Amazon Pharmacy is here; will it change the retail drug business?

It is probable that Amazon’s Nov. 16 announcement of the long-awaited Amazon Pharmacy has had a bigger impact on Wall Street than in drug distribution, at least for now. The day of the announcement, the prices of the leading chain pharmacies dropped by 6-10%, and the Big 3 wholesalers by 1-2.5%. Amazon’s entry into pharmacy services has been a fixation of market analysts for over two years—ever since it acquired PillPack, a mail-order pharmacy that packages multiple drugs in pouches for polypharmacy patients, for $700 million—and back then chain pharmacies and major wholesalers also took a financial hit. Market watchers expect Amazon Pharmacy to be an e-commerce disrupter, as it has been for so many other retail industries.

The initial assessment of the Amazon announcement, however, is less dramatic. For one thing, retail pharmacies have by and large already adopted one of Amazon’s basic consumer benefits—home delivery in one or two days. At the same time, mail-order pharmacy has been a longstanding component of the pharmacy business, representing over a quarter of the market by sales. In its announcement, Amazon noted that it will be working with InsideRx, a business unit of Cigna (which is also the owner of the pharmacy benefit manager Express Scripts) to provide drug discounts that are potentially better than an insurer’s price (for those consumers on commercial insurance), as well as offering lower prices to the uninsured (cash) drug purchaser.

These discount programs are already available to consumers via other marketing programs—so, in the end, it will become the same sort of comparison shopping that consumers perform with many of their other purchasing decisions. Amazon noted that it will not share protected health information of its customers with others (without customer permission); however, this opens up the intriguing question of whether customers whose non-prescription purchases (of, say, glucose test strips used by diabetics) will be exposed to pharmaceutical marketing by the company.

There has been a buzz around Amazon for its potential in providing a range of health and wellness services, a trend that retail pharmacies, health systems, and a host of Silicon Valley startups have been looking at for the past few years. With a built-out pharmacy offering, Amazon takes a step closer to being a major player in healthcare. (One analyst even speculated that Amazon could co-locate a brick-and-mortar pharmacy in its Whole Foods stores, just as other supermarket chains have done.) But this big-picture view will take years to play out.

What effect does Amazon Pharmacy have on the pharma industry? For now, not much, beyond adding another retailer to the retail pharmacy channel. If it chooses to continue to go after the healthcare business, though, more changes might be coming from the company.