|1||We've shipped 10 million Square Packs (dose packs) and generated revenue in excess of $26 million!|
|2||The pharmacy market is $500 billion annually. So we have plenty of room to grow.|
|3||We focus on the 41 million Americans who take 5 or more medications.|
|4||Our proprietary RX2 Mobile app and monthly "Care Calls" help us "surround the patient with care."|
|5||We are licensed and delivering patient medications in 38 states.|
|6||Our mission is to "Improve Lives" and patient healthcare through increased patient compliance.|
PersonalRX places the patient at the center of the pharmacy care model. We are a home delivery pharmacy that provides VIP services and packaging that improves patient compliance — with no added costs. Our pharmacists are available 24/7 and each patient has the direct phone number of their dedicated pharmacy technician.
Our focus is on enhanced safety, convenience, and better health outcomes. We do all the heavy lifting. We deliver medications to the home every 30 days, so our patients don't go without their medicine. We reach out to doctors and insurance companies so our patients don't need to.
Our patients have the direct phone number of their dedicated pharmacy technician, so if they need assistance, we're just a phone call away. And we have an app that notifies patients by text, phone call, or a nudge from Alexa when it's time to take their next dose.
We are in a hot market with a need for personalized innovation. In 2020, prescription drug expenditures total $358.7 billion. Pill Pack was acquired by Amazon for nearly $1 billion in June 2018. More recently, DivvyDose was acquired by UnitedHealth in September 2020 for $300 million. Bottom line - the pharmacy market is large enough for many companies to do well. PersnalRX's unique value proposition is built on compliance, convenience, superior service, and a high level of personal care that will ensure that we will continue to grow and succeed for many years to come!
Our services focus on the 12.6% of Americans who take 5 medications or more — a patient group in need of an easier synthesized medical solution.
This equates to 41.3 million Americans and a market size that exceeds $126.4 billion annually. Our company is fully prepared to perform at scale with our proven sales model.
We operate on a subscription-based model for scalability and top-tier service. Our subscription-based model keeps costs low and patients satisfied with quality care.
PersonalRX operates multiple patient acquisition channels that allow us to acquire patients in bunches. We leverage proprietary technology that promotes efficiency and our ability to surround the patient with care.
Our pharmacy is currently licensed in 38 states. In July 2020, we began onboarding patients in partnership with a Fortune 500 Pharmacy Benefits Management company with 260,000 lives under care.
In January 2021, we begin accepting referrals from a new Medicare Home Health partner with over 200 offices. With our proven traction, PersonalRX produced and delivered our 10 millionth Square Pack this year, and we’re just getting started.
We lead with compassion and diligence. Our leadership team carries decades of successful business experience, and we know how to build a winning team. PersonalRX is technology-enabled, not technology dependent. In other words, we use technology to drive workflow. But, hiring great people who provide the personal touch is paramount for superb healthcare
CEO Lawrence Margolis, himself an accomplished investor, also has a personal story that ties him to the PersonalRX mission. Our Pharmacist-In-Charge, Matilda Bruno, PharmD, R. Ph. brings nearly 30 years of hospital, PBM, and specialty pharmacy experience to her leadership role at PersonalRX.
Our team treats patients the way we hope all health professionals treat our friends and family when they are in need— with compassion and diligence.
Since the inception of the PersonalRX brand in 2016, we’ve served and acquired a growing number of patients in the home delivery market. In 2019, we developed our digital platform — the RX2 Mobile app, a progressive web application (PWA). available across iOS, Android, and Windows operating systems.
We completed RX2 Admin in 2020, a proprietary Patient Relationship Management Tool (PRM) that drives end-to-end workflow for pharmacy home delivery — from billing and day-to-day communication to packing and shipping.
Our smart, proprietary pharmacy platform, RX2 Admin, makes it simple for us to provide the best service with efficiency. Our workflows are automated, utilizing pharmacy robots for faster-than-manual processes.
Our goal is to lead the pharmacy industry in providing excellent patient care, nationwide. PersonalRX has the infrastructure, experience, team and business relationships to operate at scale.
Our pharmacy model and proprietary technology are game-changers.
Chain drug stores dominate the market, but selling convenience store items overshadows what matters most — the patient's ability to accurately manage their medications.
Urgent need due to COVID-19
COVID-19 has created a “new normal” in creating a desire for contactless experience. Now more than ever, it can be unsafe to stand in lines, especially at a pharmacy. We’re bringing a sanitary solution right to your doorstep.
We’ve proven that our model works
We uniquely service the “large niche” market of 41 million patients who take five or more medications. We’ve proven that our model works and that key health partners endorse and love what we do. We’ve built a scalable business that continues to grow as we reinvest in it. Our subscription model builds revenue quickly, leading to significant profits and a rewarding ROI for investors.
