Eric Kinariwala is the founder and CEO of Capsule, a technology business rebuilding the pharmacy industry from the inside out with an emotionally resonant consumer experience and technology that enables customized outcomes for doctors, hospitals, insurers, and manufacturers. He received his undergraduate degree as a University Scholar at the University of Pennsylvania’s Wharton School and earned his MBA from Stanford Graduate School of Business.

The Pulse: Can you share with us a brief overview on your background and what led you to found Capsule?

Eric Kinariwala: I spent the early part of my career after Penn as an investor across healthcare, technology, and retail, and the origin of Capsule stems from a terrible experience I had at the drugstore. Everything you can imagine going wrong went wrong. I had a sinus infection and contacted my doctor who called a prescription into a chain pharmacy in New York City. Once I got to the store, I had to spend some time trying to locate the actual pharmacy, which turned out to be in the basement, and after a whole series of misadventures, I wasn’t actually able to get my prescription because it was out of stock. I end up going home and going to bed. When I woke up the next morning, I had one of those moments that a lot of entrepreneurs have, where I started unpacking my own experience and asked all the basic questions: ‘How does this actually work?’, ‘Why are there so many pharmacies?’, ‘Why did I wait in line at this pharmacy when it didn’t even have the medication I needed?’, ‘Why did they sell Twizzlers and medication?’ 

Pretty quickly, I realized that the pharmacy connected two big themes I had been really excited about as an investor. First is the idea that non-experiential, local retail  is going to live on your phone. Second is the evolution of healthcare incentives away from the initial model – where the more often you go see your doctor, the more money they make – towards a world where your doctor just gets paid to take care of you. 

The pharmacy is a complete intersection of these two big themes as the second largest category of retail in America (over $450 billion of annual spend) and the most frequent interaction point in the healthcare system. The average person goes to the pharmacy 10x more often than they engage with their doctor. Pharmacy is the way to connect with the greatest number of consumers, build trust, and has the ability to drive better health outcomes. 

I got excited about the opportunity to fix something I think everybody, at some point, has been frustrated by. It is an area that is personal for me given my experience with my parents, who have had to take more medications as they’ve gotten older. And it’s also something that resonated with my background as an investor in terms of the ability to build a scalable business.

The Pulse: Can you share a little about how Capsule works, and how it is different from a traditional pharmacy?

EK: Capsule is completely different from your traditional pharmacy. We’ve designed everything to be very simple for the consumer. There are two ways to get started with Capsule: First is by going to capsule.com or downloading the app and inputting a few pieces of information including your name, your birth date, and what medications you take. The second way is even easier, where you can just go to your doctor and let them know that Capsule will be your pharmacy. You don’t need to sign up for an account, we get your prescription from your doctor, and contact you via text. Capsule automatically looks up your insurance and, along the way, you have total price transparency, the ability to privately and securely text or chat with a pharmacist on your terms, and schedule free delivery whenever and wherever is convenient to you. More importantly, on an ongoing basis, Capsule helps consumers manage everything that impacts their medication, whether that is refills, running out of a prescription, or any issues with insurance. 

The Pulse: It seems Capsule prioritizes reducing friction within the pharmacy ecosystem and addresses consumer pain points. How does the business model achieve this? 

EK: Today, Capsule makes money the same way conventional pharmacies do. Most people (95% industry-wide and a similar proportion of Capsule’s customer base) use their insurance to pay for their medications. We think that is very important as it creates accessibility and makes sure people have affordable copays. We are able to offer a beloved customer experience and level of service because of our investments in product and engineering. We’ve rebuilt from the ground up every process that takes place within a pharmacy, as well as all the software that powers it. Yes, our digital engagement model allows us to eliminate a lot of overhead associated with conventional pharmacies (e.g., $2B – $3B annual spend on rent), but, importantly, it also allows pharmacists to be more efficient through access to better technology and data. This helps them focus on providing the empathy, expert advice and human connection that is a core element of our approach. 

The Pulse: I’d love to get your perspective on what it has taken to scale Capsule. Would you be able to speak to some of the dynamics surrounding market density, patient acquisition, and medication adherence? 

EK: One of the aspects I’m most proud of is that when prescriptions run through Capsule, people are significantly more likely to: a) initially take them; and b) stay on them. We have strong data demonstrating how much better adherence is for consumers when prescriptions are fulfilled using Capsule. This characteristic ties into where we started our conversation looking at one of the big themes in healthcare: the role that pharmacy can play in driving value-based care outcomes. A combination of the consumer and physician engagement model and the technology we’ve built allows our users to stay on their prescription regimens with higher frequency than otherwise. As we think about how the business model evolves, there’s a significant amount of value we’re creating for the ecosystem, and we believe there is a lot of opportunity to partner with doctors and health plans that are at risk for these metrics.

The Pulse: Do you think it will ever evolve into a version where the pharmacy takes on risk? Or is it likely to be more focused on the enablement of other stakeholders in the ways we discussed?

EK: It’s likely both. If you’re really good at something, you should be willing to take on risk. Capsule makes it incredibly easy for people to get and stay on their medications. In some cases we have taken on risk in driving pharmacy outcomes and this is only going to happen more. 

However, conventional players are not set up effectively to partner with physicians and health plans in the same way. One of the reasons for this is that most conventional pharmacies operate on decades-old technology systems, built in a different time for a different objective. These systems were built to process prescription claims, not to consider a consumer as a whole person in so far as the care and engagement they require. We have a mantra at Capsule, which is “people, not prescriptions” and we have designed all our systems to consider the whole person and everything that may be going on with them – not just line items of prescription claims. 

