Amazon’s PillPack has secured approval in recent months from nine additional state pharmaceutical boards (and is seeking more) to expand its distribution capabilities, leading to more speculation about the retail giant’s intentions.
The newly acquired licenses, in data compiled by Jefferies analysts, give its Arizona facility the ability to ship prescription drugs into more states. The Arizona facility is one of five PillPack distribution centers, its furthest west, giving it quicker access to states there.
Even though the online pharmacy is gaining licenses faster than Jefferies analysts expected, expanding its distribution capabilities at its current facilities will not be enough to meet the demands of a major consumer rollout without acquiring or building more mail order pharmacies, the investment bank’s analysts note.
Although Amazon has not made its intentions clear about its future strategy, some analysts believe a national rollout is almost certain. The licenses were the “cornerstone” of the deal and a first step to any expansion.
“The logical next step for Amazon is to utilize these licenses through a national consumer rollout,” Joshua Mark, an associate analyst at CB Insights, told Healthcare Dive.
“Amazon already had the cash, the talent and the distribution network in place to build its own version of PillPack. What it acquired in the transaction was the time PillPack spent attaining the licenses necessary to build a national business,” he said.
Like Jefferies, a Leerink analyst says PillPack still needs to bulk up its distribution before any larger expansion.
“I think they will need to further scale up and build out full capabilities before a national rollout is possible,” Ana Gupte, an analyst with Leerink told Healthcare Dive.
For context, Express Scripts mail order pharmacies total more than 1 million square feet, and at their peak were serving more than 100 million people across the country.
By comparison, PillPack serves “tens of thousands of customers,” PillPack CEO TJ Parker told Wired last year.
Besides its facilities in Arizona and Brooklyn, the three other distribution centers in New Hampshire, Austin, Texas, and Miami have the ability to ship to nearly every state, according to Jefferies data.
Even amid the uncertainty, the retail giant’s moves into the healthcare sector have spooked the industry. Some suggested that they helped spur some of last year’s blockbuster mergers between CVS-Aetna and Cigna-Express Scripts.
As the nation’s largest insurers and PBMs become merged, Anthem recently said it was speeding up the launch of its own PBM IngenioRx. The nation’s second largest insurer will begin transitioning patients away from the Express Scripts PBM platform to its own starting March 2.
David Friend, managing director at BDO Consulting, said Amazon’s move with PillPack represents a threat to both traditional pharmacies and PBMs.
Ultimately, “they’re going to cut out the pharmacy business and the PBMs,” Friend, told Healthcare Dive. “If they cut the prices enough, consumers are going to say, ‘why should I have to go through more complexity and pay more?'”
Friend envisions a model similar to how some consumers buy eyeglasses. He speculated patients could eventually purchase their drugs through Amazon and send in the claim to their insurance to get reimbursed.
Reached for comment, PillPack noted its goal remains to help patients treat chronic conditions. “That hasn’t changed with the Amazon acquisition in the second half of 2018,” the spokesperson said.