PersonalRX is different because we focus on the needs of the 41 million Americans who take five or more medications. This patient segment needs help with medication management most - and it makes good sense to service this population exclusively from a business standpoint too.
We believe that shipping a monthly supply of 6, 9 or 16 medications is a better business model than filling prescriptions one at a time. Most importantly, it’s much better for the patient.
Our pharmacy seeks to care for the patient’s complete medication regimen. PersonalRX pharmacists practice medication reconciliation - identifying contraindications and overmedication - and reconciling these issues with doctors, adding a layer of protection for the patient.
Another important differentiator is the high level of personal service we provide. One example is that we include the name and direct phone number of the patient’s dedicated pharmacy tech on every packing slip, invoice and label on the side of their medication box. We believe that human contact is essential for creating a great patient experience.
We’re more than pill packers. We’re delivering healthcare.
Merging technology and human compassion, we are fueling the next generation of retail pharmacy and we hope you’ll consider fueling this movement. The opportunity for investors is to enter early in our growth cycle, with a promising market in need of innovation. Join us to fuel the next generation of healthcare.
PersonalRX has financial statements ending December 31 2019. Our cash in hand is $31,094.37, as of September 2020. Over the three months prior, revenues averaged $170,000/month, cost of goods sold has averaged $150,000/month, and operational expenses have averaged $210,000/month.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this offering. Some of the information contained in this discussion and analysis, including information regarding the strategy and plans for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
PersonalRX makes it easy to take the right medication
at the right time.
We dispense medications in adherence packaging,
delivered to the home – with no added costs.
Our pharmacy model puts the patient at the center of
care. The focus is on enhanced safety, convenience and
better health outcomes.
In the next five years, our goal is 300MM+ in annual revenue, with operations in 3 strategic locations to provide delivery and cost saving efficiencies. These projections are not guaranteed.
DGN Pharmacy, Inc. was incorporated in the State of New Jersey in April 2009.
Since then, we have:
Historical Results of Operations
Related Party Transaction
Refer to Question 26 of this Form C for disclosure of all related party transactions.
Liquidity & Capital Resources
To-date, the company has been financed with $11,404,373 in debt.
After the conclusion of this Offering, should we hit our minimum funding target, our projected runway is 1 months before we need to raise further capital.
We plan to use the proceeds as set forth in this Form C under "Use of Funds". We don’t have any other sources of capital in the immediate future.
We will likely require additional financing in excess of the proceeds from the Offering in order to perform operations over the lifetime of the Company. We plan to raise capital in 3 months. Except as otherwise described in this Form C, we do not have additional sources of capital other than the proceeds from the offering. Because of the complexities and uncertainties in establishing a new business strategy, it is not possible to adequately project whether the proceeds of this offering will be sufficient to enable us to implement our strategy. This complexity and uncertainty will be increased if less than the maximum amount of securities offered in this offering is sold. The Company intends to raise additional capital in the future from investors. Although capital may be available for early-stage companies, there is no guarantee that the Company will receive any investments from investors.
Runway & Short/Mid Term Expenses
DGN Pharmacy, Inc. cash in hand is $31,094.37, as of September 2020. Over the last three months, revenues have averaged $170,000/month, cost of goods sold has averaged $150,000/month, and operational expenses have averaged $210,000/month, for an average burn rate of $190,000 per month. Our intent is to be profitable in 13 months.
The company has entered into agreements for additional loans for operations in 2020. From a material perspective, besides an increase in loans to cover the operational burn, we have not had material changes to our revenues or expenses in 2020.
Based on the amounts due (not the entire amount of the loans) we have about 116K due on outstanding debt through 12/31/2020.
We expect (although cannot guarantee) revenues to climb over the next 3-6 months to 11MM on an annualized basis. We expect our core expenses will remain consistent and payroll/staff will grow consistent with the increase in revenues.
We expect (although cannot guarantee) to launch a REG A Tier II offering in January 2021. We are negotiating a term sheet for receivable financing which would extend the runway for this initial Reg CF campaign. We may also tap into other investor resources in the form of loans.
We think we can reach profitability in 13 months because of our relationships with channel partners, which we believe will increase our patient count. In turn, this will increase our revenue. In addition, increased revenue allows us to reduce our cost of goods (buy better) and thus expand our margins. We’ll also reach economies of scale, as much of our overhead is in place. For example, rent, technology and senior management are not replicated as we grow.
