U.S. pharmacies’ dispensing revenues totalled $423.7 billion in 2018. Prescription drugs are a massive market, because more than 131 million people in the U.S. alone use prescription drugs — that’s more than 65% of all American adults. Prescription drugs in the U.S. are notoriously expensive, more so than in any other country in the world. In short, distributing prescription drugs is a massive opportunity due to the prevalence and value of such medications. 

Until recently though, pharmacies were stuck in the 20th century. Obtaining prescription medication was (and still can be) an arduous process that involves a doctor’s visit, waiting for a prescription to be filed and filled at a local pharmacy, and picking up the medication there. That entire process might need to be done monthly or even more frequently for those that suffer from chronic medical conditions. 

Technological innovation has begun to impact pharmacy business models. Telemedicine has the potential to replace the core services of traditional pharmacies. Online pharmacies like GoodRX and PillPack can ship medicine directly to consumers’ doors with significantly less hassle. Particularly given the telemedicine and home delivery trends of the coronavirus pandemic, pharmacies are in a pivotal inflection point. How can consumers receive medication efficiently in this new age?

Cherry Street Pharmacy is a brick-and-mortar pharmacy in Tulare, CA that provides prescription medications to patients in the medically-under-resourced Central Valley region of California. 

Cherry Street differentiates itself from traditional boutique pharmacies by offering additional products — over-the-counter medications as well as pet drugs. It also provides services like personalized health programs to patients, with some online integration to provide convenient support. The Cherry Street mobile app allows patients to check the status of prescriptions, browse health content, and communicate directly with pharmacists. Cherry Street also offers free delivery to patients in the local area, eliminating the need for in-store visits entirely. 

Cherry Street began operating in 2017 and has filled over 72,000 prescriptions to date. The company has experienced growth in recent months, with over 5,800 prescriptions filled in June 2020 alone. Detailed financial information for Cherry Street Pharmacy is unavailable, as the company is pursuing crowdfunding on the accelerated schedule allowed by COVID-19 small business relief programs.

Cherry Street Pharmacy was founded by Dr. Wenbo Liu, who holds a Doctor of Pharmacy degree from the University of Hawaii. After graduating from pharmaceutical school, Liu worked for Walmart in its specialist pharmacy program, collaborating on Walmart’s pharmacy expansion in multiple states.

In the immediate term, Cherry Street plans to expand by opening a second brick-and-mortar pharmacy location in 2021. The company is exploring other underserved areas for this second location, either building from the ground-up or purchasing an existing pharmacy. 

In the long term, Cherry Street plans to expand its online offerings to lean more heavily on telemedicine and virtual pharmacy services. The company plans to hire healthcare professionals — like nurses and nurse practitioners — to provide services through the Cherry Street telemedicine portal. These services would presumably integrate directly with the Cherry Street Pharmacy to provide convenient prescription drugs with free home delivery.

Cherry Street Pharmacy displays both positive and negative signals for prospective investors to consider, which balance out to a neutral rating. 

On the positive side, Cherry Street has proven traction in prescription filling — over 72,000 prescriptions filled is no small feat. The company is also highly focused on differentiation within the pharmacy space. Founder Wenbo Liu seems committed to exploring additional verticals to complement existing business. For example, the pharmacy offers at-home delivery, a bespoke touch expected from a local community pharmacy, but less so from a legacy provider like CVS or Walgreens. Cherry Street is also clearly envisioning a digital future with additional telemedicine services, which would likely better sustain growth than solely in-person operations.

On the other hand, Cherry Street is currently a brick-and-mortar location with limited online differentiation. While setting forth the goal of comprehensive telemedicine and online pharmacy services is admirable, prospective investors may wonder whether Cherry Street has the resources needed to execute such programs effectively. Building effective and HIPAA-compliant telemedicine portals is a sizable task that is perhaps better suited for a technology-focused company rather than a traditional products business. Cherry Street also faces stiff competition from massive companies intensely focused on reinventing pharmaceutical services, including incumbent players CVS and Walgreens, and new entrants like Amazon (whose 2018 acquisition of PillPack indicates a newfound commitment to online health). In addition, the lack of financial information about Cherry Street’s revenue traction makes any performance projections difficult. 

In sum, Cherry Street Pharmacy has demonstrated success as a local brick-and mortar pharmacy, but the company’s long-term success as a modern telemedicine provider is difficult to predict. Investors may reap mild returns as the business expands retail operations, but Cherry Street is unlikely to become an extremely valuable business. Therefore, this is a Neutral deal.