|Amazon should buy these companies if it wants to get into selling drugs, say experts|
Christina Farr | @chrissyfarr
- Amazon is considering getting into the business of selling prescriptions online.
- CNBC asked five experts to pick the company that Amazon should buy first to help it compete in the $560 million market.
November 2, 2017
Amazon has been mulling getting into the prescription drug business.
Amazon is already in a range of businesses that touch on the multi-trillion medical sector, including selling surgical equipment and supplies, as well as its cloud software services which many big health care companies use.
But if it wants to get into selling prescriptions, it might speed its time to market by making an buy-up of a company already in the space. There's a precedent in Amazon's $13.7 billion acquisition of grocery store chain Whole Foods earlier this year. Amazon has about $13 billion in cash and equivalents, as of September of this year.
So we asked 5 experts for their predictions on the companies that Amazon might look to acquire if it decides to move ahead with becoming an online pharmacy. Their answers have been edited for brevity.
Scott Barclay, partner at venture fund DCVC and former vice president at e-prescription software provider Surescripts
What is it? A group purchasing organization created to allow hospitals and other providers to pool their purchasing power to secure discounts on medical and other hospital supplies.
Why? According to Barclay, it's a no brainer for Amazon to buy a group purchasing organization or "GPO". And Premier is the largest in the U.S., with a network of more than 3,750 U.S. hospitals and 130,000 other providers.
What's in it for Amazon? "It's a low-cost way to break into the (drug) supply chain that touches a large chunk of health care GDP," Barclay said. "Amazon would quickly create a multi-billion dollar business without fundamentally taking on much risk or even being very innovative."
Another benefit, according to Barclay, is that it buys Amazon time. It could pick and choose if it wants to go after more challenging opportunities like data and informatics, care provision and health insurance.
Any cons? Premier, which went public in 2013, wouldn't come cheap -- it's currently got a market cap over $4 billion, and revenue jumped 15% to $1.16 billion in fiscal year 2016.. It has also been on a buying spree of its own of late to strengthen its market position.
Prediction: Express Scripts
Dr. Mark Frisse, Department of Biomedical Informatics at Vanderbilt University Medical Center and former chief medical officer at Express Scripts
What is it? Express Scripts is the largest pharmacy benefits manager in the United States. These companies, known as PBMs, act as intermediaries between payers, like health insurers, and the rest of the health system.
Why? The culture fit. Amazon and ExpressScripts, a pharmacy benefits management company, have a lot in common, according to Frisse. "These companies have the same business acumen, market discipline and mastery of logistics and delivery."
ExpressScripts could take on a job that Amazon might want to avoid, suggests Frisse. "Its team brings to the table the capabilities of managing a Byzantine and arcane process of pharmacy regulation," he explained. As Express Scripts own CEO' Tim Wentworth told analysts in July, it's far more complicated than just dispensing drugs. Entering the business, "requires you to figure out how not to dispense drugs or to dispense the right drugs as much as it does to dispense them."
Why not? It would be a massive purchase -- Express Scripts has a market cap of over $35 billion, more than twice the price Amazon paid for Whole Foods, and the company would have to borrow to take that on. It might be an easier option for Amazon to buy a small or mid-sized pharmacy benefits manager at a lower price, and still gain the national footprint and regulatory expertise.
Nina Kjellson, Canaan Partners' biotech and health IT investor (note: Glooko is a Canaan portfolio company)
What is it? Glooko is a subscription-based diabetes management web and mobile app for patients and their health providers. It claims to have millions of users worldwide.
Why? Kjellson sees Amazon having a big impact in public health, especially in areas like obesity and diabetes. With Amazon already starting to sell medical supplies online, Kjellson sees the company carving out a big business in diabetes prescription medications and glucose meters/ strips, which is a $70 billion market and growing. "So Amazon should pick up a diabetes management platform like Glooko to have a consumer and health care solution that ties the entire disease management ecosystem together in a great, consumer experience."
Another bonus? As Amazon gets into the grocery business in the wake of its Whole Foods buy up, it could consider personalized meal recommendations -- a benefit for millions of people managing chronic conditions like type 2 diabetes.
Why not? Privacy. Amazon already knows so much about its customers through their buying habits. Some users might be uncomfortable sharing their health status. Moreover, managing populations with chronic diseases is not Amazon's core competency.
Annie Lamont, managing partner at investment firm Oak HC/FT
What is it? GoodRx offer coupons that consumers can take to the pharmacy to get discounts on prescription drugs. It claims to have lower prices than what a consumer would otherwise pay out-of-pocket.
Why? "It's the most successful consumer-facing app for prescription drugs that is focused on comparing and giving the consumer the lowest cost," said Lamont. And that's an ideal fit for Amazon, which prides itself on transparency. GoodRx founder Doug Hirsch has also publicly stated that he would welcome Amazon's long-rumored entry into the space.
Why not? "Valuation," suggests Lamont. GoodRx hasn't raised much in funding -- $1.5 million in seed financing and an additional follow-on sum that hasn't been disclosed -- but has grown quickly since its 2012 launch and established itself as one of the biggest players in the space.
Any big risks? GoodRx has contracts with pharmacy benefits managers and retailers behind the scenes, explains Lamont. So there's always a risk that they pull out, if they're feeling threatened by Amazon.
Stephen Buck, co-founder of cancer-advisory site Courage Health and former co-founder of GoodRX.
What is it? Pillpack is an online pharmacy start-up that delivers prescriptions by mail in personalized packets, based on when the user needs to take them.
Why? If Amazon got into the business of selling prescription drugs, PillPack seems like an obvious pick to Buck. "It's a direct-to-consumer company that would fit nicely into Amazon's Prime delivery service," he explained.
A good deal: PillPack also isn't encumbered by a large retail operation, Buck said, meaning it doesn't have a huge network of brick and mortar pharmacies. For the reason, it might also be "relatively cheap to buy," he suggests, despite that it has raised more than $117 million in financing from venture investors to date.
Why not? The product might be too niche for Amazon, suggests Buck. "The whole experience including the packaging might only appeal to a certain segment of people who take multiple medications."