Episode #224: Eric Kinariwala, Capsule, “The Pharmacy Sits At The Center Of The Healthcare System”

Episode #224: Eric Kinariwala, Capsule, “The Pharmacy Sits At The Center Of The Healthcare System”


Guest: Eric Kinariwala is Founder and CEO of Capsule, a pharmacy startup disrupting the industry by rebuilding the model from the ground up with the help of technology to completely transform the experience for everyone involved.

Date Recorded: 5/13/2020     |     Run-Time: 41:26

Summary: In today’s episode, we’re talking disruption of the $425 billion pharmacy industry. We hear about the experience that sparked the idea for Capsule. We cover the state of the industry, and the feedback Eric received about the poor experience friends and doctors are having with the current pharmacy model.

We then dig into the company, delivering an easier and better way for people to get and manage medications, and the customer experience that is inspired by a loving and overbearing mother.

Sponsor: YCharts



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Interested in sponsoring an episode? Email Justin at jb@cambriainvestments.com

Links from the Episode:

  • 0:40 – Sponsor: YCharts
  • 1:24Intro
  • 2:12 – Welcome to our guest, Eric Kinariwala
  • 3:18 – Eric’s background
  • 5:08 – The experience that inspired Capsule
  • 11:52 – Current state of the pharmaceutical industry and what Eric hoped to solve
  • 15:20 – Launching the business
  • 19:19 – Sponsor: YCharts
  • 19:59 – Business model
  • 25:20 – Customer experience
  • 27:15 – Business growth
  • 30:48 – Competition
  • 34:20 – Future for Capsule
  • 36:22 – Challenges in expanding the business
  • 37:15 – Most memorable moment of the Capsule journey
  • 38:17 – Most memorable investment
  • 40:38 – Best way to connect: capsule.com or capsule on app store, @capsulecares on twitter. 


Transcript of Episode 224:

Welcome Message: Welcome to ”Meb Faber” show where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestment.com

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Meb: Hey there, podcast listeners, another fun show for you today. Our guest is founder and CEO of Capsule, a pharmacy startup disrupting the industry by rebuilding the model from the ground up, or as you’ll hear in a minute, from the basement up, with the help of technology to completely transform the experience for everyone involved. In today’s episode, we’re talking disruption of the $400 billion plus pharmacy industry. We hear about the current broken pharmacy experience and how that sparked the idea for Capsule. We cover the state of the industry and then we dig into the company and how they’re delivering an easier and better way for people to get and manage medications. And then we also hear about the customer experience that is inspired by a loving and overbearing mother. Please enjoy this episode with Capsule founder and CEO, Eric Kinariwala.

Eric, welcome to the show.

Eric: Hey, thanks for having me.

Meb: Where in the world are you? We always start our episode with, “Where are you self-quarantining?”

Eric: I am currently self-quarantining in the middle of New York City. I live in Chelsea.

Meb: That is the epicentre. We’re recording this in mid-May. What’s the general mood and vibe right now?

Eric: You know, when I step out of my house, it doesn’t feel unfamiliar. What it feels like is every day, no matter what time of day it is, is Sunday morning at 5:00 a.m. And so it’s sort of like all the same places, everything is just closed and there’s nobody on the streets, but it’s not an apocalypse, I think, maybe the way that it can read or see when you’re reading the news when you’re not in New York. But it’s fine. I think New Yorkers are strong and will come through it, but it’s definitely pretty slow. It’s a ghost town, which is bizarre for New York.

Meb: Ignoring the very real toll and seriousness of it, looking on the positive side, in Los Angeles today they just reopened the beaches and so it’s filled with surfers. But you can get anywhere in LA in about 15 minutes now, which used to take about an hour and a half. My analogy word is like Christmas morning, Sunday or Christmas morning. All right, we’re gonna talk about all things pharmacy biz here in a minute, but wanted to start out, you know, a lot of what we talk about on this show is pure investing and you came out of a pretty traditional background, Wharton, Stanford GSB and then Bain and Perry. Tell us a little bit about what you did before starting your company.

Eric: Yeah, yeah. I grew up in Michigan and went to Penn and just, you know, high school, fell in love with economics and fell in love with just sort of the combination of both kind of the math side of economics, but also the behavioral side and the human side and the emotional side of it. And so was fortunate enough to get into Penn and studied economics there and then spent the early part of my career as an investor. And I was at Bain Capital for a couple of years and then I was at Perry Capital both in New York and in London and investing in retail companies and healthcare companies and technology companies globally. And that combination of things didn’t make a whole lot of sense when I was 25, kind of a random hodgepodge of things. And I think, you know, now that I look back on the business that we’ve built, you know, Capsule’s at this sort of perfect intersection of those three things.

