The news has sent
shock waves through shares of drugstore chains and distributors.
By Angelica LaVito and Matt Day November 17, 2020 at
10:05 AM
(Bloomberg) –Amazon.com Inc. unveiled its
biggest push into selling prescription drugs with the launch of a digital
pharmacy and discounts for paying U.S. Prime members that sent shock waves
through shares of drugstore chains and distributors.
The e-commerce giant on Tuesday unveiled
Amazon Pharmacy, a section of its retail website and mobile application that
lets people order medication. Shoppers can pay using their health insurance.
Prime members who don’t use their insurance are eligible for discounts on generic
and brand-name drugs on Amazon’s site or at about 50,000 participating
pharmacies.
Amazon’s new offering comes more than two
years after its $753 million acquisition of PillPack,
an online pharmacy known for organizing prescriptions into packets. This
expansion puts the Seattle-based e-commerce company into more direct
competition with pharmacy giants CVS Health Corp. and Walgreens Boots Alliance
Inc., the two largest chains in the U.S.
CVS shares fell 8.6% in trading before U.S.
exchanges opened. Walgreens Boots dropped as much as 12%. GoodRx Holdings, a
digital prescription-drug platform, fell 17%. Drug distributor Cardinal Health
Inc. lost 8.5%, while rival McKesson Corp. slid 4.7%.
The move also helps Amazon compete with
Walmart Inc. and other big-box stores that already sell prescription drugs.
Analysts have long expected Amazon to dive
deeper into health care in a bet the company can bring its digital real estate
and logistical prowess to bear on a roughly $4 trillion industry in the U.S.
with a reputation for inefficiency. The company rattled drug retailers with its
PillPack acquisition, but Amazon has been slow to integrate the online pharmacy
startup into its offerings.
The announcement Tuesday marks the first time
that shoppers can order prescription drugs directly on Amazon. Previously, they
were redirected to PillPack’s website. An integrated pharmacy removes one of
the few gaps in Amazon’s offerings compared with major big box and grocery
rivals, some of whom have long filled shoppers’ prescriptions in the same
stores where they sold flat-screen televisions or cans of soup.
The discounts are a clear play for people who
pay for their medications with cash, whether they are uninsured or are looking
to save money. Strong demand for transparency and better deals have helped fuel
the rise of discount card programs like GoodRx Holdings Inc. Amazon will
display both the price when using insurance and the price without. Infusing
transparency into a system that has been frustratingly opaque for consumers
could alter the supply chain.
“We designed Amazon Pharmacy to put customers
first – bringing Amazon’s customer obsession to an industry that can be
inconvenient and confusing,” said TJ Parker, vice president of Amazon Pharmacy
and co-founder of PillPack.
Amazon’s push comes as consumers are shunning
stores and ordering more items online, a trend the coronavirus pandemic has
accelerated. With consumer behavior shifting, chain drugstores have already
started rethinking their strategies. CVS acquired health insurer Aetna for $68
billion in 2018 and is adding more health services to its stores. Walgreens is
dabbling with numerous partnerships to add items like groceries and mobile
phones to its stores.
Amazon could find it difficult to quickly pry
away customers from pharmacy chains. For many consumers, asking doctors to
steer recurring prescriptions elsewhere is cumbersome, especially for those who
rely on insurance to pay for their medication.
In some cases, such a switch might also
require an office visit — at a time when Americans have been steering clear of
the doctor’s office out of concerns about the pandemic. And the ubiquity of the
biggest pharmacy chains means most consumers have one nearby, and shopping at
them is an ingrained habit.
Amazon’s entry into a market doesn’t guarantee
its dominance. Drugstores have long insisted that patients prefer to talk to
their pharmacist at the counter, an experience Amazon will try to recreate
digitally.
Amazon Chief Executive Officer Jeff Bezos has positioned
Prime, Amazon’s paid membership program, at the center of the company’s efforts
to create loyal customers. What was originally an unlimited shipping program
has grown in recent years to include video streaming, games and digital
storage, and discounts at Amazon-owned Whole Foods Market.
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