How Amazon throws a big bomb to the pharmaceutical industry in the U.S.? ---- An insight of PillPack, a medication delivery company in the U.S.
Writer: Christiane Zhao
It is an ordinary night like the other nights. I went to the Wholefood supermarket before I go back to my apartment. I was waiting on the line, and I keep seeing the former one scan a QR code and get a discount for her check.
"What is that?"
"Oh, it's an Amazon Prime membership."
Okay, so I assume the first thing to do is to get an Amazon Prime membership online. To get a supermarket discount and two free prime member shipping, I registered for the membership, eventually. It does take some courage to share your daily routine, your online shopping history, home address, and now, your supermarket glossary list and medical insurance or prescription to the company. I said that for a reason ---- A PillPack advertisement was sent to my mailbox within seconds.
"Our service is free,
you only pay for your medications.
PillPack could change the way America takes its medicine."
I am just one of the Prime members who got the message. It is still unclear how many people received email marketing or how Amazon targets its users, as approximately 100 million-plus members reported they did not receive any early messaging. It also remains unclear which individual is involved in Amazon's initial PillPack marketing wave. Not surprisingly, this mysterious body has chosen a semi-transparent pill bag as its eye-catching symbol.
I opened the hyperlink in my mail, what first comes into my eyes is ---- A human hand is holding a semi-transparent pill bag. A few big dark-blue words in Times-Roman font style written on the left-hand sides: "Your medication, delivered." A hyperlink provided below is expecting to direct you to an advertising video. Amazon is expected to explain the entire pharmaceutical services by 35 seconds. The scene is covered by a light-blue background, which seems to make their services trustworthy and transparent. For those like me, who had never heard about PillPack, it marked itself as a full-service pharmacy that fills prescriptions send ships drug package. Packages are in the pre-sorted dose and are placed in a dispenser.
This caught my eyes. Medication-delivery is already a mature concept, but it is still an unreachable dream for the majority of the population in the world, including New Zealand. This became an even more exciting mystery that I would like to explore to. The attractive side of this story is when you know how contradictory and complicated it can become; and how difficult it is to drive changes safely while dealing the traditional players. However, everything has simplified in the PillPack's website. Your prescription drugs or supplements will be on your door by a few clicks only ---- You can transfer your pharmacist and personal prescription by only eight steps only, and most of them supporting with auto-search. The zero shipping cost plus increased convenience is more than just a slogan since Amazon since it purchased PillPack, a drug delivery services company, in mid-2018 for $753 million.
Amazon is making a big push to the $3 trillion healthcare market. For PillPack, it is approaching a market with $500 billion per year and growing up 7% annually in the United States, and this number only includes prescription medication(IQVIA). While PillPack has mainly focused its eyes on chronic-conditions and multi-dose medications, we are having approximately 60% of American adults have at least one chronic illness, and 40% with two or more (Centers for Disease Control and Prevention). It is precisely just like what Bezos is expecting -- Big money return and acts as a strategic supporting point to grow its empire in the healthcare market.
Amazon is having this on-again-off-again interest in healthcare. It is not Jeff Bezos's first time of getting involved in this market. Back in 1999, the company bought a 40% stake in DrugStore.com, and he was one of the board members. Drugstore.com ended up bought by Walgreens for $429 million in 2011, which shut down five years later. Bezos emphasised in a Shareholder letter in April that the company is still a smaller player in the global retail, but he will not hold back from taking opportunities to grow. It seems to be true that Amazon is expected to draw customers, including its Prime members, away from the 64,500 retail pharmacies in the U.S..
Amazon has been quiet since the acquisition, but it is clear that a protracted battle has triggered between the old guard and the new. It won't be an easy battle for Amazon to win.
This e-commerce beast's entry does threaten the brick-and-mortar pharmacies. CVS, Rite Aid and Walgreens, which operates more than 20,000 stores in the U.S., collectively lost more than $11 billion in the stock market on the day of Amazon's announcement, said by Adam J. Fein, president of Drug Channels Institute. Those large, traditional retailers have long dominated the $413 billion annual U.S. market for filling prescriptions. PillPack is also a common enemy for the pharmacy benefit managers (PBMs), which always act as the industry middleman. PBMs earn up to 50% of its profit from distributing drugs to their patient directly, said by Roos Muken, the Evercore ISI analyst.
However, PillPack needs relationships with them. PillPack is dependent on PBMs to get paid by the patient's insurers. Those PBMs is not only PillPack's competitors but also the gatekeepers to control the access of patient data and insurance payment. Surescripts, which is owned by CVS Health Corp. and Express Script, is having a network connection to most of the U.S. pharmacies and PBMs. It also has the most comprehensive databases of prescriptions, including those written on papers.
