A month ago saw Amazon making a $1 billion cash deal with the online pharmacy PillPack. But that’s not all. Amazon has also started work on a significant expansion of its delivery services, through the use of the gig economy.
These two moves, when taken together, could consolidate into an entirely new prescription service delivery system — one that brings you your medications on the same day you order them. That has a lot of pharmacy companies worried, even though there are some significant challenges ahead.
Getting Into the Pharmacy Game
PillPack is a full service online pharmacy that already delivers prescription medications to your door. At the same time, it’s not a major player: PillPack is a fairly small pharmacy company initially founded in 2013. In fact, Walmart dragged its feet in negotiations with PillPack for months before Amazon made its $1 billion bid, obviously not seeing as much value in it.
It’s likely not PillPack’s technologies that Amazon is interested in. PillPack’s business model revolves around simple, easy to open, and easy to take medications and medication packaging — largely for those who have chronic and debilitating conditions. More imporotantly, because it is a prescription delivery service, it also has a license to deliver pharmaceutical medications to the 50 states.
By purchasing PillPack, Amazon has now acquired the ability to send out prescription drugs across the nation. And with its new fulfillment strategies, it may be able to scale this enterprise to far beyond the reach that PillPack had.
Your Prescriptions, On Demand
Amazon already sells an assortment of over-the-counter medications. These range from allergy medications to nasal decongestants. Moving forward, though, you may be able to upload prescriptions directly to Amazon and make same day purchases of your prescriptions. Through Amazon’s subscribe-and-save, you may even be able to schedule your prescriptions to be delivered to you at intervals.
There are a number of things that the Amazon platform is able to do for customers now that could be easily transitioned to their online pharmacy. That’s a major concern for other pharmacy chains, who may not be able to compete with Amazon’s ease-of-use.
Not only that, but the cost of prescription medications has been rising, and many individuals are finding themselves frustrated with the cost of medication (especially non-generic medication) in the United States. If Amazon can find a way to reduce costs or fees associated with prescription medications, they may be able to get even more consumers on board. Of course, that’s the rub: Amazon has to survive in the pharmacy industry first.
Working With the Insurance Industry
The pharmacy industry will not be easy to disrupt. The current players are extremely well-entrenched — even more so than bookstores and big box stores. And, of course, there are many situations in which a person might need to pick up a prescription medication right now rather than a day from now, which means that their business model is already within a niche.
A more direct challenge to Amazon will be insurance carriers. Only a handful of companies are able to deal directly with insurance carriers, and these companies serve as gatekeepers to the rest of the online pharmacies. PillPack had already encountered issues with one of these gatekeepers — Express Scripts — when it was accused of misrepresenting its company as being a brick-and-mortar pharmacy.
If Amazon loses the ability to take insurance payments through PillPack, then their acquisition could have limited usefulness. Similar problems lie in the routes for distribution; PillPack gets its medications from AmerisourceBergen, which is owned in part by Walgreens. All told, many of the components to build a pharmacy are currently controlled by the major players, in terms of licensing, distribution, and manufacturing. Should they decide that Amazon could potentially be too significant a risk, there are roadblocks that they could present.
Altogether, this acquisition looks good for Amazon. If Amazon is able to capture a part of the pharmacy market, it will be even better diversified. However, it does have to be kept in mind that this acquisition may be an uphill battle, as it can be easily roadblocked by the competition. Amazon may need to be careful with this disruption moving ahead.
Regards,
Ethan Warrick
Editor
Wealth Authority
