Amazon to disrupt prescription medicine supply chains?

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Amazon has disrupted retail, changed perceptions on online groceries and has redefined logistics and last mile delivery. Now the e-commerce behemoth may be turning its eye towards the US prescription drug retail industry. According to Kaiser Family Foundation, Americans spend $379 billion on prescription medicine annually. According to CNBC news media outlet, Amazon is looking to hire a business lead to study how it can enter the market.

If Amazon decides to enter the US market it would not be the first venture into pharmaceuticals. According to Japan Times, Amazon expanded its Prime Now delivery service within the country to include drugs and cosmetic sales. In fact, on its Japanese website, ‘pharmaceuticals’ are listed and sells drugs to patients with approval from a pharmacist. For fulfillment, Amazon has partnered with Japanese pharmacy chains Cocokara Fine Inc. and Matsumotokiyoshi Holdings.

The ‘Amazon Effect’ and Pharmaceuticals

So, can Amazon spread its magic to the pharmaceutical market? According to Segal Consulting, prescription drug costs increased by almost 12% in 2017 and 11.3% in 2016. Major drug store companies such as CVS and Walgreens offer mail order delivery and Express Scripts and United health/OptumRX offer online prescription delivery. However, as we have seen, Amazon has disrupted the last mile delivery and through its Prime membership can offer 2-day or even same day delivery in certain locations. In addition, Amazon’s Dash service allows customers to subscribe to products that show up on a schedule such as pet food, toilet paper and yes, perhaps even pharmaceuticals if it decides to pursue.

Whether or not Amazon will chose to partner with a pharmacy chain or go it alone is another big question. Going it alone could mean establishing its own FDA regulated warehousing that would include temperature-controlled sections. Amazon already has some temperature-ready warehousing that supports its Amazon Fresh online grocery delivery service, so this would not be farfetched for the company to do. Instead of its own warehousing, Amazon could partner with pharmaceutical manufacturers (or its distributors) and ship direct from their facilities to the customer. Sometimes this is a less expensive way to ship goods and often with quicker delivery times.  

What Impact Could Amazon Make?

It’s all still unknown but CNBC interviewed the co-founder of GoodRx, Stephen Buck who anticipates Amazon to have a major impact. According to Mr. Buck, Amazon could introduce more transparency to what drugs really cost. He further estimates that it could be a $25 billion to $50 billion market opportunity for Amazon. But, perhaps one of the biggest challenges it would face would be prescription transfer laws and e-prescribing. These are more difficult to overcome versus “putting something in a cart and checking out.”

On the flip side, Mizuho Securities USA suggests that it would too costly for Amazon to enter the pharmacy market because it would not be able to offer generic discounts any higher than industry leaders already do. Amazon would be competing with an already built-out-mail-order drug environment. In addition, analysts have noted that many independent pharmacies have provided next day or even same day home delivery at no cost. One has to remember though, that ‘free shipping’ is not really free for those businesses that provide it. How much is this perk costing pharmacies? It’s all certainly a challenge, but Amazon seems to thrive on such ‘opportunities’.

Will They or Won’t They?

It seems to be a favorite pastime for many analysts to forecast Amazon’s next move and Amazon hasn’t ventured to confirm any reports as of yet. However, this latest rumor could result in a welcome relief for many US customers who have to dole out a chunk of money for pharmaceuticals. It will not be an easy market to break into nor will it be a cheap one in terms of investment. Amazon would be faced with a number of regulatory requirements it would have to follow as well as ensure employees are trained in the management and possible delivery of pharmacueticals. Stay tuned.