Xpectives News

DTC in Perspective: Could Amazon Change the Drug Market?

October 13, 2017 by Bob Ehrlich0

The widely reported story that Amazon is considering entering the prescription drug market has made current drug sellers nervous. Could Amazon revolutionize drug sales? Or, would they just be another mail order supplier in a crowded market? The answer is unclear.

Amazon certainly has the strength to cut deals with drug companies, insurers and major employers to supply drugs. If a major insurance company wanted to work through Amazon to try to cut costs it is likely they could shave some expense. I do not, however, understand yet how Amazon would be able to fundamentally change drug delivery or pricing.

Bob Ehrlich
“…they are thinking of ways to shake up the supply chain…”
-Bob Ehrlich

Drug companies have established a complex supply chain with numerous levels of prices across different customer categories. Drug companies have no problem quickly supplying patients through drug stores, mail order houses, or in store pharmacies at supermarkets/big box chains. While certainly a convenient place to shop its many product categories, are there advantages for customers buying their drugs there?

I have increasingly bought more things on Amazon because I get free delivery through Prime. Their service is reliable. It is nice to be able to buy directly from them or their listed sellers. That being said, Amazon is still just a giant online market. Patients already have a vast array of options filling their prescriptions and I never heard anyone complaining how hard it is to fill a prescription. Unless Amazon can significantly lower consumer price, or save insurers lots of money, then the game changing aspect of their market entry is unclear.

I love Amazon and was lucky enough to hold on to my 200 shares bought at $35 many years ago. As big a fan as I am of their company, to change how drugs are sold is not easy. Maybe all Amazon wants to do is be another online option and grab a share of the huge market. Certainly, they have an enormous customer base who would be happy to add drugs on with other purchases.

Of course, Amazon is an innovator and maybe they will be able to add consumer value to drug purchases. Perhaps they will be able to launch retention and compliance programs using their customer research base. Alternatively, they may be able to innovate in disease and drug education. Their major asset is consumer trust and that should never be underestimated. Amazon has a team evaluating entering the market and my guess is they will enter, even if just as an ordinary supplier at the start. Long term I suspect they are thinking of ways to shake up the supply chain to offer substantial discounts to their customers.

Bob Ehrlich

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