It is no secret that Amazon is an industry disruptor, known for driving structural change through a well-executed three pillar model – provide a large range of products and services, reduce costs by achieving scale, and nurture customer loyalty through excellent customer service. Most industry incumbents haven’t been able to respond.
When Amazon bought a stake in drugstore.com in 1999, it tried to apply ‘The Bezos Flywheel’ to the retail pharmacy industry, attempting to grab market share from bricks and mortar pharmacies by reducing prices for consumers. Unfortunately for Amazon it didn’t work out that way. The entrenched players were ‘too big to disrupt’ and a thicket of regulations prevented smaller players from mounting a credible challenge. Eventually Amazon sold the poorly-performing asset to Walgreens for a fraction of the price paid. However fast forward to 2018 and Amazon is back, and ironically, when the company announced its acquisition of PillPack, an online pharmacy in June, the news wiped roughly 15% off Walgreens share price!
The allure of disrupting a $3.5tn industry was clearly too great, although Amazon has learnt its lessons, and its approach has been more measured this time around. The company is currently selling medical supplies and equipment to clinics and hospitals, forging partnerships with key distributors like Cardinal Health, and it also has a thriving cloud business, AWS, that competes directly against the likes of Microsoft’s Azure and Alphabet’s Google Cloud in a highly competitive market that marries healthcare and technology. Opportunities for further technological disruption also exist. Amazon's Alexa may soon be bringing its voice technology into the entire healthcare chain, making it easier for consumers in rural areas to order healthcare services and products, as well as enabling pharmaceutical companies to gather clinical data to develop existing products and improve drug pricing and quality.
Whilst Amazon's healthcare full strategy has not been revealed, the opportunities for disruption in the healthcare industry are both vast and, in many cases, long over due. Amazon's announcement that it will be partnering with JP Morgan and Berkshire Hathaway in an attempt to lower healthcare costs and deliver better solutions for the trio’s one million employees should be applauded. The news is an overdue shock to the US Pharmacy Benefit Management companies (PBMs) and insurance brokers, who are notorious for opaque rebates, agency fees, and other layers of administrative costs that are largely to blame for the high price of healthcare in the US market. Whilst the proliferation of technology won't be the magic bullet that saves populations from spiralling health costs, it is certainly a step in the right direction as the industry is currently light years behind other sectors in terms of exploiting the benefits of technological efficiencies.
There are a number of reasons to think Amazon's attempts to disrupt the healthcare industry will be more successful this time. A lot has changed since 1999 – the company’s market cap briefly breached the $1tn valuation earlier this year (the second company ever to do so) and with 560,000 employees and annual revenues of c.$180bn, even sceptics would be foolish to write them off. However for now their sights are focussed on the US market, and short to medium term disruption will likely be felt more keenly on the other side of the pond.
Recent M&A
Healthcare
Healthcare Services
• Welsh, Carson, Anderson & Stowe has acquired Abzena Plc, the UK-based company offering a suite of complementary services for critical R&D issues relating to biopharma products for c.£28m
• CareTech Holdings Plc has acquired The Cambian Group Plc, the UK-based company engaged in providing specialist behavioural health services in the areas of education and care, mental health, and learning disabilities for c.£288m
• iCON Infrastructure has acquired Choice Care Group, the UK-based provider of learning disability support services for c. £150m.
Pharmaceuticals
• Ligand Pharmaceuticals has acquired Vernalis Plc, the UK-based biopharma company focused on development of drugs for the treatment of neurology/central nervous system diseases for c£26m
• Recipharm AB has acquired the UK-based subsidiary arm of listed company, Sanogi SA, for c.£50m. Sanofi Sa are a France-based pharmaceutical company engaged in the R&D of healthcare products
Education
• Castlerock Recruitment Group has acquired the UK-based company engaged in providing public sector temporary recruitment services for an undisclosed consideration