If Amazon takes over prescription drugs, what’s left for startups?

Despite the looming challenges that would arise for CVS, Walgreens, and prescription drug distribution/delivery startups, there is still room for startups to innovate in other realms of the pharmacy space, such as the physical drug product itself, specialty pharmacy care expertise, and price transparency.

This past month, following the report of Amazon hiring a general manager for its “professional health care program,” there has been more talk than ever of Amazon breaking into the pharmacy space. To add to that, Amazon has recently started selling medical supplies and equipment in the US, hired Mark Lyons from Premera Blue Cross, and has started selling drugs to patients with a pharmacist’s approval via Prime Now Japan.

In the US, retail pharmacy is a $400 billion industry. The multibillion-dollar pharmacy market has been traditionally dominated by giants CVS Health and Walgreens, and the top 15 pharmacies accounted for about three-fourths of all prescription drug revenue in 2016.

Given Amazon’s expertise in e-commerce delivery and supply chain logistics and the fact the most people still pick up their prescriptions in a store (only 14.5% of CVS’s claims were though mail-order in Q1 2017), the pharmacy space seems like a space where Amazon could play its strengths.

Of course there are barriers that Amazon must cross in the complex world of pharmacy and prescription drugs such as the regulatory hurdles and the infamous middlemen pharmacy benefit managers (PBMs), but given Amazon’s history of relentlessness and success in e-commerce, its break into the pharmacy space could mean a serious threat for not only players such as CVS and Walgreens but also startups that are in the realm of prescription drug distribution and delivery. This seems to be the most overwhelmingly popular perspective thus far (examples here and here).

Despite the looming challenges that would arise for CVS, Walgreens, and prescription drug distribution/delivery startups, there is still room for startups to innovate in other realms of the pharmacy space, such as the physical drug product itself, specialty pharmacy care expertise, and price transparency.

For startups whose product offering disrupts the physical prescription drug itself, there is still opportunity, whether it be in the bottle/packaging (like PillPack’s personalized and simplified packaging) or the drug itself. Startups like these are typically working on the problem of medication nonadherence (patients’ failure to take prescribed medication as directed), which in 2013 directly and indirectly cost the US around $337 billion. About one out of every nine dollars spent was wasted because of medication nonadherence due to reasons ranging from missing doses to misunderstanding instructions.

Secondly, Amazon at its core is an e-commerce company, not a healthcare company. Amazon’s leading expertise in e-commerce delivery and supply chain logistics is unlikely to expand into leading expertise in healthcare/pharmacy anytime soon. This kind of expertise is especially interesting given the fact that specialty pharmacies are a $100 billion market in the US alone that is growing because of new and expensive medicines to treat serious and/or diseases such as hepatitis C and cystic fibrosis.

For example, Walgreens’ specialty pharmacy offers customized programs that helps customers manage their conditions, with specially trained pharmacists, nurses, and care coordinators to provide one-on-one support for anything from monitoring symptoms and medication responses to injection training coordination. Similarly, ExpressScripts’ specialty pharmacy Accredo offers clinical care model through which highly specialized pharmacists and nurses deliver individualized patient care.

There’s room for disruption in the specialty pharmacy space to offer this level of medical expertise and patient care in addition to the core prescription pharmacy business. And while Amazon is known to offer good customer service on its platform (relative to other e-commerce companies), medical expertise is a different ballgame that requires a great deal of trust, which may be difficult for customers to wrap their heads around because Amazon’s brand is so strongly associated with e-commerce and consumerism.

Lastly, given Amazon’s history, Amazon’s break into pharmacy will likely bring far more price transparency to the existing market. This is far than just a win for consumers — it would be a win for startups like GoodRx and ScriptDash that focus on finding the lowest and most transparent prices for its customers. If Amazon competes against PBMs like Express Scripts, it would synergistically help not only startups focused on price transparency but the entire prescription drug industry as a whole.

It’s still too early to tell what exactly the prescription pharmacy landscape would look like with Amazon’s entrance. But nonetheless, it would be quite impactful beyond just what meets the eye.

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