How a pharmacy delivery startup has capitalized on the coronavirus pandemic

'Its like living years in weeks' for pharmacy delivery company ScriptDrop.

How a pharmacy delivery startup has capitalized on the coronavirus pandemic

Like many people, Nicholas Potts feels as though the coronavirus has warped time—that he’s lived months in days.

For Potts, the founder and chief executive of ScriptDrop, a technology company that enables pharmacies to deliver prescriptions to customers’ homes, the coronavirus pandemic has meant a seven-fold increase in order volumes—and the execution of a multi-year business plan in just six weeks.

Potts founded ScriptDrop in 2016 in the not-so-trendy tech hub of Columbus, Ohio. The company sold software to pharmacy networks and established integrations with the prescription management software pharmacies use to run much of their business. The company partnered with specialized courier services, all of whose drivers had to be compliant with the Health Insurance Portability and Accountability Act (HIPAA), for same day delivery. ScriptDrop charged the pharmacy a fee for each delivery, which the pharmacy either passed on to the consumer or chose to absorb.

ScriptDrop was growing rapidly, Potts says, but it was a strictly business-to-business company. It didn’t have a consumer facing app or interface—although one was on the company’s long-term roadmap, Potts says. “We had built a pilot app and tested it about 6 months ago,” he says. “But we weren’t planning on rolling it out yet.” With its B2B model growing so quickly, there seemed little reason to complicate life with a consumer-facing service.

Then the coronavirus pandemic hit. Suddenly a trip to the pharmacy, an essential journey for those with chronic health conditions, became potentially fraught with peril. And with social distancing measures taking effect, more and more pharmacies wanted to offer home delivery. In addition, busy pharmacists wanted to make it simpler for a patient to initiate a delivery request, rather than relying on the pharmacy to inform the customer about the service.

So ScriptDrop accelerated its business plan, sprinting to put in place a consumer-facing ordering system. “It has been a lot of long days and long nights for a lot of the team,” Potts says.

In the end, he says, the company decided against making its already built pilot app the centerpiece of its new consumer-facing offering. Instead, patients can just text the word “DELIVER” to a number on their phone—helpful for older people who might not be proficient at installing apps—and walk through a series of messages that will route their order to whichever pharmacy the patient wants to use.

The patient provides their prescription and insurance information, pays their co-pay, if needed, and a delivery fee. For most addresses in the U.S., ScriptDrop can provide same day delivery if an order is placed before 11 a.m.

With the coronavirus pandemic, the company has instituted a nationwide pricing plan: $8 for same-day service, as long as the pharmacy is within 5 miles of the delivery address. “Ninety-five percent of the country lives within 5 miles of their pharmacy,” Potts says. As before, the fee is charged to the pharmacy, which can pass it on to the customer or absorb it.

The company contracted with UPS and FedEx to handle deliveries nationwide for less time-sensitive prescriptions, as well as expanding its network of HIPAA- compliant local couriers. It’s even started helping courier companies screen prospective applicants for jobs as drivers. “We now have 15,000 drivers available, and we’ve had thousands of drivers apply through our website,” Potts says.

ScriptDrop gives the pharmacies special packaging for prescriptions, with an outer label containing only the patient’s name and address, preserving their privacy. If there’s room in the package, Potts says, pharmacies can include over-the-counter medication or other items in an order, too.

Before the outbreak, ScriptDrop required its couriers to view a patient’s identity documents, like a driver’s license, and take a signature. Now it allows it couriers to simply place a prescription on a doorstep or front porch—although they still ensure someone is there to pick up the package, usually coordinating with the recipient by phone.

In the midst of explosive unemployment, Potts has spent much of the past few weeks hiring. The company started the coronavirus pandemic with 90 employees—but Potts says he thinks it will have double that number within five weeks. Its order volumes have already surged at least 600%, and he says he expects another 200% to 300% in the next month. The company had expected to do $30 million in annual sales this year, but now Potts thinks the figure may be even higher.

To date, ScriptDrop has raised $26 million in venture funding, from backers that include angel investors, the Ohio Innovation Fund and Chicago-based venture capital firm M25.

Potts thinks one benefit of the pandemic is that it may convince tech investors, particularly those in Silicon Valley, who often insisted they would only invest in companies in their backyard so they could have lots of face-to-face contact with the founding teams, to look further afield for promising startups.

“I think the fact that everyone is having to work remotely is going to make investors more comfortable with people outside the traditional tech hubs,” he says.

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Stocks are now overpriced by 22%, according to this rule

The recent rally means that investors believe EPS will surge past the 2019 peak and increase from there. But that's fantasy.

