Amazon enters the medical market with PillPack acquisition

Amazon is set to disrupt another industry following its purchase of online pharmacy PillPack, a  move that will put the online retailer in competition with drugstore chains, drug distributors and pharmacy benefit managers.

The cost of the acquisition has not yet been disclosed but is expected to be at least $1bn (£760m). Following the initial announcement, Amazons share price jumped 2.5 per cent, while pharmacy chains and drug wholesalers are estimated to have lost around $14bn in market value.

PillPack supplies pre-sorted prescription drugs and other medical services to people who take multiple medications. With the aging population in the US and many other developed markets, its a growing potential audience.

The US prescription drug market is estimated to be worth $450bn, and while PillPacks sales are only expected to around $100m this year, combined with Amazons massive customer base and existing shipping infrastructure, the firm could very quickly scale up.

Amazon will also be able to directly negotiate with pharmaceutical companies, providing it with the ability to offer cheap generic drugs to customers who lack health insurance. This could potentially disrupt the relatively-entrenched retail pharmacy businesses operated by competitors including CVS Health, Walgreen Boots Alliance and Walmart, who may also have been interested in acquiring PillPack.

While brick-and-mortar stores may feel some impact from an expanding PillPack, it will be mail-order pharmacy services that should be truly worried. Last year, CVS mail order pharmacy unit brought in around $45.7bn in revenue, or 15 per cent of all its pharmacy claims. If Amazon is able to tap into even a modest chunk of that business, existing pharmacy firms should be very concerned, and it could be another massive source of revenue for Jeff Bezos retail giant.