When Amazon announced last week that it had been buying the web pharmacy PillPack, it sent stocks of drugstore companies like Walgreens and Rite Aid tumbling, as investors worried that the retail behemoth would soon upend the pharmacy market.
But albeit Amazon has transformed the way Americans buy products as different as books and diapers, it's going to not have such a simple time with prescribed drugs.
That’s because to succeed, it'll need to do business with powerful entrenched companies who are not necessarily wishing Amazon well.
As a comparatively small pharmacy with about $100 million in annual revenues, PillPack most likely didn’t attract much attention from the pharmacy industry’s giants, said Eric Percher, an equity research analyst at Nephron Research.
“I think they need absolutely been ready to fly under the radar,” he said.
But now that a household name like Amazon is buying the corporate, “the entities that have enabled PillPack’s success — whether or not they knew it or not — have a choice to form,” he said.
PillPack, which was founded in 2013, distributes pills in easy-to-use packages designed for consumers with chronic conditions and multiple prescriptions.
the corporate sorts prescriptions by the dose and includes a label with an image of every pill and directions on how it should be taken.
While the corporate had a distinct segment appeal, many analysts have speculated that Amazon’s true motivation for purchasing PillPack is to leapfrog its way into the broader prescription drug business because PillPack has pharmacy licenses in 50 states.
It also has relationships with the main pharmacy benefit managers, like Express Scripts and CVS Health, those function gatekeepers to the bulk of USA citizens who are covered by health insurance.
“If you would like to be serious think about prescribed drugs, you’re getting to need to have some relationship with a P.B.M.,” said John Sculley, a former chief executive of Apple, who is now the chief marketing officer of RxAdvance, a pharmacy benefit manager.
Benefits managers have come under criticism for unfairly excluding pharmacies from their networks.
In 2016, PillPack publicly tussled with Express Scripts after the benefits manager excluded the start-up from its mail-order network, saying that PillPack had misrepresented itself as a brick-and-mortar company.
Although that dispute was resolved, Express Scripts said on Friday that its network agreement with PillPack was expiring in July which the 2 companies had not reached an agreement on rates.
It also said that it had been investigating PillPack for “provider compliance,” although it didn't elaborate.
CVS Health said PillPack is in “many” of its pharmacy networks, including for commercially insured consumers also as Medicare beneficiaries.
OptumRx, another large benefit manager, didn't comment, although a spokeswoman for PillPack said the corporate was in OptumRx’s commercial pharmacy network.
She declined to discuss the negotiations over the Express Scripts contract.
Mr. Percher said other industry players can also have an interest in muting Amazon’s success.
PillPack gets its drugs from AmerisourceBergen, a serious distributor.
Walgreens owns 26 percent of AmerisourceBergen and this year was reported to be in talks to shop for the company, a tie that Mr. Percher said could pose a conflict if Amazon sought to directly compete with Walgreens.
Ana Gupte, a senior health care analyst for Leerink Partners said a number of these companies could prefer to partner with Amazon instead.
“They need to decide whether Amazon may be a valid threat or a chance,” Ms. Gupte said.
If Express Scripts finds how to exclude them from its pool of consumers, “Amazon will find other ways to urge into the market, and that they will become a competitor,” she said.
Indeed, several industry executives, including Tim Wentworth, the chief executive of Express Scripts, have expressed interest in working with Amazon.
Express Scripts announced in March that it had been being acquired by the insurer Cigna, one among many health care mergers that were seen to possess been motivated, a minimum of partially, by hints of Amazon’s potential entry into the market.
But Nadina J. Rosier, the health and group benefits pharmacy practice leader at the consulting firm Willis Towers Watson said she was skeptical that Amazon would meet up with a longtime company.
“It’s looking to partner with other innovators, not just your standard vendors like your traditional P.B.M.s,” she said.
Any partner “would need to be one that brings something to the table in an innovative way.”
The months of speculation have allowed competitors to organize, acting as “a catalyst for participants to shut ranks against competition and invest to enhance the buyer experience,” Mr. Percher wrote during a research note last week.
Last fall, CVS announced it might offer next-day delivery of prescribed drugs and same-day service in some big cities. The next-day delivery began in June, for a fee of $4.99.
In a statement, Express Scripts touted the breadth of its services, saying it delivered more than 100 million prescriptions to patients around the country in 2017.
“Our scale and quality of care provide patients with access to the broader suite of products than other smaller pharmacies,” the corporate said.
Nevertheless, customers have long complained that the mail-order pharmacies travel by companies like Express Scripts and CVS are cumbersome and confusing — perhaps one the reason, even in an era of online shopping, that 90 percent of prescriptions are filled at a retail pharmacy counter, consistent with the info research firm IQVIA.
Peter Blicher, 70, of Vacaville, Calif., said he has used several different mail-order pharmacies over the years.
“It’s very difficult to try to business with them, takes multiple interactions, the customer service is extremely poor,” he said.
If Amazon were to start selling prescription drugs, he said, he would check-in. “I haven’t found another e-commerce website which will compare,” he said.