Earlier this week Amazon debuted Amazon Pharmacy to consumers in 45 US states through the Amazon.com website and mobile app. The launch marks the first time consumers will be able to order prescription drugs directly on Amazon.com. Amazon also owns PillPack by Amazon Pharmacy (rebranded in Nov 2019) – an online-pharmacy subsidiary acquired in Jun 2018 for $753M, which pre-sorts and delivers packaged medications to patients with chronic conditions.

Signup is similar to other online pharmacies – an adult patient provides their medications and health conditions, prescriptions are requested from the patient’s physician and kept on file, and orders can then be placed for delivery. Amazon offers 24/7 access to pharmacists for patients with questions. Certain drugs will not be available, such as Schedule II narcotics, vaccines, and specialty medications.

Amazon Pharmacy accepts most insurance as well as out-of-pocket payments. Customers with FSA/HSA accounts can also use their cards for eligible items. Prime members have certain benefits – those paying out of pocket can enjoy discounts of up to 80% on generic and 40% on brand-name drugs, administered via partner Inside Rx (an Express Scripts program). Prime members get free 2-day prescription delivery, vs. free 4-5 day delivery or a $5.99 2-day upgrade for other customers. (Amazon also provides Prime members with a savings card that can be used across Inside Rx’s network of 50K pharmacy locations, including brands like CVS Health, Walgreens, Rite Aid, and Walmart.)

The launch comes at a time when at-home health is being reinvented. In addition to services like telemedicine and house calls, the $335B+ US prescription-drug market is being flooded with direct-to-consumer delivery efforts by existing players and entrants. Examples include UnitedHealth’s acquisition of DivvyDose; IngenioRx’s (Anthem/CVS Health) acquisition of Zipdrug; partnerships by Walgreens, CVS Health, Walmart and Costco with delivery services such as Instacart and DoorDash; and digital pharmacies and delivery services (e.g. Ro, Hims & Hers, Nurx, Thirty Madison, Capsule, Alto, Medly, NowRx, Pharmapacks). These newer direct-to-consumer players have lately been drawing in sizable investments at lofty valuations.

Healthcare players are also feeling pressure to become more open and transparent. New HHS rules are forcing open access to electronic health records and allowing patients to decide how their information is shared with 3rd-party applications. The Trump administration recently finalized a rule requiring private insurers to publicize the drug prices they negotiate by Jan 1 2022. Amazon rides upon this trend by allowing customers to compare drug prices with insurance (e.g. co-pays) and without insurance (e.g. with out-of-pocket discounts). They can also compare the prices of generic and branded drugs.

If stock prices are any indication, Amazon is the noisy elephant in the room in the drug distribution industry. The announcement caused precipitous declines in the share prices of the large pharmacy brands (e.g. CVS Health, Walgreens Boots Alliance), drug discount programs (e.g. GoodRx), and drug distributors (e.g. Cardinal Health, McKesson).

Amazon’s access to consumers and familiar trusted experience position it to be a major player. For Amazon, the recurring prescription refills and smaller packages fit well into its operations, Prime member strategy, and ambitions to know customers intimately and entangle them in its ecosystem. Its Amazon Pharmacy ambitions also appear to be global, with trademarks filed in jurisdictions all over the world.

Amazon Pharmacy won’t be without its challenges. Even 2-day delivery is slow compared to the same-day increasingly common among online pharmacies. It also has to deal with the issues faced by other pharmacies but at scale – for instance, prescription fraud, pill addiction, drug interactions, storage and transport of temperature-sensitive drugs, drug tracking, shrinkage/theft, batch/lot recalls, and liability. Amazon is looking to supplant local pharmacies but won’t be able to recreate the patient-pharmacist relationships that can facilitate medication adherence and address social determinants of health (SDOH). Amazon will also have to face the heightened scrutiny of big tech firms’ access and use of health data, which can fall outside of HIPAA.

Nov 6 2020 (3 Shifts): US health insurers (and hospitals) are forced to publicize their negotiated rates

Oct 15 2020 (Brief #39): Telemedicine, house calls & the new in-home healthcare

This week saw reports that Walmart is selling 85% of its stake in Japanese supermarket chain Seiyu to KKR and Rakuten. The deal values Seiyu, which has 329 stores and 35K employees, at $1.6B – less than the $2B+ Walmart had originally spent to take control of Seiyu. The deal is Walmart’s 3rd sell-off of a major international asset at a loss in the past two months, continuing its strategy announced in 2018 to focus more on higher-growth markets and ecommerce.

In Oct 2020, Walmart sold a majority stake in UK grocery chain Asda (originally acquired in 1999 for $10.8B) in its 2nd-largest international market to a private investment group at a $8.8B valuation. In Nov 2020, Walmart agreed to sell its Argentina business (originally established in 1995) to Grupo de Narváez at an expected after-tax noncash loss of $1B. (Previously, in 2018-2019, Walmart had divested 80% of Walmart Brazil as well as the banking operations of Walmart Chile and Walmart Canada.)

