How Amazon’s PillPack Acquisition Has Affected other Distributors

Amazon is eyeing the ~$450 billion US prescription drug market

Earlier, we discussed how Amazon (AMZN) would benefit from its latest acquisition of PillPack. Prior to this, Amazon’s entry into the healthcare space through its partnership with Berkshire Hathaway (BRK.B) and JPMorgan Chase (JPM) sent shockwaves through the industry, with current players fearing a disruption.

How Amazon’s PillPack Acquisition Has Affected other Distributors

With PillPack’s acquisition, Amazon won’t have to spend time building in-house capabilities that current players have invested in building and assembling. Moreover, Amazon can now ship prescriptions around the United States, increasing concerns about competition in the pharmacy market.

Citing research company IQVIA, Reuters wrote that the total US prescription drug market is worth ~$450 billion. Though PillPack has a tiny revenue base, Amazon’s funds, existing shipping infrastructure, and huge customer base could enable it to scale up rapidly.

Amazon’s PillPack deal would put pressure on existing players’ margins

Given Amazon’s economies of scale and power, it’s believed that the Amazon-PillPack deal will put pressure on prices, and as a result, other players and retailers in the healthcare (IYH) space will have to react in kind, which could lead to decreased earnings.

As the graph above shows, the world’s median age is likely to increase in the coming 30 years. A rapidly aging population would increase the demand for healthcare and medicine.

Citing Neil Saunders, the managing director of GlobalData Retail, Reuters wrote, “Amazon’s acquisition of PillPack is a warning shot in what is about to become a major battle within the pharmacy space.”

Adam Fein, CEO of Pembroke Consulting’s Drug Channels Institute, shares a similar opinion. Citing Fein, CNBC reported, “The pharmacy industry has entered its next phase of evolution.” Fein also said, “Retail pharmacies will find their high-profit cash business under pressure. Expect a pharmacy shakeout over the next five years.”