23 January 2020

Amazon puts its foot in the pharmacy door

Pharmaceuticals Pharmacy Policy

The powerful Pharmacy Guild may have met its match in internet behemoth Amazon, which looks poised to enter the Australian market just in time for the introduction of electronic prescribing.

While regulations still exist to protect the status quo, one industry expert predicts the US giant will overcome them and that community pharmacies could lose up to 20% of their PBS business.

MedAdvisor CEO Robert Read says the online retailer, which this month filed “Amazon Pharmacy” as a trademark with IP Australia, is looking for a new market to roll out its PillPack business, which it bought for more than $1 billion last year.

PillPack takes a user’s prescriptions, sorts and bundles the medications into daily packages and home-delivers them.

MedAdvisor is an Australian medication management platform that links patients with their GPs and pharmacies to improve medication adherence. Mr Read has a background in business consulting, private equity and venture capital, and previously worked as Glaxo Smith Kline’s director of commercial strategy and operations.

He said PillPack was “absolutely” coming to Australia, and that in comparable markets 10-20% of business went online when there was the opportunity.

“They’ve got [PillPack] up and running in the US, they understand how to make it work and they’re looking for other markets to roll it out into,” he told TMR.

In our paper script market, less than 5% of pharmacy sales are online. But e-prescribing legislation was passed in October and now it just remains for practice management software and dispensing software to enable it.

While MedAdvisor has more than a million people signed up, and it has several Australian competitors, there are an estimated 12 million chronically ill people in the country (according to the AIHW), a large proportion of whom may readily ditch regular visits to the chemist.

“There’s a lot of people who aren’t yet using [digital] tools in health,” Mr Read said. “Amazon, which has a very strong incumbent position and huge marketing budgets and an ability to sustain losses for an extended period of time, can come in and drive people to their model and use their broader network effect to encourage adoption.

“In the US they’re using the Prime service and free or reduced-price delivery, which makes you think: why would I go into a pharmacy if I don’t have to? Imagine if there was a solution that could give you four-hour, same-day delivery – you might use that instead.”

The Guild, responding to the first media reports, said Australians preferred to get their scripts filled face-to-face.

When TMR asked for the evidence for this, and what the Guild was doing to prepare its members for e-prescribing, a spokesman said: “Nothing more to add at this stage”.

Mr Read said: “It’s naive to think it’s not going to have an impact because a large cohort of the existing market prefers face-to-face. Of course they do because there’s no viable online model at the moment – what are you comparing it to?”

The Guild has also said that the regulatory environment would work against Amazon.

IbisWorld senior industry analyst Arna Richardson told TMR that an Amazon incursion would be limited by several variables. Regulatory barriers to pharmacy ownership and dispensing would still apply to Amazon, and e-scripts could only be dispensed by an authorised PBS supplier.

Amazon could barely compete on the basis of price, she said, since discounts above $1 on PBS items were not permitted, or convenience: “Given the need for fast delivery times for dispensed medications, Amazon may then decide to limit its target market to just a few geographic markets like Sydney and Melbourne.”

But Mr Read said Amazon might acquire one of Australia’s big wholesalers, which are capable of swift delivery, even to rural areas, to take control of the whole supply chain and either supply pharmacies or customers directly.

“I don’t think one can assume that because there are these hurdles in place that Amazon can’t overcome them. And community pharmacy needs to be thinking about it today, otherwise they’ll find themselves under an enormous amount of financial pressure.”

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