Lifestores partnering with CFAO shows that one of Africa’s “wicked” healthcare problems can be fixed

I’ve talked before about the many wicked healthcare problems plaguing Africa, “wicked” being not just a colourful expression but a policy term. Coined by design theorists Horst Rittel and Melvin Webber in 1973, the term defines problems that are impossible to solve in a simple or final way. For years, Nigeria’s broken and underdeveloped pharmacy sector has been one such wicked problem, with barely-existing customer service, prohibitively expensive treatments, and dangerous (even life-threatening) counterfeit drugs.

Knowing the sector’s problems inside and out, I’ve been closely following the recent push to digitise Africa’s pharmaceutical supply chains. Tech startups have made massive strides, helping pharmacies, hospitals, and chemists to stock safe and reliable medications. According to a recent report by the global healthcare consulting firm, Salient Advisory, this segment has been responsible for the most impressive growth in Africa’s healthtech sector. In total, according to the report, there are 80+ healthtech companies digitising distribution across the continent, which is quite a leap from just a few years ago.

One such company, Lifestores, has increased the number of pharmacies and hospitals it serves in Nigeria from 85 to 600 in just 12 months! A 7-fold growth rate would be impressive in any field, and the fact that the company managed to do so well in this sector deserves a round of applause.

As an early investor in the company myself, I’m thrilled that Lifestores has raised $3 million in a Pre-Series A round. The fact that the round brought on CFAO Healthcare, through their corporate VC arm, Health54 (for whom this is their first investment) as a strategic partner, is a major sign of industry validation. It is also a significant milestone that can bring positive change to millions of patients across Africa.

Technology’s power to transform Nigeria’s healthcare outcomes

There are many reasons why Africa has some of the poorest healthcare outcomes in the world. In no particular order, these include corruption, brain drain, lack of political will, lack of innovation, and low insurance coverage, among many others. While all are relevant, they all stem from the same source — poverty. Even in Nigeria — the continent’s largest economy — 98% of people live on less than $10 a day.

With low income comes a low level of taxation (after all, it’s difficult to tax people who cannot afford food). This leads to low government spending on healthcare — $6 per person from the federal budget, with additional state and military funds adding another $50–80. To put these figures in perspective, the US government spends about $20,000 on healthcare for each citizen, Norway spends about $7,000, and the UK spends about $4,000. Nigeria’s spending is not even in the same order of magnitude. This leads to patients having to cover the bulk of their own treatment costs.

Hovering above 70%, the out-of-pocket health expenditure rate in Nigeria is disastrously high, compared even to other emerging markets. The average Nigerian cannot afford a visit to a clinic, and those who can face a shortage of both doctors and pharmacists. And if there’s one place where the situation can be improved quickly and from the ground up, it’s access to live-saving medications.

The UK’s National Health Service budget is about $250 billion for 65 million people, and even there we hear complaints about the public health sector being underfunded. However, in Nigeria, we have just $1 billion for 200 million people.

Thus, as a country, we need to think about ways of achieving more with less. Since it will take years to make sure there are enough physicians and pharmacists for everybody, we need to look for solutions that extend the reach of healthcare providers. Technology, though not a silver bullet for healthcare, is a big part of the answer.

Why are pharmacies key to transforming healthcare ?

According to the Nigerian Medical Association (NMA), the doctor-patient ratio in the country, never high in the first place, is getting worse. Today, there is just one physician attending to more than 5,000 patients, eight times less than the WHO-recommended doctor-patient ratio of 1:600.

This shortage, together with other socioeconomic factors, means that for many Nigerians, pharmacies are the first port of call for treatment. Pharmacists thus stand in for general practitioners (GPs) in diagnosing ailments and prescribing treatments. Since the vast majority of patients lack the means to pay for healthcare, pharmacies have no choice but to offer free medical consultation; this means that pharmacies depend on medication sales to earn and stay in business.

However, we cannot underestimate the fact that traditional pharmacies are also inundated with patients. There are just 7,000 registered pharmacies operating across the country, with the majority of them servicing patients in major cities. Aiding them are Patent and Proprietary Medicine Vendors (PPMVs), providers without formal pharmaceutical training, who sell non-prescription drugs with many also selling prescription drugs even though this goes against the regulations. For example, around 50% of women using contraceptive pills buy them from PPMVs (or “chemists”, as they’re usually called). There are anywhere from 150,000 to 200,000 PPMVs in the country, and they are vital for reaching the vast majority of Nigerians. Again, given the lopsided number of PPMVs to patients, PPMV owners are already stretched to their limits.

