Will Amazon’s PillPack acquisition disrupt the retail pharmacy business?

Discussion
Source: PillPack
Jun 29, 2018
George Anderson

Can Amazon.com replicate the success it has had with books, apparel and countless other categories to include prescription drugs? That’s the question that should eventually be answered with a definitive yes or no now that the e-tail giant has signed an agreement to acquire PillPack.

PillPack is an online pharmacy that delivers pre-sorted doses of prescribed medicines in envelopes to customers to make it easier for them to stay compliant with their medication needs, a practice that has been shown to result in better outcomes for patients.

“PillPack makes it simple for any customer to take the right medication at the right time, and feel healthier,” said TJ Parker, co-founder and CEO of the online pharmacy, in a statement to announced the deal.

The online pharmacy is licensed to fill prescriptions in all 50 states and is accredited with URAC and VIPPS. PillPack works in-network with most pharmacy benefit managers (PBMs) and Medicare Part D plans. The company has built a proprietary software system, called PharmacyOS, that enables it to deliver on its promise to meet the needs of its customers.

“PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology,” said Jeff Wilke, CEO worldwide consumer for Amazon. “PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier. We’re excited to see what we can do together on behalf of customers over time.”

As has been the case before, Amazon’s good news is bad news for rivals. CNBC reported yesterday that Amazon’s shares increased 2.5 percent in value on news of the PillPack deal. Shares of drugstore rival CVS fell 6.1 percent at the same time while Rite Aid (-11.1 percent) and Walgreens Boots Alliance (-9.9 percent) fell even more.

Translated into dollars, Amazon’s stock increased nearly $20 billion in market value. Walmart, which was in talks to acquire PillPack before the deal with Amazon was announced, lost more than $3 billion in market capitalization on the news. Reports put Walmart’s bid for Pillpack at around $700 million, while Amazon’s reported bid was roughly $1 billion.

A number of grocery stocks saw their share prices decrease last year when Amazon announced its acquisition of Whole Foods. The good news, as USA Today reports, is that most of those negatively affected at the time have seen their share prices bounce back.

The deal between Amazon and PillPack is subject to regulatory approvals and other standard closing conditions.

DISCUSSION QUESTIONS: What will Amazon’s acquisition of PillPack mean to the online retail prescription drug market? What effects will it have on brick and mortar competitors? What impact, if any, do you think it will it have on PBMs and pharmaceutical manufacturers?

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Braintrust
"Yes it is shaking the other players in the industry, and it should. Again -- Amazon changes the business landscape."
"It has already negatively impacted the stock prices of companies that will be affected by this impending acquisition."
"PillPack already had Amazon’s model — online purchasing. However, they lacked the reach of Amazon."

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29 Comments on "Will Amazon’s PillPack acquisition disrupt the retail pharmacy business?"


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Art Suriano
BrainTrust

The acquisition of PillPack is another successful move for Amazon. The company has gotten to the point of being unstoppable at least for now. Prescription drugs remain very important for everyone, and any opportunity for prescription users to get them for less and more conveniently is going to be very popular. There is no doubt that competitors will feel the squeeze and they will have no choice but to fight back by being more aggressive themselves. How long Amazon can keep up the strategy of attempting to take over everything remains to be seen but for now they are doing just that, and almost everything they have invested in has been successful.

Lyle Bunn (Ph.D. Hon)
BrainTrust

It is a tragedy of our times that when Amazon turns its attention on a market or service, the benefits come with suffering. PillPack will erode the relationship between consumer and pharmacy. Changing prescriptions, communications between doctor and pharmacist and the exceptional situations of travel all challenge the regular easy flow of blister pack drug delivery. Amazon has to realize that sometimes its about service and not just fulfillment.

Max Goldberg
Guest

Amazon’s long-rumored entry into the prescription drug business has become reality and competitors are rightly concerned. Consumers are hoping for lower drug prices, combined with Amazon’s great customer service. As with its acquisition of Whole Foods, we’ll have to wait to see Amazon’s master plan, but speaking as one consumer who is frustrated with the big three retail pharmacies, I hope Amazon successfully shakes up this segment of the marketplace.

