Amazon acquires online pharmacy PillPack in move into health care
Amazon is jumping into the online pharmacy business, signaling the company’s plans to upend the traditional market for prescription drugs amid serious concerns about health care costs.
The tech and retail giant announced Thursday that it is acquiring Boston-based online pharmacy startup PillPack, which sorts and delivers medication, including refills.
The move makes Amazon a serious player in the lucrative but complex market for pharmacy services.
“This is the sweet spot that Amazon works in – Amazon is particularly skilled at fulfillment, at consumer engagement in terms of the supply chain and delivery of product,” said Marianne Udow-Phillips, executive director of the Center for Healthcare Research & Transformation at the University of Michigan. “They really have deep skills and ability to increase the efficiency of the supply chain. I think it’s the perfect entry for them into the prescription drug field.”
For a company that has prided itself on relentlessly driving down consumer prices – sometimes to the detriment of traditional industry players – prescription drugs may represent an outsized beast waiting to be tamed.
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It was not immediately clear if Amazon would operate PillPack independently or seek to integrate the business into its main site and app. PillPack and Amazon representatives declined to comment beyond a news release.
Udow-Phillips speculated that Amazon could pair PillPack with its Prime membership business to boost usage, or even build ties to Whole Foods, the grocery business it recently acquired.
Forrester analyst Arielle Trzcinski even floated the possibility that Amazon could use voice assistant Alexa to remind customers to take their medications or fill prescriptions, which could help solve one of the behavioral challenges confronting health care.
Investors in the nation’s largest drugstore chains are fretting about the deal. Shares of CVS Health and Walgreens Boots Alliance fell 7.8 percent and 9.8 percent, respectively, in morning trading. Amazon’s stock was up 2.1 percent.
But Walgreens CEO Stefano Pessina said “we don’t see any reason to be worried” about the deal.
“Of course, we are not complacent,” he said on an earnings call Thursday morning. “We know that we have to change the level of our services to the customers, and we are working quite hard on that direction, but we are not worried.”
He said he believes “strongly” that physical pharmacies will “continue to be very, very important in (the) future.”
For Amazon, PillPack was appealing, in part because it’s already licensed to sell prescriptions in 49 states. The company also offers drugs through major pharmacy benefit managers, including CVS Caremark, Express Scripts and Optum Rx.
“There is a lot of time, effort and money that goes into acquiring licenses, and time is of the essence,” said Michael Rea, CEO of prescription-drug purchasing advisory service RX Savings Solutions. “So this allows (Amazon) to fast-track those regulatory processes.”
For consumers, it could be good news if the deal nudges the pharmacy sector into a heated competition for customers, potentially driving down drug prices. Prescription drug spending tops $450 billion annually, according to the Pew Research Center.
Amazon CEO Jeff Bezos has voiced frustration over the state of American health care and recently co-founded a nonprofit venture alongside Berkshire Hathaway CEO Warren Buffett and JPMorgan Chase CEO Jamie Dimon in an attempt to lower health care costs and improve care.
Amazon’s acquisition of PillPack marks another development in the company’s rivalry with Walmart, which had been rumored to be weighing an acquisition of PillPack.
Terms of the deal were not disclosed.
“We’re excited to see what we can do together on behalf of customers over time,” Amazon executive Jeff Wilke said in a statement.
CVS and Walgreens have each made their own plays to keep pace amid signs that Amazon might enter the pharmacy business. One advantage for physical pharmacies is they can provide other medical services.
CVS spokesperson Carolyn Castel said the company already is offering “the capabilities that PillPack is offering,” including multidosage drug delivery, “and we have scale in the business.”
“Keep in mind, that we have not seen a large shift of patients that are looking for their medications to be delivered versus coming to a retail pharmacy,” Castel said in an email. “And for those patients that do desire to transition, we offer the option to ship their prescriptions to their home from our pharmacies or obtain the prescriptions through our Caremark mail facilities.”
Still, the PillPack deal threatens to undermine the business model of physical pharmacies.
“In our view, this is only the first play in what will be an increasingly aggressive strategy by Amazon to develop a much more significant presence in the pharmacy market,” wrote Neil Saunders, managing director of GlobalData Retail. “This is incredibly bad news for traditional players, like Walgreens and CVS, who stand to lose the most from Amazon’s determination to grow its share.”
Signs were already mounting that Amazon was geared to enter the pharmacy space. In November, the company launched a one-hour delivery service for nonprescription items from Seattle-based pharmacy chain Bartell Drugs.
The company also recently hired Mark Lyons, a former executive with Washington state health plan Premera Blue Cross, to be a senior manager in its pharmacy benefits.
To be sure, disrupting the health care space won’t necessarily come easily for Amazon. The industry’s thicket of service providers, medical providers and drugmakers has bedeviled many would-be conquerors who promised to bring about change.
TJ Parker, the son of a Concord, New Hampshire, pharmacist couple, co-founded PillPack several years ago. He told USA TODAY in September 2015 the company already had $20 million in annual revenue at the time.
The company’s strategy of presorting medicine into disposable dispensers and easy-to-use app gained favor with customers.