Will Amazon’s Purchase Of PillPack Harm the Brick and Mortar Pharmacy Industry?

Dec 27, 2018

If you’ve heard about the new Amazon deal acquiring PillPack for $1 billion – as well as the downturn of stocks from Walgreens, CVS, and Rite-Aid – then you might be worried about investments in triple net brick and mortar pharmacy franchises.

The truth is that while the effect of Amazon’s purchase of the startup definitely had a negative impact, there is still a continued need for the brick and mortar pharmacy industry overall.

Why Amazon Acquired PillPack

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PillPack is an online pharmacy that packages multiple prescriptions into one daily medicine packet. PillPack’s presorted packets make things easy for people who take multiple daily medicines.

However, it is unlikely that Amazon acquired PillPack due to its unique methodology. Instead, it is likely that Amazon chose to acquire PillPack due to its ability to ship pharmaceuticals to patients all over the U.S.

PillPack’s established relationship both with pharmaceutical companies and insurance providers is a key component of making nationwide shipping of pharmaceuticals a success. This could prove lucrative for Amazon, who most likely is interested in catching a slice of the $450 billion prescription drug market pie. However, this is a HUGE industry and the need for brick and mortar pharmacies is still significant.

The Biggest Impact Will Be To Online And Mail-Order Pharmacies

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Most industry experts predict that Amazon’s purchase of PillPack will have little impact on brick and mortar pharmacy stores. After all, if you have been diagnosed with strep throat, you are unlikely to wait a day or more until your prescription arrives.

Baby Boomers currently make up the largest demographic with the need for prescription medications. Though many are comfortable with ordering products online, most still want a personal relationship with their pharmacist.

With this acquisition, it is more likely that mail-order pharmacies like Express Scripts and United Health Group will suffer the most from Amazon’s incursion into the pharmaceutical field. Because Amazon already has an estimated 90 million Amazon Prime customers plus the infrastructure to ship quickly, they are formidable opponents.

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Amazon can also use their significant customer base to deal directly with pharmaceutical companies for lower prices, for example. This would allow them to be offer generic drugs at a lower cost, which would be particularly attractive to customers with high deductibles, large co-pays, or who are without health insurance altogether.

With all this in mind, it’s possible that Amazon could cut pharmaceutical sales at a brick and mortar pharmacy. This would greatly impact drugstore chains. Except … maybe the story isn’t so simple.

PillPack’s Agreements With Providers May Not Be Set In Stone

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A large part of PillPack’s success is due to the innovative system they use to package medications for daily use along with good relationships with providers. However, it turns out that some of PillPack’s agreements with pharmaceutical networks are far from being set in stone.

For example, PillPack was involved in a dispute with Express Scripts who claimed that the startup had misrepresented itself as a brick and mortar pharmacy. Although the disagreement was settled, the original agreement with Express Scripts expired in July. It is unclear as to whether Amazon will be successful in renewing this relationship.

Even more importantly, PillPack is a part of CVS Health networks. With this purchase, it is unlikely that CVS will continue to partner with the competition.

With this combination of unstable variables in the PillPack acquisition, Amazon is still a ways off from becoming a dominant brand in the pharmaceutical industry. There is certainly still a need for brick and mortar pharmacies.

To Wrap it Up

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The facts are that 90% of prescriptions are filled by a brick and mortar pharmacy. It also seems most people are unhappy with the level of customer service and support offered by mail order pharmacies. If Amazon is able to present a better alternative, consumers might just make the jump, but they are far from being an industry disrupter just yet. For now, there is still a significant need for the brick and mortar pharmacy it the prescription drug industry.

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