Amazonising pharmacy — reality or just a rumour?

The online commerce company Amazon is renowned for its ability to disrupt established industries. If the headlines are to be believed, the tech giant is setting its sights on the US pharmacy market, and the entry to UK market could follow.

Since its inception in 1994, Amazon has revolutionised e-commerce, cloud computing, logistics and artificial intelligence markets. In challenging the status quo, it has achieved a 155% increase in net revenue since 2012^[1]
. The company will need to venture into further areas if it is to continue growing, and signals suggest healthcare and pharmacy markets could be next.

Interest in the pharmacy market

Amazon’s curiosity in the pharmacy market is not new. In 1999, it owned 40% of the online medicine retailer drugstore.com, which was eventually sold to Walgreens in 2011^[2]
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Silicon-Valley insiders claim that Amazon holds a meeting every year to discuss entering the pharmacy market; unsurprising given that the current US$450bn US prescription drug industry could be worth as much as US$610bn by 2021^[3]
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In May 2017, CNBC reported that Amazon was to hire a general manager to lead the push into the healthcare market^[4]
. Amazon has since hired 40–50 people (including a former chief health informatic officer of the United States Food and Drug Administration), who are reportedly looking at how the entire drug supply chain can be disrupted^[5]
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Purchasing Whole Foods

Amazon’s purchase of large grocery firm Whole Foods Market for US $13.7bn in 2017 was another major signal. The acquisition reverberated across the US pharmacy sector. Bank UBS reported that this purchase wiped around US$10bn off the market cap of the US pharmaceutical supply chain. Shares in major online drug stores and healthcare services all dropped after the announcement. Although Amazon already supplies vitamins and supplements, UBS analysts suggest the purchase could provide the online retailer with brick-and-mortar locations that could be used to establish a physical pharmacy, which would create a path for entering the pharmacy business.

Over-the-counter products

Amazon has also been strengthening its activity in the non-prescription medicines market. The company quietly launched its ‘Basic Care’ label of over-the-counter preparations in the United States in February 2018^[6]
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In Japan, Amazon has partnered with pharmacy chain operators Cocokara Fine Inc. With the expansion of Amazon’s Japanese Prime Now service to include drug and cosmetic sales, the company has an opportunity to learn about operating in regulated markets. The Japanese Amazon site now retails Category 1 medicines (comparable to pharmacy-only medicines), which require a consultation with a pharmacist^[7]
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Amazon already has a strong foothold in the beauty and personal care markets and this is growing quickly^[8]
. In the United States, Amazon has partnered with Bartell Drugs, which has allowed it to sell  medical supplies, equipment and non-prescription drugs. Amazon can now deliver 85% of Bartell Drugs’ product inventory at no cost to the 80 million members of its Prime service^[9]
. In the UK, the online retailer has partnered with Celesio — owner of John Bell & Croyden — to offer delivery of over-the-counter medicines, and health and beauty products, to Prime customers based in London^[10]
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Wholesalers

Investigative journalists at regional US newspaper, St Louis Post-Dispatch, revealed that Amazon had obtained approval for wholesale distributor licences from 12 state pharmaceutical boards across the United States in 2016 and early 2017^[11]
. The company has already obtained licences to distribute medical supplies to providers in 43 states.  More recently, Amazon has been widely reported to have had high-level talks with generics manufacturer Mylan and Novartis-owned Sandoz on entering the US pharmaceutical market^[12]
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However, in Maine, the three licence applications that would have allowed Amazon to distribute drugs have lapsed, which could suggest that Amazon is focused not on entering the pharmacy market, but instead on its business-to-business effort — selling to hospitals, dentists and GPs through ‘Business Prime Shipping’^[13]
. Although, uncovered correspondence between the company and regulators in Tennessee and Indiana suggest these licences enable Amazon to supply medical devices and are not for storing or distributing prescription drugs^[14]
. The purchase of the domain www.amazonrx.com, however, sends a strong indication of its future plans.

Public reaction

The US public seems to back Amazon in its quest. A nationwide survey found that five in ten adults in the United States would use or would probably use an Amazon pharmacy^[15]
,[16]
. In the United States, patients are switching over to mail-order services for their prescription medicines. Considerable growth in sales and market share by mail-order supplies has been fuelled largely by the delivery of 90-day prescription fills, with attractive discounts to patients with chronic conditions^[17]
,[18]
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Other countries are following the trend; in Germany, nearly 90% of households have internet access, and more than 60% of internet users buy medicines online^[19]
,[20]
. The strength of German services DocMorris and Shop-Apotheke demonstrate the public’s appetite.

