AMZN v. Traditional Pharmacy (PBM, Drug Retail, Drug Wholesale) = Netflix v. Blockbuster. Here’s Why

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Richard Evans / Scott Hinds

203.901.1631 /.1632

revans@ / shinds@ssrllc.com

@SSRHealth

July 19, 2018

AMZN v. Traditional Pharmacy (PBM, Drug Retail, Drug Wholesale) = Netflix v. Blockbuster. Here’s Why

  • AMZN’s acquisition of PillPack has elicited skepticism, often around PillPack’s limited size (sales reached $100M only last year), and the likelihood that PBMs will kick AMZN/PillPack out of networks to preclude competition with PBMs’ captive mail pharmacies
  • This appears to reflect a general belief that AMZN’s US pharmacy strategy is limited to capturing share of Rx fulfillment from current payors – and we believe this view may be too narrow
  • Last month I bought DeWalt sanding pads on AMZN; AMZN automatically applied DeWalt’s coupons, and I paid with my Amex reward points (which are linked to my Prime account). Substitute Rx’s for sanding pads, patient-level manufacturer rebates for coupons, and plan sponsor credits for Amex reward points, and it’s clear how AMZN’s platform can become an alternative to a traditional prescription benefit
  • Today, a theoretical Rx with a $100 list (i.e. ex-manufacturer) price costs a plan sponsor and the beneficiary (combined) roughly $96 at the pharmacy counter, net of rebate. We believe AMZN can deliver that same Rx to the doorstep for about $83, also net of rebate, and inclusive of shipping cost
  • We don’t believe AMZN’s Rx ambitions are limited to fulfillment of Rx’s paid by traditional pharmacy benefits. Rather, we believe AMZN can, and likely will, approach plan sponsors directly, with an alternative to their current pharmacy benefits; and, we expect that the AMZN alternative will offer higher service levels at both the point-of-sale and point-of-delivery, along with lower costs

“So when the pundits tell you that the death of the DVD is imminent, that we’ll soon get all our movies instantaneously from the Internet, some skepticism is in order” – NYT, 1/25/07

“…the total number of movies sold online is less than “Pirates of the Caribbean: Dead Man’s Chest” sold on its first day of DVD availability” – Variety, 2/7/07

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