Disrupting the Pharmacy Industry and Becoming a National Brand, with Cary Breese of NowRx

Kerry, welcome to the show.

Justin, thanks for having me.

Yes, I appreciate it. And with NowRx, doing all this research on the company and seeing the evolution from, you know, 2015, 2016 to now is pretty incredible. And even seeing the investor page, everything as well. I'm curious though, with NowRx, what are you doing today for people who aren't familiar with the company?

Yeah, so NowRx is a full replacement for CVS and Walgreens pharmacies. And what I mean by that is, The vision, and then I'll talk about how we do it. But the vision is if you're a patient and you go see your doctor and you get a prescription, your typical solution today is to go drive across town and stand in line at a, at a local pharmacy and get your medication filled. With NowRx, you get a prescription from your doctor the same way you would, but you don't go drive across town and stand in line at a pharmacy. You go home if you're feeling sick, you go about your day, you go to work, wherever you want to go. Uh, we deliver all prescription medications same day, right to you, free of charge. There's no delivery charge whatsoever. We make our money off of the medications themselves. And so it is a full replacement, no need to ever go to a pharmacy ever again, uh, or stand and wait in lines. And, uh, we've been expanding this service throughout California and recently Arizona and bringing it to other states. The way we are able to do that is we actually are a pharmacy business, meaning we run our own fulfillment centers. They're like pharmacies, but they aren't in retail locations. We house them in sort of commercial warehouse facilities. We have our own pharmacists that are on our staff. We have our own medication inventory, just like a normal pharmacy. We use our own drivers that deliver from these fulfillment centers to patients. We use electric cars. They're branded NowRx. The drivers are our employees. So it's what we like to call a full-stack solution for pharmacy, really just creating a better model where we don't require patients to come in, but they get all the same services that they can expect from a local pharmacy. They just don't have to go anywhere and stand in line.

Yeah, there's a lot to unpack with this. And I know from research and everything as well, I was excited to dive into a few different areas. Just for context for people as well, take us back to the beginning, deciding to start this company. Why'd you do that in the first place, Kerry?

Yeah, so I had just got done winding down a startup company. You know, sometimes they don't work out. My career has been focused on sort of disrupting legacy industries with technology and automation. I had a success in the insurance industry. Then, I had one that didn't work out so well in the database industry, sort of automating the way developers launch applications in cloud environments, multi-cloud environments. We wound that one down. So, I've been batting .500 so far, Justin. Not too bad a track record. But, you know, my CTO and partner in the last company that we we wound down, we decided we wanted to work together again. We got along, had functioned pretty effectively, even though the company didn't succeed. And we started looking at other ideas. And again, wanting to disrupt another legacy industry, we both started thinking about healthcare. I mean, wow, how much inefficiencies are there in healthcare? And it's a funny story. I just went to the pharmacy while we were sort of brainstorming ideas. I had a sore knee. We were thinking about healthcare already. We were thinking about automation. I went to a doctor. I got a paper prescription like everyone gets, and I drove it across town to my local CVS. And Justin, I remember just staring at that paper while I was in my car, kind of driving around, thinking like, what is wrong with this picture? I have a paper piece of paper that I have to drive across town, and then of course you get to your local pharmacy. I had to stand in line just to drop off that piece of paper. Okay, that was five minutes just to drop off a scrap of paper. Then I had to stand in another line to pay. You know, there's a fifteen-minute wait in between, and then another ten-minute wait to wait to talk to a pharmacist in yet a third line. And I called my co-founder. I said, "How come no one's?" You know, disrupted pharmacy. Like, what's wrong with this picture? I can get a ride to pull up in 2 minutes to take me wherever I want. I can get my lunch delivered in 30 minutes. I can go get my groceries delivered. Why am I standing in line? Why are millions and millions of people, tens of millions of people, hundreds of millions of people standing in line at pharmacies? It makes no sense. And so we sat down that very day. And just started working on a business plan. And the more people we spoke to about it, you know, the more energy we got and just put the hooks in us. And that was 2015, kind of the summer of 2015. We launched our first NowRx fulfillment center in January 2016.