Charles Dimov
BrainTrust

Online prescription drugs are in for some radical changes! With all the challenges in healthcare, this could be a very positive step forward for consumers. One benefit we can expect is a change in perception. Today’s online pharmacy is often associated with shady deals. Amazon brings the big-name brand and customer service stability, with a sense that consumers are going to get good deals (how they started in retail). The impact on big pharmaceutical manufacturers is less clear. We will probably see some price erosion as they try to penetrate the market. The big impact would come if Amazon were to purchase a generic drug manufacturer. That would definitely send major waves through what is often perceived as a margin-rich industry. Time will tell.

Dr. Stephen Needel
BrainTrust

This could be a big one, never mind what PillPack actually does. The ability to distribute pharmaceuticals nationally at what we would assume to be a lower price is huge.

Jeff Sward
Guest

I’m now breaking down internet transactions into two camps: knowns and unknowns. If the transaction you’re conducting is largely about knowns, you know exactly what product you want with exactly what outcome is to be provided and it’s reorder or replenishment driven. In that case using the internet is a no-brainer. PillPack at Amazon is a no-brainer. Dealing with mistakes or problems could get a little hairy though. It’s not quite as easy as a quick trip to the pharmacy and a chat with the pharmacist. I have to believe that PillPack has that figured out by now.

Amazon proves again that there is no business or product that is beyond their reach — beyond their ability to disrupt.

Rich Kizer
BrainTrust

Everyone wondered when, not if. This is a gigantic move into an industry of over $500 billion dollars. Now Amazon gets an incredible part of it, in all states! On top of all that, there are probably contacts already made that will boost sales even higher. Yes, it is shaking the other players in the industry, and it should. Again — Amazon changes the business landscape.

Joan Treistman
BrainTrust
The way I see it PillPack is not simply about delivering medication. It’s about making it simpler for people taking medication. Other retailers are competing within the context of convenience and price. But PillPack has recognized the challenge for those who are taking several medications to be compliant without the mess of open and unopened bottles and question marks about “did I or didn’t I take those pills? I was supposed to.” Patients trying to stay on top of dosage use plastic boxes with a.m./p.m. and the days of the week imprinted. So PillPack comes around and takes that burden away. Amazon will heighten awareness of this innovative delivery system. Health insurers are on board. Local retailers will probably hold onto the “I need it now” prescriptions. Mail order systems will be compelled to consider what PillPack offers to stay competitive. Pharmaceutical manufacturers will probably benefit from more compliant patients who use their meds as frequently as they should — as long as the prices are what consumers can manage. Yeah, I think Amazon is… Read more »
Shawn Harris
BrainTrust

Amazon’s first-and-foremost obsessive focus on the customer as a core principle, and the courage to take chances, keeps them in the role of defining the future. PillPack had been rumored a target by many, Amazon took the action. This will disrupt the retail prescription drug market.

Lauren Goldberg
BrainTrust

Amazon does it again. This will definitely affect the online/mail order market and hopefully elevate the customer service at physical pharmacies. I don’t see brick and mortar pharmacies going away — if your kid has strep throat, you’re not going to wait to get the antibiotics delivered. But this is another segment that is ripe for disruption and hopefully will encourage the industry leaders to step up their game.

Steve Montgomery
BrainTrust

PillPack’s packaging of pre-sorted prescriptions has become even more popular as our population ages. Its purchase was a great move by Amazon but also a shot across the bow for every chain drug company.

There’s a lot of talk today in every industry about disruptors. Amazon’s continued entry into new areas makes it the greatest disruptor of all.

Gene Detroyer
BrainTrust

We could have the same discussion now as we did when Walmart moved into the pharmacy business. Angst and hand-wringing. Only this is better, the consumer won’t even have to go to Walmart.

I don’t think any company in history has had a better perception of who they are, what they want to accomplish and consumer desires and trends. This will not be the last disruption brought on by Amazon. We can’t even imagine what is next.

Anyone who studies corporate strategy must give Amazon another big BRAVO. Oh and let’s not worry about the drug store chains any more than they worried about the local pharmacies they put out of business.

Neil Saunders
BrainTrust

Yes, even without analysis we all know that Amazon is a disruptive force — and this is a market ripe for disruption!

First and foremost, PillPack gives Amazon the right to act as a pharmacist in every state except Hawaii; that’s a big leap forward. Second, the PillPack model is innovative and mail-order pharmacy is a growth area; it will likely grow faster once Amazon starts to develop and market the service.

Most importantly, however, this is only the start. Amazon will get further into healthcare — maybe including doing things at physical locations or in its Whole Foods stores. While CVS and Walgreens were both a bit sniffy about Amazon yesterday I think they should be worried!

