Last month, Amazon announced it would purchase the online pharmacy, PillPack, in a deal estimated to be worth just shy of $1bn. With this planned acquisition, Amazon is clearly signalling how important the e-health market is. But its disruption of this market has also had commentators speculating that it has single-handedly wiped $14.5bn off the market capitalisation of the entire US pharma and drugstore industry.
What is PillPack?
Founded in Boston, Massachusetts in 2013, PillPack is a US online pharmacy that fills, packs and dispatches multiple medications to users. Now based in Manchester, New Hampshire, the company wraps a customer’s various pills in personalised packs, labelled with the details of when they should be taken. It manages repeat prescriptions and works with insurance companies where needed too. It’s been a successful model as it avoids consumers having to travel to a pharmacy to collect their medication, and also having to sort their pills themselves.
With 40 million American adults taking more than five prescription medicines a day – and half of those not taking them as prescribed – the PillPack offer is a much-needed solution for a vast number of people.
PillPack had a 2017 turnover of $100m, and had raised substantial investment of around $123m prior to this deal.
Valued at $361m in 2016, the $1bn deal, which is expected to be finalised during the latter part of this year, is a significant one for both Amazon and for the pharmacy industry.
It had been rumoured that Walmart had also made a bid for the company last year, seemingly to bolster its own online pharmacy business. But with Amazon securing the deal in the end, a significant market shake-up is n the cards.
Disruption to the Market
Having revolutionised book sales, then general goods and clothing, and most recently groceries, Amazon has now turned towards shaking up the pharmaceutical and healthcare industry.
Amazon is such a dominant force in retailing that the first indication that it is moving into a new industry can have far-reaching effects on the markets. It was seen with this particular announcement too, with investors pulling out of the established pharmaceutical and healthcare companies and affecting market prices. A collective $14.5bn was wiped off the market value of a number of traditional drugstore companies, including Walgreens, CVS and Rite Aid.
At SAP’s recent SMB Summit in Barcelona, the company talked about the three magnitudes of digital transformation: business function optimisation, operating model transformation and business model transformation.
PillPack’s acquisition by Amazon, and the subsequent effect on the market, is an example of business model transformation. PillPack’s is threatening a well established market via a new and disruptive business model, empowered by technology. The immediate share price drop experienced by the large pharmaceutical companies is a stark warning to all industries that failing to invest in new technologies can have a crippling effect on future performance; especially when Amazon is involved.