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Amazon is buying PillPack for $1 billion. Photo: PillPack

Amazon's $1 billion acquisition of mail-order pharmacy startup PillPack created an industry-wide frenzy, as prognosticators forecast doom for traditional pharmacies like Walgreens and Rite Aid. But Amazon still has a long way to go if it wants to drastically change the drug supply chain.

The big picture: Amazon is buying a small player in a highly regulated industry dominated by powerful incumbent companies that aren't willing to give up their turf. The online retailing giant will have to build or acquire more parts to make a big difference.

The unresolved issue: Payment. Uninsured people or patients willing to pay cash for their prescriptions can easily switch to PillPack, but that is a tiny part of the market.

  • Pharmacies need to be in the networks of pharmacy benefit managers (PBMs) — the middlemen of the drug supply chain — if they want to dispense drugs to most people.
  • The big PBMs often steer insured patients to their own mail-order pharmacies.
  • PillPack is an in-network pharmacy for all of the major PBMs, but its contract with Express Scripts may discontinue by the end of July.
  • A PillPack spokesperson said the company doesn't comment on negotiations. An Express Scripts spokesperson said, "If PillPack elects to terminate our agreement, we are committed to ensuring no gaps in care for patients."

The bottom line: Pharmacies are tethered to PBMs in the current system. That means Amazon will have to play ball with the big guns that often create favorable contracts for themselves, or "Amazon needs to buy a PBM (which is possible) to have a meaningful impact on market share," Ann Hynes of investment bank Mizuho Securities USA wrote in a note to Wall Street.

Yes, but: Amazon has 100 million Prime members who very well could demand their prescriptions be covered through Amazon's pharmacy.

  • "This is a multiyear, if not decade-long, chess game," pharmaceutical supply chain expert Stephen Buck said.

Flashback: Amazon used to own 40% of Drugstore.com, an early iteration of an online pharmacy. But PBMs did not include Drugstore.com in their networks, according to Steven Halper of financial firm Cantor Fitzgerald. So Drugstore.com left the prescription business, was bought out by Walgreens, and then shut down in a matter of years.

Go deeper

Dan Primack, author of Pro Rata
Sep 17, 2020 - Podcasts

Amazon exec on company Climate Pledge Fund

Amazon on Thursday announced the first companies to receive money from a $2 billion venture capital fund it formed to help combat climate change.

Axios Re:Cap digs into how Amazon hopes the fund will help achieve its goal of being carbon neutral by 2040, and whether the plan is more substance than spin, with Matt Peterson, Amazon's director of new initiatives and corporate development.

Ben Geman, author of Generate
Sep 18, 2020 - Economy & Business

Why Amazon committed $2 billion to fund clean energy technology

Illustration: Sarah Grillo/Axios

Matt Peterson, a senior Amazon exec, joined the "Axios Re:Cap" podcast to explain the thinking behind the tech and commerce giant's climate venture capital fund, which rolled out its first investments on Thursday.

Why it matters: The fund, $2 billion to start, is beginning to invest on the heels of Amazon's late 2019 pledge to be net-zero emissions by 2040.

Texas abortion law remains in effect after appeals court ruling

Pro- and anti-abortion protesters outside the Supreme Court as arguments begin about the Texas abortion law on Capitol Hill in November. Photo: Jabin Botsford/The Washington Post via Getty Images

A U.S. appeals court transferred a challenge to Texas' law banning most abortions after about six weeks of pregnancy to the state supreme court in a 2-1 vote on Monday evening.

Why it matters: The 5th U.S. Circuit Court of Appeals' decision means the country's most restrictive abortion law can remain in place for the time being.