When pharmacies and PPMVs are plugged into inventory management platforms, like Lifestores’ OGApharmacy programme and PharmIQ software, they can improve their patient reach and provide better quality care. By plugging into a platform, pharmacists can increase their revenues by 15–25%, improving their financial sustainability. More importantly, pharmacists can improve clinical effectiveness through patient care and education programs and solve one of the most pernicious problems — the prevalence of fake drugs.

Sourcing problems kill, literally

Much can be said about Sub-Saharan Africa’s broken and fragmented supply chains. Exorbitant last mile delivery costs, the proliferation of middle men who move goods down the chain to end consumers but at a cost, and the lack of regulatory oversight are the norm for fast moving consumer goods (FMCG) as well as pharmaceuticals.

In fact, in Nigeria’s highly fragmented pharmaceutical industry, there are no dominant players. The top two retail pharmacy chains, Health Plus, and Medplus, have approx. 2% of market share combined (by store count), compared to 40% for CVS and Walgreens in the US. This fragmentation means that open markets fill the gap in wholesaling medications. Pharmacists depend on open markets, like Idumota Market in Lagos, to restock their inventory, but at a risk to patients. Unlike in FMCG, where expired or faulty goods are for the most part an inconvenience, the stakes are much higher in pharmaceuticals. Counterfeit medicines can pose a serious risk to a patient’s health and even life.

According to the World Health Organization, fake drugs are among the world’s most profitable counterfeit products, and Africa accounts for around 42% of the world’s cases. Each year, an estimated 100,000 people die because of counterfeit drugs in SSA, with thousands of preventable deaths in Nigeria alone.

In Nigeria, many pharmacies and especially PPMVs source medications via open markets. In the case of PPMVs especially, many of the vendors do not know that the drugs they’re selling are fake. And, according to the National Primary Healthcare Development Agency (NPHDA), over 70% of all medicines being distributed in Nigeria are substandard.

The reasons for the prevalence of substandard and outright fake medicines are economic. Pharmacies and PPMVs often do not have the minimum procurement volume needed to buy directly from the manufacturers; therefore, they have to buy from a range of middlemen, with uncertain quality and rapidly-changing prices. This opaque and fragmented procurement experience is one of the largest uses of pharmacists’ time, taking precious hours a day away from directly serving the patient. On top of this external lack of transparency, pharmacies typically have an inadequate, paper-based approach to calculating their reorder requirements, leading to approx. 25% missed sales for the typical pharmacy (even of the fastest-moving medications, like antibacterials and antimalarials).

Why does Lifestores have the potential to bring change?

Launched in 2017 by Bryan Mezue, Andrew Garza and Pharm. Ken Ahaotu, Lifestores is among the cohort of new healthtech companies that is making a difference in the messy landscape of drug distribution. And, as someone with a medical background, I must say I’m happy to see founders with first-hand knowledge driving the change.

Bryan and Andrew had an interesting foray into healthcare. The two co-founders were both MBAs who had founded education startups in West Africa. On the side, Bryan was helping his uncle run a chain of pharmacies in Abuja. It was through that experience that Bryan saw the massive opportunity amid the challenges. Andrew became interested in healthcare through his own experience managing Type 1 Diabetes, and eventually joined one of his healthcare clients called Chi Pharma (a Nigerian manufacturer), where he managed supply chain and strategy.

Though Bryan and Andrew had both worked at Bain & Co., they never crossed paths there — instead, they met through common friends in Lagos, and bonded over their shared views of the industry — with a conviction that technological transformation could help democratise patient access to quality care in the relatively conservative healthcare sector. Since neither were pharmacists, they felt strongly about learning the business from the ground up before launching a startup.

In 2017, fully self-funded, they started a pharmacy in Lagos and ran it for a year. Once they better understood the problems facing pharmacists, they transitioned into a tech company, developing technology to improve pharmacy operations and to help patients with chronic conditions to manage their health. In 2020, they developed their own platform for ordering medications (what later became OGApharmacy).