That's incredible. And with that too, I know there's obviously incentives for the other companies to have people stay in the store, have people look around other products, maybe buy something else while they're there. They're not incentivized in terms of their business model to necessarily go delivery like you guys could pull off when you're just focused on that, which even like now, you look at other companies, ones that are using like ghost kitchens for instance to fulfill orders essentially for food. Like that's a whole same type of concept over there. In that process though, you have this idea, you obviously have an issue with what this whole pharmacy system is. And then from summer to the next year, you launch a fulfillment center. What was that process? I love hearing about the early days and like what that took because—

Yeah.

We see you now, you've raised millions of dollars, you've progressed a lot in the company in the last 5 or 6 years. But take me through that in terms of that idea to actually launching from the business center. Yeah.

Justin, you hit on really the core of that process really for me personally, the excitement and just the passion for it is what you hit on. It became very obvious to me that the incentive structure which you touched on, is wrong for a CVS and a Walgreens and other local pharmacies. They really do want people in their stores. They're, you know, the model was built 100 years ago to attract people into a store. They can buy other products, right? If you think about a typical pharmacy, Yeah. they're giant. They're 15,000 square feet full of other products that are non-prescription medications, right? You can get beauty products and back-to-school supplies and vitamins and I even saw, you know, tennis balls at my local CVS. They want you there buying those other products, and that creates a disincentive for them to do a more convenient experience like NowRx. And for me as an entrepreneur, light bulb goes off, because if I have a huge company that is sort of dependent on this model of bringing people into a store, then I have an opportunity to compete with them by, by building a completely new model optimized around not requiring people to come into a store. And the theory is, and I read a lot about disruption theory and Clayton Christensen and things like that, I really believe in it all. You know, if you, if you can create a new model, the incumbents that are out there because of the incentive structure they have, they're going to be resistant and reluctant to replicate what you're doing in this new model. They'll, they'll be willing for us to take away customers that are looking for more convenience because they're holding on to that core kind of ever-decreasing size of consumers and market segment that want to keep coming into a store. And the way I see it is, you know, young people— you look like a young guy, Justin— you know, people don't want to go into stores anymore, uh, and it's becoming increasingly popular and a bigger and bigger demand for people to, to not look for reasons to come into a store. And if you look at CVS and Walgreens, they're actually doubling down. If you look at their strategy, they're they're adding services in a store. They're adding clinic services. CVS with something called Health Hub. Walgreens bought a company called VillageMD, which brings again clinic services inside the store. So, in those early months, that was the light bulb that said, we've got to do this because we've got these big players where we want them. They have misaligned incentives. So, the early days were selling that idea to investors to raise some money. We put together a business plan. on a laptop, uh, you know, 10-slide presentation. Um, Yep. It's something I've been through before in some of my previous companies. And we surrounded ourselves with experts in healthcare because, you know, Sumit and I, my co-founder Sumit Shokand, uh, we didn't have really deep pharmacy experience and a little bit exposure to healthcare, but we knew right away we need some more expertise. So we, we called a bunch of people and brought them in as advisors. And just looking through our network, like, I reached out to people on LinkedIn saying, hey, I know you're local to me and you seem to work at a big pharmacy company or inside the industry. Would you like to go have lunch? I have this idea I want to run by you. And so I did that repeatedly. And, uh, you know, the more people we talked to, the more encouragement we got. And then we started talking to investors, uh, about raising some money. And we went out to family and friends, uh, raised some money, uh, rented a warehouse in Mountain View and applied for our pharmacy license, got some contracts in place. And in about 3 or 4 months, we had dispensed our first prescription.

From that time as well, how are you acquiring your customers at that point in time? I know I've looked at some research and you said, I think it says on your website now, it's like 96% of new customers come from physician referrals. At this point in time, how in the beginning though, it's like always the start is toughest. Like, you don't have the brand, you don't have it established. Like, take me through that side of things, like convincing people, yeah, we have this fulfillment center, like, you should come through us, it's so easy. Like, tell me, take me through some of that side.

We tried a bunch of things, you know, as a startup, you try and iterate. And, you know, I'm also a big fan of The Lean Startup. And we got in front of customers early and often, got some feedback. I mean, actually, if you want to go back for a second, the first time I had the idea In the first week, I actually went back to my local CVS, stood in line at the pharmacy pretending I was buying things. I'd grab like mouthwash, I'd grab other products, keep them in my arms and act like I was going to check out at the pharmacy. And while I was in line, I would ask people, hey, how are you doing? Hey, I have this idea. You think it would work? You know, what if everything could be delivered to you free of charge and we had all the same services? And I started taking a poll and I did that several days. So we knew that there was interest. You know, I had about 50% hit rate, uh, on talking to random people in the, in the pharmacy line. So that gave me some confidence. And then, you know, we tried a bunch of different marketing ideas. We, we handed out flyers. Uh, we stood in line at pharmacies and spread the word and we started talking to doctors. And so we actually knocked on doctors' doors.