Our ability to sell product is dependent on outside government regulations such as the FDA (Food and Drug Administration), FTC (Federal Trade Commission), and other relevant government laws and regulations. The laws and regulations concerning the selling of products may be subject to change and if they do then the selling of product may no longer be in the best interest of the Company. At such point the Company may no longer want to sell product and therefore your investment in the Company may be affected.
We are an early-stage company and have not yet generated any profits. Our current and proposed operations are subject to all business risks associated with new enterprises. These include likely fluctuations in operating results as the Company reacts to developments in its market, managing its growth and the entry of competitors into the market. We have incurred significant net operating losses to date. We plan to invest in the business to grow our revenue in order to become profitable; however, there is no assurance that we will become profitable, that we will generate sufficient revenues to ever be able to declare and pay dividends, or that we will ever declare and pay dividends on our stock.
Our business projections are only projections. There can be no assurance that the Company will meet our business growth goals and projections. There can be no assurance that the Company will be able to find sufficient demand for our services, that people choose or use them over competing services, or that we will able to grow the business, generate revenue and control costs in order for the Company to make a profit.
Any valuation at this stage is difficult to assess. The valuation for the offering was established by the Company. Unlike listed companies that are valued publicly through market-driven stock prices, the valuation of private companies, especially startups, is difficult to assess and you may risk overpaying for your investment.
The transferability of the Securities you are buying is limited. Any stock purchased through this crowdfunding campaign is subject to SEC limitations of transfer. This means that the stock you purchase cannot be resold for a period of at least one year. The exception to this rule is if you are transferring the stock back to the Company, to an “accredited investor,” as part of an offering registered with the Commission and approved by the Company, to a member of your family, trust created for the benefit of your family, or in connection with your death or divorce.
Your investment could be illiquid for a long time. You should be prepared to hold this investment for several years or longer. For the 12 months following your investment there will be restrictions on how you can resell the securities you receive. More importantly, there is no established market for these securities and there may never be one. As a result, if you decide to sell these securities in the future, you may not be able to find a buyer. The Company may be acquired by an existing player in the educational software development industry. However, that may never happen or it may happen at a price that results in you losing money on this investment.
If the Company cannot raise sufficient funds it will not succeed. The Company, is offering SAFEs in the amount of up to $1,070,000 in this offering, and may close on any investments that are made. Even if the maximum amount is raised, the Company is likely to need additional funds in the future in order to grow, and if it cannot raise those funds for whatever reason, including reasons relating to the Company itself or the broader economy, it may not survive. If the Company manages to raise only the minimum amount of funds, sought, it will have to find other sources of funding for some of the plans outlined in “Use of Proceeds.”
We may not have enough capital as needed and may be required to raise more capital. We anticipate needing access to credit in order to support our working capital requirements as we grow. Although interest rates are low, it is still a difficult environment for obtaining credit on favorable terms. If we cannot obtain credit when we need it, we could be forced to raise additional equity capital, modify our growth plans, or take some other action. Issuing more equity may require bringing on additional investors. Securing these additional investors could require pricing our equity below its current price. If so, your investment could lose value as a result of this additional dilution. In addition, even if the equity is not priced lower, your ownership percentage would be decreased with the addition of more investors. If we are unable to find additional investors willing to provide capital, then it is possible that we will choose to cease our sales activity. In that case, the only asset remaining to generate a return on your investment could be our intellectual property. Even if we are not forced to cease our sales activity, the unavailability of credit could result in the Company performing below expectations, which could adversely impact the value of your investment.
Projections: Forward Looking Information. Any projections or forward-looking statements regarding our anticipated financial or operational are hypothetical and are based on management's best estimate of the probable results of our operations and will not have been reviewed by our independent accountants. These projections will be based on assumptions that management believes are reasonable. Some assumptions invariably will not materialize due to unanticipated events and circumstances beyond management's control. Therefore, actual results of operations will vary from such projections, and such variances may be material. Any projected results cannot be guaranteed.
Our trademarks, copyrights and other intellectual property could be unenforceable or ineffective. We have limited intellectual property rights which may be ineffective to prevent or discourage competitors from developing and offering products and services similar to ours. We do not have issued or pending patents. It is possible that competitors will be able to offer products and services similar to ours, despite our ownership or assertion of any intellectual property rights. We may be unable to prevent or stop a competitor or other third party from using our trademarks or other intellectual property without our consent. If we are not able to identify, prevent or stop the infringement of our intellectual property rights or misappropriation of our intellectual property, including our trade secrets, the Company’s value may be materially and adversely impacted. This could also impair the Company’s ability to compete in the marketplace. Moreover, if our trademarks and other intellectual property are deemed unenforceable or infringed upon, the Company could suffer significant loss of value to its brand, reputation, business relationships and future prospects.
