Has anyone been able to dodge the exquisite pain of the friction in the doctor-prescription-patient-pharmacy supply chain? We think not. Eric Kinariwala wants to take our pain away.
In January 2015, Eric Kinariwala woke up in his apartment on Manhattan’s Lower East Side with a throbbing headache. He called his doctor and told him it felt like his head was going to explode. After asking a couple of questions, the doctor concluded that it was most likely a sinus infection, and told Kinariwala that he’d call a prescription for a five-day antibiotic Z-Pak into the closest Duane Reade pharmacy. There, problem solved.
Not so fast. “When I walked into the store, literally everything that could go wrong with the pharmacy went wrong for me,” he says. After walking down a broken escalator into the store’s “dark, dingy basement,” with zero cell phone reception, Kinariwala then stood in line for almost an hour, only to be told upon reaching the front of the line that the pharmacy didn’t have any Z-Paks. In January. Deflated but not defeated, he figured he’d call his doctor back and ask him to call the prescription into another local pharmacy. But his phone had died searching for a signal in that Duane Reade basement. Problem still not solved.
Kinariwala eventually got his prescription. But the experience grated on him. In the first part of his career, he’d worked for an institutional investor, analyzing companies in retail, health care, and technology, among other things. He didn’t realize it at the time, but all of those specialties were going to come together in what followed.
“I woke up the next morning and thought, How did I just waste an hour and a half without getting the medication I needed?” he says. “From an industry that practically has an outpost on every street corner in America?”
The analyst in him took over. What he found surprised him: there are 70,000 pharmacies in America, making it the second largest category of retail in the nation—with some $350 billion in annual sales. “I’d never thought about it this way either,” he says. “But the pharmacy is the most frequent interaction people have with the health-care industry—it’s the thing you do more than anything else, including visiting your doctor, going to the hospital, or dealing with your insurance company. It’s the heartbeat of health care, so to speak.”
We all know how the system works: a pharmaceutical company makes a drug, your doctor writes you a prescription for it, the pharmacy dispenses it, your insurance company pays for some part of it, you pay for the rest, and you take it. All of the above stakeholders come together to make “pharmacy” work. But, as Kinariwala’s own experience points out, that doesn’t always happen as smoothly as we’d like. “Not only that,” he adds, “no one had been thinking about better ways of bringing them all together where there’s value for them in sharing data and working together to create better health-care outcomes.” That’s when he decided to found Capsule, to solve the problem himself.
Capsule is an online pharmacy that delivers prescriptions straight to New Yorkers’ doors. Doctors can send a prescription to Capsule just as easily as they send one to Duane Reade or CVS. The company employs real-life pharmacists ready to chat with you about your prescriptions. They take care of refills automatically. And they scour the Internet for coupons from drug companies and other deals, so you get the best possible price. Meaning, you get it at the same or a better price than you’d pay after waiting in line at your pharmacy.
Not only that, you don’t have to wait around only to find that your brick-and-mortar pharmacy is out of stock. According to Kinariwala, 40 percent of pharmacy visits are a waste of time—they’re out of stock. That’s partly because if you’re going to have a pharmacy on every corner, you can’t stock everything in every one of them, so the business model of the pharmacy chains practically requires that they are generally out of stock of many medications. But the other reason is that the pharmacy chains never even bothered to do what many tech-forward consumer goods companies are doing nowadays, which is predictive inventory for those customers who are definitely going to be needing their medication again next month. “You’d be amazed at how many diabetics have told us that they inject the exact same amount of insulin every day, and run out the same day every month, and yet their pharmacy is always out of stock,” says Kinariwala. “That’s insane to me.”
What’s more, predictive inventory should help Capsule manage its own business better than the competition can. Consider the following: CVS acquired Aetna in 2018 in a deal worth nearly $70 billion. But the combined entity swung to a loss of $421 million in the fourth quarter of 2018, down from a profit of $3.29 billion the year before.5 Whatever is going on in that company, there is variance and unpredictability to its results. That’s what Kinariwala is looking to eliminate.
