Amazon the Rx Disrupter

The pharmacy giants could use some PillPack competition.

 
 

Amazon.com Inc. agreed to buy the online pharmacy startup PillPack, jumping into the health-care business.
Amazon.com Inc. agreed to buy the online pharmacy startup PillPack, jumping into the health-care business. PHOTO: ANDREW HARRER/BLOOMBERG NEWS
 

Amazon has remade retail by adopting Apple founder Steve Jobs’s dictum of showing consumers what they want before they know they want it—and then getting it to them fast. CEO Jeff Bezos is now betting he can use this strategy to disrupt the pharmacy business, which could use the competition.

This week Amazon announced it is paying $1 billion for online pharmacy PillPack. The five-year-old startup sorts prescriptions by dose and provides labels and directions for patients with a picture of each pill. This is a godsend for patients with chronic conditions who have difficulty following a regimen. Think of the 85-year-old with high cholesterol, anemia and arthritis.

Amazon’s deep corporate pockets will enable the fledgling company to build out its innovation. PillPack has about 1,000 workers compared to the 235,000 or so employed by Walgreens, the giant drug-store chain. The startup needs more scale to compete with the pharmacy giants and negotiate with benefit managers that act as middle-men with insurers. Both industries have been consolidating.

Walgreens last year bought 2,000 Rite Aid stores while Albertsons announced it would absorb the remaining 2,600 in February. CVS acquired Target’s pharmacy business in 2015, and its $68 billion bid for health insurer Aetna will allow it to direct millions of customers to its retail stores and clinics. The three major pharmacy benefit managers— Express Scripts , CVS Caremark and United Health’s OptumRx—control 70% of the market and run their own specialty pharmacies. This makes it harder for PillPack to expand, but Amazon’s backing will help.

Amazon will gain a pharmacy license in 49 states and avoid regulatory rigmarole. The Seattle retailer has previously shown interest in the pharmacy business and acquired wholesale licenses in several states, but bureaucracy has frustrated its expansion.

PillPack’s pharmaceutical expertise combined with Amazon’s logistics mastery should let patients obtain medications faster and cheaper. Patients or their caretakers might be able to refill prescriptions simply by asking Alexa. Drugmakers are experimenting with digital sensors embedded in pills to track adherence. So someday Alexa could cue an Alzheimer’s sufferer to take her pain medicine.

Amazon’s dip into the business has already spurred pharmacies to improve service, and they will now have to raise their game even more. CVS this month announced a deal with the U.S. Postal Service to deliver prescriptions in one to two days to customers for $4.99. But what if Amazon can deliver prescriptions within hours for free?

As it happens, Amazon this week also announced that it would contract with small businesses to expedite deliveries. Amazon ships about 1.2 billion packages each year and has more than 100 million Prime subscribers who get two-day free shipping. The online retailer also offers two-hour shipping and is expanding fresh food deliveries.

Even while wading into new industries, Amazon is trying to head off competition from brick-and-mortar retailers like Target and Walmart that are fast expanding their online sales. But the U.S. Postal Service, FedEx and UPS can’t deliver packages within hours as many Amazon customers may come to expect. Contracting with small businesses could expedite deliveries and lower costs.

We’ve criticized Amazon’s e-book monopoly that the U.S. Justice Department aided when it blocked competition from Apple. But its entry into drug delivery is welcome disruption that could benefit consumers.

Appeared in the June 30, 2018, print edition.

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