Doug Hirsch: In some ways the industry has changed and in other ways the industry has a long way to go. Back in 2007, there was a lot of focus on trying to bring personalization and tools to improve patient’s lives. I remembered a bunch of conferences that talked about various ways for people to set up goals or track various health-related metrics.

What I see going on now, and this might be more particular to our circumstance, is that in addition to helping patients create tools, we are seeing more innovation from both larger and smaller companies. They are realizing that it’s going to take more than just a consumer to make the changes. Starting with our government, all the way down to the area we are focused on,  we are seeing more price transparency and, I’d say, more consumer industry participation — actually trying to make a difference and fix our broken healthcare system.

Indu Subaiya: Absolutely. I’d agree with you there about the shift from just the consumer. Even Google Health started out as a pure consumer play,  hoping that that would be sustainable enough. Scott, any observations from you on the last few years and kind of perhaps big picture changes you’ve seen?

Scott Marlette: Yeah. It’s funny because I have a very limited background in health, but I’ve always been interested in sort of looking at the health apps. I’d agree with Doug. I think that it follows a lot of the same trends that you see in consumer Internet, or what people would call consumer Internet applications. Ten years ago it was very personal and consumer focused, lots of movies and music and finance.

Now you’re seeing the emergence of huge, huge consumer Internet companies that are focused on small business and business utilities, things we use in our lives everyday. I would say that the health apps mirror that to some extent, and that they’re focusing on this pure utility and integrating into the economics and the business of health. Emergence of EMRs, the emergence of more tools put out by larger organizations, and intergraded into the health system rather than  being around the health system.

Indu Subaiya: Right. That’s the Holy Grail, for it to not just be on the fringes but integrated.

Doug Hirsch: One of the things that’s kind of ironic is that as much as we’ve loved the consumer to do these things on their own, the consumer motivation hasn’t always been there. I think it isn’t that problem with Google Health? Consumers certainly want personal healthcare, but they aren’t interested in taking possession of their personal health record. There’s only so much we can expect of the consumer and we have to assist and be their supporter in this process.

Indu Subaiya: Absolutely! That segues into my next question, which is what was the inspiration was for GoodRx?  I think to engage the consumer, you first have to satisfy a specific need before you they will take on behavioral change. There has to be a problem you solve. So tell a bit about the inspiration for GoodRx?Was it personal frustration? What did you see is the opportunity out there?

Doug Hirsch: Also, I am going to throw just something at you, I don’t how familiar with Scott’s background, you are. Scott, first of all is far smarter than I am. I just want to put that on table. Scott was at Facebook, most recently for five years, one of the first employees at Facebook. So that’s the perspective he brings to this conversation today, in addition to everything of course that he has learned about health space as we’ve gotten into this.

In terms of why we did it, I think when Scott finished up with Facebook, if I can speak for him, and when I finished up with DailyStrength, we had a number of objectives we were trying to achieve. One was, we wanted to build a company that had some social value to it. Both of us have had good fortune to choose where we’d like to spend our time and work. We wanted to do something that not only had a profit motive, but also to some extent I felt proud going home and telling my family what I was doing. I think that was certainly an important part of what we were looking at doing.

Another thing was, we wanted to take a space that was inherently inefficient and see what we could do using our background and skill-set to make it better. We looked at a bunch of different business ideas, some in health and some not. And then we stumbled onto this space, and it was one of these things where literally every day we’ll learn a little bit more about the world of pharmacy economics, and we’d say, “really? Does it really work that way? Is it really that messed up?”. That for us, it made it that much more intriguing for us to unravel the mess, and then use our consumer skills to try and explain it to a consumer in a way they could understand it.

Scott Marlette: I would add that for me, especially coming from Facebook and learning a lot about this product design philosophy is keeping things simple and building products which are easy to use for consumers, it sounds really basic.  I think that business, in many different industries, has become more complex for everybody. For both supply side and on the consumer side, I think you see the emergence of different businesses that are making things more simple. Maybe it’s because there’s not an incentive for the businesses to necessarily do that, or it’s hard to see sort of the forest from the trees.