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business. To be successful, the Company requires capable people to run its day to day operations. As the Company grows, it will need to attract and hire additional employees in sales, marketing, design, development, operations, finance, legal, human resources and other areas. Depending on the economic environment and the Company’s performance, we may not be able to locate or attract qualified individuals for such positions when we need them. We may also make hiring mistakes, which can be costly in terms of resources spent in recruiting, hiring and investing in the incorrect individual and in the time delay in locating the right employee fit. If we are unable to attract, hire and retain the right talent or make too many hiring mistakes, it is likely our business will suffer from not having the right employees in the right positions at the right time. This would likely adversely impact the value of your investment.
Our future success depends on the efforts of a small management team. The loss of services of the members of the management team may have an adverse effect on the company. There can be no assurance that we will be successful in attracting and retaining other personnel we require to successfully grow our business.
We rely on third parties to provide a variety of essential business functions for us, including manufacturing, shipping, accounting, legal work, public relations, advertising, retailing, and distribution. It is possible that some of these third parties will fail to perform their services or will perform them in an unacceptable manner. It is possible that we will experience delays, defects, errors, or other problems with their work that will materially impact our operations and we may have little or no recourse to recover damages for these losses. A disruption in these key or other suppliers’ operations could materially and adversely affect our business. As a result, your investment could be adversely impacted by our reliance on third parties and their performance.
As an internet-based business, we may be vulnerable to hackers who may access the data of our investors and the issuer companies that utilize our platform. Further, any significant disruption in service on our app, platform or computer systems could reduce the attractiveness of our services and result in a loss of investors and customers and partners interested in doing business with us. Further, we rely on a third-party technology provider to provide hosting, security and some of our back-up technology. Any disruptions of services or cyber-attacks either on our technology provider or the Company could harm our reputation and materially negatively impact our financial condition and business.
We are subject to data privacy and security laws, regulations and contractual obligations governing the transmission, security and privacy of health and other sensitive or proprietary information, which may impose restrictions on the manner in which we access, store, transmit, use and disclose such information and subject us to penalties if we are unable to fully comply with such laws or contractual provisions.
• The Health Insurance Portability and Accountability Act, or HIPAA, and its implementing regulations. Actual failure to comply with HIPAA could result in fines and civil and criminal penalties, as well as contractual damages, which could harm our business, finances and reputation.
• The Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, enacted as part of the American Recovery and Reinvestment Act of 2009, also known as the "Stimulus Bill", effective February 22, 2010, modified HIPAA by setting forth health information security breach notification requirements and increasing penalties for violations of HIPAA, among other things. Failure to comply with HIPAA as modified by the HITECH Act could result in fines and penalties, criminal sanctions and reputational damage that could harm our business.
• Numerous other federal and state laws may apply that restrict the use and disclosure and mandate the protection of the privacy and security of individually identifiable information, as well as employee personal information, and that require notifications and mitigation in the event of a breach. These include state medical information privacy laws, state social security number protection laws and federal and state consumer protection laws, among others. These various laws in many cases are not preempted by HIPAA and may be subject to varying interpretations by the courts and government agencies, creating complex compliance issues for us and our clients and potentially exposing us to additional expense, adverse publicity and liability.
•Federal and state consumer protection laws are increasingly being applied by the UnitedStates Federal Trade Commission, or FTC, and states' attorneys general to regulate the collection, use, storage and disclosure of personal or individually identifiable information, through websites or otherwise, and to regulate the presentation of website content. The security measures that we and our third-party vendors and subcontractors have in place to ensure compliance with privacy and data protection laws and contractual commitments may not protect our facilities and systems from security breaches, acts of vandalism or theft, cyber incidents, misplaced or lost data, programming and human errors or other similar events. The occurrence of a cyber incident that affects either individually identifiable health information or other confidential or proprietary information with which we have been entrusted may result in liability and hurt our reputation. Additionally, as business associates under HIPAA, we may also be liable for privacy and security breaches of protected health information and certain similar failures of their subcontractors. Even though we contractually require subcontractors to safeguard protected health information as required by law, we still have limited control over the actions and practices of such subcontractors. An actual or perceived breach of privacy or security of individually identifiable health information held by us or by our subcontractors may result in an enforcement action, including criminal and civil liability, against us, as well as negative publicity. We are not able to predict the full extent of the impact such incidents may have on our business if such incidents occur. Any failure we may have in complying with HIPAA may result in criminal or civil liability. Enforcement actions against us could be costly and could interrupt regular operations, which may harm our business.
We historically have funded the business through debt financing, and as a result have significant outstanding debt obligations, in addition to trade payables and tax obligations, which could impair our ability to raise additional capital, restrict our use of cash from operations to grow the business, and increase the risk of loss of your investment.
