From Aspirin to Zofran: Amazon takes on the US pharmaceutical industry

November 29, 2020

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2 min read

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What's going on here?

Amazon launches an online pharmacy in the United States expanding its market reach.

What does this mean?

Amazon is launching Amazon Pharmacy, an online dispensary that will deliver medication to the homes of citizens in 45 US States. Amazon announced that it would sell medication at discounts of as much as 80% for generic drugs and 40% for branded drugs, which saw the stocks of healthcare industry giants such as CVS and Rite Aid tumble by up to 16%

Amazon’s 2018 purchase of PillPack, a postal pill delivery service, foreshadowed its ambitions within the healthcare sector. However, what was expected to be a gradual move was accelerated by the pandemic, which saw a sharp increase in people purchasing items online. The online medication market will be difficult to break into due to high customer loyalty (given the sensitive nature of medication), older and less technologically literate consumers, and postal delivery of certain medications being prohibited. 

Nonetheless, as its competitors are well aware, Amazon has the deep pockets required to absorb any short-term losses. If successful in the long-term, the business will obtain a steady and recurrent revenue stream, given the repetitive demand for medication.

What's the big picture effect?

Amazon Pharmacy’s launch could have a myriad of implications. First, there are issues around regulating online pharmacies and correlated concerns about increased opportunities for fraud. Secondly, the launch brings to the foreground issues regarding competition law – or anti-trust, as it is known in the US. Amazon has an incredibly dominant market position (e.g. 82% of American Households use Amazon Prime) and has one of the strongest recurring revenue relationships with consumers globally. With Amazon Pharmacy thrown into the mix, Amazon will be facing enormous scrutiny in years to come, especially with a Democratic President entering office.  

The move also has huge implications for the healthcare sector. With Amazon offering large discounts, the costs of medication may sharply decrease across the entire market, and given its scale, Amazon could be one of the fastest growing healthcare companies over the next few years. Furthermore, the launch reflects the trend towards ‘healthcare at home’ first seen during the pandemic, when many people were virtually ‘treated’ at home to ensure isolation. 

Overall, Amazon Pharmacy’s launch may change healthcare as we know it and have wide-ranging implications within the anti-trust domain. Whatever the precise effects may be, Amazon Pharmacy will certainly merit close attention in years to come.  

Report written by Isabel Lightbody

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