Ricardo Belmar
BrainTrust
The prescription drug market was ripe for disruption and Amazon has done what it does best — disrupt with one swift move before even introducing a product or a service! With the stroke of their PR pens, Amazon successfully put entrenched players in this market on notice, just as they did with their Whole Foods acquisition in the grocery segment. Was this a knee-jerk reaction by Wall Street? Yes. Will they eventually calm down and restore normality? Most likely. But one thing is for sure — Amazon is here to make an impact in this market and any existing retail brands (CVS, Walgreens are you listening?) will need to take notice and, more importantly, take action! While Amazon is well known for bringing convenience to customers in every segment it enters, this may be the first example where any convenience they bring is intended to make consumers’ lives better — something they’ve taken right out of the Apple playbook. Just one more reason for consumers to stay in the Amazon ecosystem for all their shopping… Read more »
Keith Anderson
BrainTrust

The number of Amazon’s acquisitions and new category entrances exceeds the number of industries/categories it has transformed, but this (along with Amazon’s joint healthcare initiative with Berkshire Hathaway and J.P. Morgan) is certainly a wake-up call to the entire pharmaceutical value chain.

Given the impact this deal (and others in the past) seems to be having on Amazon’s share price and market cap, it is worth acknowledging that Amazon’s M&A activities are essentially self-funding at this point.

Susan O'Neal
BrainTrust
2 months 26 days ago
If only I had a penny for each time I heard a retailer say that “it won’t scale” or “I’m worried for everyone else but we’re fine” in the face of Amazon’s latest crazy move. Now, especially after reading the comments on this post, I am adding to that list “there goes the consumer-pharmacist relationship” as if PillPack could succeed without creating something better than that relationship. If you want to succeed against Amazon, you have to stop being so emotional about it all. Amazon competes in the most defensible places and expands from there. If you are a historian or player of the Chinese strategy game Go, you will recognize their strategy this way: “start in the corners, where two sides of the board can be used as boundaries. Once the corners are occupied, the next most valuable points are along the side, aiming to use the edge as a territorial boundary. Capturing territory in the middle, where it must be surrounded on all four sides, is extremely difficult.” So what does this look… Read more »
Jeff Sward
Guest

Really, really, really well said. Shop vs buy. Want vs need. B&M vs internet. You give a good summary to a part of the whole dynamic.

Tony Orlando
BrainTrust

Another move to add at least 100 billion in sales over the next five years, and now it is the three large pharmacies that will feel Amazon’s crushing blow to retail. Too bad I never bought their stock, because it will continue to carve out big chunks of whatever they choose to venture into. I have felt it for years, as staple grocery items are being delivered everywhere, so buckle up, CVS and your buddies, as it is going to get ugly.

Shep Hyken
BrainTrust

Amazon has made very smart strategic decisions with their acquisitions. This one falls right into their sweet spot. So if others in the industry are concerned — they should be. Retailers have learned to compete and live alongside Amazon. The pharmaceutical and prescription market will have to do the same.

Peter Charness
BrainTrust

Amazon reminds me of the story of the frog and the scorpion. Any retailer who thinks that it’s a good long term plan to sell on Amazon, or feed their growth through using AWS, is just waiting to be bitten. Amazon will slowly and surely work through every worthwhile product category, innovate and disrupt and win. Disruption to any existing retailer doesn’t mean losing massive amounts of share or sales. How hard would just a 5 percent to 10 percent reduction in sales affect any existing business?

Michael Blackburn
Guest
2 months 26 days ago

No. This currently is no more than a test concept for Amazon. CVS and Walgreens are well-entrenched and have plenty of ammunition to react including the tech to do what PillPack offers. Delivery has not been a growing business for retail pharmacy — of course Millennials never want to step into a brick-and-mortar store, so maybe in 10 years when their prescriptions ramp up beyond Adderall, Amazon may have an impact. P.S., great buy opportunity for CVS and WBA, who are already diversifying away from pharmacy.

Dick Seesel
BrainTrust

The PillPack acquisition allows Amazon to bring its reputation for convenience and good execution to another market it plans to disrupt. But I don’t expect its competitors to go quietly without a response, as the CVS announcement of home delivery signifies.