I was really fortunate to start my career at Bain Capital. Some of I think the best investors in the world and really well-run and have a really structured way of understanding markets and businesses and industries and competitive dynamics and positioning and big trends. And then being able to kind of distill that down into, you know, what makes a great company, how do you evaluate management teams? What makes a good management team? So couldn’t have asked for anything better starting my career and had a couple of people I work for there that were amazing mentors and taught me how to be an adult and taught me how to be an investor and really understand the world of businesses and markets.

Meb: I think I’m still learning that adult part with my three-year-old running around. You know, so, like many people that are entrepreneurs, your origin story begins with an experience of what we call almost frustration arbitrage or just a really shitty experience. You wanna talk to us about what led to the formation of the idea behind Capsule, and also give us a little timeline what year this was?

Eric: I was living in London after business school and I moved back to New York and I was living on the Lower East Side in January of 2015. I used to live at Rivington and Essex. And the origin of Capsule is me thinking that I had the world’s worst trip to the drug store and subsequently realising that my trip was probably pretty par for the course. But I woke up one morning with this throbbing headache and I called my doctor and I’m like, ”Hey man, my head is exploding.” And he asked me a series of questions. And he’s like, ”Don’t worry about it. You have a sinus infection, I’ll call a prescription and like go get it.” And I was like, ”Perfect.”

And I put my coat on and I walked down the fifth floor walk up. And so I walked down five flights of stairs and I went out on this snowy January day and I went to this chain pharmacy at the corner of Delancey and Orchard, which is still there and still terrible. And I walk into the store and I’m kind of like just meandering through the store, actually looking for the pharmacy. And I’m walking past aisles of like soap and greeting cards and, you know, cleaning supplies and cigarettes, but I actually can’t find the pharmacy. And so this woman behind the cash register is really friendly and she’s like, ”Hey, can I help you?” And I’m like, ”Yeah, I’m looking for your drug store. I’m looking for the pharmacy.” She’s like, ”Oh, that’s in the basement.” And it was kinda like, wow, that’s pretty odd. Not thinking about it. My head’s pounding still. And so I kind of make my way to the back of the store and I get to this escalator and the escalator is of course broken. So I walked down this broken escalator and I get into this dark, dingy basement and there’s like 30 or 40 people in line ahead of me and my cell phone isn’t getting signal down in this basement.

And so anyway, I wait in line for an hour and I finally get to the counter and ask the pharmacist like, ”Hey, my doctor called in for a Z-Pak, can I get it?” And she goes back into the, you know, into the shelves where they store the drugs and comes back with this sort of pretty defeated look on her face and she’s like, ”Hey, I’m really sorry, we’re out of stock.” Then it’s one of those moments I’m like, ”How are you out stock? It’s January, Z-Pak is kind of like the only thing you should have in stock.” And so I was like, “Don’t worry about it. I’ll just call my doctor, have him call it in somewhere else.” And so I pull my cell phone out to do this and of course my cell phone has died searching for signal in the basement for an hour. And so I end up going home, no medication, and I just went to bed and I woke up the next morning. And I think I had one of those moments that was the spark of frustration arbitrage as you put it.

But really, the spark for me to really try to understand and unpack my own experience, right? Like what’s going on here? Like how did I just wait in line for an hour, couldn’t get ahold of my doctor. Something super basic, wasn’t in stock. You know, I didn’t even know what the price I was gonna have to pay for it was, let alone if I had any questions about it. I didn’t want the 40 people in line behind me hearing about all of my medical details. And really that was the origin of really trying to unpack and understand what I have now come to learn is probably the most complicated industry in America, and it is big and it touches everybody.

And I learned three things that we’ve formed the basis of the business around. The first is that it touches everybody. Seventy percent of American adults go to the pharmacy once a month. There’s 70,000 pharmacies in America. It’s a $350 billion category, the second largest category of retail. It’s one to one and a half percent online. There’s almost nothing that is less online than pharmacy. And the experience for the consumer hasn’t changed in 50 years. And there’s this very familiar set of frustrations that you faced with your family, getting your medications, that I faced, that everybody’s faced, whether it’s persistent out of stocks or long wait times, or not knowing the price or hard to get advice in a time and a place in a way you want it.

And that was sort of the first insight and really just believe that there was a better way to be able to do something that almost everybody does month after month. And to use that, not only to make that experience better, but ultimately it helped people get their medications and manage them in a more effective, efficient way so people are staying healthy.

