The giant of retail e-commerce Amazon, an investment holding under the control of multi-billionaire Warren Buffet, Berkshire Hathaway, and one of the main world-wide investment banks, JPMorgan Chase & Co., closed a new partnership at the end of January 2018 to create a new, no profit company to jointly provide healthcare services to their US employees (approx. 750,000 people, according to the estimates published by Forbes, equal to some $ 7,5 billion/year combined healthcare expenditure). A deal that sounded “strange” to Glenn Luk, founder of the shared knowledge platform Quora, commenting the operation from Forbes’ pages. «Capitalism is not altruistic and one should always be suspicious of capitalists masquerading as altruists», he wrote.
According to the announcement made by the three partners, the declared goal of the operation is to achieve a better satisfaction of their respective workforces. Furthermore, the new, no profit company will provide the founding partners with the needed healthcare technological solutions and services, thus reducing their costs on the long term thanks to the complementarity of the expertise the three partners can provide to the newco. «The ballooning costs of healthcare act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable» said Berkshire Hathaway Chairman and CEO, Warren Buffett, commenting the deal. A declaration of intent that let suppose the final cut of healthcare costs might be the real objective of the three partners.
The real target might be the pharmaceutical market
According to the CNBC, quoting a report from the financial research firm Leerink, Amazon ’s exploratory team working on the pharmaceutical and healthcare sector should have reached 30 to 40 people. Another clue in favour of the hypothesis of an interest of the e-commerce giant to enter the online pharmacy channel sooner or later. Another tip towards a new role for Amazon in the prescription drugs’ market is the approval that the company obtained during Fall 2017, according to the St. Louis Post-Dispatch, for wholesale pharmacy licenses in at least twelve US states (Nevada, Arizona, North Dakota, Louisiana, Alabama, New Jersey, Michigan, Connecticut, Idaho, New Hampshire, Oregon and Tennessee). These pharmacy licenses should not be used to sell prescriptions medicines, reported Christina Farr for CNBC, «but (Amazon, ndr) will use them to sell medical devices and supplies instead, the company has told regulators».
These first steps made by Amazon into the healthcare business might represent just a starting point from which to experiment completely new models for the medicinal and medtech’s supply chain based on the company’s advanced knowledge in the field of efficient and low cost goods distribution. How this will impact on current models of pharmaceutical distribution is too early to say, but observers agree on the fact that the initiative might put pressure at the regulatory and legislative level to keep prices low and under control.
Observers also hypothesised that Amazon itself might become in future a pharmacy benefit manager (Pbm) in the US, thus directly negotiating the prices of healthcare products and services with regulators, pharmaceutical companies and insurances. Something that might disrupt the current model and significantly reduce prices for prescription drugs, as Amazon might directly act to negotiate costs and reimbursement plans with the pharma and biotech industry.
Competitors are not waiting
Home distribution has already become a realty for prescription medicines, at least in the US, as many new initiatives have been started by traditional players in order to protect their markets from the arrival of Amazon.
Cvs Health announced in December 2017 the intention to start next-day delivery of prescription drugs in New York (and same-day service to follow in some big cities during 2018). Cvs is one of the leading pharmacy benefit manager companies (Pbm) in the US; it also controls Caremark, among the main US’s online pharmacies, and acquired Aetna in 2017, an insurance company active in the private healthcare market.
Another big player, Walgreens Boots Alliance, closed a partnership with FedEx for package pickup and drop-off services at more than 7,500 Walgreens locations in all 50 U.S. states. Walgreens also started a collaboration with Prime Therapeutics, an healthcare insurance covering more than 20 million people in the US.
The discount company Target, counting more than 1,600 internal pharmacies to its shops, also closed an agreement for the acquisition of the leading Shipt’s online same-day delivery platform, a $550 million deal in cash. According to Pharmaforum, Target might represent the final object for an acquisition by Amazon, with the aim to directly access its prescription medicines selling structure on the internet. Another possibility might see the opening of Amazon’s pharmacies into the grocery Whole Foods retail network Jeff Bezos’ company acquired in June 2017 for $13.7 billion.
What is gong on in Europe
The new partnership between Amazon, Berkshire and JPMorgan is focused on the US market, but it might pave the way to similar initiatives to be pursued also in Europe in coming years. Here too, the trend indicates a tendency towards the consolidation of a new model of pharmaceutical distribution more centred on the online channel and the creation of pharmacies’ networks.
In Germany, for example, 2017 saw the launch of the digital branch “Linda 24/7”, a modern multi-channel ordering portal open 24 hours a day, seven days a week, offering Click & Collect services, expert advice on location and use of Payback points. The project is there result of the cooperation between approx. 1,100 owner-managed, independent German pharmacies adhering to the Linda umbrella network. An initial pilot phase of the project should provide feedback from customers upon which to optimise the digital branch before the official presentation.
In other countries the online market is still far behind, in favour of an approach up to now more focused on the creation of a wider concentration of retail pharmacies. One of the main wholesale and retail company pharmacy operators of the European market, Celesio Ag, underwent a renaming in September 2017 to become McKesson Europe. Its network counts more than 2,100 own pharmacies and about 300 managed ones, serving every day more than 2 millions European citizens. McKesson Europe also supplies approx. 55,000 pharmacies and hospitals in ten European countries via its 110 own and seven managed wholesale branches.
Another example comes from Central and Eastern Europe, where the Dr. Max brand represents the largest pharmacy network with more than 1,300 pharmacies and total sales of € 1.25 billion. The brand is owned by the investment group Penta, it is currently present in the Czech Republic, Slovakia, Poland, Romenia, Serbia and is undergoing expansion also towards the Italian market, where 2017 saw the opening to capital-owned pharmacy networks.