We historically have funded development of our business through debt financing, and as of August 31, 2020, our total debt outstanding (including principal and accrued interest on borrowings, and excluding trade payables and tax obligations) was approximately $10.4 million. We have projected approximately 12% of the proceeds from the current offering, assuming the maximum amount is raised, is expected to be applied to repayment of debt, including interest expenses. The Company reserves the right to apply a higher or lower proportion of offering proceeds to repay Company debt. A portion of the Company's debt is secured by liens on the Company's assets. Portions of our debt are secured by personal guarantees by Lawrence Margolis, our founder and CEO, as well as by security interests on Mr. Margolis' own real property. The majority of our outstanding debt is comprised of an unsecured loan made to the Company in November 2017 by Health Tech Harbor, Inc. ("HTH") in the principal amount of $7,076,470 (the "HTH Loan"). Mr. Margolis, our founder and CEO, is the majority stockholder, sole director and president of HTH. Except for making the HTH Loan to the Company, HTH is not involved in the Company's business. The HTH Loan was made using a portion of funds borrowed by HTH from third party lenders unrelated to the Company ("HTH Lenders"), which were provided to fund Company operations in anticipation of a merger of the Company and a third party. The anticipated merger ultimately did not close and HTH's debt to the HTH Lenders remains outstanding. On July 29, 2020, certain of the HTH Lenders filed an involuntary petition against HTH under chapter 7 of the United States Bankruptcy Code. HTH subsequently filed a motion in the Bankruptcy Court to dismiss the case. To date, no action by HTH or the HTH Lenders against the Company has been filed or threatened. Both sides had agreed to mediation. The outstanding debt of the Company, including the HTH Loan, may hinder our ability to raise capital, invest in the business, preserve cash from operations and achieve profitability. Debt repayment obligations may restrict us from using revenue for investments in marketing, product development, business development, staffing, technology, operations and other business uses. If we are unable to raise sufficient capital and generate sufficient revenue, we may be unable to meet our debt service obligations, which may result in an event of default under one or more debt instruments or agreements. A default in repayment of our debt could result in increased legal expenses, litigation costs, acceleration of indebtedness, adverse judgments against the Company, seizure of Company assets and/or enforcement of personal guaranties or personal liens against our founder and CEO. Any such consequences could have a material adverse effect on the Company and its ability to continue operating. In a liquidation of the Company, debt holders generally would be paid from the proceeds of a sale of the Company's assets prior to any distribution of proceeds to stockholders. Failure to raise or generate cash sufficient to meet our debt obligations therefore may significantly impair the value of the Company and its stock, and could cause the shares purchased in the present offering to decrease in value or lose all value. Further, there can be no guarantee as to the impact on the Company of the bankruptcy of HTH, actions by the HTH Lenders, or the terms of repayment of the HTH Loan that may be agreed between the Company and HTH or its representatives. If HTH or the HTH Lenders sought to declare a default by the Company and/or accelerate the Company's repayment obligations with respect to the HTH Loan, the Company's liabilities could increase and the value of the Company's stock could decrease. If any debt obligations of the Company, including the HTH Loan, were capitalized and converted to equity, such debt and corresponding liabilities on our balance sheet would be reduced, but the stock issued in exchange for such debt would dilute the outstanding equity interests of the Company's stockholders, including the interests of purchasers of the stock issued in the current offering. The magnitude of such dilution cannot be predicted with any certainty
The Company may never receive a future equity financing or elect to convert the Securities upon such future financing. In addition, the Company may never undergo a liquidity event such as a sale of the Company or an IPO. If neither the conversion of the Securities nor a liquidity event occurs, the Purchasers could be left holding the Securities in perpetuity. The Securities have numerous transfer restrictions and will likely be highly illiquid, with no secondary market on which to sell them. The Securities are not equity interests, have no ownership rights, have no rights to the Company’s assets or profits and have no voting rights or ability to direct the Company or its actions.
The pharmaceutical industry is undergoing significant change and the market for technology-enabled healthcare products and services is constantly changing, which makes it difficult to forecast demand for our technology-enabled products and services. If we are not successful in promoting the benefits offered by our products and services, our growth may be limited.
