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The Future of Amazon’s Online Pharmacy | Gavel and Pestle

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PillPack was acquired by Amazon for almost a billion dollars. In this Gavel and Pestle podcast episode, we discuss what that means for pharmacists.

Darshan: Hey, Major. This is our next episode of the Gavel & Pestle. Are you ready today?

Major: Yes, sir. My names Major. This is Darshan. And today we're going to be talking about the PillPack acquisition with Amazon, and how that affects pharmacists. Is that anywhere close to our topic?

Darshan: That is very much our topic, hopefully. Otherwise, we're both doing the wrong thing.

Major: Oh, no.

Darshan: I'm really excited. It's sort of exactly what we thought it would be. We have news report in that, as you all know, PillPack was acquired by Amazon. The big question that we get now is, what does this mean for [crosstalk 00:00:48]?

Major: A bit of background. What is PillPack? What were they before? And why was Amazon interested?

Darshan: Great question. PillPack is a pharmacy that was bought by ... Well, basically what they did is they would provide medications. They put multiple pills into a pack and they put it into a blister. And when they put things into a blister, the patient would just get a list of medications that they take on the daily. Let's say they want to take their medication at 9:00, they would get all five medications in the same sort of packet. They wouldn't have to sit and sort it out.

Major: By blister, you mean the plastic packaging. You don't mean an actual blister.

Darshan: Yeah. I did mean the plastic packet. Blister packing usually implies a unit dosing, but same basic concept.

Major: Right. Amazon acquired PillPack-

Darshan: So it's not a blister pack.

Major: Right. They acquired PillPack primarily because of what they're doing. Right? So that Amazon could have the same function.

Darshan: That's the big question. Right? What exactly are Amazon's goals with PillPack? What I think is fascinating about PillPack is, it's just another online pharmacy. They have a decent number of customers. There's nothing crazy about it, but CVS, Walgreens they've all come out and said that in terms of just the number of patients that are affected it's negligible. It's not a huge deal for the pharmacies themselves. What they're not all admitting is the fact of the impact that it has. Amazon was having a hard time showing any kind of entry into the pharmacy world.

Since our last conversation, and we had a couple of talks about this last year, probably around October, November. I know we had a very brief conversation a couple months ago, couple weeks ago maybe, and we talked about how Amazon was struggling. They were originally trying to figure out if they were going to just supply medical devices. There was some discussion of them going all-in through sort of starting their own pharmacy. But we were talking about how they were floundering. They lost the license. They gave up their license, I believe it was in Maine. And we thought that there would be a massive delay while Amazon ramps up.

Well, Amazon sort of bypassed that whole system and they said, instead of trying to figure this whole thing out, we'll just buy someone who already figured it all out. They went to a 32-year-old who owned PillPack, and they basically said, we want to buy your company. Now, here's the interesting part. Walmart was looking to buy PillPack, and they were looking to buy it for 700 million dollars. That's pretty damn good.

Major: Wow.

Darshan: Now, here's the problem with that. They decided to slow down because they thought there might be some regulatory concerns. And Amazon-

Major: Walmart slowed down?

Darshan: Yeah, Walmart slowed down. They thought that the acquisition of PillPack may cause regulatory concerns.

Major: Okay.

Darshan: Amazon saw it as an opportunity, jumped in, and they basically bought them for, I believe, a little over a billion dollars in my recollection. Or it was around a billion dollars. It may not be over. Around a billion dollars. But the funny thing is-

Major: But they swooped in and snagged it.

Darshan: Exactly. The funny part is that this billion dollar acquisition caused Walgreens, CVS, and Rite Aid to lose 11 billion dollars in value, after Amazon bought them. So obviously, investors are scared. They're scared about what does Amazon mean? I don't think they're worried about is there poaching of customers? Or does Amazon have a strong foothold? They just need an entry point and a position to sort of see what happens in the real world with their ideas, and that's what PillPack gives them. The opportunity to explore. Amazon has some good lawyers. They have some good regulatory people. Go ahead.

Major: I was thinking Amazon recently started offering the opportunity to own your own delivery franchise. Probably to circumvent UPS and FedEx, and the issues surrounding that, but this could be interpreted, maybe, as another piece to the puzzle of how Amazon would get medications directly to the consumer. Right? But the acquisition of PillPack, that we're talking about right now, it seems to be another puzzle piece to the same puzzle, but how big of a piece is that?