People want to purchase their prescription drugs and they want to know what it’s going to cost. I think we get used to the way that we do business, instead of stepping back and thinking, well, could this be easier? Could I have a better experience? Could it make my life better? And this sort of small intangible way of just making something that I do on a regular basis so it’s a better experience.

Indu Subaiya: You’ve touched on a couple of interesting points there when you both responded to the last question, which was this idea of messy data and price transparency. I think that these are themes that we certainly see coming up a lot more, in part, because of the health data initiative that the Federal Government has unleashed.

I think one of the things I am struck by is, you launched GoodRx at Health 2.0 this past fall, and you guys had great feedback. Many people try to tackle this issue, tangentially perhaps, maybe not exactly the same way you guys are going about it. What do you think people are responding to about your specific approach?

Scott Marlette: I would say that we went through a lot of iterations on how to display the data, what information to provide to the consumer. That is just part of our product design process, when could certainly have gone out and collected all the different things about a drug, all the different ways you can take that drug, then all the different places where there are prices, and put it on a webpage. Part of that is, and it sounds really simple, but it’s having the user give us the drug and their location and we will show the lowest prices at pharmacists close to you, and there’s really nothing else to it. We went through this over-and-over about what our business model was going to be, what the company was going to focus on, and we ignored a lot of stuff in order to get to something which resonates with people.

Doug Hirsch: One of the other thoughts there, Indu, is that our timing was particularly good. There obviously were folks before us, both in other verticals of health that are trying to do price transparency, and also folks that have looked at prescription drugs, but there are a bunch of things that are happening now that I think are unique. And god knows, I don’t have to tell you this, but obviously more-and-more emphasis on the broken state of our healthcare system, number one. Awareness from the patient perspective that they are going to have to bear more of the burden for their own healthcare, it’s no longer just that I buy insurance and my life is good. They have to pay more in terms of the deductibles, they have to know what a formulary is, they have to know what co-pays are and how they work, and whether they are on an HSA, PPO or HMO. I mean, it’s gotten somewhat complex and the consumer, by necessity, has to be more educated than they were in the past.

Scott Marlette: Doug just said something which I think we say a lot, and that is that we are not trying to educate the consumer necessarily. We are trying to empower them, but one of the things that we really try not to do is not to just dump all the information and say, here, you should read this, and this is how the system works. It’s funny because we started down that road to some extent. Some of our initial or early designs had a lot more information about price spreads and what you should be paying, savings percentages and all these other things. I think education is something that we are focused on a lot, but giving people tools is something that resonates with them more because they have to do less work.

Indu Subaiya: Also, it satisfies the immediate need, on the spot, as opposed to a pay-off in the future.

Doug Hirsch: Scott and I could easily write multivolume works on the state of pharmacy economics, but nobody wants to hear it. They just want to know what it’s going to cost when they show up at the pharmacy, and that’s really what we have tried to boil it down to.

One last thing, Indu, specifically in the prescription drug space, is that generics have really exploded over the last few years, whereas if you look at five or ten years ago, you would have seen perhaps, 60% of pills being generic. Now we are up to 80% plus, and some forecasts say it will be over 90%. As you know, when drugs go generic, their manufacturing cost goes down to literally pennies. That’s where the market really evolves, when there is only one maker of a drug, the price is what the maker says, and there’s really not a lot of arbitration. But when you start getting into a marketplace, which is really where generic drugs are, that’s when the opportunity comes for a smart consumer to take money.

Indu Subaiya: Absolutely. The other thing is that the education piece can happen more organically because once you have a specific problem addressed, you might then go deeper and learn a bit more.

Since you’ve launched, what has been the reception from larger healthcare organizations and stakeholders? Clearly you guys are delivering a consumer tool, but there are implications for payers and providers and pharma companies, etcetera. What has been the reception from these entities?

Doug Hirsch: Sure. Well first of all, we actually have a few different business lines. What you see today, if you go to goodrx.com or use our mobile apps, is a consumer-based experience for the cash paying patient. We also have forth coming products for employers and we’re looking at other marketplaces as well, whether they’d be federally-funded programs, even Medicare-related programs.