The pharmaceutical and healthcare industries in the United States are undergoing significant structural change and are rapidly evolving. We believe demand for the products and services we offer has been driven in large part by increasing consumer preference for e-commerce and personalized healthcare and pharmaceutical solutions over traditional "brick and mortar" retail experience. Widespread acceptance of home delivery in the pharmaceutical space is critical to our future growth and success. The market for technology-enabled pharmaceutical healthcare products and services is constantly changing and it is uncertain whether it will achieve and sustain high levels of demand and market adoption. Our future financial performance will depend in part on growth in these markets and on our ability to adapt to emerging demands of our clients. It is difficult to predict the future growth rate and size of our target market. Our success will depend to a substantial extent on the willingness of pharmaceutical patients to increase their use of the technology and services provided by us and our ability to demonstrate the value of the technology and services offered to the existing customers and potential future customers. If pharmaceutical patients do not recognize the benefits of the products and services offered by us, or if we are unable to drive positive health outcomes, then the market for the products and services offered by us might not develop at all, or it might develop more slowly than we expect.
We operate in a highly competitive industry and if we are unable to compete successfully ou revenue and profitability will be adversely affected.
The pharmaceutical market is highly competitive, and we anticipate that competition will increase in volume and intensity. We face competition from major e-commerce platforms and retailers like Amazon and Walmart, as well as the largest retail pharmacies such as CVS and Walgreen which have far longer operating histories and far greater resources than we do. Competitors could focus their substantial resources on developing a more attractive solution than ours. Volume-based pricing of pharmaceuticals also may benefit our competitors, who buy medications in quantities much higher than we do or expect to, and may hinder our efforts to reduce our costs of good sold even as our business grows.
We are subject to data privacy and security laws, regulations and contractual obligations governing the transmission, security and privacy of health and other sensitive or proprietary information, which may impose restrictions on the manner in which we access, store, transmit, use and disclose such information and subject us to penalties if we are unable to fully comply with such laws or contractual provisions.
As described below, we are required to comply with numerous federal and state laws and regulations governing the collection, use, disclosure, storage and transmission of individually identifiable health information that we may obtain or have access to in connection with the provision of our services. These laws and regulations, including their interpretation by governmental agencies, are subject to frequent change. These laws and regulations include the following. - The Health Insurance Portability and Accountability Act, or HIPAA, and its implementing regulations. Actual failure to comply with HIPAA could result in fines and civil and criminal penalties, as well as contractual damages, which could harm our business, finances and reputation. The Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, enacted as part of the American Recovery and Reinvestment Act of 2009, also known as the "Stimulus Bill", effective February 22, 2010, modified HIPAA by setting forth health information security breach notification requirements and increasing penalties for violations of HIPAA, among other things. Failure to comply with HIPAA as modified by the HITECH Act could result in fines and penalties, criminal sanctions and reputational damage that could harm our business. Numerous other federal and state laws may apply that restrict the use and disclosure and mandate the protection of the privacy and security of individually identifiable information, as well as employee personal information, and that require notifications and mitigation in the event of a breach. These include state medical information privacy laws, state social security number protection laws and federal and state consumer protection laws, among others. These various laws in many cases are not preempted by HIPAA and may be subject to varying interpretations by the courts and government agencies, creating complex compliance issues for us and our clients and potentially exposing us to additional expense, adverse publicity and liability. Federal and state consumer protection laws are increasingly being applied by the United States Federal Trade Commission, or FTC, and states' attorneys general to regulate the collection, use, storage and disclosure of personal or individually identifiable information, through websites or otherwise, and to regulate the presentation of website content. The security measures that we and our third-party vendors and subcontractors have in place to ensure compliance with privacy and data protection laws and contractual commitments may not protect our facilities and systems from security breaches, acts of vandalism or theft, cyber incidents, misplaced or lost data, programming and human errors or other similar events. The occurrence of a cyber incident that affects either individually identifiable health information or other confidential or proprietary information with which we have been entrusted may result in liability and hurt our reputation. Additionally, as business associates under HIPAA, we may also be liable for privacy and security breaches of protected health information and certain similar failures of their subcontractors. Even though we contractually require subcontractors to safeguard protected health information as required by law, we still have limited control over the actions and practices of such subcontractors. An actual or perceived breach of privacy or security of individually identifiable health information held by us or by our subcontractors may result in an enforcement action, including criminal and civil liability, against us, as well as negative publicity. We are not able to predict the full extent of the impact such incidents may have on our business if such incidents occur. Any failure we may have in complying with HIPAA may result in criminal or civil liability. Enforcement actions against us could be costly and could interrupt regular operations, which may harm our business.
We operate in a highly regulated industry and must comply with a significant number of complex and evolving requirements. Sustaining compliance with state and federal statutes and regulation may prove costly. Further, if we fail to comply with these requirements, we could incur significant penalties and other costs and loss of business.
