Amazon is trying to make its way into the U.S. health-care system which has proved as an instant shaking up of prescription-drug industry in the midst of a broader transformation.
The Insurance companies and drug-benefit managers have struck a series of deals in recent months designed in part to thwart a potential big splash in the health world from Amazon. However, the decision of Amazon to buy online pharmacy PillPack rapidly accelerates the threat especially to the entrenched retailers, suppliers and middlemen.
Most immediately, the move represents a formidable challenge to pharmacy chains including Walgreens Boots Alliance and CVS Health which is one of the two largest drugstore chains in the U.S.
As per the sources, the shares of Walgreens sank by 8.5 percent in New York, while CVS shares shed 8.9 percent.
“This provides an avenue for Amazon to disrupt major pharmacy chains the way that they’ve disrupted booksellers, pet supplies, clothing and other big-box retailers,” said Lisa Bielamowicz, president of consultancy Gist Healthcare.
According to internal information, Amazon will pay around $1 billion for Boston-based PillPack. The transaction is expected to close in the second half of 2018, according to a statement from the companies.
Amazon Chief Executive Officer, Jeff Bezos, after building his brainchild into the world’s biggest online retailer, has been using in-house engineering and acquisitions to infiltrate a growing number of businesses. He took on the $800 billion grocery industry with last year’s purchase of Whole Foods, and broke into consumer electronics with the creation of the Kindle e-reader and Echo voice-controlled speaker.
Benefits for Amazon:
PillPack has mail-order pharmacy licenses in all 50 U.S. states, which could allow Amazon to expand quickly. PillPack also has relationships with most major drug-benefit managers, including Express Scripts and CVS, and says it works with most Medicare Part D drug plans. Those ties will give Amazon access to much of the prescription drug market in the U.S.
PillPack sells pre-sorted packets of prescriptions drugs, delivering them to customers in their homes. The closely held firm has software that automates many tasks, such as verifying when a refill is due, determining co-pays, and confirming insurance. That eliminates much of the manual work that pharmacists often are saddled with now.
The pact follows months of speculation about Amazon’s plans to get into the pharmacy or drug-distribution business. Despite the retailer’s vast reach, entering the market presented a daunting logistical challenge in terms of licensing and dealing with a range of private and government payers. Acquiring PillPack’s networks helps Amazon surmount those hurdles.
Michael Rea, CEO of Rx Savings Solutions, said PillPack could transform the industry and that employers and health plans would benefit from the deal, which he called a “sign of the times.”
Prescription drugs sales are largely intertwined with groceries and personal items like makeup and shampoo and Amazon already sells bulk packs of latex gloves, bed pads and syringes. It recently began selling medical devices and instruments, as well.
Parker will remain with PillPack after the deal closes, according to a person familiar with his plans.
For now, Walgreens indicated that it was in no hurry to find a deal to respond to Amazon, despite the damage to its stock. On an earnings conference call, Walgreens CEO Stefano Pessina faced multiple questions from analysts about the PillPack deal.