Amazon may indeed be getting into the pharma space -- but recent state license deals are not related

Stephen Buck
Key Points
  • Drug supply chain expert Stephen Buck examines what Amazon is planning in health care.
  • The reported pharmacy wholesale licenses that Amazon acquired in 12 states is not a clear signal that the company is entering the pharmacy or pharmaceutical distribution business.
  • But if Amazon wants to enter the pharmaceutical distribution business, it would be easy to do so.
Jeff Bezos
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The comedian Dana Carvey once asked the question, "Don't you love the pharmacy?" The 5-minute bit that followed highlighted all the awkward, confusing, and often frustrating elements of the pharmacy experience. The audience was with him the whole time.

Whether or not CEO Jeff Bezos watched Carvey's show, many in the industry agree that pharmacy is primed for disruption -- starting with home delivery. In fact, despite the best efforts of a group of companies called pharmacy benefits managers (PBMs), such as CVS Caremark and Express Scripts, mail order pharmacies only fill a paltry 1 out of every 10 prescriptions. Most of the 4 billion prescriptions dispensed in the U.S. every year are filled at one of 60,000 retail pharmacy locations.

That should seem surprising, as the vast majority of prescriptions are refills of ongoing medications. And that makes it ideal for home delivery.

So a recent report that Amazon had acquired pharmacy wholesaler licenses sparked a major wave of excitement in the industry. After all, Amazon had hinted at their potential ambitions last spring when they contacted several industry experts about pharmacy and PBMs, as reported by CNBC. Speculation was further fueled by the acquisition of Whole Foods. A retail base coupled with mail order could be an attractive pharmacy or foundation for a PBM. Add these new so-called pharmaceutical wholesaler licenses into the mix and all the pieces seemed to be coming together.

Except that it isn't. At least not yet.

What do the licenses mean?

The reported pharmacy wholesale licenses that Amazon acquired in 12 states is not a clear signal that the company is entering the pharmacy or pharmaceutical distribution business. The licenses Amazon applied for happen to cover the distribution of medical-surgical equipment, devices, and other healthcare related equipment, a business they are in today. The confusion results from the fact that states lump many types of distributors together in the same databases, using the same licensing forms.

What many of the ensuing media reports failed to mention is that becoming a pharmaceutical distributor or pharmacy entails additional licensure at both the state and national level.

If Amazon was entering the pharmaceutical distribution business they would need to become a "Verified Accredited Wholesale Distributor" (VAWD) by the National Association of Boards of Pharmacy (NABP). Amazon is not one of the 607 VAWD certified facilities. The laws in Indiana require VAWD certification prior to operation.

Bottom line: Amazon doesn't have any licenses to distribute or dispense prescription medications, in Indiana or any other state.

What's next? Drones? 

At this point, I'm asking myself how hard would it be for Amazon to actually get VAWD-certified and/or operate a pharmacy or PBM. The answer? Not very hard at all.

Amazon could either buy or build most of the software, hardware, and teams needed to start a pharmacy operation (dispensing or wholesale). Getting state licenses could take a matter of months, and not years. A budget of a few hundred million would accomplish this job, a small portion of Amazon's $16 billion annual R&D budget.

Could Amazon distribute pharmaceuticals to their own Whole Foods pharmacies in conjunction with a Amazon mail order pharmacy? Absolutely. This would enable Amazon to control their own supply chain. Perhaps they would manufacture their own generic medications like many wholesalers do. Brand drug manufacturers might welcome Amazon, at least initially, as an additional channel to reach consumers. Frankly, and in my opinion, the most challenging part for Amazon would be dealing with PBMs.

Most importantly, could Amazon transform the retail pharmacy and mail experience with a combination of self-service kiosks, lockers, delivery services, and even drones?

Something tells me that something big is going to happen in pharmacy -- and soon. Maybe there's even an opportunity for a combined distribution, pharmacy, and PBM. It's hard to believe any company is better positioned to make one or all of these happen than Amazon. And making pharmacy less of a talking-point for comedians would be very pleasant side effect indeed.

Stephen Buck is a drug supply chain expert and the co-founder of Courage Health, a start-up that provides answers to cancer patients about their life expectancy. He previously founded RxDividends, a B2B pharmacy savings company that was acquired by GoodRx.