The second thing is that the pharmacy is the most frequent interaction in the entire healthcare system. You know, the average person goes to their pharmacy eight times more often than go to their doctor. And that was a really interesting learning for me coming out of this experience. You know, everybody in healthcare, I think has the same goal, which is to deliver better healthcare outcomes at lower costs, right? Whether it’s us or Barely or you know, insurance companies or…everybody’s got the same goal. And the question is always like, how do you get there? Who’s best positioned with the right path to doing that?

And our belief has always been, you know, to change the way healthcare operates, people have to make different decisions, better decisions, and you have to help them do that. And we think that comes from having really high trust relationships with people so that when you give them advice on a different way or a better way of doing something, they’ll actually do it. And the pharmacy is, you know, in spades the place where you can build those high trust relationships because you’re interacting with it month after month after month. And pharmacists are among the highest trusted healthcare professionals.

And then the third thing, and I think the most important thing that I learned was that the pharmacy really sits at the centre of the healthcare system. I mean, you know, when you look at it, like your doctor writes a prescription, the insurance company pays for it, the drug company makes it, the pharmacy dispenses it. And then everyone’s kind of holding their breath, crossing their fingers, trying to figure out did the consumer do something? Did you take it? Did you get it? Is it working, is it not working? Should you get more of it? And the pharmacy and the pharmacist have this opportunity to be the quarterback of the healthcare system and help really make lives better for not only the consumer, but for the doctor and the hospital and the insurance company, and drug company, by connecting all of those folks and being the connective tissue among them. And I think that underlying technology platform is kind of the core of what we’re building. And I think it’s been probably the most interesting insight coming out of my own terrible drugstore experience.

Meb: I mean I just had one of those in the first quarter, pre-crisis, sick as a dog. Same thing, went to CVS. So I had to drag my ass out of bed, went to CVS, probably got five other people sick by wandering around the store. You know, obviously got distracted and ended up buying some Mountain Dew and candy bars and everything else while shopping. But picked things out, walked over to the pharmacy and they said, ”Oh, I’m sorry sir, we’re closed.” And I said, ”What do you mean you’re closed? The store is open. You’re open for like five more hours.” ”Yeah. But this pharmacy has different hours. You’re gonna have to go find a different one.” It was the same thing, went back to bed. I got up the next morning.

It feels such a stagnant, calcified, backwards industry. Maybe give us a little overview of kind of the current state of how it looked like when you decided that, “Hey, look, we’re gonna put something together,” and then also how did you plan on being different? You know, other than just saying, saying something’s terrible is one thing, but saying how you’re gonna try to build a better mouse trap is of course a lot harder.

Eric: It’s funny. Yeah. Coming out of my experience, the first thing I did was really lightweight, casual user research in the form of, I just started texting my friends and I said, ”Hey, I just went to the pharmacy, like tell me about your experience with the pharmacy.” And they were all like, ”It’s terrible.” And I’m like, got it. And then I started calling friends of mines that were doctors. I’m like, ”Hey, tell me about your and your staff’s experience with the pharmacy.” And they started echoing the same thing. “It’s really high friction for my staff. We’re spending lots of time on administrative issues. It’s eating into the time and the way we are able to take care of our patients.” I’m like, ”Oh that’s interesting.”

And then I started chatting with executives and health insurance companies and drug companies and hospitals and they all started echoing the same thing, “Hey the way the pharmacy is set up isn’t working for me and the people I need to take care of.” That was the insight around the core idea that the pharmacy is the quarterback of the healthcare system. To your question, like where we started is forever and ever and ever like healthcare has been effectively like a B2B business. Health insurers sell to employers, you know, PBM sell to health plans and employers and hospitals and doctors contract with insurance companies. And the consumer has been dragged along among all of these other people making deals and interacting with one another and no one has ever really started with a blank sheet of paper and said, ”What if I had started with what the consumer really wants’ And I didn’t have any legacy considerations. I didn’t have stores, I didn’t have infrastructure, I didn’t have a culture, I didn’t have a massive employee base. I didn’t have existing contracts. Like what would that really look like?” And that’s where I started. I started with literally a blank sheet of paper and I said, the sky is our limit. We can craft the perfect experience for the consumer.

And so we started learning about, you know, we started learning about what are the things that are really frustrating for people and how often does that show up? And then how would you go about solving that if you didn’t have to worry about anything else? And that’s what we did. We started with the origin of the brand and it’s top of mind for me because Sunday was Mother’s Day. But the way we crafted the business and the brand and the consumer experience was this idea of what if there was one person in the world and there was one pharmacist in the world and that pharmacist happened to be your mom, like what would that experience look like?

