Apotea

An online pharmacy thrives in the Swedish health care system

KEY TAKEAWAY: apotea.se of Stockholm has built a $1 billion market cap business as an online pharmacy.

Apotea uses its scale as the largest online pharmacy to offer the lowest prices on over-the-counter ("OTC") drugs, the fastest delivery times and the greatest choice. The greater the benefits of scale are to shoppers, the more they are drawn to Apotea, creating a virtuous cycle.

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While many pharmacies in the USA and Europe are unprofitable, Apotea has maintained net margin in the 3%-4% range in recent years apart from the Covid pandemic period, when the massive spike in order volume overwhelmed its logistics system.

Apotea's operating model is very simple - online only, Sweden only. Apotea offers very basic counseling support to patients due to Sweden's restrictions on what pharmacists are allowed to do.

Sweden keeps a central e-prescription database, the patient logs into Apotea's website with a BankID and the medicines are mailed to the patient. Prices to the patient are fixed and are much lower than the USA. The bureaucracy is minimal.

Pharmacy companies with more complicated models tend to be less efficient, and often unprofitable. These include pharmacies with both physical stores and online ordering, pharmacies that operate in multiple European countries, and pharmacies with multiple payers such as insurance companies with different reimbursement policies.

One exception is Dr.Max Pharmacy Chain of Prague which operates in a number of European countries with an omni-channel strategy and has profitable operations. It is privately owned by Penta Investments.

Even with Sweden's very low prescription drug prices, Apotea's gross margin on prescription drugs is in the 20% range due to government subsidies. Even as the price leader in over-the-counter drugs and personal items, its gross margin for those items is in the 40% range.

Prescription drug sales grew 5%-6% annually in Sweden over the past decade as more expensive drugs, e.g. biologics and Ozempic, entered the market. Doctors increasingly prescribed multiple drugs for chronic conditions like diabetes. Antidepressant use grew by 40% over this period.

Primary prescription adherence, i.e. the percentage of prescriptions actually filled, improved somewhat over the past ten years due to increased use of e-prescriptions and telemedicine, and is now in the 90%-93% range. Secondary adherence, based on how often patients stick to the prescribed regimen increased from the 75% range to the 85% range.

Online prescription value grew 20% annually during this period, and by 2024 one in five prescriptions were being filled online. Apotea's simple and efficient operations allowed it to pass much of the benefits of its increasing scale to grow market share.

All these factors have combined to grow Apotea's revenues and net income 34%-35% annually over the past 10 years.

Next up, laboratory balances.

Photo is an Arctic fox.