Commentary

Amazon's Rx For Healthcare Disruption Continues With PillPack Purchase

Amazon yesterday made its widely expected move into the prescription pharmacy business with its cash purchase — reportedly for about $1 billion — of start-up PillPack, which ships medications to customers in every state except Hawaii. Pending regulatory approvals, the deal is expected to close before the end of the year.

PillPack specifically measures out and packages proper doses for patients who take multiple prescriptions — eliminating the myriad details that go into medication management today, including keeping track of refills, insurance co-pays and waiting on line at the retail pharmacy.

“Most immediately, the move represents a formidable challenge to pharmacy chains including Walgreens Boots Alliance Inc. and CVS Health Corp., the two largest drugstore chains in the U.S.,” point out Robert Langreth and Zachary Tracer for Bloomberg.

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“This provides an avenue for Amazon to disrupt major pharmacy chains the way that they’ve disrupted booksellers, pet supplies, clothing and other big-box retailers,” Lisa Bielamowicz, president of consultancy Gist Healthcare, tells them.

Walgreens and Rite Aid shares were down more than 9% percent; CVS Health dropped 6.6% after the news broke. Indeed, the three companies lost more than $11 billion in market value yesterday, report Sharon Terlep and Laura Stevens for the Wall Street Journal

That said, “the health-care market may be challenging for Amazon to disrupt,” they contend. “It is highly regulated, and depends on a complex web of contracts, interconnected data systems and other relationships with health plans, drug-benefit managers and other health-care players that Amazon may not want to alienate if it wants its pharmacy business to prosper.

“Walgreens executives were holding a conference call with financial analysts when Amazon announced the deal. Walgreens CEO Stefano Pessina said the company is ‘not particularly worried’ about the move,” Terlep and Stevens report, maintaining that physical pharmacies will continue to be “very, very important.”

“PillPack, which started in 2013, distributes pills in easy-to-use packages designed for consumers with chronic conditions and multiple prescriptions. The company sorts prescriptions by the dose and includes a label with a picture of each pill and directions on how it should be taken,” write Claire Ballentine and Katie Thomas for the New York Times

“TJ Parker, a pharmacist, and Elliot Cohen, an engineer, founded the start-up after meeting through a health care innovation program at the Massachusetts Institute of Technology. The company’s primary pharmacy is in Manchester, N.H., but it also has numerous other pharmacies, including in Miami, Brooklyn and Austin, Tex.,” Ballentine and Thomas continue.

“Parker, a second-generation pharmacist, spent most of his life watching people struggle with managing their medications — dozens of pill bottles, weekly trips to the pharmacy, and time-consuming DIY organization — while their pharmacists had limited resources to help,” according to the company narrative. So they set about creating an alternative focusing first “on helping the people with the toughest problem — the 30 million U.S. adults (that’s one in 10) who take more than five prescription medications a day.”

Amazon will, no doubt, expand that mission to the rest of U.S.

Bloomberg’s Max Nisen and Shira Ovide write (behind a paywall) “that the industry’s big, justified fear is that Amazon will do what it has done to other businesses it has invaded: destroy profit margins. They also point out PillPack could be a useful tool for Amazon’s mysterious joint health-care venture with Berkshire Hathaway Inc. and JPMorgan Chase & Co. — which may or may not threaten an even wider swath of health-care industries. If you’ve wondered why so many health-care companies are trying to merge lately, this is why,” summarizes Bloomberg’s Mark Gongloff. 

“With the PillPack deal, which is reported to be worth around $1 billion, Amazon has spent almost $2 billion on acquisitions in the first six months of this year, after buying Ring for $900 million in February. It’s the first time in Amazon's 24-year history that it’s spent more than $1 billion on deals in consecutive years, after the $13.7 billion Whole Foods acquisition in 2017,” writes CNBC’s Eugene Kim.

CNN Tech’s Kaya Yurieff sees a relationship between Wednesday’s news that Amazon is looking for entrepreneurs to manage last-mile deliveries and yesterday’s acquisition.

“You can see these two developments coming together to make dealing with a pharmacy as easy as thumbing your phone: Place your order and an Amazon-branded truck delivers your amoxicillin, along with tissues, all-natural cough drops and organic chicken noodle soup from Whole Foods,” Yurieff writes.

Hmmm. Maybe Walgreens should offer free chicken soup on those long lines … 

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