Pharmacy Startup Capsule Raises $200 Million to Grow Beyond NYC

(Bloomberg) -- Capsule Corp., an online pharmacy startup whose subway and taxi ads are ubiquitous in New York, has raised $200 million and plans to expand to other large cities across the U.S.

The Manhattan-based startup, which delivers prescription drugs to local patients in two hours via an online app, said it is in the process of applying for pharmacy licenses in additional states.

“We are going to be in all of the major cities in the next 18 to 36 months,” said Eric Kinariwala, the firm’s founder and chief executive officer. For digital pharmacies, “this is the winning model.”

Capsule is the latest online competitor to CVS Health Corp. and Walgreens Boots Alliance Inc., which in New York City runs Duane Reade pharmacies. The pharmacy chains are already battling against PillPack, a startup mail-order pharmacy that Amazon.com Inc. bought last year for $753 million.

E-commerce startups only capture a tiny chunk of $333 billion of U.S. prescription drug spending, but Kinariwala says that share is poised to grow rapidly over the next decade. Sensing the threat, the major chains have expanded their delivery options and added other services to compete with the startups.

The fund-raising round was led by venture capital firm TCV. Capsule’s existing investors Thrive Capital and Glade Brook Capital Partners also participated. Capsule had previously raised $70 million.

Capsule has 60,000 customers in New York, most on multiple medications, said Kinariwala. In June 2018, after its previous fund raising round, Capsule was valued at $110 million, according to data provider PitchBook. Kinariwala declined to comment on Capsule’s valuation or revenue.

Waiting in a Basement

Kinariwala founded the company in 2015 after a bad experience at a chain pharmacy in Manhattan when he was sick with a sinus infection. He waited almost an hour in a basement pharmacy for an antibiotic prescription, only to find out they didn’t have the drug his doctor prescribed.

Capsule’s app allows patients to schedule delivery within a two-hour period, and gives users information on their co-payment and possible drug side effects. It also allows them to ask a pharmacist questions via secure chat or text.

The company’s software also has features to make prescribing easier for doctors, allowing them to set up refill preferences and specify alternate drugs if a patient’s insurance won’t cover the first choice.

The complexity of the interaction between prescribing doctors, pharmacies, insurance companies and patients is one reason that e-commerce has been slow to take off in pharmacy, said Kinariwala.

“There is a reason why there has been no innovation in this space for 50 years,” he said. “It has to be 10 times better than walking downstairs and going to Walgreens, otherwise people won’t switch.”

To contact the reporter on this story: Robert Langreth in New York at rlangreth@bloomberg.net

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy Annett

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