With the acquisition of PillPack, Amazon played another card in its high stakes contest of elbowing its way into retail pharmacy. Amazon has long been expected to make a move into the pharmacy space, and the 64,000 US retail pharmacies are not pleased to see Amazon sticking its big nose under their tent. Assuming that Amazon will somehow improve upon PillPack’s presence, consumers welcome the additional competition. On the other hand, Amazon faces a tough vertical climb before it reaches functional equivalence with its pharmacy industry competitors.

PillPack operates as follows: after you tell your doctor to send prescriptions to PillPack, they will coordinate with the doctor and your insurance company; they will fill the prescriptions and send you up to a month’s supply sealed in small packets for daily use; and if you have a last minute prescription, they will send that by overnight delivery.

PillPack will also send over the counter products (OTC) such as Advil, Mucinex, and supplies such as test strips and other medical items. PillPack will also take account of insurance payments and co-payments and calculate what you owe. PillPack does not dispense Schedule II (narcotics) nor does it send biologics that require climate-controlled shipment and storage (so-called cold chain shipping).

In many respects, PillPack functions like mail-order pharmacies such as Express Scripts, but mail order pharmacies are usually associated with a brick and mortar pharmacy chain that accommodates prescriptions needing to be filled urgently.

Competitors to PillPack offer many service features that PillPack does not. These will be competitive shortcomings that Amazon needs to address. To be full spectrum competitors, Amazon may eventually need to operate urgent care clinics (e.g. CVS’ Minute Clinics). Maybe some of Whole Foods outer wall could be used. Amazon also needs a strategy for retailing Schedule II drugs and biologics that require climate control. It will also need a strategy for handling urgently-needed prescriptions (sometimes “next day delivery” is just not soon enough). Sometimes patients want 3-months of prescription filled at one time, 2 months more than PillPack currently will ship.

Retail drug prices are always of interest to consumers and pharmacies lose customers when word of mouth reports that they are chronically overpriced. Consumers who are price sensitive will check on sites such as GoodRx.com because it shows competitors prices, and printable coupons for prescription drugs. GoodRx even shows prices for newly introduced, high-priced drugs. With a reliable means for consumers to check prices, PillPack will need be vigilant on its prices.

To establish a line-up of low cost prescriptions, Amazon could supply PillPack from private label generic drugs. Although it would create an industry ruckus, Amazon could also source some of PillPack’s drugs from foreign distributors that are set up to provide drugs at prices far below US retail. Amazon could also consider offering the most common kinds of lab work.

PillPack seems to be a well-organized and useful service, but in comparison with the huge pharmacy benefit managers (Cigna, Express Scripts, Humana, Aetna, United Health, CVS, and Optum), PillPack has many shortcomings. Amazon is unlikely to find a competing PBM willing to help it plug the holes in its competitive offering. Cantor Fitzgerald’s offers a bleak assessment of Amazon’s foray into the pharmacy industry, and so far, retail pharmacies seem more pessimistic than they need to be.