Stocks are now overpriced by 22%, according to this rule

Investors are brimming with fresh optimism that’s brought one of the greatest rallies ever. But if they’re right, then future earnings will need to be to be terrific. Don’t fall for the wishful thinking. The coronavirus crisis will hammer profits that were already in a bubble, and due for a fall.

Since hitting a low of 2237 on March 23, the S&P 500 surged 638 points or 28.5% by the close on Friday, April 17, regaining well over half of its drop from the record high of mid-February. That extraordinary jump means Wall Street believes that future earnings are looking a lot better now than they did three weeks ago.

But current prices point to a level of profits that defies reality. Stock prices reflect the stream of profits companies are expected to generate for many years come. Depressed results in 2020 and 2021 caused by the COVID-19 outbreak are far less important than where earnings settle when they’ve recovered to what we’ll call “normal” levels, meaning a benchmark where they start expanding again with the newly-growing economy.

So based on the S&P’s close at 2875 on April 17, where do investors put the normal earnings for America’s big cap stocks? Over the past 60 years, the market’s median price-to-earnings multiple stands at 17.4. But the PE has been a lot higher over the past three decades, averaging 21.3, a legacy of record-low interest rates that may or may not continue, and perhaps, excessive enthusiasm. We’ll start with the average of the two, 19.4, and round it up to 20-times, estimating that a magic wallet sprouting $100 a year in earnings should sell for $2000.

Deploying the 20 PE is Part 1 of what we’ll call the “Tully-20 Test.” If the “normal” profits you get by dividing the S&P by 20 look unreasonably high, then stock prices are inflated.

At our 20 PE, the S&P’s sturdy earnings-per-share, when the U.S. gets chugging again, should be $143.75 (2875 divided by our PE of 20). But wait, that’s higher than the $139.47, based on four quarters of trailing GAAP earnings, where the S&P finished 2019! That mark was an all-time record, a gain of 48% from the close of 2016. It also capped something of a golden interlude for profits. Operating margins averaged 11.1% in 2019, 1.9 points higher than the margin in 2016, and sales over the last three years jumped by almost a quarter, at an annual pace of 7.3%.

Those trade winds have since turned into a tornado. It’s impossible to predict how hard the pandemic will hit profits. But we know that projections are a moving target that’s rapidly getting worse. On April 9, analyst polled by Refinitiv posited a drop of 8.5% for the year. A week later, their estimate had almost doubled to 15.5%. Look for forecasts to keep dropping.

Once again, what matters most is where earnings land when the turmoil ends. The bull run means that investors believe that EPS will surge past the 2019 peak to $144, and increase from there. But earnings were in something of a bubble at the end of 2019 due to the unusual confluence of margins and sales growth that far exceeded their historic levels. We don’t know for sure if big caps earnings will quickly rebound to $144, but we do know where they need to go in the three years after the good times return to reward investors. Assuming companies continue paying 40% of their profits in dividends, and 60% in buybacks and cash reinvested in plants and products, earnings should wax at 5% a year––a pretty good number in an economy projected to grow at a long term “real” rate of 2%-2.5%, or 4%-4.5% including inflation.

Investors’ view that profits will replant the flag at greater heights than the 2019, golden age record, is probably a fantasy. So the S&P flunks Part 1 of the Tully-20 Test. Let’s move on to Part 2. If $144 is an inflated starting point for a comeback, what’s a reasonable base? And where does that put a reasonable value for the S&P?

An excellent guide is the Cyclically Adusted Price Earnings ratio developed by economist Robert Shiller. The CAPE uses a 10-year average of inflation-adjusted profits to smooth their erratic course, including spikes like the one before the virus struck. The CAPE’s most recent reading for “adjusted” profits is $107.

Of course, that figure will decline somewhat with the blow from the pandemic. But since Shiller’s methodology spreads earnings over a long period, the downward adjustment is most likely to be just a few dollars. I’ll also add 10% to the Shiller number because using a price level ten years old to adjust earnings over the next decade makes the current number look artificially low. After fiddling with the CAPE’s figure, I calculate a base for earnings per share, the footing where they’re most likely to settle when the U.S. emerges from the trough, at around $118.

The Tully-20 Rule reaches its judgment by applying the PE of 20 to that benchmark. That formula yields a fair value for the S&P of 2360 (20 times $118). The S&P actually dipped 5% below that number on March 23. But as of April 17, the index floats 22% above where the Tully-20 rule put fair value.

Conclusion: The latest party was a bash. Get ready for the hangover.

More must-read finance coverage from Fortune:

—5 veteran investors on —These countries’ stock markets have been —China’s next coronavirus crisis: —This time, the banks were ready: —How the American economy can recover from the coronavirus pandemic
—Listen to , a Fortune podcast examining the evolving role of CEO
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19

Subscribe to Fortune’s for no-nonsense finance news and analysis daily.

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