Failure to comply with various other regulations and laws applicable to our business could cause us to suffer reputational damage as well as the costs of penalties, legal fees, and other costs. Such additional regulations and laws may include the following, among others:
- The federal Anti-Kickback Statute (the “AKS”) which prohibits individuals andentities from knowingly and willfully paying, offering, receiving or soliciting anything of value in order to induce the referral of patients or in return for purchasing, leasing, ordering, arranging for, or recommending services or goods covered in whole or in part by Medicare, Medicaid, or other government healthcare programs.
- The federal physician self-referral law, often referred to as the Stark Law, which prohibits, with limited exceptions, physicians from referring Medicare or Medicaid patients to an entity for the provision of specified Designated Health Services, or DHS, among them outpatient prescription drugs, if the physician or a member of such physician's immediate family has a direct or indirect financial relationship (including an ownership interest or a compensation arrangement) with the entity.
- Various state licensure, registration and certification laws applicable to pharmacies, pharmacists, pharmacy technicians and other pharmacy personnel. If we are unable to maintain our licenses or if states place burdensome restrictions or limitations on licensing of out-of-state pharmacies, this could limit or affect our ability to operate in some states. Additionally, if we or any of our personnel violate conditions of their pharmacy or pharmacist licensure, we could face penalties and lose valuable personnel. - Federal and state laws and policies that require pharmacies to maintain, enroll and participate in federal healthcare programs or to report specified changes in their operations to the agencies that administer these programs. If we do not comply with these laws, we may not be able to participate in some federal healthcare programs, which could compromise their ability to sell their solutions.
- A number of federal and state laws and registration requirements applicable to dispensing controlled substances. If we are unable to maintain their registrations, this could limit or affect their ability to dispense controlled substances, as applicable, and other violations of these laws could subject us to criminal or other sanctions.
- Federal and state laws and policies that require pharmacies to maintain, enroll and participate in federal healthcare programs or to report specified changes in their operations to the agencies that administer these programs. If we do not comply with these laws, we may not be able to participate in some federal healthcare programs, which could compromise their ability to sell their solutions.
- A number of FDA regulations applicable to our business, including those related to pharmaceutical and medical device promotional practices and the pre-market and post-market approval requirements for medical devices.
To date, we have derived substantially all of our product revenue from sales of prescription medications, and revenue from such sales is dependent upon factors outside of our control.
To date, substantially all of our product revenue has been derived from sales of prescription medications, and we expect to continue to derive the substantial majority of our product revenue from sales of prescription medications for the foreseeable future. Revenue from prescription medication fulfillment is dependent upon a number of factors, many of which are outside of our control, such as growth or contraction in patient populations at our clients, the number and mix of medications each patient is prescribed, and reimbursement and regulatory factors. Any change in these factors could harm our financial results.
Adverse drug events attributed to adherence packaging and home delivery could give rise to claims against us and could damage our reputation.
Our services include adherence packaging and home delivery of patient medications. In the event that our adherence packaging or delivery services are alleged to contribute to an adverse drug event or “ADE,” patients could assert liability claims against us. Such instances could also generate significant negative publicity that could harm our reputation, increase our costs and materially adversely affect our results of operation
Significant and increasing pressure from third-party payers to limit reimbursements and the impact of high cost drugs could materially adversely impact our profitability, results of operations and financial condition.
The continued efforts of health maintenance organizations, managed care organizations, pharmacy benefit managers (“PBMs”), government programs (such as Medicare, Medicaid and other federal and state funded programs) and other third-party payers to limit pharmacy reimbursements may adversely impact our profitability. While manufacturers have increased the price of drugs, payers have generally decreased reimbursement rates as a percentage of drug cost. We expect pricing pressures from third-party payers to continue given the high and increasing costs of specialty, brand-name and generic drugs. Given the significant competition in the industry, we have limited bargaining power to counter payer demands for reduced reimbursement rates. If a significant number of patients cannot afford to cover the portions of drug costs not covered by payers as a result of limited reimbursements, and we are unable to find other sources of funding for such patients, those patients may not fill their prescriptions and our revenues and business could be adversely affected. In response to rising drug prices, payers may also demand that we provide additional services, enhanced service levels and other cost savings to help mitigate the increase in drug costs. Additional services with minimal or no service fees would adversely impact our profitability and data-management technology and software make it challenging for us to prove specific cost savings to payers. Our inability or failure to demonstrate cost efficiencies could adversely impact a payer's willingness to engage us, exclusively or at all, as a pharmacy in the face of rising drug costs.
We may be subject to periodic audit compliance performed by pharmacy benefit managers and third-party payers.
We derive a substantial portion of revenue through participation in provider networks pursuant to contracts with PBMs and third-party payers who periodically audit for compliance with the terms of their contracts, provider manuals, and applicable laws and regulations. Non-compliance with any such contracts, provider manuals, or laws and regulations can result in the clawback of payment and may jeopardize continued participation in provider networks.
