Amazon's Push Into Pharmacy Business Is Full of Promise and Pitfalls

By Jonathan D. Rockoff and Laura Stevens Features Dow Jones Newswires

A move by Amazon.com Inc. into the $412 billion pharmacy business would shake up how generations have gotten their medicines, but success could prove elusive even for the ever-expanding e-retailer.

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People familiar with the matter confirmed that Amazon is considering entering the business. The U.S. market for selling prescription drugs appears ripe for an e-commerce makeover. Every year pharmacies in the U.S. dispense about 4.5 billion prescriptions. Patients pick up about 9 out of 10 prescriptions at a retail pharmacy, much the same way their parents did decades ago, even though their doctors likely sent their prescriptions to the store electronically.

Consolidation of the drug supply chain in the hands of a few big players has also been criticized by many patients and drug manufacturers, who are looking for new ways to buy and sell medicines.

Retailers including Amazon may be "sensing there is a significant discontinuity, a shift, about to occur and it is time to jump in," said Pratap Khedkar, who heads the pharmaceuticals practice at consulting firm ZS Associates.

But while filling drug prescriptions online may be a big, inviting target for Amazon, it would pose very different challenges than selling books, toys and videogames, say industry experts.

Medicines are highly regulated; they can be sold only by a pharmacy with a state-issued license. Most important: The patient usually doesn't pay directly for their prescription drugs.

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"Amazon has built its business dealing with first-party payment -- the consumer," said Adam Fein, president of Pembroke Consulting, which advises on the drug-distribution chain. "It's a very different business when the consumer is sharing the cost with a third party."

The Seattle company has had an on-again-off-again interest in health care. In 1999, it bought a 40% stake in Drugstore.com Inc.

"There are a lot of differences between books and drugstores, but there are a lot of similarities, too," Amazon Chief Executive Jeff Bezos said at the time. "Customers want selection, convenience, price and information."

Drugstore.com eventually was bought by bricks-and-mortar retailer Walgreen's, which said last year it was shutting down the site to focus on its own digital efforts.

Over the past few months, Amazon has been more active in health care again.

It began selling medical products like syringes and nylon sutures to doctor's offices, hospitals and laboratories as part of its Amazon Business marketplace, a business-to-business platform that sells industrial, office and health-care supplies. Amazon has been applying for pharmacy licenses in certain states over the past few months, which a company spokeswoman says is required for Amazon Business to sell such professional-use medical products.

Filling a drug prescription isn't as straightforward as billing a customer's credit card, then shipping the item, industry experts say.

For patients with drug coverage, health insurers write the checks for the bulk of the cost of medicines. Either the insurers, or the companies they hire to manage prescription-drug benefits, also decide which medicines patients can get and how much they have to pay out of pocket toward the cost.

A pharmacy must sort all that out before handing over a prescription. The pharmacy connects electronically with the drug-benefit manager to make sure the patient can get the prescribed drug under her health plan and calculate how much she and her health plan must pay.

The involvement of middlemen would present steep challenges for Amazon if it wanted to bringing its seamless, one-click experience of buying bedsheets, diapers and tablets to the experience of filling a prescription.

For these reasons, many health-care industry officials and advisers believe Amazon, if it opted to enter the market, would probably seek to join with or buy a company with systems already in place for processing prescriptions and then integrate those systems into its online shopping.

"It will be tough organically," said Meghan Fitzgerald, an assistant professor at Columbia University's Mailman School of Public Health who has worked across the health-care industry.

Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com and Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

October 28, 2017 07:14 ET (11:14 GMT)