Another Amazon’ed effect

It is a common pheromone nowadays that, when Amazon sneezes, everybody else catches a cold! So a new English word is created now: Amazon’ed, meaning something has been disrupted by Amazon. We are just witnessing a new Amazon’ed effect!

 

I hope it is not any surprise to you here as we talked about this potential move by Amazon a while ago (see here). Here is what I said: I’m thinking loud that there is a reasonable chance that Amazon may also want to jump start by buying a retail pharmacy company. This will allow Amazon to take off the regulatory risk immediately and deep dive into the business much smoothly. At that time, I figured Rite Aid could be the target for Amazon but now looking at the business model of PillPack to be acquired by Amazon, I must say Amazon has made a brilliant move. Of course I’m not as smart as Bezos that I know very well!

 

So why PiilPack is such a good fit for Amazon’s ambition to tackle into the online pharmacy business? Per Bloomberg:  

 

PillPack has mail-order pharmacy licenses in all 50 U.S. states, which could allow Amazon to expand quickly. PillPack also has relationships with most major drug-benefit managers, including Express Scripts and CVS, and says it works with most Medicare Part D drug plans. Those ties will give Amazon access to much of the prescription drug market in the U.S.

 

PillPack sells pre-sorted packets of prescriptions drugs, delivering them to customers in their homes. The closely held firm has software that automates many tasks, such as verifying when a refill is due, determining co-pays, and confirming insurance. That eliminates much of the manual work that pharmacists often are saddled with now.

 

So it is almost like a turnkey business for Amazon that is already in a model nicely fit into the Amazon’s. No wonder all pharmacy retailers including the industry giants CVS and Walgreens have all been wiped out close to 10% of their market cap immediately following the breakout of the news. Ouch! The question is if this is really such a threat to traditional pharmacies? My thinking is Yes and No. I think the long term threat to them is very real and it can come fast to totally disrupt their business model. They better take it seriously and immediately, if not yet, start to think about how to adjust and change their model to be more “Amazonized”, i.e. shifting more to online than store-based pharmacy. Otherwise their life span may be numbered in just a few years, if not faster. Having said that, it takes time for Amazon to fully materialize its ambition and the short term impact should be much less than feared. You see, PillPack is already very active in competing with other pharmacies and I doubt there will be any material changes in the next 1-2 years in terms of competition to the current physical pharmacy retailers. And good companies like CVS and Walgreens won’t just wait and see but likely will also adjust and fight back with their new models. This remind me of what happened when Amazon took over Whole Food about a year ago. The fear to the whole grocery sector was equally strong and they were all haircut by the similar scale, including Walmart, Costco and Target. See what happened following the initial shock? Overreaction as always. I think this is also a very likely scenario for CVS and Walgreens that they will recover in the near future from this tumbling due to being Amazoned. So don’t give up CVS/WBA just yet, especially for their near future!
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