It’s been about two months since Amazon’s acquisition of PillPack closed. Amazon paid about $750 million (net of cash) for the online pharmacy business.
On Amazon’s 3Q earnings call in October, Amazon SVP and CFO Brian Olsavsky said of PillPack, “Right now our focus is on learning from them and innovating with them on how best to meet customer needs over time.”
How might PillPack be evolving now that it’s a part of Amazon?
One, Amazon has created some new brand positioning for PillPack. In job descriptions, PillPack is now referring to itself as, “Earth’s most customer centric Pharmacy.” It’s a variation on Amazon’s own brand strategy.
Amazon has been using the “customer-centric” branding since it launched in 1995, when it said its mission is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.”
Two, Amazon may be planning to begin testing expanded PillPack services for employees. Currently, PillPack has licenses to ship to every customer in the US except Hawaii, but it only has 5 mail-order prescription facilities (compared to 26 for Caremark, 18 for Optum, and 15 for Express Scripts), per HealthData Management. If it’s going to expand to serve a Prime-sized audience, PillPack is going to need more facilities.
Which means it’s going to need more licenses for those facilities as well. PillPack has applied “for a string of new pharmacy licenses, primarily to ship drugs to customers from its Phoenix facility. The licenses in Washington, New Mexico and Indiana were spotted this week by analysts at financial services firm Jefferies,” per CNBC.
Because Amazon has tested other new products and services with employees, it’s possible the Washington license reveals an intent to have more capacity to test PillPack’s capabilities with a larger number of Amazon employees, which could be a prelude to subsequent larger expansions. Amazon said last week that it has 45,000 employees in Seattle. Adding new licenses to the Phoenix facility could increase PillPack’s potential Washington-serving capacity.
Increasing Capacity, Decreasing Delivery Times
Big picture, we would expect Amazon to invest in new facilities to accelerate PillPack’s capacity increase. In conjunction with expanded licensing, which we would expand PillPack to continue to seek on an ongoing basis, this should allow Amazon to increase its geographical reach and shorten delivery times for its pharmaceutical services. Amazon may be holding off on integrating PillPack with Prime until PillPack is ready (for “Prime” time).
There’s also the question of whether or how much Amazon might be able to integrate pharmacies into physical retail environments. Right now, Amazon is doing a number of small-format urban and suburban experiments, including Amazon Go, Amazon 4-star, and Amazon Books. The largest retail format Amazon owns is its network of 480 Whole Foods Market grocery stores. Unlike other grocery stores, Whole Foods don’t have in-store pharmacies. Amazon already uses Whole Foods stores somewhat like mini distribution centers for groceries. We could see a possible world where every major metro area has a PillPack warehouse.
Long Term Direction
Because a core use case for PillPack is better chronic disease management, rush delivery may not be as crucial for customers who take multiple medications on an ongoing basis. Rather, PillPack may just be a part of a suite of Amazon health care products and services.
In addition to prescription medications, Amazon could also offer insurance. Amazon has also begun the process of applying to sell health and life insurance in India. It is also rumored to be exploring the insurance markets in the US, UK, and other countries as well. While Amazon does not offer consumer insurance directly as of now, it has consumer data that theoretically could help it to assess risk and lower fraud rates.
Amazon has also formed a much-publicized Boston-based health care “non-profit-seeking” joint venture with Berkshire Hathaway and JP Morgan and hired a CEO, surgeon and public health leader Atul Gawande. Gawande has yet to announce more details on the initiative’s direction or strategy, other than that he wants it to, “Take some of the middlemen out of the system.” It’s possible that this joint venture could play a direct role in health care provision.
Finally, Amazon also continues to build out its portfolio of private label and exclusive brand OTC products. Two weeks ago, Primary Health (Aurohealth) became the fourth Amazon Exclusive OTC medicines brand we have found, joining Basic Care (Perrigo), SoundHealth (Bestco), and Wellness Basics (PL Developments), in addition to a new Amazon Exclusive brand of home blood monitors called Choice that recently launched.
Jeff Bezos took a “build the primitives” approach to architecting AWS’s fundamental product strategy. Perhaps he might do the same in health care.