To Be or Not To Be
Is Amazon getting in to the drug business? In 2017 there were many signs that the company was getting ready to make its move into that area.
While Amazon, the online retail giant, seemed to be planning to sell drugs and other medical supplies to hospitals, it now appears to be scrapping the plan. Challenges include complexities involving selling in bulk to big hospitals and building a logistics network to handle pharma delivery, according to CNBC (https://www.cnbc.com/2018/04/16/amazon-business-not-selling-drugs-but-other-amazon-groups-might.html). CNBC said the change in Amazon’s “plan comes partly because Amazon has not been able to convince big hospitals to change their traditional purchasing process, which typically involves a number of middlemen and loyal relationships.”
As reported by PharmaPhorum (https://pharmaphorum.com/news/amazon-shelves-plans-to-sell-drugs-to-hospitals-report/), Amazon has been unable to convince large US hospitals to change their purchasing processes. Additionally, Amazon would need a logistics network that can handle temperature-sensitive pharma products.
In January Amazon created a joint venture with Berkshire Hathaway and JP Morgan to launch a health plan for the bank’s employees. The joint venture was designed to deal with issues such as treating chronic diseases and would use digital technology and better management to develop an incentives system to improve health outcomes. Employees would be able to make better choices by owning their healthcare data and having access to telemedicine. The venture would entail better wellness programs, especially concerning obesity and smoking, which account for a quarter of chronic diseases such as cancer, stroke, heart disease and depression.
Last year Amazon acquired grocer Whole Foods for $13.7 billion. The industry speculated that Amazon might use Whole Foods outlets to sell prescription medicines purchased on the internet. Johnson & Johnson also has a partnership with Amazon for selling consumer drugs, as do many other large pharmacy chains. It is possible that Amazon could still get into the pharma space in another way. It still has multiple teams working on health care, including Alexa and the secretive Grand Challenge team, sometimes referred to as "1492," Eugene Kim and Christina Farr of CNBC reported.
The turnabout is not surprising to Walgreens and CVS, according to an article by Bruce Japsen in Forbes (https://www.forbes.com/sites/brucejapsen/2018/04/17/for-walgreens-and-cvs-amazon-about-face-on-drug-sales-an-i-told-you-so/#68a0d1144be2). The two retail drugstore chains warned Amazon about the complexities of getting into the business of selling and processing prescription drugs, particularly specialty prescriptions shipped to hospitals and clinics. “There are many barriers to entry when you’re looking at pharmacy,” explained CVS CEO Larry Merlo last year.
In order to distribute drugs, a company needs relationships with hospitals, health systems, clinics and government-approved shipping and refrigeration and other expertise in handling everything from generics to complex specialty drugs. Thus, according to Walgreens CEO Stefano Pessina, Amazon “will not come in an industry so complicated as our industry. At the end of the day, Amazon is not a retailer. It is a technology company. The only way for Amazon to enter our space would be to buy or to team up."