By creating a digital infrastructure, Lifestores aims to democratise access to primary care for patients. If pharmacists are provided the technology tools to run their businesses more efficiently, they can do more in a severely underfunded healthcare sector, bringing more primary healthcare to those who need it.

The company’s core platform, PharmIQ supports pharmacies with both back-office (e.g. procurement and inventory management) and customer-facing functionalities (e.g. point-of-sale software and patient care programs). Most importantly, with PharmIQ and OGApharmacy, Lifestores can harness the data needed for purchasing drugs in a way that helps pharmacies to optimise their operations, reduce costs, and provide revenue growth opportunities. In a way, they’re providing a solid business backbone to pharmacists, who excel at the clinical and not necessarily the commercial bit.

OGApharmacy, the company’s group purchasing scheme, deserves a separate mention. It enables pharmacies to up their negotiating power when purchasing drugs. Under the current status quo, pharmacies must make difficult trade-offs. Either, they buy pharmaceuticals from neighbourhood wholesalers at higher prices. Or they save costs by sourcing in the open market, where they are more likely to buy fake medications.

By using a centralised online platform with transparent pricing, pharmacies can now compare costs and have equal access to information. This has a positive impact on both procurement costs and speed of operations. Pharmacists also have access to an array of pharmaceuticals, with OGApharmacy offering more than 7,000 SKUs from 35 top pharma suppliers.

And in the relatively low-margin pharmacy business, a 10–20% reduction in procurement costs thanks to OGApharmacy makes a big difference. With the ability to fulfil fast-moving drugs (like painkillers and hypertension medicine), Lifestores also eliminates the trade-off that the typical pharmacy has to make between buying high-priced medications from neighbourhood wholesalers and sourcing in open markets that are rife with fakes.

While primarily a healthtech startup, Lifestores also has a solid fintech component, as it can extend credit to pharmacies, helping them increase inventory. (Few people outside of the industry know that drug wholesalers act like banks to pharmacies, offering supplies on credit.) Lifestores’ embedded finance feature was one of the main reasons I invested via the Flying Doctors Healthcare Investment Company — the only VC firm in Africa led by a solo female GP that focuses exclusively on fintech and healthcare — back in 2018.

Why the latest investment round sets Lifestores apart

Lifestores has proven to be able to grow at an astonishing rate, going from 85 to 600 outlets in just 12 months, while onboarding such large Nigerian healthcare providers as HealthPlus, Lagoon, Reddington and St Nicholas. But bringing on Health54 (and, by proxy, CFAO) as a strategic investor will open even more doors.

Strategically, CFAO is the best partner Lifestores could ask for. They are the largest healthcare player on the continent, with distribution in 28 counties, and emerging vertical integration that covers everything from manufacturing to retail. With manufacturing capacity in Morocco and Algeria and import agreements with global pharma companies, CFAO can help Lifestores secure even better pricing and better deals, passing those savings onto its healthcare provider customers. In turn, CFAO through Health54 gains access to a new way to distribute pharmaceuticals, broaden its reach, gain insights via technology into healthcare providers’ needs, and help more patients gain life-saving care.

Partnership with CFAO will help Lifestores to realise its big vision, a vision I’m fully in support of — moving Africa’s healthcare from a curative to a preventative model. In Lifestores’ vision, helping pharmacies and hospitals to grow their core businesses’ revenue and cut costs is just the first step. The second step is enabling them to branch out into other services, both directly for healthcare providers and their patients.

For instance, Lifestores is already piloting a savings wallets where patients can access medications more affordably. Given the fragmented nature of pharma supply chains, any rebate that a pharmaceutical manufacturer wants to pass on to the patient never reaches the retail level. Middlemen will take the discount as part of their margin. By working directly with manufacturers, Lifestores is able to bypass middlemen and pass on cost savings directly to patients, which goes into their savings wallets.

And that’s just the tip of the iceberg. Running their own stores (another advantage of Lifestores) provides them with their own R&D engine. Lifestores is also looking to launch care programmes for certain chronic conditions that afflict 40–50% of Nigerian adults, like diabetes and hypertension — building upon its existing Health Ace programme, which offers free blood pressure testing services.

These new initiatives are part and parcel of the patient-centric vision of Lifestores in which patients live healthier lives.

Congratulations to Bryan, Andrew, and the whole Lifestores team. I cannot wait to see the exciting developments from Lifestores thanks to this strategic investment.