And the concept of mail order is gaining traction in the UK; companies such as Pharmacy2U and Echo are garnering further investment^[21]
,[22]
. Online doctor services, which provide treatments through mail order, are also growing.

Bolstering against the rumours

The pharmacy market is already dominated by several established players, which could make it hard for Amazon to get a foothold. The company  has not confirmed  any plans to enter the pharmacy space and has frequently refused to comment^[23]
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Stefano Pessina, chief executive of Walgreens Boots Alliance, has dismissed the idea of Amazon forging into pharmacy. He suggested that this complex regulatory market makes other retail markets look far more attractive, but: “We wouldn’t exclude to partner with them”^[24]
. The chief executive of CVS agreed that the industry is “highly regulated, so the barriers to entry are high”^[25]
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Despite these views, US pharmacy providers are not ignoring the threat. They are focusing on pharmacy services — including walk-in clinics, vaccinations, and laboratory and phlebotomy services — that cannot be provided online. CVS has launched nationwide next-day delivery from its stores, and 65% of independent pharmacies in the United States now offer enhanced delivery services, which could be defensive strategies against Amazon^[26]
,[27]
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The US pharmacy sector has been quick to highlight that refrigerated or highly specialised products, as well as controlled substances, may not be well suited to mail delivery. Many target customers are older and less likely to use online tools to access medicines; these factors could derail Amazon on its path to disruption.

Data, partnerships and driving growth

Amazon accounts for 43% of all online sales in the United States, and it has built a data store and network, meaning that it knows far more about its customers than their governments do^[28]
. Amazon could be looking at opportunities that involve pushing and pulling data from legacy electronic medical record systems.

Trade rumours suggest that Amazon will try to partner with United Health, which offers the OptumRx platform, as a possible path. Reportedly, they have also been in discussion with PillPack, an online pharmacy start-up in the United States.

The retailer may also look to other tools in its arsenal to drive growth, including Alexa, its new personal assistant technology. The tool is already being developed to remind patients to take their medicines, to create reminders about repeat medications, and to help schedule repeat appointments — all by voice command^[29]
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Coming to the UK

So far, evidence points to Amazon beginning its operations outside of Europe, and if it is successful in the United States market, it may not be long before the technology giant sets its sights on the UK.

In the UK, 89% of adults have used the internet in the past three months, and the age of these users is increasing, as is their use of medicines, which makes the region a very attractive market^[30]
. The UK already represents one of the leading countries for e-commerce in Europe. The defined standards for electronic prescribing, and the structure of the NHS, make integration in the UK comparatively easy when compared with providers in other European countries.

But the UK market is different; consumers prefer click-and-collect models over home delivery, and the benefit of this has been emphasised in recent government policies^[31]
. Policymakers have keen been to support more efficient supply models for prescription medicines; the phrase ‘Amazonisation’ is featuring more heavily in policy debates; and ministerial intentions for medicines supply are being exposed^[32]
,[33]
— in late 2016, the National Pharmacy Association decried the health and social care secretary’s ambitions to ‘Amazonise’ pharmacy^[34]
. And pharmacy trade bodies have articulated their “grave concerns for any moves to create a crude ‘Amazonisation’ of medicines supply and pharmacy services”^[35]
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However, many believe that the complex regulatory nature of medicines supply in the UK means that Amazonisation is not possible, and some suggest Amazon will instead focus on the supply of medical devices and health and beauty products^[36]
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While some pharmacists fear the entry of this player into the market, others may recognise this development as a big opportunity. Many sales made through Amazon are supplied by third parties, meaning that, in a similar way to the United States, Amazon may choose to use partners in the UK to help develop and implement the model.

Patients may continue to use their existing pharmacy, coupled with the familiar Amazon checkout process, to approve a repeat medication or to purchase an over-the-counter medicine. Analysts from Morgan Stanley suggest that offering laboratory services, such as blood tests, may be a good defence to this^[37]
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Changing the face of healthcare

Digital technologies are growing at an incredible rate — digital revolution is here. Kaiser Permanente, one of the largest care providers in the United States, reported that more than half of its patient visits were conducted through online portals, virtual visits or the health system’s apps in 2017^[38],[39]
. Technology will continue to change how we deliver healthcare. Amazon’s entry to the UK pharmacy market may be just speculation for now and a clear strategy has not yet emerged, but the question of Amazon’s role in healthcare is when, not if.