Amazon: Your New Favorite Drug Dealer
In one fell swoop 15 billion dollars disappeared. CVS, Walgreens, Rite Aid, and Express Scripts share prices all took a tumble by virtue of fear striking the heart of their investors. The culprit? I’m sure you can guess who. With Amazon’s near $1B acquisition of PillPack they’ve made their intentions perfectly clear, they’re going into the lucrative and complex world of legal drug dealing.
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PillPack is a fast-growing pharmaceutical mail order delivery startup that makes keeping track of prescriptions easy. They also have been butting heads with Express Scripts and other behemoth incumbents in the pharmaceutical space. This is why they’re the perfect acquisition target for Amazon.
The pharmacy and drug distribution industry is currently going through a mass disruption in the same way retail has been over the past decade. Pharmacies were able to hold on longer because of both the complexity and seriousness of what they sell. It’s an industry with immense regulation, and consequences of failed logistics. If your new yoga mat you bought on Amazon gets lost in the mail, not a big deal, if your heart medication gets lost, well… you get the idea. But, technology progresses and complex problems are constantly being solved, and the convoluted pharmacy business is being simplified.
Digital Pharmacies Are Gaining Huge Market Share on Retail
The last major change in the pharmacy business was the introduction of mail order delivery, which took a major chunk out of the retail pharmacy market share (~22%). But retail was able to remain dominant with about 78% hold on the market because of the convenience and ability for patients to get their prescriptions in the same day as their visit to the doctor. Amazon is about to change that.
Startups such as NowRx, NimbleRx, Alto, and others have all been competing in the in-home, same-day delivery business for about three years now and are growing. But, they lack the capital resources and logistical infrastructure that Amazon has. And with the acquisition of PillPack, Amazon now has pharmaceutical licenses and operations that can reach all 50 states, which none of the competing startups can claim.
How Amazon is Going to Crush Existing Pharmacies
Not only did Amazon announce the acquisition of PillPack this week though, they sneakily announced Amazon Logistics, a new partnership program that allows anyone to start their own delivery company for only $10,000 in start up costs. The implications of such a program spread far wider that drug delivery, but let’s stay focused on that. With the infrastructure that Amazon already has, coupled with distributed network of delivery drivers, Amazon could easily provide same-day delivery for prescriptions across the US. They have a serious opportunity to get stranglehold on the $330B+ pharmacy industry and grow their already vast list of product offerings.
“The Everything Store” is an Understatement
Amazon wants to be your one stop shop for anything and everything, and it’s working. Their latest report shows that 63% of US households are Amazon Prime members and that number is expected to grow. With the acquisition of Whole Foods in 2017, and now a move into the pharmaceutical space, Amazon has expanded its potential revenues by over $1 trillion for the coming decade. Yes, you read that right, these are two massive markets that are both quickly moving digital. Online grocery sales were up $20 billion in 2017, and are only expected to increase. And it’s likely that 50% or more of the $335 billion pharmacy business will move online with the next few years as well. As someone who once owned Amazon shares but sold when they reached a market cap of $600 billion because I thought “How much more can they grow?”, Jeff Bezos and the brilliant folks at Amazon continue to prove people wrong. They’re on the fast track to being a $1 trillion company, and could be worth even double that in 5-10 years if they keep disrupting massive markets.
For now we’ll have to wait and see what Amazon’s got up its sleeve next, and which industry will see its share prices plummeting on the news of big, bad Amazon entering their space.