Pills
In the US, Amazon is now proposing drugs on its e-commerce web site

Amazon attacks the pharmacy business

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Tech giants are disrupting more and more parts of the economy, including some highly regulated sectors such as the health sector.
Screenshot on my computer of pharmacy.amazon.com

From A to Z, via P

Did you know? The arrow in the Amazon logo is going from A to Z because the intention of Jeff Bezos’ company is to sell everything from A to Z. This time, Amazon is attacking the letter P. P as in Pharmacy. This is not exactly a surprise as Amazon acquired the Boston-based start-up PillPack in June 2018 for $753 million [1]. P as in PillPack. Walmart and Novartis were also interested in the company that was already outshining traditional well-established actors such as CVS or Wallgreens.

PillPack packaging per day and time

PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier.

Jeff Wilke, Amazon CEO Worldwide Consumer, June 28, 2018

A customer-centric approach of innovation

The service is not only proposing delivery of pills at your door. It is also proposing to pack them by day and time, making the traditional pill dispensers useless. It is true that this is a customer-centric innovation. Automatic refills and 24/7 customer support are other examples of services that Pillpack is proposing to “save time, simplify their lives, and feel healthier” as mentioned in the acquisition press release.

PharmacyOS, the back-end system from PillPack

To support its ambition, PillPack has developed a costly back-end software system called PharmacyOS to automate the process of prescription renewals, billing insurance, getting authorizations from providers, and sending out notifications. At any moment, PillPack could consider selling its software to traditional pharmacies, creating a new source of revenue.

New business opportunities

Meanwhile, the average PillPack user in 2018 was worth $5,000 in revenue, which must be compared to the average Amazon Prime member spends around $1,400 per year in 2020. With this acquisition, Amazon has also bought from PillPack pharmacy licenses in 45 US states. It makes the service available in all states except Hawaii, Illinois, Kentucky, Louisiana, and Minnesota. In the US, the prescription drug market is representing $500 billion per year. And it is quite straightforward to understand how PillPack can benefit from Amazon’s expertise in logistics and from its Prime offer. Amazon is also probably considering cross-selling opportunities for all other types of goods that Amazon is selling but to the older 50s and 60s typical PillPack user.

But what is new from 2018, when Amazon acquired Pillpack? Amazon recently announced that they are now selling drugs using their amazon.com flagship web site and delivering them within 2 days for no extra fee for Prime users [3]. I am curious to know if this announcement has been accelerated by the pandemic situation, which is certainly an opportune moment to launch an online pharmacy business.

In some cases, Amazon customers will benefit from discounts, up to 80% on generics and up to 40% on brand-name drugs (the savings benefit is administered by Inside Rx, a subsidiary of Evernorth). This might allow them to buy drugs at a better price than if they use their own health insurance. Still, according to the Financial Times, Amazon may suffer – at least at the beginning – from more expensive prices as they are working with only one Pharmacy Benefits Managers (PBMs), Express Scripts. In the US, the BPMs are the middlemen that dictate how drugs are priced [4]. Personally, I trust Jeff Bezos’ company to come up with competitive prices in a timely manner.

What about the usage of health data?

What is worrying me more is the usage of the health data that Amazon will accumulate over time [5]. This ethical topic will certainly reinforce the monitoring of some governmental authorities against the tech giant. If Amazon restricts itself to use health data on its pharmacy business, this would then impact the cross-selling of other goods of the Amazon Bazar.

Sources

[1] The inside story of why Amazon bought PillPack in its effort to crack the $500 billion prescription market, CNBC, May 10 2019

[2] Amazon to Acquire PillPack, Press Release, Business Wire, June 28, 2018

[3] Amazon starts selling prescription drugs, with two-day delivery for Prime members, reCode Vox, Nov 17, 2020

[4] Amazon’s drugs unlikely to prove fatal to pharmacies, say experts, Financial Times, November 22, 2020

[5] Amazon Pharmacy is going to be the first big test of public trust in Prime and will expose the company to more scrutiny, Business Insider, November 22, 2020

[6] Introducing Amazon Pharmacy: Prescription Medications Delivered, Amazon Press Release, Business Wire, November 17, 2020

Photo credits

Photo by Sharon McCutcheon on Unsplash

Screenshot from Serge Baccou’s computer loading pharmacy.amazon.com

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