Should Amazon's PillPack Acquisition Frighten Pharmacies? – The Motley Fool

In a move that makes it to deliver prescriptions to customer homes nationwide, Amazon (NASDAQ: AMZN) is acquiring PillPack for an undisclosed sum that TechCrunch reports approached $ 1 trillion. The acquisition comes years after Amazon has been published in the United States of America, and it has been published in the United States.

Pharmacy benefit managers (PBMs), including Express Scripts (NASDAQ: ESRX) and pharmacy retailers, including Walgreens Boots Alliance (NASDAQ: WBA) and CVS Health (NYSE: CVS) sold off sharply on the PillPack acquisition news.

Disrupting a massive market

Amazon has already said that it is creating an internal PBM to serve its 128,000 employees. JPMorgan Chase and Warren Buffett's Berkshire Hathaway to form a nonprofit, in hopes of reinventing the broader healthcare system.

Now, the company is taking direct attention to retail and mail-order pharmacies. com, it's easy to understand why Amazon is willing to give this another try. In the US in 2017, insurers, government programs, and individuals spent $ 397 billion on prescription medication at pharmacies, according to the Kaiser Family Foundation.

Almost 50% of that's been recouped by the top three pharmacies: CVS Health, Walgreens , and Express Scripts. The other half is pocketed by big-box stores, grocery stores, independent pharmacies, and mail-order pharmacies contracted by insurers and self-insured employers.

What is PillPack?

PillPack is a private, venture-backed company that specializes in filling prescriptions for patients who take multiple medications daily. The company's founders are TJ Parker, a second-generation pharmacist, and Elliot Cohen, a programmer and co-founder of Hacking Medicine at the Massachusetts Institute of Technology (MIT).

After meeting through Hacking Medicine, the two entrepreneurs created PillPack to make it easier for patients to take their medications as prescribed. In the past, prescriptions for the patient and the patient have been compelled for the treatment of patients with multiple medical conditions. Overall, about 40 million Americans take five or more medications per day, and more than half of patients to overcome their challenges.

To overcome these challenges, PillPack developed automated systems that synchronize prescriptions so that they're all on the same schedule; renew prescriptions ahead of time; bill insurance companies;

After PillPack has synchronized a customer's prescriptions to a schedule, the multiple medications are being broken down into packets that are marked with the date and time that patients should be taking them . These daily packets are connected to one another and dispensed like a small box that can fit on a shelf or counter, and they are shipped to patients monthly.

PillPack does not charge patients for shipping charge for creating the pill packets, Instead, patients simply pay the same 30-day co-pay they'd pay anywhere else.

The big threat

Insurers and employers often turn to companies like Express Scripts to manage prescription drug programs. These PBMs pool together their customers' buying power to negotiate prices for drugs from manufacturers. They also provide mail-order pharmacy services, and services designed to help make sure patients take their medicine as planned.

PillPack has already been established with the biggest PBMs, including Express Scripts and CVS Health, and it's an in-network pharmacy option for many of the biggest insurance plans. In addition, because PillPack serves multiple-drug-per-day patients on a 30-day schedule, it is not possible to challenge PBMs or pharmacies.

Eventually, Amazon could build PillPack's infrastructure to a point where it challenges PBMs more directly, but for now, I think it's A larger threat to retail pharmacies

Arguably, nobody 's better than Amazon at distribution. And if Amazon's PillPack to its service and incorporates, it could win millions of customers. Amazon's efforts to speed delivery times, including next-day and same-day services in some markets, could make it a very attractive alternative.

How to get rid of pharmacies?

Amazon loves efficient businesses, so it's probably a big fan of the automated prescription solutions by PillPack. Conceivably, leveraging its supply-chain know-how should accelerate PillPack's operating performance. Depending on how actively Amazon PillPack on its website or in its Whole Foods stores, I believe PillPack's sales could rise significantly in their $ 100 million pace in 2017.

Do not expect a price war at pharmacies, though. Because PillPack charges the same co-pay consumers pay anywhere for a 30-day prescription, Amazon's not competing on price (yet). Any savings it by lowering PillPack's shipping costs and other operating costs, or from negotiating more favorable discounts directly, are likely to benefit Amazon's bottom line, not patients' pockets.

A doubling in sales (or more) would barely tooth this industry. CVS Health and Walgreens Boots, Inc. (2009) For Instances, CVS and Walgreens to Work With Clinics a patient visit. Also, CVS Health is attempting to merge with Aetna an insurer; if that deals with you, you can bet Aetna members will get preferred pricing if they use CVS Health to fill their prescriptions. CVS Health already offers cost savings to members of its SilverScript Medicare Part D plans who use its pharmacies. Furthermore, pharmacies are investigating their own same-day delivery services, which may allow them to break some of Amazon's threat.

In short, pharmacy will take some time. The PillPack is a win for Amazon investors; I think PillPack can deliver significant sales growth, and Amazon's scale can accelerate its path to profitability. It is a loss for pharmacies over the long term, but do not expect PillPack to dethrone them anytime soon.