Amazon’s PillPack Acquisition: Can Jeff Bezos dominate the prescription drug industry?

Amazon’s PillPack Acquisition: Can Jeff Bezos dominate the prescription drug industry? E-commerce giant Amazon has sent shockwaves across the pharmacy industry with its acquisition of online store PillPack. Will the company’s latest bet keep it in good health? Shashank Venkat examines

Has Jeff Bezos just pulled another rabbit out of his hat? After the Whole Foods acquisition which shook the retail industry last year, it is now time for the pharmacy market to sit up and take notice. Amazon acquired online pharmacy company PillPack for a reported one billion dollars last week. While the deal will close only later this year, there are already reports that the company may be planning to rename PillPack as Amazon Pharmacy, and may begin selling prescription drugs sooner than we think!
 
Rumours about Amazon entering the healthcare space through the prescription drug market started floating last year. With the news finally confirmed, incumbents like Walgreens and CVS will be waiting with bated breath for Amazon’s next move. In fact, Walgreens is already facing the heat on Wall Street as analysts downgraded shares of the company. Is another industry about to be disrupted?
 
Just like Whole Foods?
 
One of the first things Amazon did after its Whole Foods acquisition was slash prices of some of the staples. The e-commerce giant could choose to go down the same route with PillPack where it can offer a few popular medications at discounted pricing to get customers used to buying prescription drugs on its platform. With nearly half of the US households subscribing to Amazon Prime  it seems likely that Amazon can grab a decent share of the prescription drug pie. Moreover, prescription drugs are a natural fit for home deliveries and Amazon is in a great position to leverage its supply chain to deliver medication straight to American homes.
 
The Prime Factor
 
Of course, PillPack will go a long way in increasing the share of recurring revenues obtained through the Amazon Prime subscription bundle. A lot of customers already subscribe to monthly groceries, so getting them to subscribe to regular medication should not be a very big transition. Combine that with fast deliveries, special discounts, and other value-added services that Amazon Prime brings to the table, and it is likely that more customers might subscribe to Prime to simplify their purchase of prescription drugs. And when that happens, Amazon increases the opportunity to cross-sell and up-sell products further increasing its top line growth.
 
The Old Foe
 
If Amazon’s around, how can its old foe Walmart be left behind? The retail war between these two giants has reached new heights after Amazon pipped Walmart in acquiring PillPack. Amazon’s biggest rival has already stamped its presence in the space through Walmart Pharmacy, and the new acquisition would have helped Walmart expand its offerings. While that deal didn’t go through, Walmart is in talks to acquire health insurance giant Humana.
 
Though the PillPack purchase is only a small foot in the door of the pharmacy market for Amazon, it gives the company a great starting point to compete with its arch rival. For instance, Walmart offers a $4 prescription plan, something which Amazon can easily do by combining PillPack with Amazon Prime. Earlier this year, the two companies went head-to-head over acquiring a majority stake in Indian e-commerce company Flipkart. While Walmart clinched that deal, Amazon has evened the scores with the PillPack acquisition. As Walmart increasingly moves online and Amazon goes offline, expect more friction points between these two companies in the times to come. 
 
The role of Pharmacy Benefit Managers
 
In our earlier report, we said that Pharmacy Benefit Managers (PBMs) play an extremely important role in the pharmacy value chain in the US. PBMs are essentially the middlemen of the pharmacy supply chain, and Amazon might have to cosy up to them if it wants to gain a sizeable market share. Some analysts also suggest that Amazon could considering buying a PBM in the future.
 
PillPack seems like a good strategic bet for Amazon since it is an in-network pharmacy for major PBMs. Moreover, PillPack also has pharmacy licenses in 50 states easing the regulatory landscape for Amazon. However, in order to dominate the industry, Amazon will need to build or acquire more parts of the ecosystem - something which is not implausible considering Amazon’s deep pockets.
 
The Road Ahead
 
Amazon has disrupted many traditional industries across the globe, and Jeff Bezos and Co. have their sights set on the next target. While their vision may be ambitious, dominating the pharmacy market will require a different approach and include more collaboration with entrenched players in the industry. Expect Amazon to move swiftly and make some bold moves in this space. And when that happens, we will let you know!
 
 


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