- Amazon is getting into the healthcare business. Every move has sent pharmacy and wholesaler stocks into a tizzy.
- But it remains to be seen what impact this has on drugmakers.
- We spoke to more than half a dozen top executives at pharmaceutical companies like Novartis and Eli Lilly how they’re thinking about Amazon’s entry into healthcare.
Amazon has the entire $3.5 trillion healthcare industry on edge.
News of the retail behemoth’s acquisition of PillPack, its plans for a joint healthcare venture with JPMorgan and Berkshire Hathaway, and its work supplying hospitals with health equipment have all sent would-be competitors like pharmacies and drug wholesalers into a tizzy.
The fear is that Amazon will upend the healthcare industry, relentlessly compressing health companies‘ margins and siphoning off their customers in the same way it has in the publishing and retail industries. Yet we’re still in the early innings of figuring out Amazon’s healthcare ambitions, and the company has said little about them publicly. For instance, while it seems likely that Amazon could get involved in selling and shipping drugs or medical equipment, it’s unclear what impact Amazon could have on big pharmaceutical companies themselves.
While on a trip to San Francisco for the annual J.P. Morgan Healthcare Conference, Business Insider asked pharmaceutical executives and healthcare experts for their perspectives on Amazon’s healthcare strategy — and whether they think Amazon will become a competitor. Amazon did not immediately return a request for comment.
That’s based on the moves Amazon has already made, like the PillPack acquisition and the health joint venture, as well as Amazon’s work in genomics through Amazon Web Services. Conde sees the retail giant going beyond that.
„They’re going to straddle the entire healthcare value chain in some way, shape, or form,“ Conde said.
The ultimate disintermediator
For the most part, the pharmaceutical executives BI spoke with didn’t see themselves as the entities that would face disruption. The business of developing new pharmaceuticals and manufacturing them is a time- and capital-intensive process.
Rather, Amazon’s potential — as the pharmaceutical industry sees it — has everything to do with how it could affect the rest of the healthcare industry.
„The big big potential improvement frankly is on the rest,“ said Hervé Hoppenot, CEO of the Delaware-based cancer drugmaker Incyte.
From when a drug is made to when a patient picks it up at a pharmacy counter, as many as five companies can be involved in the process of selling medications. Each company makes a tidy profit along the way. And as prices increase, so do those profits. Pharmaceutical companies have been pointing to the middlemen in the system as the reason for the rising prescription costs patients are facing at the pharmacy counter.
Christi Shaw, the president of Lilly Bio-Medicines, the business within Eli Lilly that comprises neuroscience and immunology, said she personally is hopeful that tech companies could help patients better afford medications.
„It’d be nice to go back to making medicines that help improve patients‘ lives and not be focused on the questions of access and rebates,“ Shaw said.
„I’m of the mind that if an Amazon can take the distribution system, fine,“ Shaw said. „If Google can help us with technology to better improve patient outcomes, that’s going to help patients. It’s going to increase the bar for innovation, it’s going to give us real-time data, it’s going to tell us how we can price to the value of the outcome. So I’m extremely excited about it and I wish they could go faster.“
Paul Hudson, the CEO of Swiss drug giant Novartis’s pharmaceuticals unit, is also eager to see what Amazon and other tech companies brings to the table.
„I love the tech potential disruption to our industry. I think we should have to stay relevant,“ Hudson told Business Insider.
Novartis for its part has been pushing to increase the use of technology in its business.
„We have a digital data obsession that means that we won’t be one of the losers. Perhaps we’re one of the biggest winners,“ Hudson said. „The world is not a piece of paper with a prescription on it anymore.“
Amazon could be a partner for Big Pharma
Some pharmaceutical leaders see Amazon as a potential partner. Rick Suarez, AstraZeneca’s vice president of US market access, is in charge of making sure patients get access to their medications, including working with health insurers and employers.
„There is tremendous opportunity for public and private partnerships that would include new partners in the marketplace,“ Suarez told Business Insider.
That’s especially true in the context of the healthcare joint venture that aims to lower costs for Amazon, JPMorgan and Berkshire Hathaway employees.
„If there is an opportunity to work closely to solve for issues that their employee population would have been plagued by — for example diabetes or cancer or respiratory — there’s a huge opportunity for us at AstraZeneca to be a partner,“ Suarez said.
The potential to make disruptive moves
Nina Kjellson, a general partner at venture firm Canaan Partners, has been watching with interest the areas where Amazon has already started selling health-related goods, such as durable medical equipment and over-the-counter medications.
Should Amazon start to dispense and ship prescription drugs as well, companies like CVS Caremark and Express Scripts, which have businesses mailing out prescriptions, should be terrified, she said.
„They have the wherewithal to be the mother of all mail-order pharmacies,“ Kjellson said.
Hudson said met with the PillPack team at the JPMorgan conference, and they told him a little about their initial goals.
„They don’t talk about dominating the world,“ Hudson said. „They talk about understanding consumers as patients and distributing medicines to them in a way that suits the patient best. I get that. We’ll wait and see what that looks like.“
Axel Bouchon, who heads up Leaps by Bayer, an organization within pharma giant Bayer focused on finding and funding breakthroughs, sees tech companies dipping their toes into healthcare in areas that are the closest to their hearts.
For Google, that’s through processing data in companies like Verily. For Apple that’s through the Apple Watch and its health tracking. But for the big tech players — including Amazon — he doesn’t see those moves as their big jumps into healthcare.
„Like Amazon bought Whole Foods, someone will buy a pharmaceutical player,“ Bouchon said. Or a pharmaceutical company could buy a tech player, he said. „I think it works both ways.“
When Amazon bought Whole Foods, Bouchon said he remembers thinking that was a smart deal. Collaborations can only get you so far — once you own a business, you can get a better understanding of it.
But in the meantime, Amazon’s already cemented itself as a player in the healthcare industry.
„Will they be a significant player? They already are,“ Conde said.
Source: Business insider