Wall Street’s reaction to Amazon’s acquisition of PillPack, a small New Hampshire-based online drug retailer, sent a signal to the healthcare world that everything is different now, dude.
The date of June 28 tends to reshape things.
On the same date in 1914, the Archduke Ferdinand of Austria was assassinated, sparking the First World War. In 1919, the Treaty of Versailles was signed, the alleged cause of the Second World War.
On June 28, 2018, Amazon fired the first shot in the coming online drug retail war. For the bargain price of $1 billion, Seattle based Amazon acquired online drug retailer PillPack for nearly three times its previous valuation. Why?
Underscoring the deal’s importance is less the price Amazon paid than the value destruction to the other big drug retailers. Wall Street mercilessly cleaved $14 billion off the stock prices of Walgreens, CVS, McKesson, and Amerisource Bergen — the same day.
Some of the big players are ignoring the realities (just as the great European powers ignored them). The tweet by CNBC’s Carl Quintanilla below is telling.
But given Bezos tendency to be very, very long-term right, it seems prudent to assume he has some moves we don’t see or at least Walgreen CEO Stefano Pessina isn’t saying.
Okay. So what are they?
Four things in this deal are strategic to the Bezos-sphere.
Let’s remind ourselves it comes on the heels of his acquisition of Whole Foods, and the sheer size of this transaction suggests Bezos has a very well thought out plan here, and it’s a doozy.
“Now Bezos gets to do the thing he does best: be impatient. Approvals across the country gives Amazon’s brand name clout a kind of automatic crushing power against rivals.”
He sees retail as a critical component of a customer value chain. With prescriptions, there is a bonus; they are vital not just useful. People have an incentive to shop with him for a very long time (or so they hope).
Secondly, if you think of a market as a living organism, Bezos transplanted powerful arms and legs onto Amazon’s drug business. The reason? PillPack’s secret weapon, and what made the deal so cost-effective, is the online startup has licenses to do business in all in 50 states.
Now Bezos gets to do the thing he does best: be impatient. Approvals across the country gives Amazon’s brand name clout a kind of automatic crushing power against rivals. He gets to go to market instead of having to go through a kludgy drug bureaucracy, his least favorite thing in the world.
And while the company has no international licenses, you can be sure the engineers in Seattle are tweaking the software now.
Thirdly, transparency of pricing means that Bezos will mercilessly exploit the pricing discrepancy between current retail drug prices and online discount distributors. It is a classic Amazon move, he takes a physical business and runs it on algorithms, then prices it like software.
There is yet a fourth wrinkle, and it plays well across the political landscape.
PillPack has an online system — PharmacyOS — which helps manage “patient data and figure out how to balance meds in safe doses for customers.
Don’t think grandmother’s Lipitor. Think uncle’s opioids.
Citizens of this country consume unthinkable quantities of medication and will continue to do so as we live longer. For many of us, it means tipping the scale on dosages, leading to addiction, leading to overdose and deaths. According to the CDC, the sharpest increased in the 70,000 overdose deaths per year came from deaths related to fentanyl and fentanyl analogs (synthetic opioids).
PillPack has an answer.
The online retailer has proprietary technology that may meaningfully counteract this trend. The company’s CEO, TJ Parker said of this service, “PillPack makes it simple for any customer to take the right medication at the right time, and feel healthier. Together with Amazon, we are eager to…help people throughout the U.S. who can benefit…”
Once again, the man from Seattle seems ahead of his time and the market and the competition. Yet we continue to doubt and then be amazed or more accurately, ‘Amazoned.’