And that experience would be amazing. Like your mom would understand what that medication does. She would help you figure out the right thing. She would figure out the price. She would figure out if there was a coupon to get a lower price on it. She’d help you understand all these complicated terms like a deductible and a formulary and navigate all of that. She’d probably overbearingly remind you to take your medications, coordinate with your doctor when you ran out. She’d help you navigate anything with the insurance company and then she’d probably bring it right to your door. You know, and she’d be available for you anytime you need it for any questions you had. We kind of took that as the inspiration for building the brand and the consumer experience to build that around and that’s how we get started

Meb: And so most people would have stopped there and said, ”Okay, that sounds like too much work.” What was the next part? You’re a former GSB guy. Did you, did you build a business model? Did you put together a business plan? Did you just start crafting an actual business? Did you put it on credit card? How did you begin?

Eric: The way I started was, one was to figure out what did you need and we decided that the best way to control the consumer experience, deliver the very best experience you could deliver was to have your own pharmacy. Very early on, I decided and I took the perspective that the problem to solve isn’t delivery. And I think when people look at Capsule, it’s easy to think about it as medication delivery. But in fact, the problem is that engaging and interacting with the pharmacy for the consumer and for all of the stakeholders in healthcare is just really high friction and delivery is one part of that. But it’s all of this other stuff.

And to solve all of those other things, whether it’s out of stocks, whether it’s price transparency, whether it’s somebody helping you figure out how this works, when you’re really vulnerable, you’re at the counter or you’re not feeling well and somebody is just telling, you no, call your doctor, call your insurance company, as opposed to saying, yes, I can help you figure this out, somebody in your corner. And decided to own the entire consumer experience end-to-end was the right business model to really be able to build something that was 10 times better for the consumer.

And so the first two things you gotta do, if you wanna build a pharmacy, you need a pharmacist. And so went out and was really lucky enough to get reintroduced to our chief pharmacist and the first person that joined the team with me, her name’s Sonya. And Sonya, I had actually met 10 years before starting Capsule. We got reconnected and she was super excited and brought all of her experience from being a pharmacist, all of her career. And she comes from a family of pharmacists. Her dad’s a pharmacist, her cousins are pharmacists, her uncles are pharmacists. And then we started building a pharmacy and raised…signing a lease in New York, building a pharmacy is more than my credit card then and more than my credit card now can handle.

And so raised an initial seed round of capital from the folks over at Thrive Capital. And really got excited about working with them because you know, Capsule is at the intersection of building an iconic consumer brand in healthcare, but also at the centre of the healthcare system. And so they had just a ton of experience with building Oscar, but also backing things like Warby and Instagram and Harry’s and Glossier and a bunch of things that I think have become, you know, really powerful brands in important categories.

And so that was the perfect investor for us between those two things. And then look, the early days is just all about the team and it’s all about recruiting amazing people to join your team to build a shared vision of what it could be. And so, you know, being in the centre of New York and making sure that, you know, we had access to all that great talent, that’s how we got started.

And so Sonya joined the team and then we brought on a CTO to build the technology platform because we’ve rebuilt all the pipes and the platform that power the pharmacy. And that’s a really important part of it. You know, making something as simple as we’ve done with just three clicks to get and manage your medication is actually incredibly difficult. There’s so much technology that underlies this like simple, you know, app experience or website experience. And then we started building the brand inspired by, you know, a loving, overbearing mother. And then we just started just building on that, building the design, got the regulatory permits, the insurance contracts, you know, figured out how to buy drugs, all of those things. So we spent the first year building the team and the tech and the brand and the permits.

Meb: One quick question, one longer question. The quick question is, so I assume the pharmacy was originally located in the basement.

Eric: Pharmacy was on the ground floor in Chelsea, right in Midtown. People could walk in if they wanted to. And we put it right in the middle of New York City so that we could serve as many people as possible as quickly as possible.

Meb: It’s so funny when you were telling me that story because last time I was in New York, I had to go to a pharmacy that of course was in a basement, something, but I think it was over in Meatpacking somewhere.

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Meb: Okay, so talk to us a little bit about, you know, you mentioned that pharmacy traditional is a little bit of a B2B business model. I mean what is the actual business model? Are you guys charging the consumers? Are they paying mostly through insurance? Is the business model you make money from, like how does it work? I feel like most people really have no idea how…people just show up at CVS. They get their drugs and that’s that.

