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Amazon Pharmacy Deal threatens retail drugstores



Amazon Inc.'s agreement to buy an online pharmacy creates the conditions for the Internet Merchant to make it easier to fill out a prescription. But the deal alone is unlikely to address a major problem for patients and their employers: the high cost of many medications.

The purchase of PillPack will give Amazon a platform for selling drugs, but will not change how high-priced drugs are paid for, say industry experts. And the deal does not give Amazon the know-how to handle the most expensive drug-biotech drugs that require special handling.

"This is a long way from a fundamental disruption to the US drug channel," says

Adam Fein,

CEO of the Drug Channels Institute, which provides drug supply chain research

The details of Amazon's plans remain uncertain. The company has not said how it will use PillPack to get deeper into health care, after some previous attempts to sell medical supplies and over-the-counter medicines.

Amazon declined to comment.

Amazon entry threatens to claim siphon market share from the inpatient pharmacies who have long dominated the $ 41

3 million annual US market for filling prescribing experts. According to the Drug Channels Institute, about 5.8 billion prescriptions are bottled each year.

Amazon was able to deduct customers, especially its loyal Prime members, from the 64,500 retail pharmacies in the US by placing the simple order on the Amazon website and the convenience of fast shipping.

Amazon, which had $ 16.7 billion in cash at the end of March, can afford to undercut its competitors in order to gain market share, much like books. Pharmacies, according to Mr. Fein, earn a gross profit of $ 12- $ 16 per prescription, but much of it serves to finance the overhead costs of running a business.

Retail pharmacies are expected to be in dispute. Mail-order spending slowed in recent years as in-patient pharmacies lowered their prices to bring patients back to their stores and pushed for state laws that limited the possibility of shipping schedules, Fein said. 19659003]

CVS health
Corp.

said in a statement on Thursday that it already offers the services offered by PillPack, but has not seen a "large shift of patients" who are interested in prescriptions by mail. "We are in the market and well positioned in this area," said CVS.

At the bottom of drug costs, the Seattle-based company could have an impact. Amazon quickly applied its order fulfillment and distribution capabilities to pills that typically do not require special handling such as cold storage. And Amazon could use its bargaining power to offer generic pills, which are often offered cheaply enough by several rival manufacturers competing for the price, that patients could afford to pay for them without the help of their health plans Online retailers have met with representatives of the generics industry to learn about the business, the people familiar with the discussions said.

But industry experts say they are struggling on the verge of big US growth Drug spending today is driven by extremely expensive biotech therapies made from living organisms that are often infused or injected, cold storage and are not sold through retail pharmacies. These therapies are usually sold through specialty pharmacies that can handle and deliver complex therapies – and many have not lost patent protection, so they are sold by a single manufacturer that can charge higher sums.

Because of storage and handling issues, Amazon may at least initially be discouraged from selling such medications that treat diseases like cancer, multiple sclerosis, and rheumatoid arthritis.

Much of the power over drug costs is in the hands of middlemen such as pharmacy benefit managers negotiating discounts for employers and insurers. Analysts have speculated that Amazon may be interested in taking over the work of PBMs criticized for paying high copays or deductibles and making money from drug price increases.

But Amazon has decided to concentrate on dosing

The PBMs have said that they would welcome cooperation with Amazon, says Leerink analyst Ana Gupte. "I do not see why they would become a PBM," she says.

Industry experts say Amazon could take away some of the mail-order pharmacy benefit managers through their own pharmacies. PBMs earn about half of their profits from distributing medicines directly to patients, says Ross Muken, an Evercore ISI analyst.

PillPack is also dependent on PBMs to be paid by the patients' insurers. PillPack's current contract with

Hold express scripts
Co.

, one of the largest PBMs, expires at the end of July, says Express Scripts spokesman

Brian Henry.

"We have not reached agreement on [payment] rates and an investigation into whether PillPack is in compliance with the terms of the contract," says Mr. Henry. "If PillPack chooses to terminate our agreement, we commit ourselves to not fill gaps in our patient care."

A PillPack spokeswoman declined to comment.

Write to Jonathan D. Rockoff to Jonathan.rockoff@wsj.com and Joseph Walker to joseph.walker@wsj.com


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