Amazon announced the acquisition of PillPack on June 28, sending major health-care companies into a frightened frenzy, while giving customers hope of lower prices on pharmaceutical sales.
While Amazon’s foyer into the pharmaceutical business began last August, acquiring PillPack puts other competitors on notice that Jeff Bezos and Co. fully intend to immerse themselves in the world of over-the-counter drugs, which has already resulted in a major drop in value for a few big-time companies.
While the terms of the deal have not yet been disclosed, the Wall Street Journal reported a price tag of approximately $1 billion.
After the deal was reported, the stock CVS Health Corp. dropped by almost 9 percent, which Walgreens dropped 10 percent and Rite Aid dropped 11 percent.
While acquiring a smaller company like PillPack didn’t seem like a big-time move to a casual Amazon customer, Financial Insiders reported that Major Drug Retailers lost nearly $13 billion in value after the agreement was announced.
As Forbes’ Trefis Team notes, “This indicated a level of trust that shareholders have in Amazon’s abilities to disrupt established industries. While PillPack might not have an immediate disruptive impact on the retail drug store and pharmacy industry, it certainly opens the door to interesting long-tern developments in the space.”
It is clear that shareholders believe in Amazon’s potential as a pharmaceutical giant, and according to a GlobalData report, average Americans seem to believe in the hype as well.
GlobalData reported that 54 percent of Americans are happy with Amazon’s PillPack acquisition, while 24 percent were unhappy and 22 percent of those polled remained neutral.
GlobalData Retail managing director Neil Saunders accompanied the report with a note that suggested, “consumers generally welcome Amazon’s move into pharmacy – most likely because they think it will increase competition and reduce price.
“When it comes to what Amazon could bring to the pharmacy market, the vast majority of consumers (79%) would like Amazon to lower prices. The ability to pick up prescriptions from Whole Foods stores and have same-day delivery were also popular. Just under 60% of consumers would like to be able to reorder drugs via Alexa, and 48% would like a discount for Prime members.”
What Is PillPack & Why Did Amazon Acquire It?
Acquiring PillPack itself is not going to revolutionize the over-the-counter medicine industry by itself, but it is a step forward for Amazon to be able to sell medications online.
As Amazon’s Press release from June 28 states, “PillPack delivers medications in pre-sorted dose packaging, coordinates refills and renewals, and makes sure shipments are sent on time.”
Jeff Wilke, Amazon’s Worldwide Consumer CEO, added that “PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology.”
Amazon previously teamed with Berkshire Hathaway and JP Morgan early in the year to create an online healthcare platform that provides “simplified, high-quality and transparent healthcare at a reasonable cost.” Though nothing has yet been reported, the PillPack acquisition could be an addition to this proposed platform.
A technological focus certainly drew Amazon towards purchasing PillPack. The fact that the company already has systems in place for online delivery as well as renewals enables Amazon to avoid some of the tedious steps necessary to legally send medication.
PillPack has combated staunch regulations for selling prescription medications online and currently has approval to send medications in 49 states. This is important for Amazon because it lays groundwork for the company to immediately begin selling medication around basically the entire United States.
Since the company also takes care of renewals and refills, it will create a consistent flow of money to Amazon that is unlikely to fluctuate heavily.
Another reason that the acquisition of PillPack is a bigger than it seems stems from the increased market and demographic that Amazon can potentially tap into.
While the bulk of Amazon’s customers are generally younger, tech savvy people between ages 18 and 34, the largest demographic of pharmaceutical consumers are senior citizens. By marketing cheaper medications, it is likely that more senior citizens will consider using Amazon and thus will sign up for Prime memberships.
Amazon has suggested that they are “willing and able” to decrease prices, but stated that “it depends on the payer relationship.” This may suggest that an Amazon Prime membership could be accompanied by a discount on medications, which could greatly increase the value of having a Prime account.
How Does This Affect Third-Party Sellers?
Amazon’s sheer industry disruption power was more than on display in the aftermath of the deal, so much so that competitors instantly dropped $13 billion in value combined.
That alone shows just how powerful the company is and how it has continued to expand its revenue stream, which should compel sellers to continue doing business with Amazon and perhaps expand their sales to new fields.
Sellers whose products have nothing to do with medicine may not care about Amazon’s foyer into pharmaceutical competition, but they should consider the new demographic that this acquisition could add.
With senior citizens potentially using Amazon more than ever, sellers may want to market products toward them more often and study the online purchasing habits of elderly people.
If prices are indeed reduced for Amazon Prime members, it could drive a wave of senior citizens to make their purchases online and have them delivered in a timely fashion.
This acquisition should also be music to the ears of sellers concerned with added competition from Walmart through their new online delivery platform.
Walmart currently has the lowest over-the-counter drugs on the market, but Senior financial analyst Arielle Trzcinski of Forrester Research Inc. suggested to TheStreet.com that “In terms of trying to get a foothold in the market, [Amazon] can try to undercut what Walmart has done.”
Meanwhile, CNBC reported that Walmart was discussing a potential acquisition of PillPack in April, meaning that Jeff Bezos must have outbid Walmart CEO Doug McMillon.
With Walmart losing out on PillPack, Amazon will be able to drive prices down to the thinnest of margins in an effort to dominate international medication sales.
As online retail sales continue to trend upwards, Amazon has done a great job to diversity their sales and give their third-party sellers a reason to stay on board.
Cyril Zackary Penn IV is a soon-to-be graduate of Hofstra University with a Journalism degree from Sonoma, California. He started his own blog in high school and has been writing about sports, news and entertainment since. He is currently a staff writer at AXcess Baseball as well as the Hofstra Chronicle and formerly was the Sports Editor at Man of the Hour Magazine.