In terms of the reaction from folks that we’ve gotten, it actually has been sort of amusing as we go through this process because I can’t tell you how many meetings we’ve had with someone who thinks they know exactly how this marketplace works and it turns out that it works completely the opposite. And we are talking about people who are professors at pharmacy schools or people who run major drug companies and everyone thinks they know what the ecosystem looks like, but the reality of it is it’s so highly-fragmented that most people really have no clue. One of the benefits is that we came in with a blank slate and we’ve be able to talk to all the folks in the ecosystem so that we could understand exactly how this mysterious pricing thing works.

Overall I think we’ve gotten a tremendously positive response. Doctors frankly are begging to use our products. They are actually using it. With some cases we don’t even know about that, so we found out after the fact obviously patients are a fan of this because it saves them money. Nonprofits have embraced us significantly, and we actually are in line to get a grant from one of the larger healthcare organizations in the country because they want to get this out to the people who need it most, the low-income folks. Even pharmacies have actually said, we love this, we want to show people that we have great prices and we are actually now getting direct pricing feeds from a number of pharmacies who understand that this is the way the market is going, and a smarter consumer is going to appreciate what they can provide.

The other area is where the payers’ incentives are aligned perfectly with the consumers’ incentives, or the members’ incentives. I think traditionally, controlling healthcare cost has been around limiting therapy, moving to managed-care and looking at how to limit the number of procedures and processes and some things that the payer is paying for. There have been a lot of studies that show that when people take their drugs, they get better, and it’s a really cost-effective way to treat people. In addition, if the member is paying less and when a consumer is paying less, the payer is almost certainly paying less. It’s interesting because the cost of generic drugs are so low that are often under what your co-pays are.

Indu Subaiya: In a business like yours, there clearly have to be people who don’t like what you are doing in order for this to be somewhat disruptive. Who does this model challenge in the ecosystem?

Doug Hirsch: Frankly, our perspective so far is that the folks who like this least are the folks who aren’t really up for change in innovation. I had a very fascinating email from a professor of pharmacy just a few days ago who felt strongly that pharmacists should not be doing price comparison. We were sort of surprised to hear that, because we think ultimately that’s good for our consumer. We’ve seen some push-back, I’d say mostly from pharmacists, who for whatever reason don’t want to necessarily expose that data to folks. Overall, I think it’s been quite positive, and it seems most people say to us, “oh my god, why didn’t we think of this before.”

Indu Subaiya: What about pharma on the branded side?

Doug Hirsch: It’s interesting because on the branded side, I think the market is really different between branded and generic. There is a much larger margin in the supply chain in generic medication. In the branded medication, my understanding is that most of the dollars that are collected, say for a branded medication at several hundred dollars, are going to the manufacturer. They are recouping their R&D, manufacturing and development and certification costs. The margin that is left on top of that for other companies within the supply chain is limited, because their drug price is already very high. In the case of generic, the prices are highly variable because the cost to manufacturer the drug is actually quite low, about a penny a pill. So there are several other companies that have income from the dollars between the manufacturing cost and the resell cost, and in different drugs this plays out in different ways.

In any business I think that where the prices are driven down,  you ultimately make less money on those drugs. In this market there should be more competition based on the size of the market and the number of consumers that are in the market. You see this in much smaller markets that exist in other industries. In the end what we are interested in is getting consumers a fair price and having a good experience. By no means are we interested in driving out 100% of the margin and making it so people can’t get their medications and manufacturers aren’t linked to supply them. We just don’t want them to be taken advantage of, and we want them to get it at the lowest price available in their area.

Scott Marlette: Indu, I’d add one thought to that, I have spoken to a number of folks in senior positions at pharma companies and their general feedback to us have been, hey, the product has passed its patent lifecycle so it’s kind of off our radar. Lipitor for example, had a 12 or 14-year run, and in the world of Pfizer, the ship has sailed on that one. So we don’t actually play significantly with them at this point just because we are focused on the 80%-plus of scripts that are in that generic market, long after the brand marketing guys had moved on to the next.

Indu Subaiya: Also, that’s probably where, if you’ve played this out in the future, there’ll be more emphasis, because the whole pharma business model is going through some pretty tectonic shifts.

