Amazon to Acquire PillPack for a Reported $1 Billion, Bolstering Pharmacy Ambitions

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KEY POINTS

  • Amazon has entered into an agreement to acquire US-based online pharmacy PillPack.
  • The transaction is subject to regulatory approvals and is expected to close in the second half of 2018.
  • PillPack holds pharmacy licenses across all 50 states in the US, is accredited by two trade bodies and has developed a proprietary pharmacy management system called PharmacyOS.

Amazon to Acquire Online Pharmacy PillPack

On June 28, Amazon announced that it had entered into an agreement to buy US-based online pharmacy PillPack. Amazon did not reveal details of the consideration, but news website CNBC cited sources and reported that Amazon made an offer of $1 billion to acquire PillPack after Walmart procrastinated on delivering a higher offer to the pharmacy retailer, despite entering into negotiations months before Amazon entered the fray.

In this flash report, we outline some of the implications of this deal.

What Does PillPack Have to Offer?

PillPack sells prescription drugs in convenient packaging for patients with chronic conditions or those with multiple prescriptions. PillPack’s business arsenal is packed with several tools that Amazon will have at its disposal to become a worthy contender in drug retail and distribution: 

  1. Drug licenses in all 50 states: This will help eliminate Amazon’s need to acquire licenses for each state. Amazon had already acquired licenses in 12 states as of November 2017, and it would be rather challenging for it to acquire licenses in all states, considering that it is not a specialist drug retailer.
  2. Accreditations from recognized trade bodies: PillPack holds accreditations from the Utilization Review Accreditation Commission (URAC) and the Verified Pharmacy Practice Sites (VIPPS) program. URAC is a nonprofit organization that reviews business practices and monitors quality improvement and management of firms involved in healthcare provision. Several institutional healthcare consumers and other stakeholders in the industry require the businesses they work with to be URAC certified.
    VIPPS reviews if Internet pharmacies are operating in compliance with US regulations, and its accreditation provides several benefits including being considered an authentic pharmacy retailer by payment network providers.
  3. In-network pharmacy with several PBMs: According to its website, PillPack “is an in-network pharmacy with all major pharmacy benefit managers, including the following: CVS Caremark, Express Scripts, Optum Rx, Prime Therapeutics, Humana Pharmacy Solutions, Cigna, Aetna, MedImpact, EnvisionRx and CastiaRX. As part of these relationships, PillPack is also in network with most major Medicare Part D plans.” This helps prescription drug users to obtain higher discounts from PillPack than from out-of-network pharmacies.
  4. PharmacyOS, a Proprietary Pharmacy Management System: PillPack’s PharmacyOS is a pharmacy application that helps pharmacists and consumers manage medications. Its proprietary software and engine is capable of processing multiple prescriptions at once, which is challenging for regular pharmacy management applications. It automatically checks when a customer’s prescriptions are running out and prompts to order refills. The system also processes insurance checks and claims.

Amazon’s Pharmacy Ambitions 

As PillPack offers all of the aforementioned features, as well as its existing customer base, distribution channel, logistics network and drug retail expertise, it is easy to see why Amazon chose this route to cement its entry into the pharmacy sector.

Amazon’s intentions to penetrate the pharmacy sector have been apparent for at least a year.

We reported in November 2017 that, although Amazon had not explicitly stated its intentions to enter the pharmacy sector, it had held strategic meetings, hired relevant personnel and acquired wholesale drug distribution licenses in several states—signs that pointed to its imminent entry into the pharmacy sector. 

We had also anticipated that Amazon might acquire a pharmacy chain to conduct business. While PillPack is not a pharmacy chain it does have nationwide distribution. 

Other moves we had expected from Amazon if it decided to expand into the pharmacy market were:

  1. Become an online pharmacy retailer: Since Amazon already sells over-the-counter (OTC) medications and health supplements on its US website, this seemed like the most likely choice. Having PillPack in its portfolio will accelerate this distribution channel.
  2. Become a wholesale distributor: Amazon had acquired wholesale drug distribution licenses in 12 states at the time of publishing. It is unclear whether the company had acquired licenses on its own in the other 38 states. With PillPack already licensed in all 50 states, it may not be necessary for Amazon to pursue these licenses after all.
  3. Create independent Amazon pharmacies or in-store pharmacies at Whole Foods: Amazon could still set up PillPack-branded or self-branded in-store pharmacies at the Whole Foods locations that it acquired, or use those stores as pickup points for drugs ordered online.

The acquisition of PillPack seems to present opportunities for all of these to materialize.

What Else Has Amazon Done?

In January this year, Amazon took another major step into healthcare—it formed a venture along with conglomerate Berkshire Hathaway and investment bank JPMorgan to address the healthcare of their combined staff of over 1.2 million. The joint press release revealed that “the initial focus of the new company will be on technology solutions that will provide US employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.”

What We Think

PillPack’s USP is that it is an online pharmacy pure play and its operations have immense potential to synergize with Amazon’s extensive retail operations. With the acquisition of PillPack, Amazon can bypass the challenges that typically accompany the entry of a new player into a segment unknown to it. Amazon’s existing scale of operations combined with PillPack’s expertise will help it reach a wider audience and compete at a similar level as established players in drug retail.