Amazon CEO Jeff Bezos. REUTERS/KATHERINE TAYLOR
Amazon CEO Jeff Bezos. REUTERS/KATHERINE TAYLOR

Amazon unveiled its biggest push into selling prescription drugs with the launch of a digital pharmacy and discounts in the US that sent shock waves through shares of pharmacy chains, distributors and insurers.

The e-commerce giant on Tuesday unveiled Amazon Pharmacy, a section of its retail website and mobile application that lets people order medication online. Shoppers can pay using their health insurance. Prime members who do not use their insurance are eligible for discounts on generic and brand-name drugs on Amazon’s site or at about 50,000 participating pharmacies.

Amazon’s new offering comes more than two years after its $753m acquisition of PillPack, an online pharmacy known for organising prescriptions into packets. This expansion puts the Seattle-based e-commerce company into more direct competition with pharmacy giants CVS Health Corporation and Walgreens Boots Alliance, the two largest chains in the US.

Market reaction saw leading drugstores, distributors and health insurers lost about $22bn in market value on Tuesday after the announcement. Walgreens Boots sank as much as 10%, Rite Aid plunged 17% and CVS Health dropped 8.5%.

The move also helps Amazon compete with Walmart  and other big-box stores that already sell prescription drugs.

Analysts have expected Amazon to dive deeper into health care in a bet the company can bring its digital real estate and logistical prowess to bear on a roughly $4-trillion industry in the US with a reputation for inefficiency. The company rattled drug retailers with its PillPack acquisition, but Amazon has been slow to integrate the online pharmacy start-up into its offerings.

The announcement on Tuesday marks the first time that shoppers can order prescription drugs directly on Amazon. Previously, they were redirected to PillPack’s website. An integrated pharmacy removes one of the few gaps in Amazon’s offerings compared with major big box and grocery rivals, some of which have long filled shoppers’ prescriptions in the same stores where they sold flat-screen televisions or cans of soup.

The discounts are a clear play for people who pay for their medications with cash, whether they are uninsured or are looking to save money. Strong demand for transparency and better deals have helped fuel the rise of discount card programmes such as GoodRx Holdings. Amazon will display both the price when using insurance and the price without. Infusing transparency into a system that has been frustratingly opaque for consumers could alter the supply chain.

“We designed Amazon Pharmacy to put customers first — bringing Amazon’s customer obsession to an industry that can be inconvenient and confusing,” said TJ Parker, vice-president of Amazon Pharmacy and co-founder of PillPack.

Amazon’s push comes as consumers are shunning stores and ordering more items online, a trend the coronavirus pandemic has accelerated. With consumer behaviour shifting, pharmacies have already started rethinking their strategies. CVS acquired health insurer Aetna for $68bn in 2018 and is adding more health services to its stores. Walgreens is dabbling with numerous partnerships to add items such as groceries and mobile phones to its stores.

Amazon could find it difficult to quickly pry away customers from pharmacy chains. For many consumers, asking doctors to steer recurring prescriptions elsewhere is cumbersome, especially for those who rely on insurance to pay for their medication.

In some cases, such a switch might also require an office visit — at a time when Americans have been steering clear of the doctor’s office out of concerns about the pandemic. And the ubiquity of the biggest pharmacy chains means most consumers have one nearby, and shopping at them is an ingrained habit.

Amazon’s entry into a market does not guarantee its dominance. Pharmacies have insisted that patients prefer to talk to their pharmacist at the counter, an experience Amazon will try to recreate digitally.

Amazon CEO Jeff Bezos has positioned Prime, Amazon’s paid membership programme, at the centre of the company’s efforts to create loyal customers. What was originally an unlimited shipping programme has grown in recent years to include video streaming, games and digital storage, and discounts at Amazon-owned Whole Foods Market.

Bloomberg

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