Doug Hirsch: Yeah, and I think your advantage point is as good as ours, but if you look at the list, I think there are around 50 blockbuster drugs that are going generic between December of 2011 and 2013. It’s literally all the biggest names you have ever heard of and seen on TV that will suddenly be available for pennies a pill. It’s going to be a significant change like you said.

Indu Subaiya: Right! Also with the emphasis on the federal level on comparative effectiveness, I think there is going to be a downward pressure on industry pricing overall.

Let’s get back to the company building side of things because what we are really interested in at Health 2.0, and is going to be part of the discussion at the Spring Fling, is the lifecycle of the startup. We are interested in companies that are being built better, faster, and cheaper, and where there really isn’t a tradeoff between those terms. It’s always that we can do better and faster, but then it won’t be cheaper. You can do faster and cheaper, but it won’t be better. We are seeing a lot of companies coming to market that haven’t been heavily capitalized, are making an impact, but are taking a leaner approach. What is your philosophy of product development in this new company?

Scott Marlette: In product development it’s definitely leaner, but it’s smart. We do develop products in this rapid sort of prototyping, minimal viable product effort where we want to get to the core of the experience that we want to provide. I think that it’s an iteration, it’s a constant iteration, and the only thing that I know is that in a year from now we are going to be doing something different than we think we are going to be doing. Iterating the product quickly and getting down to the core of what we want to build has the biggest effect in this area.

The other thing that’s challenging, Indu, is really figuring out what not to do as opposed to what to do. It’s funny, when we launched it at Health 2.0 back in September, it went great. Again, I cannot tell you how much of a fan of Health 2.0 we are. After that launch I had a line of almost a dozen guys, all with a dozen different business models, that came to us and said, “Hey, well, what if you do this? What if you tack this market or what about pet medications or what about this medication?”. Honestly the hardest thing I think for us to do, and what I think we have managed well so far, is just to stay focused on a simple proposition and try to execute that vision as cleanly as possible without getting distracted. I mean, you could get lost in the labyrinth of healthcare.

Indu Subaiya: And are you thinking about business model or is it something that you want to figure out as you go?

Doug Hirsch: We are, we actually have revenue coming in today. There are a variety of ways that we can make money. When you go to our site and you do a search for a drug, you see prices from pharmacies. You also see, for example, these drug discount coupons that are available, that enable you to get a discount in price if you are a cash paying patient. Those generate a small amount of revenue for us and patients are taking advantage of those to get discounted pricing. You can imagine as we look into the future, thinking about ways that we can play a more active role in that consumer’s prescription, from the point of origination at a doctor’s office through the fulfillment at a pharmacy.

If you look at the product today, and in September we didn’t have this, but now we have a product called My Prescriptions where you can actually get not only refill reminders, but you can also get price alerts. So if the pharmacy affiliate is no longer the cheapest one near you, we’ll let you know.  Also, I want to again emphasize that we also have other categories that we are pursuing as well, involving insured patients and Medicare Part D patients.

Indu Subaiya: Great, and we look forward to hearing an update on that as you go. On the financing side, what is the approach you’ve taken to-date and plans for the future?

Doug Hirsch: We raised small or medium-sized seed round. We raised over one million dollars in seed round to support the company. We funded it, for the initial prototypes, and then in combination with the Health 2.0 launch and the launch of the website, we were able to raise some money.  I think that will help us work out the initial site design, get going and figure out where we are going to be long term, and set us up in a position to grow.

Indu Subaiya: One of the things we are seeing is that for not a lot of money you can already be revenue-positive, which is interesting.

Scott Marlett: Yes, and it’s highly-dependent on your model and how fast you are scaling. The technology today, especially on the Internet, is comparatively so inexpensive that there is just no reason that you shouldn’t be focusing on these commodities.

Indu Subaiya: How many employees do you have so far?

Doug Hirsch: I think we are about seven now.

Indu Subaiya: Do you have an office or you guys are virtual?

Doug Hirsch: We have an actual office; we are calling you from it right now. We have some folks that are virtual, but we do a folks showing up everyday here. Also, we have some fantastic investors who are actively involved and advisors.

Indu Subaiya: Great, we’ll it’s so great to catch up and to get a snapshot of where you are today. We look forward to seeing you in Boston, Doug!