Amazon's entry into prescription drug retailing scale depends on 2B capabilities

After three years of preparation, e-commerce giant Amazon has officially announced its entry into prescription drug retailing.
the U.S. outbreak intensifies again, demand for drug mail is growing, and choosing this point in time will help the business grow.
, however, U.S. prescription drug retailing is actually a B-side market rather than a C-side, and Amazon's existing channels and capabilities do not have a strong advantage in this area.
, Amazon's entry into prescription drug retailing has had a big impact on the market, with CVS and Walgreens shares both falling significantly.
But the biggest faller was GoodRx (down 22.5 per cent on the day), as Amazon offered a large discount to unsealed users, creating a head-on competition with GoodRx, which clearly has a stronger ability to grab out-of-pay patients.
, however, amazon wants to enter the drug retail industry is not simply negotiating with drug manufacturers and omitting intermediate channels to make a profit, but is primarily working with PBM service providers.
The prescription audit authority and health insurance drug catalog of the U.S. drug retail channels are in the hands of PBM, which contracts with pharmaceutical manufacturers and insurance companies to influence the prescription behavior of doctors or pharmacists without compromising the quality of medical services, so as to control the increase in drug costs.
PBM also offers prescription drug mailing, which accounts for a large part of its own business, both ESI and CVS Caremark, which account for 40 percent of the total, and is bound to have a conflict of interest with PBM once Amazon also goes into prescription drug retailing.
, Amazon has caused a big shake-up in the U.S. drug retail industry since it announced its entry into the pharmaceutical sector in 2017.
In an effort to counter possible changes, especially fearing that Amazon's partnership with payer would affect its own interests, the big PBMs are looking for a merger with insurance companies, and with CVS's acquisition of Aetna, the third-largest U.S. health insurer, and Cigna, the fourth-largest U.S. health insurer, the acquisition of ESI, there is no large independent PBM in the U.S., plus Bothem and Humana already have their own PBMs.
amazon's quest to partner with large commercial insurance companies has increased dramatically, as has the challenge of obtaining large-scale prescriptions.
PBM market is a highly monopolistic market, with the top three already accounting for 70 percent of the market, and Amazon must acquire the giants if it is to enter prescription drug retailing.
all three companies have merged with insurance companies, the biggest customers, making it difficult for Amazon to get into prescription drug retailing.
Thye is because PBM's primary customers are insurance companies and large self-insured companies, and Amazon's C-side coverage is useless if it simply buys small PBM companies to enter the market and does not deliver rapid increments in the short term.
Amazon had to look for other paths first.
$750 million to buy Pillpack could be seen as Amazon's main attempt.
Pillpack is a company that serves PBM, and its main business model is to provide individuals with pre-installed medicines, mainly for users with chronic diseases.
Because slow patients tend to need to take multiple medications, patients are relatively less lying to the drug, Pillpack's packaging helps users know exactly how to take it.
Pillpack's main revenue comes from PBM, which procures such services primarily to ensure user compliance to stabilize drug sales without providing a better experience for users.
From Amazon's development of its drug-spliting business before cutting into prescription drug retailing, its main competitor is downstream retail pharmacies, which is why the news has led directly to a sharp drop in pharmacy prices.
, however, as analyzed above, Amazon's real competitor is PBM's online mail-order business, which is not an alternative relationship between offline and offline, and where online and offline retail pharmacies are complementary in nature.
online mail order business is mainly PBM itself in the development, while retail pharmacies mainly rely on the provision of a full range of medical treatment and health management business to get customers, which is irreplaceable online.
for CVS, which has both PBM and online mail-order drug businesses, as well as offline pharmacies and clinics and chronic disease management businesses, its own barriers are already high, it is difficult to shake.
And for individual users, online to buy drugs or to take drugs offline mainly according to their own needs, and will not have online services on the complete abandonment of pharmacies, after all, the United States express service than directly to the pharmacy to take their own much slower.
, Amazon's final entry point is out-of-the-nation users, giving Amazon members discounts of up to 80 percent on generics and up to 40 percent on branded drugs.
Because PBM's main revenue in the U.S. comes from selling drugs, raising the price of the drug rather than lowering it to get more revenue results, resulting in higher drug prices for insurance users than for out-of-the-money users and, in extreme cases, higher than the out-of-the-money portion after deducting the insurance reimbursement portion."
coupled with the fact that there are still 20 million unseeded individuals in the U.S., this is still a market to watch, and Amazon is more likely to get growth from the out-of-the-way market.
this has put enormous pressure on GoodRx, which is also targeting the drug's out-of-the-way market, leading to a sustained decline in the latter's estimates.
, however, to really start, you still need to rely on PBM.
even the current out-of-the-nation drug program, Amazon is working with Insider Rx, a subsidiary of Cigna's PBM company Evernorth.
to expand insurance users, but also rely on large PBM.
But because large PBMs have their own large prescription mailing businesses and the two are in fact in a competitive relationship, Amazon still has to work with smaller PBMs for insurance customers, mainly RxAdvance, which is invested by Walgreens and insurance company Centene, and CerpasSRx, a Texas-based company.
but once these small PBMs can expand, they will still develop prescription drug mailing themselves, because the client portal is in the hands of the PBM rather than the C-side traffic portal like Amazon.
is amazon's biggest paradox as it enters prescription drug stores.
therefore, in the prescription drug retailing sector, Amazon's growth in this area will remain relatively passive as long as it does not have access to large PBMs with prescription exports, making it difficult to grow the scale of expectations and become a disruptor.
Of course, bypassing insurance companies to negotiate directly with employers would be another option, but the fact that Amazon's Haven business has not developed a clear strategic plan since it was founded shows that the challenge of directly reaching corporate customers is significant and requires a long growth curve."
2B is a long-term patient development for Internet companies, and it's hard to get scale quickly.