Eric: Yeah, best case. But usually something goes awry. Pharmacies are like really complicated retails, the way I think about it. And so, you know, independent pharmacies are the best way of thinking about it. So there’s 70,000 pharmacies in America, there’s about 23,000 mom and pop pharmacies. And mom and pop pharmacies don’t sell all this other stuff. By and large, they’re really focused on just prescription drugs and medication.

And the way the business model works is and Capsule today, you know, it makes money the same way that you know every other pharmacy in America does is when you go into the pharmacy and you give them your insurance card and you put your credit card down and you pay your copay, the pharmacy then also receives a payment from the insurance company and the vast majority of the payment is from the insurance company. And then concurrently, the pharmacy has purchased drugs to put on the shelves at a price that is lower than what the insurance company will pay plus whatever you’re paying on your credit card for a copay. And the difference is what the pharmacy keeps. That’s basically the revenue model for the business.

What we’ve done is we’ve taken a lot of the overhead that exists at conventional pharmacies and we used technology to automate a lot of those things so that humans can do the things that humans are great at and computers can do the things that computers are great at, right? And so when you walk into a traditional pharmacy, you kind of wonder, what are all of these people doing behind the counter? You know, a lot of that is data entry and that a lot of that is stuff that I think if you’re smart about how you use technology, you can empower a pharmacist to actually be a part of the healthcare system as opposed to being a data entry clerk or somebody who’s telling you where, the toilet paper is at aisle five.

One of the things that I didn’t really appreciate until I met Sonia, you know, pharmacists go to school for six years to become pharmacists. Doctors go to school for eight. You know, pharmacists are experts in medication and I think they’re massively guilty by association, by being in a place that is largely, often can be a bodega. And I think that pharmacists are essential parts of the healthcare system. And so unleashing their potential to actually help people understand their medications and the side effects and how they should take them is such an important part of what we’ve done and what we think the future of commerce really looks like.

And so one of the things that is interesting is when I look at sort of like the waves of e-commerce, there was this sort of first wave of e-commerce in the mid nineties when the internet like first came out, right? And you and I probably remember that, it was dial-up, you know, CompuServe, AOL, Prodigy, and you were on the internet and you’re like, wow, this is amazing. Like I can buy something on the internet. I know the price, I don’t have to go to a store and it’s gonna show up in my house in 10 days. Like how cool is this? And I don’t have to talk to anybody.

And that kind of played out through the kind of the first 10, 15 years of the internet where you had toys.com, you had Amazon emerge in the mid-’90s. You had, you know, lots of things and it got to this place where it got totally saturated. Like there used to be a website for every niche product that existed on the internet, lampshades.com, bluecoffeemugs.com like, and it got totally commoditised. And then you had this sort of second wave of e-commerce emerge where people and companies figured out that they should use the power of the internet to connect with consumers directly and build brands on top of commodity products, but still eliminate the need for the human.

And so you had companies like Casper in mattresses and Away with luggage and Harry’s with razors and Bonobos in apparel. And you had this massive wave of direct to consumer companies that were using the power of the internet, you know, taking previously commodity items and building proprietary brands on them, but still eliminating the need of the human. And now you kind of get to today and you kind of think about, gosh, like what are the things that you really don’t transact on online? Like what’s left? And there are three categories of consumer commerce that are really persistent to be offline. One is real estate, two is financial services, and three is healthcare.

And the common thread through those three things are, one is that they’re highly regulated industries. Two is that they’re really high trust, emotional purchases. Right, you’re buying a house, whether it’s $100,000 or $500,000 or $2 million, like that doesn’t seem like something you’re gonna one click and buy, that is an emotional purchase. And you want that to be facilitated by human because you have questions. Same with financial services and banking and investing, although you probably have a better perspective on that than I do now.

And then the third is healthcare. And healthcare is human and emotional. And what I always like to say is that you want an algorithm figuring out if you have diabetes and you want a human telling you how to deal with that. And what that means for you and your life and your family. And so by building this proprietary technology platform and enabling the people that work at Capsule to be focused on the things that humans are uniquely qualified to do, particularly the pharmacist, but also everybody else, you’re able to actually provide a better level of care than you would have been able to before. And that’s a really important component of why we’ve invested there and how we’ve kind of built the business.

Meb: And so maybe walk us through the client experience. So you know, doctor says I need some meds or I already have a prescription, how’s it work with Capsule? Kind of walk us through the whole beginning to end experience.