Are the chain pharmacies concerned about this new upstart? In a two-week period in early 2019, CVS announced that it would henceforth offer delivery and promised to scour the web for coupons and savings. Problems are being solved.
Kinariwala has bigger plans than eliminating the need to wait in line for your prescriptions, though. If the pharmacy is our primary source of interaction with the health-care industry, he says, then it’s possible to view it as the “connective tissue” between the industry’s various stakeholders. Gather the right data, he adds, and “the pharmacy should be your single source of truth for all of health care.”
Can any one company do that? Convince all the stakeholders in a trillion-dollar industry to use it as the central repository? Doubtful. But Kinariwala says he doesn’t have to do that. He just needs to operate like Slack, which, by integrating with the likes of Google and Dropbox, has begun to emerge as the platform that sits at the heart of so many office workers’ lives. Kinariwala won’t call Capsule the Slack of health care, but we will.
“Take all the information that’s in silos,” says Kinariwala. “Drug companies have some that they share and some that they don’t, so do hospitals, so do doctors. Imagine a world where all those people decided to combine that data. What kinds of powerful things could happen in terms of better health care for all?”
Backing up to the simple pharmacy part: Kinariwala refers to Capsule as an “iceberg” business—the kind where the consumer, using the company’s app, might confuse the ease of use for simplicity of technology. The fact is, there’s a lot of technology that’s underwater powering all that. “I’m a big admirer of Wayfair in terms of all the proprietary systems they build on the back end to handle the logistics of selling large pieces of furniture,” he says.
The best way to think of companies like Capsule, Wayfair, or The Inside is to think of them as technology companies. That’s why a venture investor like Thrive Capital, which also backed Oscar, a technology-focused health insurance company, is one of Capsule’s own backers. Both companies are attacking inefficient parts of the health-care space, and are using technology to do so.
Is Amazon coming for Capsule? Kinariwala says he has no idea, but we do know that with the June 2018 acquisition of mail-order pharmacy PillPack, Jeff Bezos sent a shot across the bow of the entire health-care industry in the same way that Capsule has in New York. For now, Capsule has the edge in same-day, hand-delivery of prescriptions—for many drugs, it’s still mandatory that the consumer show identification, and Capsule’s team of delivery people are trained at checking IDs and taking signatures in a way that Amazon isn’t in a position to do.
That brings us to one of the more salient aspects of Capsule’s business. Along with their delivery team, the company also employs pharmacists that customers can text in real time, asking questions about their prescriptions or otherwise. It’s what makes Capsule part of what Kinariwala calls the third wave of e-commerce.
The first wave was commodity products, and the winner has been Amazon. Amazon has perfected the delivery of everyday items. And you don’t need to interact with anyone to get that done.
The second wave includes companies like Casper and Warby Parker, companies that took relatively generic products and put emotionally engaging brands on top of them. Here, too, there is no real need for human intervention to make the sale.
The third wave will be those companies that bring a service, or human component, into the model. The ones that will succeed next will have to do something like putting a real-life pharmacist inside your phone for you, as Capsule has done.
“You don’t want to be selling things like the mugs, markers, or dry erasers that we bought on Amazon for our office,” says Kinariwala. “What you want is to be in a business where there’s a human required, and the three largest of those are health care, real estate, and financial services.”
The chief pharmacist at Capsule is an old friend of Kinariwala’s, Sonia Patel, who came on board early to build out the concept with him. The two of them knew they were onto something not two or three months after they opened their doors in New York in May 2016. One evening at around eight, a text came in from a customer saying, “Hey Sonia, can I take iron supplements while I’m pregnant?” After a back-and-forth, the customer added, “By the way, is it weird that you’re the first person I’m telling I’m pregnant? My husband doesn’t even know.” Contrary to what you might expect from an e-commerce brand, Capsule hadn’t removed the human component from the transaction; they’d actually brought it to the fore, giving their customer the opportunity to ask a very personal question in the way they wanted in a way that felt private and secure. “That was the moment for us,” he says. And probably just the first of many more to come.