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Pharmacy far from slam dunk for Amazon

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Amazon’s success as a pioneer of online retailing is unquestioned, and it continues to be a disruptor to brick-and-mortar retailers (most recently, grocery retailers).

But the e-tail giant’s alternatives in the pharmacy space — which CNBC reported it has targeted — aren’t so clear cut, according to pharmacy supply chain expert Adam Fein.

“I would never underestimate Amazon. However, I believe that Amazon has limited feasible options for disrupting pharmacy and PBM markets,” Fein wrote in a post Tuesday on his Drug Channels blog.

Amazon_pharmacyFein, who is CEO of the Drug Channels Institute and president of Pembroke Consulting, said Amazon’s likeliest options would be the cash-pay pharmacy business or building or acquiring a discount drug program.

“I suspect that fulfillment of low-cost generics would be the most logical place to enter the market,” he said. “It would accelerate price competition in the pharmacy industry.”

More difficult paths for Amazon would be to build/buy a PBM, become a central-fill mail pharmacy or build/buy a specialty pharmacy, according to Fein

“The barriers to entry are just too high at this stage in the market’s evolution,” he said of the PBM option for Amazon. “There is also a trend toward greater pharmacy-medical integration and pharmacy-delivered patient care services. Amazon is woefully unprepared to compete in those areas.”

And mail pharmacy isn’t as closely embraced by consumers these days, Fein noted. “Amazon would struggle to redefine this ultra-low-margin business, assuming that PBMs would even let it participate,” he wrote.

Business journals Forbes and Barron’s noted that it would be difficult for Amazon to penetrate the tangle of contractual arrangements and health care relationships that a foray into the pharmacy business would require — besides having to go up against giants such as CVS Health, Walgreens Boots Alliance and Express Scripts, among other well-established players.

“For Amazon to be successful in the complex world of filling, dispensing and managing patient prescriptions, that’s going to be tough to do, given the online retailer lacks ties to health insurers and medical care providers that have footholds in their markets,” Forbes contributor Bruce Japsen wrote.

After talking with analysts, Barron’s Johanna Bennett came up with four reasons Amazon should avoid the drug business: the mail order pharmacy arena is a tough nut to crack, people prefer face-to-face interaction with a pharmacist, Amazon isn’t a good fit for the PBM service offering, and warehousing and billing systems for pharmaceuticals are more complex.

Perhaps the biggest potential for Amazon as a pharmacy disruptor would be to use its scale to help bring down the cost of drugs. In the meantime, people can continue to go to drug store (there’s probably a Walgreens or CVS on a nearby street corner) or tap an app on their smartphone to fill a script and then pick it up or have it delivered to their home.


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