According to the news report by Bloomberg, Amazon.com is entering the healthcare market by making the decision to buy out online pharmacy PillPack. By doing so, the online retail giant is shaking up a market that is already in the process of a larger metamorphosis.
The threat of Amazon.com entering the healthcare market has been hanging over the industry’s collective head like a Damocles’ sword for a couple of years now. Every few months, rumors have abounded that Amazon was finally entering the market. And every time those rumors started, the healthcare market would see a dip in its share prices.
To ward off the possible threat of Amazon entering the market, multiple insurance and drug-benefit managers have been striking deals with each other to ensure that their market share was safe.
However, now, with the decision to purchase PillPack, Amazon is really entering the healthcare market and is now a real threat to those entrenched companies that have been dreading this very move by the online retail giant.
Currently, this move by Amazon poses a massive threat to pharmacy chains such as CVS Health Corp. and Walgreens Boots Alliance Inc. These two are the largest pharmacy chains in the US. As expected the shares of both these companies sank suddenly after the announcement was made that Amazon was going to buy PillPack. Walgreens Boots’ shares dropped by 8.5% and CVS shares saw a decline of 8.9%.
According to the president of the consulting firm Gist Healthcare, Lisa Bielamowicz, this deal give Amazon.com the chance to disrupt the major drugstore chains pretty much the same way that the company disrupted bookstores, pet supply stores, clothing stores, etc.
According to the terms of the deal, Amazon.com will pay PillPack around $1 billion, and is expected to be finalized by the second half of 2018.
US government data shows that the prescription medicine market in the country is massive. In 2016, retail prescription drugs saw sales of $328.6 billion. CVS alone saw sales worth $59.5 billion in prescription drugs in 2017. Walgreens wasn’t far behind with sales of $57.8 billion for the same time period.
Jeff Bezos, the Chief Executive Officer and Co-Founder of Amazon.com, after having created the world’s largest online retailer, has been using his company’s engineering capability as well as multiple acquisitions to expand beyond retail.
The company was able to enter the huge $800 billion groceries market via the purchase of online grocer, Whole Foods. Amazon.com also challenged the consumer electronics markets with the introduction of its e-reader Kindle and its Echo smart speaker that is voice controlled and uses the virtual assistance Alexa.
Bezos had already voiced his disapproval of the status of the healthcare industry, and, in a landmark move, teamed up with fellow-CEOs, Berkshire Hathaway’s Warren Buffet and JP Morgan Chase & Co.’s Jamie Dimon, to launch a new venture that is going to change the way companies manage employee health benefits. The new venture recently hired famed surgeon and health journalist Atul Gawande to lead the effort.
The new deal with PillPack, however, is going to give Amazon direct access to the healthcare market. Till now, entering the market was proving to be challenging for the retail giant due to the huge logistical challenges in relation to licensing as well as handling a wide range of private and government contractors. Now, with PillPack’s already established network, Amazon.com does not need to worry about these issues.
PillPack has mail order pharmacy licenses in all 50 states of America. This means that Amazon will have access to a ready-made distribution and licensed network, thereby allowing the company to expand really quickly in the healthcare industry.