Really?

and tried to ask them about the idea. And we hit it off right away with a handful of doctors that said, hey, we think this is a great idea too, good for our patients, and that's good for us. And so the doctors started referring patients to us and kind of spreading the word of NowRx. So we got into, you know, early revenue from day one, really. We— I still remember the day we had our first prescription We all kind of had a celebration. And then the next day, you know, it was 2 prescriptions and, you know, 2 days later it was 3 or 4. And back in those days, you know, Sumit and I would do the deliveries ourselves. We'd get in a car and drive around and, you know, it just built up from there.

You said in the early in this interview that you basically had monetized the business model was that you're going to charge them from the prescription side of it. So like from the actual medications, not the actual, not the customers. Was that always the plan though? Take me through that business model. And how you thought through that.

Yeah, I thought initially, again, the whole business idea really popped into my head all at once, you know, and it just, it just put the hook into me. Sometimes that just happens as an entrepreneur, you know, you just get this idea and you can't shake it. But the idea immediately was, um, these are basically commodity products. They're essentially non-perishable. It makes no sense to have them housed in a retail location when you can You can put them into a much cheaper facility. You don't need as many facilities because if you're delivering, you don't need a store on every street corner. And so I immediately realized, you know, there would be a cost savings there by not having so much rent, not having to keep such a big retail footprint. And I thought that, you know, just doing some simple math on the back of an envelope or back of a napkin that, you know, if you could deliver enough prescriptions per hour, And save money on the retail space, you know, you could save $3 or $4 per order just by not having the retail space. You could probably get delivery costs to, you know, something like that, $3 or $4 per delivery. And so it would be a wash. And then we started thinking about automating inside the pharmacy where we could actually dispense for less money and start saving money on the backend. And now it starts to become a really interesting business proposition and business model where you're dispensing at less expensive cost. You have a lower fixed overhead. Absorbing the delivery cost then becomes actually, you know, even less than the offset that you're saving on retail and the dispensing costs. And so it becomes a winner really quick. And that all kind of popped into my head, honestly, in the first few hours of thinking of the idea. And became core to our, our business plan. And so we always thought, you know, it's got to be free same-day delivery. That's the way the world is trending. We look at all the different aspects of consumer products today. That has to be the answer. And that has to be the way pharmacy is going to be one day. The question is, what companies are going to be able to build a model that can do that and do it profitably and do it well? And that's what we set out to build.

Yeah, that's pretty incredible. And you mentioned, you know, the first getting some investors early on that process, but you also have done crowdfunding. Crowdfunding through SeedInvest. I'm curious as to why you ended up going crowdfunding route and also SeedInvest, you know, in particular. Take me through more of that because every company doesn't necessarily do that. I know we actually have an angel group called Vitalize Angels at Vitalize where we, we're having non-accredited investors be able to invest through Reg CF. So a little bit different than Reg A+, but Reg CF with WeFunder on the backend powering it. And it kind of opens it up to way more investors. And there's obviously a lot of benefits from having that. For you as a founder, I'm curious as to your thought process behind that in terms of you going the crowdfunding route.

Yeah, we've been a big believer in crowdfunding. It's worked really well for NowRx. We found early on that, you know, the idea of NowRx just really resonates with large numbers of people. I mean, our patients are just thrilled. If you read our Yelp reviews, I mean, we have 5 stars across the board, every one of our dispensing locations. Um, and it's something we really work hard on, we're really proud of, and you know, they're all brand ambassadors for us and keep spreading the word by word of mouth. So we looked at crowdfunding and Reg A when it was just starting to develop and thought that it would be an interesting experiment to run. And we raised about $7 million in our first Reg A round, and we never looked back. You know, we just think it has so many advantages compared to sort of the traditional— path of entrepreneurs raising money from venture capitalists. I mean, we're not anti-venture capitalists by any event. I have conversations with venture capitalists all the time. They're interested in the company. But we find, you know, the terms that are offered in a crowdfunding environment are very fair. We believe fair for the investor, fair for the company. We don't give up board seats or control of the company. There are plenty of investor rights. So it's, you know, it's a very fair transaction from what we can see. But we feel like we can maintain control of the company and build it the way we want to. And as well, every investor we bring on in the crowdfunding environment is yet another brand investor. And so, it helps us bring— drive the PR and bring new customers in and bring new just enthusiasm for the company. It's a daunting task, right, to try to build a national brand when you're essentially a non-entity. Yeah. The crowdfunding really helps with that process, and we're really excited about it. We're in the middle of a round right now. You can go to seedinvest.com and check it out. And yeah, big big fans of crowdfunding.

