Summary
At time of publication, December 17th, 2018, CaryX has raised $41.9K
Did you know Americans spend ~$1,100 on average per year on prescription drugs, 44% more than Canada. With medicine spend through the roof the need for ways to improve efficiency of the industry is at an all-time high.
That is where CaryRx comes into play. As the newest market entrant to the on-demand pharmacy market, this team is out to ‘uber-ize’ the prescription drug industry. In just one market and less than one year, the team is already nearing $500K in annual run rate revenue. Clearly, the on-demand medicine market opportunity is massive and here to stay.
Be sure to check out our discussion with Founder & CEO of CaryRx, Areo Nazari below.
Areo, you have only recently entered the on-demand pharmacy market and have already gained significant traction with relatively low customer acquisition cost. How are you finding such quick adoption?
We have seen a great response from both consumers and medical practices in the DC market. Much of our early growth has been organic with a focus in sales/business development and targeted social media advertising. In addition, our customer retention has been extremely high which can be attributed to the strength of our service.
Our patients have actually told us it is a “no brainer” to use CaryRx as they dread using chains such as CVS. We have also done a great job with our social media advertising by targeting very specific audiences. This has resulted in excellent customer acquisition costs.
How does CaryRx differentiate from other companies like PillPack and NowRX?
PillPack has focused on disrupting the mail order market, which is roughly ⅓ of the $400B pharmacy market while we are focusing on the retail pharmacy market, which is also roughly ⅓ of the market. PillPack has done an excellent job of creating a next level patient experience in the mail order segment. We aim to do the same in the retail pharmacy space and bring a next generation experience to patients who are tired of dealing with CVS and Walgreens.
NowRx is one of several on-demand pharmacy start ups, operating in different markets then CaryRx. A few current advantages with CaryRx:
- Automated delivery logistics via Postmates
- Vertically integrated backend
- Pharmacist founder
We view the above advantages as being crucial for growing and scaling our business. Having domain knowledge is also extremely valuable to maintain operations at scale. Our strong metrics are a testament to the value of experience. In addition, from a patient perspective, we see our app is having a very intuitive and sleek user interface that is in on par with other on-demand leaders.
You and your team have built an asset light model. Can you talk about your partners including McKesson and Postmates and how they help you to achieve profitability?
As our primary wholesaler, McKesson provides our inventory quickly with next day shipments. In addition, we are able to keep our inventory slim by returning unused or slow moving (unexpiring) stock for a full refund.
However, we do also use a series of secondary wholesalers to ensure we are ordering inventory at optimal acquisition costs. Increasing margin on high cost generics via secondary wholesalers is essential to achieve and maintain profitability.
We are fortunate to be Postmates’ first and only prescription delivery partner. Utilizing Postmates provides us with a scalable fleet while eliminating the need to hire a full time logistics team. We have integrated the Postmates API into our backend platform and utilize their webhooks to automate steps in the delivery process.
When orders go through our workflow, drivers are automatically queued to pick up packages. As we open new markets, we will have a delivery fleet ready to go.
Who to date has been your core consumer and do you have a sense of how customers find your service over traditional pharmacies?
We initially believed our core consumer would be millenials. Though as we have progressed the demographics of our consumer is diverse as we have seen a great response from the 50+ age group. Our CAC for older consumers via social media has been on pace with younger consumers, which has been a great finding for us.
Outside of social media advertising, we are making an effort to build awareness amongst local medical practices. This includes visits to medical offices to build rapport with their team while also making sure our marketing materials have a presence in both the back and front offices.
SEO has been a key driver of traffic as searches for “pharmacy delivery” and other keywords for our business have been on the rise.
Are there any challenges you face with payers or with adding additional cost to pharmacy sales?
Pharmacy benefit managers (PBMs) represent payers and play a large role in determining prescription reimbursements through established contracts. To simplify the contracting process, we joined Mckesson’s HM Atlas PSAO (pharmacy services administration organization) which is the largest in the country representing over 6k pharmacies.
By being a part of a PSAO like HM Atlas, we are gaining access to their PBM contracts and relying on their leverage for favorable terms in negotiations with PBMs. The general challenge for all pharmacies is to maintain strong reimbursements and margin with PBMs, which we are confident will continue to occur through our association with HM Atlas.
To that point, how exactly does CaryRx monetize its platform and what cuts does Postmates and McKesson take?
CaryRx makes margin through the sales of prescriptions. That is both through medications processed through insurance plans as well as out of pocket purchases. Our average delivery cost per order has been ~$7.25 through Postmates.
As far as the cut taken by Mckesson and our other wholesalers, it greatly varies per prescription. We utilize secondary wholesalers to ensure we are acquiring medications at the lowest cost possible. Currently our margin is ~34%, which is extremely strong as compared to the industry average of 22%.
Again, industry experience is crucial and an advantage we believe will help us thrive. NowRx recently published their margin as being in the 15-20% range.
What types of margins can you drive with the current business model in place?
Our current margin is 33-34% and we believe we can maintain an average above 30% for the foreseeable future. As we grow the business and scale our operation, we expect our margin to decrease to do the increased mix of prescriptions. We still would aim to achieve a margin above 25% at scale, which we believe is achievable with good practices and procedures.
Do you ever worry about relying on services like Postmates? We have seen other service providers in the last mile delivery zone go under. Is there a backup plan in the event of scenarios like this?
Our proprietary platform was created to accommodate various logistics options, including Postmates, third party couriers or our own in house team. If we had the need to begin delivering orders with our own team tomorrow, we could immediately begin doing that with no development work needed. Postmates has been excellent to date and we have had no reasons to seek other services to replace them.
What are your expansion plans and do you see CaryRx being more of a secondary market type of play (e.g., Miami, Cleveland versus New York, LA)?
Our seed round will be utilized to expand our market share of the DC metro area. As we progress, we will evaluate the state of the market and make a determination of our markets going forward. However, we do believe there is a strong opportunity in secondary markets. There are only currently a handful of markets currently being served by tech-enabled on demand pharmacies, so the opportunity nationally is very strong.
What cities do you plan to enter next?
We currently are concentrating on our current market and will determine which cities we will expand to following our next round of funding.
As you think about the business 5 years down the road do you see this being a standalone business or an acquisition?
We are growing a sustainable business with an excellent opportunity to continue growing as the majority of the nation unfortunately still must rely on the poor experience chain pharmacies have to offer. This is a great period for pharmacy as innovation is on the rise and many systemic changes will occur both to pharmacies and the supply chain.
While we believe this has the ability to be a standalone business, we also believe there will be an increase in M&A activity and the opportunity to exit may present itself. However, our focus is to continue to grow our business while maintaining healthy margin and cash flow.
How will you utilize the capital raised and why go the equity crowdfunding route?
Half of our raise will be allocated for sales and marketing and the other half will be used for operations, including working capital for inventory. We love the idea of building a base of consumer supporters who can help grow our brand. Additionally, crowdfunding platforms present a very streamlined way to maintain our campaign with both accredited and unaccredited investors.
What are your plans for future funding?
We will be looking at completing a Series A next year to expand both our product and markets served. We likely will be looking at expanding our same day coverage to more areas of Maryland and Virginia as there is a total addressable pharmacy market of $7B between DC, MD and VA.
CaryRx has built an efficient distribution channel for delivering pharmaceuticals the last mile by relying on the new gig economy network via Postmates. This is an intriguing partnership that empowers CaryRx to effectively manage cost and demand while also reaching the millennial consumer effectively.
With tremendous early traction and a management team that impressed during our call, we think this is one worth investing in. Stay tuned for our rating report coming soon.
