Amazon purchases PillPack. What is that?
Thursday, July 12, 2018
Once again, Amazon has given healthcare a shake-up, this time with a reported $1 billion purchase of a prescription delivery service called PillPack that, frankly, many people had never heard of. PillPack? What is that?
A Bloomberg article described PillPack as servicing a "narrow segment of patients." But with a reported 2017 revenue of $100 million, it seems to have done pretty well with a skinny slice of the prescription pie.
PillPack was the brainchild of a second-generation pharmacist, TJ Parker, and a friend of his from MIT, Elliot Cohen.
TJ had a passion to simplify medication adherence by targeting patients taking five or more medications and packaging them in a simplified pouch, organized by the dosage time and clearly marked with the contents. They created the packaging and software themselves.
"Our ambition is to not just make pharmacy better, but healthcare better, and make it less of an obnoxious experience," said Parker, PillPack’s CEO.
Just three years ago, a Forbes article on the company stated, "A tiny New Hampshire startup is revolutionizing the way millions of patients take their daily medicines — and threatening the business model of titans like CVS and Walgreens in the process."
PillPack doesn’t look so tiny anymore. Fast forward to today, and the news of Amazon’s purchase of PillPack caused a market earthquake that sent stocks of CVS Health, Walgreens Boots Alliance, Rite Aid and others plummeting to the tune of about $12.8 billion in market value in a single day.
Clearly, Amazon admired the entrepreneurial efforts and success of this young company enough to put some serious skin in the prescription distribution market.
According to Amazon Worldwide Consumer CEO Jeff Wilke, "PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology. PillPack is meaningfully improving its customer’s lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier."
Not bad for a little company based out of Manchester, New Hampshire.
But the question remains as to whether Amazon can figure out a way to significantly capitalize on this investment and drive additional market share. Personally, I think this was a far better strategy for Amazon than the initial speculation a year ago that they might try to start such a pharmacy business themselves from scratch.
Amazon already has the audience and basic infrastructure to scale this business. Through its website and mobile app, it could quickly target patients, particularly those who pay out of pocket for their meds and would appreciate both the savings and convenience.
Howard Deutsch, a principal at ZS Associates, stated in the aforementioned Bloomberg article, "I can imagine a future where I say, ‘Alexa, send me the Lipitor prescription.’" Personally, I can see this, too.
But I also see some serious risk involved in this latest Amazon investment into healthcare.
Pharmacy contracts are fragile, often changing from year to year, causing major shifts in the market. While a focus on cash business may offset that risk, it also comes with some margin liabilities.
It is hard to deliver prescriptions more cheaply than the current $4 and $9 deals offered by many retail pharmacies today. Such pricing doesn’t leave much room to cover staffing, software, shipping and a whole host of other pharmacy business expenses.
But the whole development of this strategy has all the makings of a great story. There is the little-known startup acquired by the massive international business mogul. There are fierce competitors vying for market share and determined not to lose business to an ambitious bookseller.
It makes we want to grab some popcorn and watch it all play out. Alexa, pop me some popcorn please.
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