The second barrier that prevents conventional pharmacies from embracing a value-based care model is their physical setup. Physicians don’t want to engage with 20 to 30 different pharmacies to manage their patient panel. They want to be able to deal with one place and be able to exchange data from one place. Therefore, by virtue of having a centralized model and a team of pharmacists that can engage with doctors in a very personalized way, we’re able to serve physicians in a compelling way to drive value-based care outcomes. 

There’s a huge role for pharmacies to play, but you must have the right model and the right technology to be able to realize the benefits of it.

The Pulse: What do you think the role of regulation is in the industry? Are there any opportunities or considerations that you spend time thinking about? 

EK: The pharmacy industry is highly regulated across the whole ecosystem, whether that’s by the FDA, DEA, Congress, or state and local governments. In general, any regulation that benefits the consumer by helping bring down drug prices, making medications more affordable, or increasing access to pharmacies and different pharmacy models is a positive force. My expectation is that we’ll see increased regulation of the pharmacy industry and broader ecosystem over time and most of it should be beneficial to the consumer (which we are big fans of). 

The Pulse: With this year’s conference theme focused on resiliency amidst adversity, would you be able to speak to some of the dynamic with the pharmacy industry as it navigates staff walkouts and retail store closures? What do you think the future looks like? 

EK: You are likely to see substantially fewer physical pharmacies going forward. If you consider what conventional pharmacies do today, there’s a storefront where consumers can buy any variety of products like razors, shampoo, and groceries and then there’s the actual pharmacy component. What we’ve seen over the last few years is these two elements are being split apart. There are now a lot of different places that are more convenient than a conventional pharmacy to get daily items. Meanwhile, on the pharmacy side, we note that consumers really want to be able to engage digitally. And they want an expert pharmacist who isn’t overworked or disgruntled and who’s there to take care of them and help them navigate the complexities of insurance and their medical conditions in a private and secure way and on their own terms. I believe the future of pharmacy is much more technology enabled. This technology does not only serve the consumer better, but also makes the job of the pharmacist easier. We like to refer to how we use technology to create “super pharmacists”: empowered and equipped to do what they are uniquely trained for. Pharmacists’ ability to impact people’s healthcare is very meaningful, but they must have the right tools and the right conditions to be able to do that.

The Pulse: Bringing it back to Capsule’s strategy within the context of these dynamics, what is next for the organization in terms of areas of growth that the team is prioritizing?

EK: One of the things we’ve seen over the last ~18 months, more than we’ve observed in any time since the business was founded, has been demand from health plans and physician groups in value-based arrangements to work with partners who can help them drive pharmacy outcomes. A big area of focus for us is continuing to deploy the products we’ve built to drive real outcomes. Driving adherence metrics are billion-dollar opportunities for some of these risk-bearing groups, and we have very strong data on how we’ve done just that. We are seeing a lot of pull from the market in this area, and it’s one we’re going to keep focusing on. 

The Pulse: Looking at the big picture, if you could redesign any part of the healthcare system, what would you want to address? 

EK: Because pharmacy is the most frequent interaction in healthcare and medication adherence is one of the largest impacts on health outcomes, I’d do exactly what we’re doing at Capsule which is redesigning the pharmacy industry.

The healthcare system is distorted in that incentives to build for the consumer are not as direct as they are in other categories because the consumer ultimately isn’t bearing the cost of the vast majority of care they consume. This results in a healthcare system that looks different from other industries: ones where forces of competition and innovation result in products and services that make consumers’ lives simpler and better. One of the things we asked ourselves when we started Capsule was ‘Why is it 100x easier to get my groceries delivered or have a car show up at my curb than it is to do anything in healthcare like book a doctor’s appointment or get my medications?’ It shouldn’t be that way. 

We built Capsule to be an experience consumer’s love and by doing so, we unleash the ability to drive differential results for the healthcare system. 

The Pulse: Lastly, how did you manage the transition from your role as an investor to an operator? What advice would you give to aspiring healthcare entrepreneurs? 

EK: The most powerful businesses form when your head and your heart align. The head poses questions like ‘Can I analyze this industry?’, ‘Do I understand the dynamics?’, ‘Is there a path to building a successful company in this space?’, but the harder aspect to ascertain is whether you are excited and passionate about the issue: ‘Do I viscerally understand the customers and their pain points?’ When both these elements come together, magic can happen. But when one is missing, it’s a less powerful combination. If you just analyze the industry and don’t care much for the problem it’s easy to give up. Conversely, if you just understand the problem but don’t assess the business viability it may never turn into a full-fledged enterprise that can achieve the largest possible impact. So, when those two things align, that’s a good signal to take the plunge. 

With regards to the transition from investor to CEO, the fundamental skill set and mental model used to make successful decisions are similar across both roles. Every day, as both an investor and leader, you will need to synthesize data quickly to make decisions with imperfect information. The ability to make sound decisions amidst uncertainty and limited information is a highly transferable skillset. 

Interviewed by Akanksha Santdasani, January 2024.

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On Feb 15-16, 2024, Wharton is excited to feature more expert perspectives at our annual Wharton Health Care Business Conference. This year’s conference is themed ‘The Resilience Edge.’ Conference details and tickets are available here.