end game has always been to disrupt the traditional healthcare system and Ro is rightly doing that.
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