Darshan: I think that what Amazon has done very, very well is they have figured out last mile delivery. Last mile delivery, just so everyone knows, it really comes from the telecommunication industry. And what that means is everyone knows how to take those big wires and run them across the entire US or across the entire world. What people struggle with is how do you get it from that pole, which is outside your house, to inside your house? So that's called the last mile, and that's the most difficult part because it's got to go into everyone's homes. And that's the most difficult part of everything. The shipping things to distribution sites has never been a problem for most distributors. They've all figured that out. How do you get it into a patient's house? And that's what everyone struggled with.

So as you just pointed out, Amazon's purchase of PillPack, and then it's ability and it's offer to help people start their own delivery business, is very much a shot across the bow of these large pharmacy chains. CVS tried to battle it by offering to do home deliveries themselves, but it seems so reactionary. It doesn't seem like it's something they wanted to do. It comes across as, almost, we know that they're going to get into this, we better do something quickly.

Major: You mentioned CVS. How does the Amazon puzzle to bring medication directly to consumers, how does that affect sales on the pharmacists? How does it affect pharmacists? Right?

Darshan: That's the big question. It's going to depend on what type of pharmacists you are. Right? So the question is, what is the role of pharmacists as we continue? If pharmacy as a profession is going to be a profession that simply says we distribute pills, Amazon and the companies like Amazon, technology companies, are going to come in and they're going to be able to get medications to patients a lot quicker. So if you're looking at purely from a sales perspective, using that as your differentiation point, you're going to have trouble.

However, if you look at pharmacy as a consultative profession, a profession where you talk to patients, pharmacists are the last caregiver that most patients look at as part of the medication delivery service. They're the people that they can talk to and understand more about the medications. If you provide those services in many ways, and adapt and change and modify, then you're going to be in a world where pharmacists are going to see increased sales. And Amazon simply cannot compete.

Now, here's what Amazon's going to do. Amazon's going to start collecting patient data. They're going to compute that data. They're going to find out patient's needs and they're going to be able to organize that in light of other patient purchases. When all that comes together, they're going to be able to give patients and upsell patients for a lot of different things. What pharmacies used to do is that they would put like greeting cards and the chewing gum all in the front, and then the pharmacy in the back so you'd have to walk past the greeting cards and the chewing gum to get your prescriptions.

Major: Right. Right. Impulsive buy.

Darshan: Well, that's what Amazon's going to do, except it's going to be virtual.

Major: Okay.

Darshan: Amazon's going to compete with you directly there, so you need to figure out either how are you going to work with Amazon? Or provide a service that's different from Amazon. There are going to be pharmacies that eventually die out because they did not adapt. What you as a pharmacists needs to do is figure out what makes you different? What makes you survive?

One of the things that we didn't know last year, that we do now is, is Amazon going to simply give medications to pharmacies and tell them we will avoid the GPOs, and we will avoid the PBMs, and we'll directly give to the pharmacies? No. They're actually going to skip by the pharmacies, as well. They will be a pharmacy themselves and directly send to the patient.

What this might also result in is making of strange bedfellows. And what I mean by that is it reminds me of that famous saying, "The enemy of my enemy is my friend." So what's going to happen is they're going to get pharmacies going I hate PBMs, but they're as desperate to survive right now, as I am. So PBMs are going to start to want to play nice with pharmacists. GPOs who had purchasing power will suddenly get more power because they might just talk to Amazon directly and say, you know what? I will directly purchase from you instead of going through these PBMs and going through other distributors. And that will scare other organizations, and they will try to play nice.

So it's going to make for newer players to reorganize themselves and figure out what the new role is. So stay tuned. The question about how this affects pharmacists is going to become a very individualized result. Overall, I think that sales from pharmacies, in the next three years or so, will decrease because patients are going to look for ease of use. And unless you're going to make it easy for patients, you're going to have a harder time competing because it's harder to compete against someone who says, "You don't have to leave your house. I will send you what you need in your house."

There are still limitations like controlled substances. There are still conversations that you need to have. Those will be harder to eliminate. Things like, I need my antibiotics and I need them right now, those are going to be harder to eliminate, but a pharmacy doesn't sustain itself just on emergency supplies.

Major: Right. And just because Amazon acquired PillPack it doesn't mean that the demand for pharmacists is gone. It doesn't mean that it's diminished. Nothing has changed. There's a lot to consider with this process as we go forward. In fact, if you're concerned about how this is going to affect your pharmacy, next time we're going to actually speak about what pharmacists can do to stave off the threat of Amazon.

Darshan: Yeah. I'm looking forward to that talk.

Major: Well, good stuff.

Darshan: [inaudible 00:12:25] be excellent.

Major: Well, hey. Thanks a lot for listening. My name's Major. This is Darshan. And we're with Pharmacy Podcast Gavel & Pestle.

Darshan: Thanks, guys.

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