Amazon has rapidly made itself a household name over the past few years. Its CEO, Jeff Bezos, is the world’s richest man, and his wealth shows no signs of stagnating. Part of the Seattle-based company’s success can be attributed to its adventurous nature; it dabbles in a lot of different industries.
Most recently, the tech behemoth acquired MedTech development company PillPack.
Modernizing the Pharmaceutical Industry
PillPack’s an online pharmacy that automates many pharmacy tasks, like packaging and organizing pre-sorted medication amounts. It also delivers the medicine. The company ships to all 50 states in the U.S. and earned over $100 million in revenue last year.
Jeff Wilke is the CEO of Amazon’s Worldwide Consumer branch. Regarding the PillPack acquisition, he says, “PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology. PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier. We’re excited to see what we can do together on behalf of customers over time.”
Packing a Punch
Things are looking bright for Amazon and PillPack. But when the company confirmed the acquisition to media outlets, Rite Aid, Walgreens, and CVS’s stocks dropped a total of $11 billion in market value. Amazon saw an increase of 2.5% in stock price, equivalent to almost $20 billion in market value.
People spent almost $330 billion on medicine from pharmacies in 2016. And Walgreens and CVS took home about $60 billion each in 2017.
Amazon’s interest in pharmaceuticals, medical insurance, and medicine isn’t new. Bezos has joined a list of high-ranking moguls, like Bill Gates and Warren Buffet, to publicly denounce the healthcare system in the U.S. And “when Amazon sneezes, everybody else catches a cold,” says Joseph Feldman, who works as an analyst at Telsey Advisory.
Although there aren’t many specifics on the acquisition, analysts like George Hill at RBC Capital Markets say, “We suspect Amazon’s official entry into the space will now place a cap on drug supply chain multiples, regardless of whether or not Amazon is able to scale the PillPack business. While Amazon represents a significant new entrant in the space, we remind investors that Rxs are sticky and PillPack focuses on difficult-to-serve patients without access to adequate pharmacy services.”
Competitors Should Brace for Impact
CVS’s rebuttal came in a statement: “We already have the capabilities that PillPack is offering and we have scale in the business. Keep in mind, that we have not seen a large shift of patients that are looking for their medications to be delivered versus coming to a retail pharmacy.”
It’s been shown that consumers will flock to a new service even if their current provider offers the same service. PillPack’s modern packaging, ease-of-use, and lack of need to contact a real-life person is a major attraction for patients. Walgreens, CVS, and Rite Aid must pivot slightly now, or they could get lost in the inevitable tech wave.
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