How will Amazon's acquisition of online pharmacy business PillPack disrupt the pharmaceutical industry?
In its latest effort to penetrate the pharmaceutical industry, Amazon acquired US online pharmacy company PillPack in June this year. In light of the world’s first trillion dollar company moving into the pharmaceutical space, industry experts share their opinions on the move.
healthcare firms may have just lost customers for good
Amazon purchasing PillPack should terrify all players in the healthcare industry. Since it started, Amazon has had a laser-like focus on ease of use, fast and hassle-free experiences, and personalisation. As a result there are over 100 million Amazon Prime members – that’s 100 million customers that healthcare firms may have just lost for good. Further, while Amazon’s acquisition of Pillpack alone is bad news for the industry, in the broader context of Amazon’s push into healthcare, it becomes a much greater threat.
Amazon is working hard to create a ‘One Stop Shop’ for all healthcare needs, from diagnostics to treatment, recovery and then on-going wellness. For example, Amazon is already getting Alexa to help with the management of chronic illness. Now users will simply see PillPack folded in as Amazon automates the schedule and delivery of drugs as needed.
All of this serves to make the experience easier for us as customers, freeing us up to do other things. By creating a seamless healthcare ecosystem, Amazon is laying down a challenge of all other providers and many are simply not ready to compete. In order to survive, businesses need to invest heavily in building up their own relationships with customers, just as Amazon has done. If they don’t, they’ll quickly find themselves at a huge disadvantage.
The fact that the stocks of established healthcare players tank every time Amazon announces any deal or partnership like this show s how severe the industry expects this threat to be.
Ruchin Kansal, vice president for digital business strategy at Virtusa
a first step towards disrupting the pharmacy supply chain
On its own, the PillPack acquisition isn’t disruptive, since the company works within existing networks and focuses on patients that are difficult to serve.
Its concept of leveraging the internet to distribute prescription drugs to patients isn’t new – in fact, Amazon first tried to do this in 1999 when it acquired a major stake in Drugstore.com.
The acquisition of PillPack looks more like a first step towards disrupting the pharmacy supply chain, in which pharmacy benefits managers represent the biggest hurdle. PillPack has worked with the three major ones, Express Scripts, OptumRx and CVS, but Amazon may be able to work around them by building its own pharmacy benefit management (PBM).
It’s risky, given how entrenched these PBMs are, but that’s where Amazon stands to make the biggest impact.
Evelyn Warner, senior associate in valuations advisory at Duff & Phelps
not the end of brick-and-mortar
Amazon getting into pharmacy is going to force us all to step up and become much more customer-centric. That can only be a good thing. In a few years’ time, it won't be acceptable to ask a customer to wait a few days for stock to fulfil their prescription, or communicate solely by phone and fax as many pharmacies do today.
At Well Pharmacy, we think we'll see a shift online over the next few years, but this doesn't mean the end of bricks-and-mortar. In the UK, digital makes up less than 1% of the NHS prescriptions market so pharmacy stores aren't going anywhere right now. For us, it's about choice: some customers will want to use our app, some will want their prescriptions delivered, but many will still want to come into store.
The rise of e-commerce has made things tougher on the high street, but retailers who have a laser-focus on the needs of their customers and a well-integrated online-offline service are thriving. The same is true for pharmacy.
Dan Sheldon, head of digital at Well Pharmacy
amazon has put pressure on the walgreens boots alliance
The newly-introduced Amazon threat, even if it doesn’t have an immediate financial impact on Wa lgreens Boots Alliance (WGA), will create longer-term competitive questions as well as uncertainty around the multiple.
In the interim we see WBA as particularly under pressure as it works through its partnership plans. Because of this, we expect the stock to remain range-bound.
Michael Cherny, analyst Bank of America
A declaration of intent
It is a declaration of intent from Amazon, but you see pharmacy work is much more complex than just delivering certain pills or certain packages.
I believe strongly . . . the role of the physical pharmacy will continue to be very, very important in the future.
Stefano Pessina, Walgreens executive chairman