Changes in reimbursement rates from Medicare and Medicaid for the services we provide may cause our revenue and profitability to decline.
Reimbursement from government programs are subject to statutory and regulatory requirements, administrative rulings, interpretations of policy, implementation of reimbursement procedures, retroactive payment adjustments, governmental funding restrictions, changes to existing legislation, and the enactment of new legislation, all of which may materially affect the amount and timing of reimbursement payments to us. Changes to the way Medicare and Medicaid pay for our services may reduce our revenue and profitability on services provided to Medicare and Medicaid patients and increase our working capital requirements. Since its inception in 2006, Medicare Part D has resulted in increased utilization and decreased pharmacy gross margin rates as higher margin business, such as cash and state Medicaid customers, migrated to Medicare Part D coverage. Further, as a result of the Affordable Care Act and changes to Medicare Part D, such as the elimination in 2013 of the tax deductibility of the retiree drug subsidy payment received by sponsors of retiree drug plans, certain of our PBMs could decide to discontinue providing prescription drug benefits to their Medicare-eligible members. To the extent this occurs, the adverse effects of increasing customer migration into Medicare Part D may outweigh the benefits we realize from the growth of Medicare Part D.
We have limited contractual protections with pharmaceutical suppliers and wholesalers that supply us with most of the pharmaceuticals that we distribute.
We dispense pharmaceuticals that are supplied to us by several suppliers and wholesalers. Our contracts with pharmaceutical suppliers and wholesalers often provide us with, among other things:
- discounts on drugs we purchase to be dispensed to our clients;
- rebates and service fees; and
- access patient required pharmaceuticals.
Our revenues, profitability and cash flows may be negatively impacted if safety risks of a drug are publicized or if a drug is withdrawn from the market due to manufacturing or other issues.
Physicians may significantly reduce the numbers of prescriptions for a drug with safety concerns or manufacturing issues. Additionally, negative press regarding a drug with a higher safety risk profile may result in reduced global consumer demand for such drug. Decreased utilization and demand of a drug we distribute could materially and adversely impact our volumes, net revenues, profitability and cash flows
Consolidation in the healthcare industry could materially adversely affect our business, financial condition and results of operations.
Many healthcare industry participants are consolidating to create integrated healthcare delivery systems with significant market power and we expect this trend to continue. As provider networks and managed care organizations consolidate, thereby decreasing the number of market participants, competition to provide products and services like ours will become more intense, and the importance of establishing relationships with key industry participants and growing the strength of our brand will become greater. In addition, industry participants may try to use their increased market power to negotiate price reductions for our products and services. If our reimbursements are reduced as a result of either an imbalance of market power or decreased demand for our products, revenue would be reduced and we could become significantly less profitable.
We rely heavily on a single shipping provider, and our business could be harmed if our shipping rates increase, our provider is unavailable or our provider performs poorly and we are unable to successfully replace our shipping provider.
A substantial majority of the prescriptions we dispense are shipped through UPS. We depend heavily on these shipping services for efficient and cost-effective delivery of our products. The risks associated with our dependence on UPS include: - any significant increase in shipping rates, including rate increases resulting from higher fuel prices;
- strikes or other service interruptions by UPS or by another carrier that could affect UPS;
- spoilage of high cost drugs during shipment, since our drugs sometimes require special handling, such as refrigeration; and
- increased delivery errors by UPS, resulting in lost or stolen product. In the event any of the foregoing occurs and we are unable to transition efficiently and effectively to a new provider, we could incur increased costs or experience a material disruption in our operations.
Vaibhav Khullar is a part-time officer. As such, it is likely that the company will not make the same progress as it would if that were not the case.
Gavin Scotti, Sr. and Gavin Scotti Jr. v. Lawrence Margolis and DGN Pharmacy, Inc. Westchester County Court Index No. 63028/2020. This lawsuit involves alleged counterclaims against the Company for breach of contract asserted by the Scotti parties in response to a lawsuit for $600,000 previously filed by Mr. Margolis as a Plaintiff in the New Jersey Bergen Court under docket BER-L-3171-20. We believe the New York matter is barred by the judicial stay imposed by the New Jersey court and otherwise barred by the entire controversy doctrine. No counterclaims have been asserted in the New Jersey action.
Smilgiewicz v. DGN Pharmacy, Inc. (Docket No. BER_L-4639-20). This matter involves a dispute over a Consulting Agreement in which plaintiff alleges PersonalRX is responsible for fees totaling $104,048.41. No complaint has been served at this time and the Company disputes the asserted claim.
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