Eric: Yeah, so we’ve made it super simple. There’s two ways you can use Capsule. The first way is if you already have a prescription that’s sitting at a pharmacy. You can go to the website or go to download the app and you can put it in six pieces of information, your name, your birthday, what drugs they are. And then Capsule becomes your pharmacy and you can go through our consumer experience. The other way you can use Capsule is even easier than that, which is you basically just tell your doctor Capsule is your pharmacy. So when your doctor asks you what’s your pharmacy, you say Capsule is my pharmacy. We’re already in her EMR system, the electronic medical records. We get it electronically. We send you a text message, you click on the link and then you’ve got everything you need right there. You’ve got the price of the medication, you’ve got your doctor’s instructions, you’ve got how many refills you got left.

Along the way, you can text or chat with a pharmacist, you can ask any questions you’ve got, everything from what’s the deductible, why is this expensive, how does this work to, you know, I’m pregnant, is it okay to for me to take this while I’m pregnant to I’ve got my holiday party later today and I’m gonna have three shots of tequila, should I do that while I take this medication, and anything else on your mind. And then you can schedule free same-day delivery in two-hour windows. Today, we’re in New York, Boston, Chicago, Minneapolis and Westchester, and we deliver, you know, to a pretty wide radius across all of those markets. And then the medication shows up at your door whenever you want, whenever you’ve selected.

And then after that, you know, we’ll make sure you don’t run out of medication. Then we can coordinate with your doctor on the back end so you’re never out of refills and you’re never gapped so that you’re staying safe and healthy and continue to take your medications. But we’ve made it three clicks. You’ve got price transparency, you’ve got access to expert support advice along the way, and you’ve got all the information you need right there in your hand.

Meb: What’s been the progression of the business? So you guys started out with just a handful of people. You’ve now raised a few rounds of financing. How many people do you guys have now? You actually mentioned you’ve expanded into a few different cities, I didn’t know that. Congratulations. What’s been the general progression over the past four-ish years?

Eric: It’s been amazing. You know, I think one of the things as a founder is you spend all of this time building something that you hope solves a consumer’s frustration or pain point. And so I remember pretty vividly when we launched the business in May of ’16 here in New York, kind of one of those things where like, okay, well I hope people liked it. I hope people wanna use it. And we had this moment that continues to stick with me probably like 6 or 8 or 10 weeks in where we had this woman who had texted in and she had texted the pharmacist and Sonya was the only pharmacist at the time. Sonya was like, ”Hey, you got to see this.” And it was this woman that basically texted and said, ”Hey, Sonya,… You know, can I take these iron supplements while I’m pregnant?” And then it was sort of…. “by the way, is it weird? You’re the first person I’m telling I’m pregnant. My husband doesn’t even know yet.”

And we just had this moment. We looked at each other. We were like, wow, like you know, this is the experience. It’s built trust. People are using it the way we want them to use it, we intended them to use it and they’re building this relationship with the pharmacy and the pharmacist. And there was this incredible moment for the two of us. You know, because we’d spent the better part of a year putting everything together. And I think from there the business spread pretty organically word of mouth. And, you know, we started with friends and family, like most businesses start and then those people started telling other people and some of those people happened to be doctors and doctors realised that Capsule was better for their patients and started recommending it to their own patients. And that’s how the business has continued to scale pretty aggressively here in New York.

And then one of the things that we’ve done over the last month, given the current climate and the current situation with COVID, you know, I think medication delivery has gone from something that was a better way of doing something to an absolute necessity and an absolutely something that’s essential right now in helping contain the outbreak and helping keep people safe at home while making sure they’ve got enough medication on hand to do that. So they’re not risking lingering in pharmacies and waiting in pharmacies or anywhere else for that matter. And they’re able to isolate at home and shelter at home safely.

And so one of the things that we really thought was important was that, you know, New York city, obviously the epicentre of the outbreak. And we’ve been partnering with doctors and hospitals and local government and cities to help and support where we can because there’s so many different places where people don’t have consistent access to medication, whether you’re the elderly, whether you’ve got a compromised immune system, whether you’re getting discharged from the hospital post-COVID, there’s a lot of different places where medication delivery is an essential thing right now.

So we pulled forward our launches in other markets where the communities were struggling with the virus outbreak as well. So Boston, Chicago, two places that have been pretty hard head. We wanna make sure that we were there to support the communities, to be able to do that, because we think it’s so important that people avail themselves of a medication delivery. And at least from Capsule’s perspective, what we offer is free. There’s no charge to the consumer. People pay the same copay they would pay at their conventional pharmacy. And so, you know, it’s an essential tool for everybody to use it. And we’ve spent, you know, five years in New York building the operational and technological capabilities, expertise to be able to scale the business really rapidly until we were able to turn that on pretty quickly

Meb: In many ways, you mentioned at the very beginning, you’re not just a pharmacy delivery company, but it’s one of the things you’re most well known for. Why don’t the incumbents do that? Do they in New York City? I don’t even know. Are they starting to? You’re starting to see some competition in that approach?