Yeah, I think it's interesting that what crowdfunding allows, especially as it evolves, opens up to more people. You're just gonna see a lot more of companies do this. I think even as part of their round, you saw like the bank Mercury do that with their crowdfunding. I think they did five million. Pretty quickly. You saw like Backstage Capital do a really interesting one for their venture firm. And you— yeah, it's just a lot of different models that are using crowdfunding, which I find fascinating. I think it's gonna be the future of having more people have access to invest in these companies, especially with something like NowRx, where it just makes sense where people are already having their prescriptions, you know, with NowRx. And they could see how— what, I want to own a piece of that company. Like, that would be amazing. Like, you can just see where it's trending in terms of that. One of the things you talked about early on You started at one location in 2016, and that was in Mountain View. 2020, got into Arizona. But take me through the evolution of growth in terms of geographies. Like, where are you looking for expanding? How do you kind of evaluate that? I'd love to hear more about that process.

Yeah, I mean, that's the you know that's the scale aspect of the business is we are a delivery company. So in a certain degree, you know it's a local business and a geographically constrained. Service. We can only provide service where we have a fulfillment center. And so scaling the business requires going into new territories, opening up new dispensing locations. And it's a, you know, it's a, it's a blueprint now that we've repeated multiple times. The first location we opened in 2016, we just served kind of the South Bay area for the first year or two. And then we opened up 2 more locations in that South Bay Area, one in Burlingame and one in San Jose. That was to give us better penetration and also more convenient and more rapid delivery. We're all about delivery efficiency. And so rather than having a single fulfillment center for really wide geographical areas, so let's say maybe the whole Bay Area, where you're having drivers have to drive 2 and 3 hours just to get to a patient and do a delivery. We think a better model is what we call micro-fulfillment. There's a company called GoPuff, which has pioneered this to a large degree as well. They're about a $35 billion company now, been very successful. And, you know, there's, there's other companies that have experimented with that on the grocery side. And micro-fulfillment requires more locations than just one for a big geography like Bay Area. There'll probably be eventually 8 to 10 locations in the Bay Area for NowRx. And it's so we can get the drivers in and out of locations. They get 10 deliveries, they go out on a 5 or 6-mile route, they drop them all off, and they come back in sometimes within even an hour. And so that density of delivery per hour is one of the metrics that's really key to making the model successful. Remember I talked originally about, you know, we've got to cover the delivery expense, and we do that by saving on fixed overhead and by dispensing efficiencies, but we still want to have that delivery cost per package, uh, on the low side. And the way to do that is have one driver delivering a bunch of packages really rapidly. So, uh, we do that with micro-fulfillment. We had, uh, after we expanded to those 3 locations in South Bay Area, we then expanded to Orange County, south of LA, uh, which has been a really successful territory for us. And recently we expanded to the Bay Area, the East Bay Area rather, in the Bay, North LA, and then Arizona. And we just last week announced our first location in Nevada. We are opening up a micro-fulfillment center in North Las Vegas. And we have several other locations in the works and we'll be making announcements soon. We're expanding sort of throughout the Western U.S. as we build our national brand, and throughout 2022 and into 2023, we'll be expanding nationally, and we'll have locations on the East Coast, Northeast, Southeast, and Midwest as well. We'll be a full national brand.

Yeah, that's exciting, and congrats on the new locations coming up. And I saw on the website as well, there are you can kind of see some of those dots. And one thing I'm curious about, just taking a kind of a giant step back here, is just with this logistical company, really, what have been the biggest challenges with building this company? Because it's a lot to handle fulfillment, to do it well. Obviously you're dealing with pharmas— you know, pharmacies, which is important in terms of prescriptions. So what have been the biggest challenges with this company so far, Kerry?

