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How Amazon could crack the $ 300 billion pharmacy market



Amazon.com Inc. buys its way into the pharmacy business. Now the question arises how big it can become.

PillPack, the startup pharmacy that Amazon buys for about $ 1 billion, is initially focusing on a tight segment of patients taking many different medications. It packs pills in single packs that help people remember when to take their medications on a daily basis – a common challenge for people taking diabetes, high cholesterol and high blood pressure, for example.

PillPack has the basic infrastructure that Amazon needs: mail-order pharmacy licenses in all 50 states, multiple pharmacy locations and a call center. Eric Coldwell, an analyst at Robert W. Baird & Co., called it a "frontal attack" on the pharmacy sector.

"It's trying to eliminate two pain points ̵

1; visiting the pharmacy and dosing several medications," said Kathy Hempstead, Senior Advisor to the Robert Wood Johnson Foundation. "Scaling this option onto Amazon's vast distribution network could have great potential."

Here are four key questions about the plans of the online retail giant:

1. Can Amazon scale it?

PillPack is still a niche player among the [328,6 Milliarden US-Dollar] issued for US retail sales. According to analyst reports, it serves only 40,000 customers. The big question for Amazon is how big the business can be and how fast.

"We are less than 18 months away from major disruptions," said Adam Fein, CEO of the consulting firm Drug Channels Institute. "Amazon will be able to challenge many of the ways that pharmacy users and payers manage their networks, and it's going to be hard to keep Amazon out."

PillPack estimates that there are tens of millions of patients Take medication for several chronic diseases. The next step is the targeted treatment of patients who take only one drug, or of patients who only take short medications, for example, to treat an infection. Acute treatments account for about one-third of the market, while chronic care medications make up the rest, analyst Ana Gupte of Leerink Partners said.

Amazon could also target paying customers and offer cheap generic drugs to uninsured people offering high deductibles. That could compete with Walmart Inc.'s $ 4 Generic Generic Program.

"I see no reason they could not scale it," said Howard Deutsch, a director at ZS Associates, a sales and marketing consultancy partnering with healthcare companies. "I can imagine a future in which I say, Alexa, send me the Lipitor recipe."

. 2 Will existing actors in the drug supply chain fight back?

It is very likely.

The deal is a long-term threat to retail pharmacies such as Walgreens Boots Alliance Inc. and CVS Health Corp. Thousands of US locations – and their shares plummeted on Thursday after announcement of the transaction. Insurers and pharmacy users, including Express Scripts Holding Co., are directing their customers to their own mail order businesses, which PillPack could compete with.

While PillPack has agreements with all major drug administrators, including Express Scripts

"Even if PillPack is a network provider today, that does not mean that it will be a network provider in the future, especially if Amazon significantly increases its prescription volume can, "said analyst Steven Halper in Cantor Fitzgerald

In 2016, Express Scripts threatened to remove PillPack from its pharmacy network, according to news at that time. The two sides eventually reached a deal that PillPack should stick to, though Express Scripts said their current agreement will end next month.

"We have not reached agreement on rates and an investigation of provider compliance is ongoing," said Brian Henry for Express Scripts, Thursday. "If PillPack chooses to terminate our agreement, we commit ourselves to not fill gaps in our patient care."

. 3 How does PillPack fit in with Amazon's other health plans?

Amazon is working with Berkshire Hathaway Inc. and JPMorgan Chase & Co. on a joint venture to improve the healthcare of more than 1 million employees and family members for whom they cover. While it is not clear what role an Amazon prescription service would play, access to cheap drugs for mail order could be an opportunity.

The new company is headed by surgeon and journalist Atul Gawande, who would take his initiative aimed at facilitators in the healthcare system as part of a comprehensive effort to reduce wasteful spending.

"My job for them is to find ways in which we can achieve better results, better satisfaction with care, and better cost-effectiveness of new models," said Gawande over the weekend.

. 4 Can Amazon use its existing delivery network?

Theoretically, drugs could be shipped with anything Amazon already sells. It could also break contracts to give Amazon Prime members a lower cost. And with the purchase of Whole Foods last year, it has a network of inpatient locations where it could theoretically find pharmacy pickups.

The chronic care drugs that PillPack specializes in now do not need fast delivery. But Amazon could integrate the PillPack capabilities with its own faster drop-off capabilities to offer "instant deliveries of acute medicines that make up a third of the market," said Leerup Partners' Gupte.

CVS is already delivering medication to patients. A spokeswoman for CVS said the drugstore chain already has the capabilities PillPack offers, and "we have economies of scale in the business."

So far, however, the patients were not so interested. Lanctot said that CVS did not see a major shift in patients requiring medication rather than finding it in stores.

– With the support of Emily McCormick


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