Mar 10, 2022 - Economy

Scoop: Venrock leads pharmacy startup's $20m refill

Illustration: Shoshana Gordon/Axios

SmithRx filled a $20 million Series B funding round led by leading Silicon Valley firm Venrock with support from Founders Fund, bringing the PBM startup's valuation to $100 million, Venrock partner Bryan Roberts tells Axios exclusively.

Why it matters: As anyone who's ever filled a prescription knows, the pharmacy industry is the opposite of transparent, but entrepreneurs and giant tech companies are trying their hand at injecting some clarity into the sector.

  • Mark Cuban's drug company launched its own online pharmacy and PBM in January, promising steep discounts on 100 generic medications.
  • Tech giants including Amazon and startups such as Alto, Hims & Hers and Ro have all introduced their own digital pharmacies.
  • Many (including Cuban's company) only accept cash, avoiding PBMs altogether. "Not everyone sets the goal of being the lowest cost producer and provider," Cuban previously told Axios.

Context: The 'Big Three' dominant PBMs are CVS Health (Caremark), Cigna (Express Scripts) and UnitedHealth (OptumRx). They command nearly 80% of the market and control drug prices while acting as brokers between insurers and consumers.

  • Almost all PBMs direct patients to the mid- or large-scale pharmacies they own, blocking most startups from operating in their networks and stopping consumers from using them.
  • The system has become increasingly inefficient in recent years, driving drug costs higher for payers.
  • "I started a PBM because there’s no way to erode those foundations that have been set," Jake Frenz, SmithRx's founder and CEO, tells Axios. "There is really no flanking maneuver here."
  • Before starting SmithRx, Frenz led operations at care navigation startup Collective Health and led program teams at insurance giant Anthem.

How it works: San Francisco-based SmithRx works with employers and runs claims through algorithms that look for lower-priced medications based on pharmacy distribution, clinical management, rebates and special programs.

  • The company makes money by charging a flat fee for each claim, which Frenz says is always transparently disclosed and easily audited.
  • It is currently working with brokers including Alliant, Hays and Gallagher and has integrations with payers including Aetna, BlueCross BlueShield and HMA.

What they're saying: Industry analysts say SmithRx's biggest strength might be its single revenue stream.

  • Dominant PBMs "exploit the ambiguity of pricing and loosely-defined contracts," says Antonio Ciaccia, a pharmacy sector analyst and the CEO of research firm 46brooklyn, "So if you've isolated it to a single form of compensation, you’ve materially cut fat."

And Venrock's Roberts, who initially passed on an investment in SmithRx, says he changed his mind after seeing the company secure more than 1,000 customers.

  • "The big hitch for us before was the 'cold start problem' — how do you get to any scale in an industry sector where you have a handful of super large incumbents?" Roberts tells Axios. "Now they've done that."

Erin Brodwin co-authors the Axios Pro Health Tech deals newsletter. Start your free trial at

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