Eric: The pain point to solve and the in the frustration with the pharmacy most people have is the end-to-end experience of engaging with it. And I think delivery in every category of consumer commerce is going to be commoditised. And you’re seeing this everywhere, right? Casper would deliver your mattress the same day. The background on the rest of your bedroom is blurred out, but I’m gonna guess there’s a mattress that you woke up on today. And I think that that is, you know, a really important thing, you know, why is every company offering same day delivery of a variety of things? And I think it’s, you go back to the first wave of e-commerce, you know, when we started 15 years ago or 20 years ago, it was 10 days to get something and then it was 7 days to get something and then it was 5 days and then Amazon made it 2 days standard.

And now if you look through New York City, there’s ads all over the place for Walmart and for Amazon saying, you know, free next day and the next thing is going to be free same day. And that’s gonna happen in every category whether it’s general merchandise, whether it’s mattresses, whether it’s apparel. Pharmacy is gonna be the same thing. We think that’s one part of the solution, but really it’s about the end-to- end experience and it’s about connecting the pharmacy and the other healthcare stakeholders to solve really important problems. Fifty percent of prescriptions in America go filled and that’s a really big problem and that’s a problem for everybody.

Meb: Why is that by the way?

Eric: It’s because it’s high friction. It’s high friction to engage with the pharmacy. It’s a variety of things. It’s complications with insurance, it’s out-of-stock since I have to go to the pharmacy, you know, I took one pill and my legs started aching and I stopped taking it because I couldn’t get ahold of the pharmacist to know if that was a normal side effect or not. It’s all of these different things are wrapped in what is like a very complicated high trust, emotional purchase and engagement than you need to have in an ongoing relationship.

And so one of the things about pharmacy that’s really different and why I think it’s different, kind of hearkening back to the third wave, is that it’s not a transactional business and it shouldn’t be a transactional business. You know, getting your medication is different from buying a book or buying other things that you might buy on Amazon. So I think it’s really important that it feels and looks as consistent and excellent as other things you do in your life, but there’s more to it than simply a package showing up on your doorstep. And I think that’s the real thing in healthcare is that you need all of those other things around there to really be able to make a difference in the way people engage with their healthcare and actually take it.

Meb: Yeah, I mean it just seems one of those things that once you’ve gone through the experience, you know, like you mentioned, a lot of the features become table stakes, but you have something like COVID which really honestly seems to be accelerating many of these trends. And you look back and say, ”Gosh, why did I ever do it that old way? That seems so antiquated.”

Eric: It’s like Uber. Aside from Travis, like nobody really thought, you know, standing on the street corner and hailing the cab was that big of a problem. And then in New York at least it’s like 50% share of taxis and ride sharing. And so I think it is absolutely one of those things that people have become accustomed, and I would use the word resigned to the conventional way of doing things because they haven’t been shown a better way and there hasn’t been a better way. And that’s sort of the light that I think Capsule is shining on the industry for consumers and for doctors and for everybody else.

Meb: So more importantly, when, when you guys come into Los Angeles?

Eric: Hopefully soon, hopefully soon.

Meb: So you’re four years in, you’ve been through a few rounds of funding, the company is scaling, doing really well. As we take a look, turn our gaze to the horizon to new decade. What does the future look like for you guys, next one, three, five years? How do you plan on evolving and what’s on the horizon for Capsule?

Eric: Well, you know, one of the things for this year and for the next 18 to 36 months is making sure that, you know, 3% of the U.S. lives in New York City. So the first is scaling the business across the country. And so, you know, internally we use this phrase taking Capsule from Manhattan to Manhattan Beach and filling in, you know, the footprint that we have across the U.S. so that everybody in America can have a better experience with the pharmacy. And that’s what’s front and centre right now for us.

And along the way, you know, we’re very focused on continuing to build out the technology platform that enables us to bring to life the vision of the pharmacy and the pharmacist as the quarterback of the healthcare system, helping doctors be better doctors and spend more time with their patients, helping hospitals make sure that people don’t go back after they’re discharged with readmissions, helping insurance companies make more effective use of the dollars for the people that they take care of, helping drug companies explain the novel therapeutics they make and how they work.