Yeah, you're spot on again, Justin. Um, I look at our company as half pharmacy, half logistics company, right? And there's tech throughout all of that. So, you know, we really feel like we're a tech company. I mean, what we've done inside the pharmacy and the way prescriptions get processed, it's not something a lot of people think about, but there's a lot of software that goes on in communicating with doctors when they send a prescription. Most of that's done electronically now. So there's a messaging service there. Uh, there's a processing software component. Uh, there's an inventory management component. There's a communication between the pharmacy and insurance companies. Most prescriptions go through people's insurance plans, right? Their health insurance plans. So there's a communication layer with insurance companies. There's a messaging, uh, and error, uh, adjudication process that's all built in the software. So one of the things we're most proud of is actually not what you see on the outside of the delivery component, but inside the pharmacy, what we call the pharmacy management system. We've built one of the first modern pharmacy management systems in the industry, and again, optimized for free same-day delivery. So it's a, it's a new model for the industry. And, you know, all of that technology goes into not just the pharmacy, but the delivery side as well. We built our own logistics platform, and it's combined with the pharmacy system. So any— the status of any prescription can be exposed to the patient on an app with the logistics system. We have robotics as well that fill prescriptions inside the pharmacy. So instead of a person counting out pills and putting them in a bottle, we harness the power of robotics and we can dispense a prescription in 30 seconds without a human. And that means sorting, counting, bottling, capping, and labeling without a human being involved. So all that technology is, is what drives NowRx and makes this possible, makes it a profitable business. So what's the hardest part of it? All of it, you know, managing, you know, really, you need the full stack. I mean, you have to have all the components in pharmacy. It's a really It's a complex business. At NowRx, you know, we think hard problems are worth solving. And so building that full-stack approach with all the technology and software and automation and logistics is what drives us and what we work on all the time. You know, there's some infrastructure there too, right? We're managing inventory and locations and vehicles. We use electric vehicles. It's good for the environment. 1/3 the cost per mile compared to gas. So all of that is, is the challenge of the day. But we've built a model now that is repeatable. We can replicate it as we go into new territories. We can stand up new territories within 3 to 4 months from start to finish— licensing, new location lease, equipment, vehicles, software in the pharmacy, inventory. All of that we have down. And now— It's about turning that crank and expanding it nationwide.

I know we're almost out of time. I just have one more question. I'm just curious about, you know, you're a multi-time founder here, and this company obviously has done really well. NowRx has succeeded, it's growing. You can see the numbers online as well, and growth year over year, crushing it. I'm curious as to though, your other companies, you said some failed, some, you know, did okay. Like, like, just in terms of your past experience, how has that, you know, changed or impacted how you run NowRx? I mean, I'm sure there's— it could be a few things, but is there one or two things that, you know, you've done differently now you're multi-time, you know, founder? I'm curious because I'm always thinking of other founders who are starting companies, but anything that stands out to you that's kind of affected how you run this company?

Yeah, great question. I mean, I, I think I, I take a lot of solace in, in sort of the, the 2 rules of startups. Uh, you know, startups fail, and rule number 2 is, you know, CEOs can't change rule number 1. Uh, some startups fail, and, you know, that's part of being an innovator. And getting out there and trying to really do something different and change the world and create a better service and experience for consumers. So what I've learned from those experiences is to trust your gut, focus on the 1 or 2 things that will make or break the company. I think focus is really the key. There's always a million ideas out there. There's always a bunch of things that you can chase even within one company. There's a bunch of different opportunities that come up every day. And most of the time as a CEO or entrepreneur, you've got to say no to a lot of those opportunities. And you've got to just focus. You got to focus on what's going to make the company work or succeed, succeed or fail. And it's usually if you have that mindset, It's actually pretty easy to identify what those 2 or 3 things are. The hard part is the discipline to really just focus on those. And that's really been the biggest learning, I think, in my career. And, you know, that's what we try to do every day.

Kerry, where's the best place for people to learn more about NowRx and also connect with you if they'd like to as well?

Yeah, nowrx.com. You can check us out there. You can also go to our invest page, nowrx.com/invest. A ton of information about the company. We're really proud of the track record we've, we've been able to produce for previous investors. You know, our Series A round was a $2 share price, our Series B was $3.50, and now we're raising Series C at $10.50. So hop on board as an investor. We think you're gonna get a good return on your money and— And check us out.

Awesome. Kerry, thank you so much for your time today. I really appreciate it.

Thanks, Justin.