Ecommerce heavyweight scents a fresh opportunity for a push into the sector
Last weekend, I got yet another email from my good friends at Amazon. Rather than touting my favourite romance novelist, this one promised “instant savings” on medications from a “new Prime Rx service” that routes prescriptions to the company’s mail order pharmacy and offers discounts at local drugstore chains.
But when I looked into it, I learnt that Prime Rx has been around for almost 18 months. It just hasn’t had many takers. The same could be said of Amazon’s other efforts to dabble in healthcare — at least until now.
Healthcare companies have been living in fear of the ecommerce group since 2018. Back then, Amazon spooked their investors with its purchase of online pharmacy PillPack and by announcing a partnership with JPMorgan Chase and Berkshire Hathaway aimed at cutting healthcare costs and improving care.
But the rebranded Amazon Pharmacy “failed to gain meaningful traction”, in the words of one analyst; a telehealth and mobile medicine offering founded in 2019 has thus far attracted few corporate customers. And the much trumpeted partnership quietly folded up its tent last year.
Now new chief executive Andy Jassy is leading a fresh push into the sector at what could be an opportune time for a disrupter with deep pockets. The pandemic has sped up adoption of telemedicine and other uses of technology, and rising inflation has made both retail prescription drug customers and corporate insurance buyers more price sensitive.
Last month Amazon shelled out $3.9bn for One Medical, a subscription-based healthcare provider that brings along more than 200 medical offices and 790,000 members. This week, it emerged that Amazon plans to bid against pharmacy chain CVS for Signify Health, a $6bn home health services provider in a September auction.
Amazon has long searched for counterweights to its ecommerce and cloud computing services that would be big enough to impact revenue in a $1tn company. Initially it seemed that supermarkets might be the answer. But despite the 2017 purchase of the Whole Foods chain, physical stores account for less than 4 per cent of net sales.
Jassy, who took over from founder Jeff Bezos last year, cited telehealth on a call with employees last autumn as one of the company’s most exciting innovations. After testing its offerings on the company’s Seattle area employees for several years, Amazon Care now offers virtual services to external customers nationwide and plans to have in person offices in nearly 30 cities by the end of the year. “We think healthcare is high on the list of experiences that need reinvention,” Amazon Health Service’s Neil Lindsay said after the One Medical deal.
Amazon isn’t commenting on Signify, which uses technology to help manage care, but it and CVS are not the only big companies out shopping. Retailer Walmart added a telehealth provider last year, and Walgreens boosted its investment in Village MD, which runs primary care clinics.
Until this year, digital healthcare companies had been growing rapidly both in the number and size of deals. But technology stocks took a beating in the spring and private financing is drying up. New funding to US digital health companies dropped by half year on year to $4.1bn in the three months to June 30, according to venture firm Rock Health.
Cash-rich buyers such as Amazon hope to have their pick of rapidly growing companies that need money to keep the lights on. “This is the best risk-adjusted pricing we’ve seen in four to five years, and four or five years ago there wasn’t anything big enough that Amazon would want to buy,” says Bill Evans, Rock Health’s founder.
Ambition may not be enough for Amazon when it comes to healthcare. US antitrust enforcers have the group squarely in their sights and are likely to try to block any deal they think gives it too much power in a new sector. US healthcare is also a notoriously difficult market to disrupt. Patients and the employers who pay for insurance want to cut costs but are quick to complain of service changes. And synergies are tough to create in a market full of many interlocking vested interests.
Prescription drugs are a case in point. Amazon’s Prime Rx promises to cut prices, but patients who have insurance that covers part of their drug bill cannot combine the two benefits. Such customers are far more likely to find deals at CVS, which owns health insurer Aetna and Caremark, one of the biggest managers of pharmacy benefits. And the reach of Amazon’s offering is surprisingly limited: when I checked prices for two drugs I take, neither was available.
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Fonte: Financial Times