Amazon Expands into the Pharmaceutical Industry
On June 28, 2018, the ecommerce and tech giant Amazon announced that it was acquiring Pillpack, a relatively small pharmaceutical company, for approximately $1 billion. Although the acquisition may seem surprising at first (Pillpack’s influence in its industry is dwarfed by Amazon’s multi-industry dominance), it was a crucial, strategic step for Amazon’s expansion into the pharmaceutical industry.
Headed by Jeff Bezos, Amazon has come a long way since first serving as an online bookstore in 1995. The company gradually became an ecommerce platform for all kinds of products, and in recent years has demonstrated its interest in many different industries by acquiring or investing in a diverse array of companies including Drugstore.com, Zappos, Twitch, and Whole Foods.
Now, Amazon seeks to establish itself as a player in the pharmaceutical industry. Pillpack, a drug distributor with easy-to-use packages, is small compared to industry giants: it has about 1,000 employees, compared to 235,000 for Walgreens. However, its main appeal is its license to sell drugs in all fifty U.S. states. This appeal garnered attention from both Walmart and Amazon, both looking to beat each other to get a piece of the lucrative industry. Amazon won out, but only by acquiring Pillpack for three times its evaluation in 2016. The acquisition illustrates both the industry’s profitability as well as Amazon’s ambitious drive to expand into more sectors.
As news of the acquisition came out, pharmacy giants immediately began to feel Amazon’s impact. Shares of CVS, Walgreens, and Rite Aid dropped by no less than 6%, demonstrating investor’s concerns. These companies may have been preparing for Amazon’s arrival, with recent mergers and acquisitions taking place between CVS with Aetna and Cigna with Express Scripts. The industry is hoping to suppress Amazon’s influence while growing its own businesses and profits.
Pillpack and its licenses with every state now allows Amazon to pursue its ultimate goal of directing the pharmaceutical industry, one that still bases itself around physical pharmacies, into an already-expanding technological era. Amazon’s monopoly over ecommerce, coupled with its newly-gained licenses to distribute drugs, may revolutionize the industry. However, it will be tough for Amazon to break the habit; most people will still prefer to go to their corner store for drugs, despite the existence of online pharmaceutical companies. Even so, Amazon’s massive influence and name recognition will surely change a few minds, especially the estimated 25 million Americans who either don’t have medical insurance or have high deductibles. Having billions of dollars in its treasure trove, the company can afford to aggressively undercut its prices in hopes that it will gradually be able to shift the industry towards ecommerce, after which Amazon will surely dominate.
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Written by Michael Ding, Edited by Jack Vasquez & Alexander Fleiss
Source:
https://www.nytimes.com/2018/06/28/business/dealbook/amazon-buying-pillpack-as-it-moves-into-pharmacies.html