When Amazon shows an interest in any new sector, incumbents get nervous. Last year, it was the turn of the pharmacy business to feel the heat, as the e-commerce giant announced plans to purchase U.S.-based online pharmacy PillPack for a reported $1 billion. Within days of the deal becoming public, the market value of major pharmacy chains in the U.S. had fallen by around $15 billion.

Should the industry feel so uncomfortable about the move? With annual sales of $100 million, PillPack is a minnow in the huge U.S. pharmaceutical market. Total sales from the country’s pharmacies and drug stores were more than $290 billion in 2018. They are expected to pass the $300 billion mark by the end of the decade. And PillPack isn’t even playing in the general pharmaceutical market. It provides a niche service for patients living with chronic conditions, repackaging multiple drugs into sachets containing specific doses, each marked with the time and date at which they should be taken.

For many observers, what matters is not the size of Amazon’s initial entry into the market, but the extent of its ambition. PillPack gives the e-commerce giant access to some potentially vital assets, such as licenses to deal in wholesale pharmaceuticals in all 50 U.S. states. It also provides the company with the opportunity to try new things and learn about the realities of the healthcare sector.

Building momentum

It’s hardly surprising that pharmaceutical e-commerce is on the rise. Across the world, consumers have switched in their millions to online purchasing for everything from clothes and holidays to gadgets and groceries. Why should drugs and other healthcare products be any different? Few people would claim that queuing to pick up a prescription or a packet of over-the-counter pills counts as a leisure activity. And patients living in rural areas can find it difficult to get to  a regular pharmacy.

Yet the sector does face some significant barriers. The first of those is regulatory. Pharmaceutical markets are tightly controlled across the world, and different jurisdictions have taken different approaches to the emergence of online players. The U.K. has broadly supported the trend, introducing a system that allows online providers to access patients’ prescription information directly via a digital link. By 2018, the country’s largest online player – Pharmacy2U – was dispensing almost 250,000 items per month. After growing more than 250% in a year and a half, the company plans to open a new distribution facility in 2019 that will have the capacity to dispense 7.5 million items a month.

In Germany, Europe’s other largest online pharmaceutical market, the picture has been different. Tight rules on the ownership and control of pharmacies have kept even big brick-and-mortar chains out of the country. Europe’s two largest online pharmacy players, Swiss Zur Rose (which trades online as DocMorris) and Shop Apotheke Europe from the Netherlands, have fought court battles for market access and freedom to set their own prices in the country.

Then there’s consumer confidence. It’s annoying to realize that an item purchased online is inappropriate, faulty or counterfeit. If that item is a critical medication, the outcome could be life-threatening. Yet it can be difficult for customers to determine whether an internet-based supplier is offering legitimate products. 2016 research on behalf of the Center for Safe Internet Pharmacies, an industry group, found that only 4% of more than 32,000 websites selling prescription drugs were operating legitimately. And even if they can find an online supplier they trust, some customers will miss the advice and recommendations they can get from in-person interaction with a trained pharmacist.

Overcoming these challenges will take time, but change seems inevitable. Brick-and-mortar pharmacy chains are increasingly developing their own online offerings in order to compete with new offerings from digital-only players. In January, Boots, the U.K. arm of the U.S.-based Wallgreens Boots Alliance group, announced it had bought software company Wiggly-Amps, which develops software for direct access topatient prescriptions from their medical records. Market researchers expect the global online pharmacy market to grow robustly in the coming years, exceeding $100 billion in sales by 2025.

STACK SYSTEM: Checking inventory at one of Europe’s largest online pharmacy players, DocMorris.

Delivered with care

Fast, efficient logistics is a critical element of any e-commerce offering, and the online pharmacy market will be no different. To achieve its full potential, the e-pharmacy sector will need logistics processes that ensure extremely high levels of accuracy and availability. It will also need speed. Today’s online customers are often people taking medication long term, who know their requirements weeks or months in advance. If online suppliers are to support patients with acute or short-term requirements, next-day or even-same day deliveries may be a necessity.

Ultimately, fast, flexible logistics might even give online pharmacies a decisive advantage. PillPack built its business by packaging combination of standard drugs in a more convenient way. In the future, doctors may be able to modify prescriptions dynamically, perhaps on the basis of information gathered from internet-connected diagnostic and monitoring devices. With the right logistics systems in place, the updated dose could be delivered automatically, ensuring patients receive the optimum medication at exactly the right time. Jonathan Ward

Published: June 2019

Images: Feodora Chiosea/Alamy; Tobias Zeit/DocMorris