In attractive markets where it has struggled, Walmart has lately been taking a joint venture, minority-stake approach – partnering with “local powerhouses” that can help it stay in touch with local tastes and drive growth. Walmart’s efficient supply chain and low prices have not always guaranteed success. In Japan, for instance, shoppers tend to associate low prices with low quality. In Brazil, shoppers have favored local chains more connected to regional tastes and styles. The strategy allows Walmart to redeploy assets and focus on core growth priorities while supporting its minority investments in areas like global sourcing.

Walmart’s retreats come as it reaffirms its priority retail markets – India, China, Mexico, and Canada. In 2018, it bought a 77% stake in Indian ecommerce giant Flipkart for $16B. In Q3 2021, Flipkart led among Walmart’s international markets, driven by its annual super sale. In Canada and Mexico, Walmart is investing in ecommerce operations (e.g. same-day delivery, omni-channel capabilities, and mobile check-in for pickup). In Canada, it announced in early 2020 a $3.5B investment over 3 years for initiatives such as “smarter stores” and better in-store/online integration. The strategy appears to be working – Walmart reported "triple-digit" ecommerce growth in both Canada and Mexico in Q3 2021. It plans to add 250 new Walmart International stores in fiscal 2021, mostly in Mexico and China.

Walmart’s trimming of international weak spots while refocusing on ecommerce and high-growth markets mark a continuation of its renewal. In Q3 2021, Walmart’s US ecommerce business grew 79% year-over-year, driven partly by the pandemic and an uptick in online grocery orders. 16-17% of consumers in surveys recently reported having a membership to Walmart+ (which only launched in Sep 2020); a research firm estimated that 19M households may have Walmart+ already. With its recent success, Walmart has demonstrated willingness to take new risks – perhaps most notably, its bold play to buy up to a 20% stake in TikTok if regulators in the US and China allow.

Jun 19 2020 (3 Shifts): Walmart will integrate with Shopify, adding 1,200 Shopify merchants to its 3rd-party marketplace

Mar 26 2020 (Brief #27): Grocery delivery, ecommerce & the renewal of Walmart

This week, Mastercard revealed that the US Department of Justice (DOJ) has approved its $825M acquisition (announced Jun 2020) of Finicity. Finicity, founded in 1999 and one of the early players in the financial-API space, aggregates banking and credit data from 10K+ financial institutions for 3rd-party app developers to integrate through an API. The data can be applied to use cases ranging from loan and mortgage decisions to financial management and budgeting tools. The DOJ’s decision comes just weeks after it sued to block Mastercard rival Visa’s planned $5.3B acquisition (announced Jan 2020) of Plaid – which operates in a similar “data plumbing” space as Finicity – on antitrust grounds.

Mastercard’s focus on expanding its multi-rail, real-time payments network has led it into the growing “open banking” space (i.e. the sharing of financial data with 3rd-party applications via APIs, securely and with consumer consent). Regulators in the EU, UK, Hong Kong and Australia have enacted open-banking regimes, while others are taking a market-driven approach (e.g. US) or are in earlier stages (e.g. Canada). The Finicity acquisition strengthens Mastercard’s open-banking position in the US, with a 3-fold rationale: (1) Extending its position as an open-banking partner to fintechs; (2) streamlining credit decisions and account verification for ACH and real-time payments, and (3) using Finicity’s APIs and bank partnerships to enable standards-based, permissioned data access.

While Mastercard and Visa have similar ambitions, Visa’s language is a bit more clear – it is looking to go “beyond the card” and become “the network of networks with interconnection between all of the financial systems across the globe,” able to move money anywhere and at scale. Visa’s stated rationales for acquiring Plaid are similar to Mastercard – access to Plaid’s fintech customers, streamlined bank-account authentication, and ability to offer open-banking solutions to clients.

While Visa’s stated rationales are valid and on-strategy, where Visa runs into potential antitrust issues is in the realm of unstated reasons – how Plaid can help Visa fend off threats and ensure its continued dominance. The most serious threat to Visa has been the shift to bank accounts as funding sources, particularly ACH payments. The DOJ’s antitrust suit against Visa highlights its CEO’s description of the acquisition as an “insurance policy” that can help neutralize a “threat to our important US debit business.” Visa controls 70% of online debit transactions vs. Mastercard’s 25%. The DOJ alleges that Plaid had been developing a lower-cost option for online debit payments. While it seems unlikely that Visa wants to spend $5.3B to kill Plaid, certainly having the power to choke adoption of ACH – or at least own a control point – must be a compelling factor for Visa.

Industry observers have highlighted that, by legal definition, Mastercard cannot be accused by the DOJ of being a monopoly if the DOJ is, in parallel, alleging that Visa is one. If the antitrust suit holds up (Visa has said it will vigorously defend the acquisition), Mastercard may be positioned to take a leadership position in open banking in the US, building on Finicity’s prior efforts in data exchange standards. The approval of Mastercard’s Finicity deal may also be a good sign for other fintech acquirers not named Visa (e.g. Intuit and its recent $7.1B acquisition of Credit Karma, currently under DOJ review). The stakes are high for financial-services giants looking to make data-driven acquisitions and find new footing on a fast-shifting landscape.

Jun 26 2020 (3 Shifts): Mastercard follows Visa with its acquisition of data-aggregation API firm Finicity

Feb 7 2020 (Brief #22): Visa’s $5.3B bet on Plaid & the pathway to open banking