Amazon was founded in Seattle in 1994 by Jeff Bezos and started out as an online bookstore. Just 25 years later, it is the largest online company in the world with a market cap of $1.573 trillion. This represents an increase of more than $500 billion since January, mainly due to the pandemic and consumers increasingly dependent on online retail.
Amazon’s ability to disrupt the retail market has to do with prioritizing the customer experience. The company prioritizes innovation and unconventional ideas, which means it’s constantly experimenting with new initiatives, but it also means Amazon is afraid of failing and moving on to the next bright idea.
Bezos’ ambitions for Amazon don’t stop at retail; the company has disrupted the online streaming industry for the past decade and has shaken up remote working with Amazon WorkSpaces since 2014. In addition, a sector that has particularly attracted Amazon is healthcare, and in particular pharmaceuticals.
Amazon and the pharmacy market
In recent years, Amazon has been investigating how best to enter the pharmacy, a challenging but lucrative market in the US. In 2018, Amazon acquired PillPack digital pharmacy for $750 million; PillPack produces user-friendly packaging to support people with chronic conditions who have to take multiple medicines on a daily basis.
This acquisition sent shockwaves through the pharmacy industry, especially worrisome pharmacy benefit managers (PBMs), who control up to 85% of the U.S. market, according to Jesse Dresser, Frier Levitt’s partner, life sciences partner and pharmacy practice group. “It created a great national expectation that there could be a player outside of the big three PBMs (OptumRx, CVS Caremark and Express Scripts),” Dresser added.
Healthcare Concierge Service Touchcare CEO Rob LaHayne notes, “When Amazon acquired PillPack, it sent a clear message that strong competition is coming and everyone else needs to step up their game”. Therefore, the acquisition accelerated an emerging trend of digital pharmacies, Dresser added.
However, the PillPack acquisition was just the beginning of Amazon’s interest in the pharmacy industry. dr. Michael Avaltroni, Dean of the School of Pharmacy and Health Sciences at Fairleigh Dickinson University, explains that the PillPack deal allowed the tech giant to gain a foothold in the market on which to build. In October 2020, in a record year for Amazon, the online retailer launched two new pharmacy offerings: Amazon Pharmacy and an Amazon Prime discount prescription.
Exploring Amazon’s latest foray into pharmacy
Amazon Pharmacy is a new part of the company’s core platform, which aims to make filling prescriptions as easy and convenient as other transactions performed on Amazon. Individuals in 48 US states can use Amazon’s website or app to search for generic or branded drugs and compare prices to find the lowest option.
Amazon Pharmacy’s final price comparison element ties into the second element of the announcement: Prime Prescription Savings Benefit. This gives Prime members access to free two-day delivery on orders and savings of up to 80% on generic and 40% on branded drugs when not paying through insurance. This is offered at no additional cost to existing Prime memberships.
PillPack CEO and Amazon Pharmacy Vice President TJ Parker noted in a: release: “We designed Amazon Pharmacy to [bring] Amazon’s customer obsession with an industry that can be uncomfortable and confusing. We’re working hard behind the scenes…so anyone who needs a prescription can understand their options, place their order at the lowest price available and get their medication fast.”
These new offerings expand Amazon’s reach beyond PillPack’s focus on those who rely on multiple daily medications. Now it can also serve those who receive a one-time prescription. According to enterprise software company VAI’s CIO Kevin Beasley: “PillPack is useful [as] it keeps the medication organized, [while] Amazon Pharmacy is helpful in its delivery timing and competitive pricing”.
The biggest benefit of this announcement is Amazon’s mission to “provide affordable and accessible recipes,” notes Beasley. “Fast shipping, accurate deliveries and low costs are a top priority for today’s consumer.” LaHayne added, “With approximately 126 million Amazon Prime members, many will seriously consider switching their prescription services to the convenient and inexpensive Amazon experience.”
Implications for the US pharmacy market
Like the PillPack acquisition in 2018, the launch of Amazon Pharmacy caused a significant drop in the share price of its competitors.
The CEO of the Drug Channel Institute at Pembroke Consulting, Dr. Adam Fein, however, argued in an analysis: part “This announcement is much less disruptive than it seems”. Fein added that Amazon has chosen to “join the drug channel and not fundamentally change it”. This isn’t particularly surprising, given that pharmacy and the wider healthcare industry are a tough nut to crack.
First, Fein noted that Amazon’s pharmacy accepts insurance and will be part of the network of PBMs in which other pharmacies, including digital ones, operate.
In addition, through its Prime savings benefit, Amazon is following a model that has been offered by PBM-affiliated pharmacies and others for nearly a decade, Dresser explains. In addition, Amazon essentially relies on the same partnership with Cigna-owned PBM Express Scripts that existing players, including GoodRx, use for their discount cards.
In fact, Fein noted that Amazon’s Prime savings benefit “illustrates how Amazon’s healthcare ambitions have shrunk,” as it only validated GoodRx’s model. “For better or worse, Amazon is playing the game just like any other coupon and pharmacy vendor,” Fein concluded. Dresser adds that Amazon is looking to enter the large price-oriented uninsured and underinsured market, already served by GoodRx and other discount card providers. Neither Amazon nor GoodRx responded to requests for comment.
That said, Amazon can bring unparalleled purchasing power and online presence to this space, according to Dresser. This is particularly threatening to the pharmacy industry, as the world has “increasedly become dependent on home shopping services”, especially this year due to the Covid-19 pandemic, Avaltroni adds.
While Avaltroni sees Amazon’s expansion into the pharmacy as a further suppression of independent pharmacies and small chains, he is optimistic that larger chains will be able to compete, especially as they have already started spinning and expanding their offerings. Dresser notes, for example, that GoodRx and other digital pharmacies provide telemedicine services to create a more holistic care experience beyond drug delivery. Amazon does not yet offer telemedicine services as part of its pharmacy.
Predicting Amazon’s Future
This latest announcement from Amazon is by no means the end of the tech giant’s ambitions for the US pharmacy industry. “The biggest disruption is probably still on the horizon,” notes Avaltroni. “This is the first step, but it won’t be the last.”
Amazon has already shown interest in the broader pharmacy market. For example, in March 2019, Amazon teamed up with JPMorgan Chase and Berkshire Hathaway to create a non-profit healthcare company called port† Although the three companies decided to close Haven in February, the move is a clear example of Amazon’s desire to disrupt the pharmacy and broader pharmaceutical market.
Another example noted by Dresser is Amazon’s appointment of John Lavin, a former vice president of PBM CVS Caremark; “They hired him with one main goal: to develop offers to directly schedule sponsors, such as major employer groups, and provide savings and better opportunities,” Dresser explains.
While CVS Caremark was able to get a non-compete clause for Lavin for 18 months in June 2019This is now coming to an end, and Dresser doesn’t think Amazon has lost sight of their plan to lose sight of the PBM middleman that currently controls the operation of the US pharmacy market.
sideboard believes that Amazon may also engage in the production of generic products. He expects this to be the case for generic products that have only one manufacturer, which is why Amazon could drastically cut drug prices to the benefit of consumers. This move would be in line with Amazon’s previous actions in areas such as electronics and office supplies.
Beasley concludes that “Amazon is really rooting itself in the pharmaceutical industry and it is an exciting time to guess where consumer behavior will take the company,” both in the US and globally.