Thursday, September 16 2021

Amazon.com Inc announced on June 28 that it will purchase a small online pharmacy PillPack, a move that will put the world’s largest online retailer in direct competition with drugstore chains, drug distributors and pharmacy benefit managers.

The deal’s potential to disrupt key players in the nationwide drug supply chain caused shares of potential rivals to sell off while pushing Amazon shares up 2.5%.

Representative image. Reuters.

PillPack provides pre-sorted prescription drugs and other services for people who take multiple drugs, a growing market as the US population ages and requires treatment for several complex chronic conditions.

Amazon is competing for a share of what is a total US market of more than $ 450 billion in prescription drugs, according to research firm IQVIA. Although PillPack expects sales to only exceed around $ 100 million this year, Amazon’s huge customer base and existing shipping infrastructure could allow the business to grow quickly.

Amazon could also negotiate directly with pharmaceutical companies, giving them the ability to offer inexpensive generic drugs even to customers without health insurance, according to industry experts. But it will face deep-seated competition dominated by pharmacies run by CVS Health, Walgreen Boots Alliance and Walmart Inc, and pharmacy services provided by CVS, Express Scripts UnitedHealth Group.

“Amazon’s acquisition of PillPack is a wake-up call in what is about to become a major pharmacy battle,” said Neil Saunders, Managing Director of GlobalData Retail.

The value of the transaction was not disclosed. Bloomberg reported it was $ 1 billion, citing someone familiar with the matter.

Drugstore chains and drug wholesalers lost about $ 14 billion in market value on June 28, while Amazon gained about $ 5.5 billion.

Shares of CVS closed down 6.1%, while Walgreen fell 10%. Shares of drug wholesalers McKesson Corp, Cardinal Health and AmerisourceBergen all fell.

Joint venture

The news comes just a week after a joint venture of Amazon, Berkshire Hathaway Inc and JPMorgan Chase & Co appointed a CEO who will be tasked with dramatically reducing healthcare costs for its roughly 1 million employees and dependents. .

While brick-and-mortar stores may feel the effects of competition from Amazon, the biggest battles will likely be fought by mail-order pharmacies, which typically serve patients with chronic conditions such as diabetes and heart disease that can require medication to control blood pressure, cholesterol, and other problems.

Pillbox said they have tens of thousands of customers across the country. But his expectations of more than $ 100 million in revenue in 2018 are paltry compared to bigger rivals. Last year, CVS generated roughly $ 45.7 billion in revenue from its pharmacy mail order business, which represents roughly 15% of its pharmacy claims.

Pharmacy benefit managers (PBMs) negotiate prescription drug prices for employers and health plans and operate large mail-order pharmacies, offering incentives for patients to fill their prescriptions with them.

Doctors and PBMs have long said that patients not taking their medications correctly are a major cause of rising healthcare costs, leading to hospitalizations and more serious health problems. Companies like PillPack and Express Scripts that offer managed care services to improve patient compliance are seen as increasingly important in helping to control rising costs.

Along with the Amazon announcement, Mizuho analyst Ann Hynes, in a note, said the pending mergers of Aetna Inc’s health insurer / PBM with CVS and Cigna Corp with Express Scripts “are even more critical now”.

Not worried

Walgreen CEO Stefano Pessina on a conference call after releasing quarterly results said he was “not particularly worried” about the PillPack deal.

“The world of pharmacy is much more complex than just delivering certain pills or certain packaging,” Pessina said.

Having said that, Pessina added: “We know we need to change the level of our customer service, and we are working pretty hard in that direction.”

Some analysts downplayed the immediate threat.

“I think they bought this to find out more about the market and to see if they are able to make bigger investments,” Morningstar analyst Vishnu Lekraj said.

Cantor Fitzgerald analyst Steven Halper noted that PBMs generally require health plan members to use their own mail-order pharmacies.

He said PillPack could be excluded from current PBM networks, “especially if Amazon plans to significantly increase its prescription volume.” Express Scripts removed PillPack from its network in April 2016, alleging that it had branded itself as a retail pharmacy. The two reached an agreement a month later.

PillPack holds pharmacy licenses in all 50 states. It is a network pharmacy for some PBMs and for major Medicare Part D plans, a federal drug plan designed to help Medicare beneficiaries pay for self-administered prescription drugs.

PillPack had piqued the interest of Walmart Inc, which was looking to buy it for less than a billion dollars, CNBC reported in April. The deal with Amazon is expected to be finalized in the second half of 2018.


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