And that’s really the mission of the company, has always been to build a pharmacy that works for everyone. And that’s every consumer, but that’s actually every stakeholder in healthcare. So that’s how we think about, you know, what’s on tap. I’m a big believer in focus and I think that you gotta do one thing really, really well and earn the right to do the next thing for the consumer. And I think that consumers have no shortage of frustrations and friction with the healthcare system broadly and we’ll continue to solve those frustrations with them as we earn the right to do that by delivering a delightful experience for them with their pharmacy month after month after month. So we’ve got a big and ambitious roadmap. We’ve got a big list of problems that the consumer has, but I think there’s a lot of [inaudible 00:36:14] so to say in remaking the first place we started, which is, you know, a $350 billion category that’s got 70,000 stores.

Meb: And how simple is it to roll the model out to other cities? Is it something where there’s additional state by state regulations? Is it an over reaching national umbrella? What does it look like?

Eric: So business is highly regulated and it is complicated to roll out the business geographically the way we are doing. Because we spent five years building this underlying technology platform, it’s lending us, accelerate the pace at which we do that because there’s a scalable system and technology platform under that. But it’s not, you and I decide tomorrow we should be in Tulsa that next Monday we can be in Tulsa. There’s real lead time, real capital, real infrastructure investment that goes into being able to deliver a safe, consistent and delightful experience for everybody. But the technology piece that we’ve invested in is a real differentiator in terms of enabling the pace at which we can scale the business.

Meb: As you look back over the past four years and congrats on the four-year anniversary of the company, we often tell our listeners that the biggest compliment you can give investors but also entrepreneurs and companies is simply surviving. Thriving and doing well is gravy. What’s been the most memorable moment of a Capsule journey? It could be good, it could be bad. I’m sure challenging, you know, which day of the week. There’s probably a challenging moment every day, but anything coming to mind?

Eric: The thing that always comes to mind the story that I shared with you around that moment when we knew we’d built the right thing and we built this thing that people trusted. And we were able to take a moment that is frustrating, but more than that where people are incredibly vulnerable, where everybody around them is saying no, and being able to actually help them and literally give the power of controlling their healthcare back in the palm of their hand. And validating that early on is a moment that I keep going back to as kind of one of my, you know, one of the highlights along the journey.

Meb: That’s great. And Eric, you know, you started out as an investor and so this is a consistent question we ask investors on the podcast. So this can apply to your own personal as well. And this can be also good or bad. Do you have a most memorable investment over your lifetime? Is there anything that sticks out as either a thorn in your side or a fond remembrance? Beanie Babies, baseball cards, stocks, comics.

Eric: Baseball cards for sure. I’m trying to think of a good stock one.

Meb: Do you remember your first stock?

Eric: I don’t remember my first stock, but it was certainly in middle school. I remember 2008 pretty vividly.

Meb: Would you have still been at Perry or Bain, where were you at the time?

Eric: I was at Perry in 2008. It was a pretty interesting time to be an investor. You just saw kind of the world defy everything that anybody had and could have learned. It was a pretty interesting time. You know, I’ve been fortunate to invest and do a little bit of seed and angel Investing. And so I’ve been fortunate to invest in some things, really friends of mine that have done really well, but I’m an early investor in Harry’s. It’s really well. I’m an early investor in Masterclass, which I am just a massive fan of. I think it was just from a personal perspective I think it is the coolest business, you know, on the planet. Like to be able to learn from these experts of their craft and who are opening up their secrets, I think it’s a really interesting business and have been fortunate to be involved in from the early days. Those were probably two of my favourites that I’ve personally invested in.

On the stock side, I invested in steel in 2007 probably like the day that steel peaked. The lesson that I learned there was to really understand like what’s the underlying driver? It turns out steel prices move with oil prices and so when oil collapsed, steel collapsed too. So that’s something that I think has served me well as an entrepreneur is really double-clicking and understanding like what’s the bet that you’re actually making as opposed to what’s the surface bet. That has been something. And then something that I’m excited about now that I think has parallels to Capsule is a company called Carvana, which is used cars online. I think we see a lot of parallels between what they’re doing. Highly fragmented, opaque, terrible consumer experience, rolling out market by market and taking share from some pretty sleepy incumbents. And that business has done incredibly well over the last, you know, five years. And so I think there’s some really interesting parallels to what they’ve done in the way we’re building our business.

Meb: Great. Cool. Eric, where do people find more information? They wanna find out what you guys are up to, your writings on the pharma industry, download the app. Where do they go?

Eric: You can go to capsule.com to learn more about Capsule or transfer your prescriptions over. You can find Capsule in the App Store or you can follow us on Twitter, @capsulecares.

Meb: Eric, thanks so much for joining us today.

Eric: Thanks for having me, Meb.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcasts. If you love the show, if you hate it, shoot us feedback@themebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. My current favorite is ”Breaker.” Thanks for listening friends and good investing.