Amazon enters prescription drug market with Amazon Pharmacy

After years of industry buzz, Amazon has formally entered the retail pharmacy market with the launch of Amazon Pharmacy.

Amazon said Tuesday that the new online store, located at amazon.com/pharmacy, enables customers to complete an entire pharmacy transaction on their desktop computer or via the Amazon App on a mobile device. After setting up a secure pharmacy profile and adding insurance information, customers can ask their prescriber to send new or current drug prescriptions directly to Amazon Pharmacy for fulfillment, choose payment options before checking out and manage their medications.

Amazon Pharmacy also brings more benefits to members of Amazon’s Prime customer program. When paying for prescriptions without insurance, Prime members can get up to 80% off generic drugs and 40% off brand-name medications at Amazon Pharmacy and at more than 50,000 other participating pharmacies. In addition, the Amazon Prime prescription savings benefit includes unlimited, free two-day delivery on orders from Amazon Pharmacy.

Speculation about Amazon launching its own retail pharmacy business has been rife since its 2017 acquisition of Whole Foods Market. Just as that deal propelled Amazon into the brick-and-mortar grocery market, industry observers predicted that the e-tail giant would soon jump into the pharmacy arena in some form. The expectation was so high that stock prices for the leading U.S. drug chains fell after Amazon announced the Whole Foods purchase, and the impact of a potential Amazon pharmacy market entry has since remained baked into their shares.

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Speculation about Amazon launching its own pharmacy business has been rife since its 2017 acquisition of Whole Foods Market.

In 2018, Amazon’s acquisition of online pharmacy PillPack seemed to confirm other behind-the-scenes moves that the Seattle-based company was assembling a pharmacy operation.

“As more and more people look to complete everyday errands from home, pharmacy is an important and needed addition to the Amazon online store,” Doug Herrington, senior vice president of North American consumer at Amazon, said in a statement Tuesday. “PillPack has provided exceptional pharmacy service for individuals with chronic health conditions for over six years. Now we’re expanding our pharmacy offering to Amazon.com, which will help more customers save time, save money, simplify their lives and feel healthier.”

Shares of CVS Health, Walgreens Boots Alliance and Rite Aid — operators of the three biggest U.S. drug chains — were down as of noon trading on Tuesday, as were the stock prices of McKesson, Cardinal Health and AmerisourceBergen, the nation’s largest pharmaceutical distributors. Amazon Pharmacy also will compete with pharmacy benefit management (PBM) and mail pharmacy services — including CVS Caremark/Aetna,  Cigna/Express Scripts, UnitedHealth Group/OptumRx and Humana Pharmacy Solutions — as well as leading supermarket and mass merchant pharmacies, including Walmart, Costco Wholesale, The Kroger Co., Albertsons Cos., Publix Super Markets, Ahold Delhaize USA and H-E-B.

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U.S. retail drug spending represents a more than $350 billion market, according to Jefferies analyst Brent Thill. "Roughly two-thirds of U.S. drug spending ($222 billion) happens through retail outlets — chain stores ($144 billion), independent stores ($50 billion) and food stores ($28 billion) — while the remaining third happens through mail-order ($133 billion)," Thill wrote in a research note on Tuesday. "We think the retail portion ($222 billion) of Rx medications is immediately addressable for Amazon, while mail service will take longer for Amazon to penetrate given it tends to be for chronic Rx meds that often run on autopilot. We expect Amazon to make gradual inroads into mail order from new prescriptions." 

Amazon Pharmacy is designed to provide a one-stop experience for researching, filling and managing prescription medications.

Amazon said Amazon Pharmacy leverages the familiar Amazon.com browsing experience in offering a one-stop shop for researching, filling and managing prescription medications. Customers can find out which medicines are available via Amazon Pharmacy, including branded and generic drugs in various forms and dosages. Before checking out, they can compare their insurance co-payment, the price without insurance, or the savings with the Prime prescription benefit.

Medications require a prescription from a licensed health care provider, and customers confirm the prescription fulfillment request online or via the Amazon App through their Amazon Pharmacy account. On the service end, customers have 24/7 online and telephone access to pharmacists if they have questions about their medications, Amazon said.

“We designed Amazon Pharmacy to put customers first, bringing Amazon’s customer obsession to an industry that can be inconvenient and confusing,” commented TJ Parker, vice president of Amazon Pharmacy and co-founder of Boston-based PillPack. “We work hard behind the scenes to handle complications seamlessly, so anyone who needs a prescription can understand their options, place their order for the lowest available price and have their medication delivered quickly.”

The Prime prescription savings benefit, also available to those using the PillPack by Amazon Pharmacy service, is administered by Inside Rx, part of recently launched health services company Evernorth, the parent of PBM Express Scripts and specialty pharmacy Accredo and a subsidiary of health insurer Cigna. Amazon said PillPack, which provides pre-sorted dose packaging, will remain a separate service for customers filling and managing maintenance medications for chronic conditions.

“We understand the importance of access to affordable medication, and we believe Prime members will find tremendous value with the new Amazon Prime prescription savings benefit,” stated Jamil Ghani, vice president of Amazon Prime. “Our goal is for Prime to make members’ lives easier and more convenient every day, and we’re excited to extend the incredible savings, seamless shopping experience, and fast, free delivery members know and love with Prime to Amazon Pharmacy.”

Currently, Amazon Pharmacy serves 45 states and the District of Columbia, with availability pending in Hawaii, Illinois, Kentucky, Louisiana and Minnesota, Amazon said. Amazon Pharmacy orders are delivered in discreet packaging to the customer’s preferred address. The company noted that Amazon Pharmacy doesn’t deliver Schedule II controlled medications, which includes most opioids, and that customer information is managed in compliance with HIPAA. Protected health information also isn’t shared outside of the pharmacy for advertising or marketing purposes without permission from the customer, Amazon added.

"While competition looks tough against established pharmacy players (the big three owning close to 40% of the market), we believe Amazon can offer a much better user experience and address key inefficiencies in the market by leveraging its scale and logistics network," Thill said in his report. "COVID-19 and the shift to online retail should also help Amazon ramp the services at a time when many consumers have just discovered the convenience of online commerce (pre-COVID 80% of prescriptions used to be picked up in person). Amazon's expedited delivery services could also accelerate the adoption of the new offerings, especially when one-day delivery eventually becomes available nationwide for pharmacy orders. Incumbent pharmacies use third-party partners for expedited delivery. We also see pharmacy as a good way to expand Prime membership, particularly among older consumers where Amazon underindexes."

*Editor's Note: Article updated with analyst comment.