In early August, Surescripts publicly accused PillPacks of fraudulently receiving patient data. The latter one is currently retrieving medical histories of its customers through Surescripts database via ReMy Health Inc.. In the United States, doctors and hospitals need to enter the government-issued National Patient Identifier to retrieve the data. However, ReMyHealth did not include PillPack's NPI when retrieving data from Surescripts database. Tom Skelton, CEO of Surescripts, claims that they do not allow pharmacies to access to patient's medical history. In response to that, PillPack spokeswoman Jacquelyn Miller denied any wrongdoing as the company receives patient authorisation online during the registration.
Back to 2016, Express Scripts accused PillPack of misrepresenting itself as a retail pharmacy and taking movements to block its members from using PillPack's services. It ended up being allowed to stay in the Express Scripts network as a mail-order pharmacy.
The story did not end. Based on an article published in early August, CVS and Walgreen are rejecting the prescriptions transfers request from them to PillPack. Two claimed PillPack did not receive proper consent from the patients. They did not intentionally decline the transaction, but they did not receive approval by calling the patients to confirm the transfer request. It is also reasonable to question the way that PillPack collects a patient's consent by a single click. Douglas Hoey, the CEO of the National Community Pharmacists Associations, also states that there are 20 to 30 pharmacists reported they receive a request from patients never authorise the transfer.
The local retailers are desperately looking forward to providing customers with new reasons to visit their store and pick up the prescriptions. Both CVS and Walgreens are remodelling hundreds of local retailers to targeted at the customer with chronic illness, and give the customer more reasons to visit them. Walgreen is considering to enable after-hour prescriptions pickups. Walgreens also established partnerships with numerous companies to monitor patient's health and behaviours in the past years. While nearly 90 % of all dispensed medication of generic, it does not make up high-profit margins. However, medication delivery can cut down local retail's traffics and sales dramatically. Based on an article published in the Wall Street Journal, customers use the pharmacy can have an average of 2.3 times visit a week to the store and spend $66 on groceries and $26 on prescriptions. However, for customers who don't use the pharmacy, only spend $24 weekly on groceries with less than one visit per week. CVS is also playing down the online threats by struck a deal with U.S. Postal Service for medication delivery. Customers will be charged $4.99 per delivery.
Not surprisingly, PillPack and Amazon are not fighting with empty hands. In contrast, there are plenty of reasons to clarify the threat on the traditional players. Amazon's PillPack has pharmacy licenses in 49 out of the 50 states. It also owns five distribution centres in New Hampshire, Austin, Texas and Miami, which means it can ship medication to almost every state. Its rich-in-assets and comprehensive team structure enable PillPack raised roughly $118 millions in private capital before its acquisition by Amazon. Despite the fact that Amazon has deep pockets and unlimited ambitions, Amazon's same-day delivery services plus PillPack's adherence packaging, the service became even more attractive than ever.
It is not possible to understand PillPack without looking at the team behind. T.J. Parker, who remains as the CEO of PillPack before and after the acquisition. Grown up in his father's pharmacy in Concord, New Hampshire, he worked in the pharmacy since 16. His dad later also became one of the first pharmacists of the company. During his time in college, he also met two other important men who settled the foundation of PillPack in next few years. He partners with Elliot Cohen, an MIT engineer and investor. In 2013, they won an MIT competition and got the first angel investment. Then the company also quickly gather several rounds of venture capitals. By July 2013, PillPack had already raised just over $4 million in funding. When its online pharmacy first launched in February 2014, the company only has 50 customers and nine employees. In the first few years, PillPack experiences difficulties. The cost and effort to file for license and the misinterpretation of Google and Facebook make the company became quite struggle in both maintaining a flow and marketing to expand the market. PillPack was faulty being labelled as a drug manufacturer. An investment changed that --- Kevin Colleran, an early member of Facebook's ad sales team, helps to clarify this misunderstanding. Facebook became an entry for PillPack to reach more customers than ever. Customers continuous to route over --- by the end of last year, it generated $299 million in the annual avenue.
PillPack is just a piece of Amazon's big move into the healthcare market. However, healthcare is not just delivery medicine in a timely manner. The well-structured pharmaceutical structure and isolated parties can also add up complexity and issues among the way. While PillPack is also facing pressure from other traditional players in the market, they are also experiencing pressure from other medication deliverers. There are the flip and downsides of PillPack integrated into Amazon. It is also true that PillPack will not be happy to have Amazon as an enemy, especially if they are burning quite a large amount of money to develop the new pharmacy operation system. Players like PillPack can also mean the changing of dynamic in the healthcare system, as well as patient behaviours and lifestyles.
"The pharmacy world is much more complex than just delivering certain pills or packages. I strongly believe that the role of the physical pharmacy will continue to be very, very important in the future."
---- Stefano Pessina, Walgreens CEO
* PillPack's official website design changed when I published this article. From a human hand holding a semi-transparent medicine bag to a medicine bag only.
*This article is a concluded analysis of PillPack based on the articles in trustworthy websites such as CNBC and WSJ.
The 8 Steps to register for PillPack's service:
*In Sep 2019