Amazon still not a big pharmacy player after latest venture, analysts say

It’s Amazon’s world. We just live in it.

The tech behemoth’s latest foray into the healthcare world is RxPass, a $5 monthly subscription for unlimited generic drugs. But analysts don’t think it will make a big splash in the pharmacy industry.

RxPass gives Amazon Prime members access to about 50 generic drugs delivered to their doorstep without insurance. Amazon touted RxPass for “making medications more accessible, affordable, and convenient” in its Jan. 24 announcement.

Analysts at investment banking advisory firm Evercore disagreed, though, and called the move “incremental.”

“Amazon has been attempting to gain a material presence in pharmacy retail for several years now, but its success has been relatively limited,” Mark Mahaney, a research analyst at Evercore, told Healthcare Brew. “We think the challenge here is mostly around changing consumer behavior.”

Nominal effect on the industry

Diving deeper into the generics world makes sense for Amazon, which already offers a Prime prescription savings benefit of about 78% for generics at 60,000 participating pharmacies. Plus, generic drugs make up roughly 86% of all US prescriptions. It’s also much harder for new companies to compete in the brand-name drug space because branded drugs cost substantially more and insurers already offer big discounts on those.

“The pharmacy experience has long needed transformation to better meet the needs of both patients and providers. RxPass is part of Amazon Pharmacy’s larger efforts to meet this need, bringing value, convenience, affordability, and price transparency in a vital part of healthcare that’s long lacked these features at scale,” Amazon Pharmacy Chief Medical Officer Vin Gupta told Healthcare Brew.

But Amazon is certainly not the only company to offer a competitively priced generic drug delivery service.

Walmart began offering a $4 monthly generic drug program 17 years ago, a move that “was widely copied (and then retreated from) by other pharmacies,” Evercore analysts wrote in their analyst note published Jan. 24. And several companies have popped up in recent years to sell cheap generics directly to consumers, like Mark Cuban Cost Plus Drugs.

“While it is possible that the $5 price point could offer savings for uninsured and underinsured patients who take multiple (generic) prescriptions, we do not believe it is significantly lower than that available from community and mail pharmacies, especially after taking into account the cost of a Prime membership,” Eric Percher, a research analyst at Nephron Research, told Yahoo Finance.

Although he doesn’t think RxPass will affect CVS or Walgreens because these retail pharmacies already have prescription home delivery services, Percher told Yahoo Finance that “it will be interesting to see if CVS and Walgreens, as well as Walmart or Kroger, adjust their low cost generic offerings in response to RxPass.”

By the numbers

The RxPass program is $5 per month, but that’s on top of a $14.99 monthly fee for Amazon Prime membership (a yearly cost of $199– $240, depending on the type of Prime subscription you have). The average annual out-of-pocket cost for prescription drugs in 2019 was $164, so the RxPass program is likely only beneficial for consumers who are already Prime members.

Evercore analysts wrote that the program is probably a “loss leader”—meaning it’s a product that’s sold at a loss to attract new customers. Specifically, Mahaney said he thinks “boosting Prime membership was definitely one of the motives behind this.”

“Prime adoption in the US has been slowing, based on our survey work, for the last few years, though that’s largely because adoption is so high now—77% of Amazon customers in the US are now Prime customers,” Mahaney said.

There are some notable exceptions to RxPass. It’s not yet available in eight states, though Gupta told Healthcare Brew Amazon is “working to bring RxPass to more locations in the future.” Beneficiaries of Medicare, Medicaid, or any other government healthcare program also can’t use RxPass, and consumers aren’t allowed to apply HSA or FSA dollars to cover the subscription fee.

“Overall we continue to see Amazon as a relatively small player in pharmacy over the short-to-medium term,” according to the Evercore analysts.