Ken Morris
BrainTrust

Yes, this move by Amazon will definitely disrupt the retail prescription drug market. It has already negatively impacted the stock prices of companies that will be affected by this impending acquisition. While many consumers still prefer to pick up their prescriptions at the local pharmacy, making it an easy part of their Amazon shopping experience may entice more shoppers to convert to online pill replenishment – especially if Amazon includes added benefits for its Prime members.

This is yet another example of Amazon disrupting traditional retail. Maybe they will begin to add pharmacies to their Whole Foods footprint to create a hybrid natural/traditional drug store, an idea first executed by Anthony Hartnett the founder of Bread & Circus Whole Foods Supermarket in the Boston area (acquired by Whole Foods) with his Cambridge-based Hartnett’s chain.

Pharmacy is one of the many retail segments that has been on Amazon’s radar. What is the next segment that Amazon will disrupt? Gas stations/convenience stores, restaurants, travel, hardware or another segment? Retailers in all of these categories should be prepared!

Harley Feldman
BrainTrust

PillPack seems to have software addressing the needs of its customers. If its customers like the service, it bodes well for the Amazon acquisition. Of course the Amazon brand will bring people to the service and Amazon will likely put pharmacies in Whole Foods stores for local convenience. The challenge Amazon will have is the sheer number of Walgreens, CVS and Walmart stores that are close to customers and customers are loyal to. If PillPack can deliver prescriptions with ease and low cost, then customers might give up on their local pharmacy. The PBMs and pill manufacturers now have another retailer that will demand lower prices squeezing their margins.

Tom Dougherty
BrainTrust

PillPack already had Amazon’s model — online purchasing. However, they lacked the reach of Amazon.

Now with the acquisition, all bets are off. PillPack’s reach and sales will soar. So this was a great move by Amazon.

Dave Wendland
BrainTrust

Yes, and it already has (just review stock values for the big retailers and healthcare distributors). Amazon is masterful with test-and-learn and the direct-to-consumer pharmaceutical distribution model was overdue for disruption and dose-packing is underdeveloped in the U.S. compared to other developed countries. Those that had a false sense of security a month ago when Amazon announced a pull-back on medical device distribution (which was hospital-focused) need to re-invent themselves in a hurry to remain relevant in a market that is about to transform with vigor.

Carlos Arambula
BrainTrust

Amazon will definitively be a disruptor. The proof of a similar concept already exists in Express Scripts and Amazon appears to have significantly improved on the brand promise and presents reasons for consumers to buy. Unlike Express Scripts, Amazon presents benefits to the patient instead of the insurance company.

There are millions of patients with chronic illnesses who see their doctors often, or have quick access to medical expertise, that they will not miss the pharmacist (or the pharmacy clerk who is usually the main contact at brick and mortar pharmacies). In regards to the benefits managers, it will not affect the consumers since it will be behind the scenes for the patient and if Amazon manages it smoothly, it will remain mostly behind the scenes.

Jane Sarasohn-Kahn
Guest

This isn’t just about prescription drug distribution, direct-to-consumer: it’s about that patient’s data, aggregated with other people’s, to potentially manage population health and bundle products together to help people manage chronic conditions. That’s the Holy Grail for the “triple aim” of enhancing the healthcare experience (Amazon’s CX excellence), driving health outcomes (marrying data for the N of 1 patient-consumer), and driving healthcare costs down — which is the third leg of the triple aim-stool. For more on that, read my post here, written exactly one year ago.

Stephen Kraus
BrainTrust

Expect massive disruption in the pharmacy business. An outsider’s perspective on the big pharmacy chains: their business revenue is driven by their pharmacy sales, but their broader strategy (historically at least) has centered on building retail stores to support their non-pharmacy sales. Walgreens, for example, gets 69% of its revenue from pharmacy sales; retail sales as a percentage of their revenue has dropped from 37% to 31% over the past five years.

But historically (e.g., Jim Collins Good-to-Great era) the growth strategy of pharmacy chains has effectively been: find a high density of relatively affluent customers and saturate those neighborhoods with retail stores. It will be a 1-2 punch: Delivery of prescriptions would be very convenient for most consumers, and Amazon is already hard at work figuring out how best to deliver the low-price convenience items that make up pharmacy retail.

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Braintrust
"Yes it is shaking the other players in the industry, and it should. Again -- Amazon changes the business landscape."
"It has already negatively impacted the stock prices of companies that will be affected by this impending acquisition."
"PillPack already had Amazon’s model — online purchasing. However, they lacked the reach of Amazon."

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