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Is the pharmacy the next casualty of the high street?

Over the summer, Amazon made its move into the healthcare industry by acquiring Pillpack. The full-service pharmacy is designed to serve people who manage multiple medications, by providing a personalised monthly service or pre-sorted prescription drugs, and using its own PharmaryOS software platform to coordinate refills and renewals. It also allows customers to take control of their shipments, refills and copays, as well as email, text or call their pharmacist at any time.

The acquisition comes at a time when the retail pharmacy industry is suffering. Walgreens, when announcing its third quarter financial earnings, noted that its retail pharmacy margins in the US were weak compared to other parts of its business. And meanwhile, according to the prescription service Capsule Pharmacy, 40% of people have to return to their pharmacy due to out-of-stock prescriptions, with 60 minutes being the typical time spent waiting for a prescription to be filled. What is even more alarming – 34-52% of prescriptions are never picked up.

In the UK, 140 community pharmacies had closed between November 2016 and May 2018. Believed to be related to a slash in pharmacy funding by the government, pharmacies belonging to Lloyds Pharmacy, Boots, Rowlands and some smaller chains, mainly closed in the north-west of the country. The situation doesn't look good for the brick and mortar pharmacies.

However, when questioned about the closures, Boots was quoted that these closures were "usual practice with a business of its size." The same was said by Walgreens during its analyst call. And according to JP Morgan's healthcare industry expert, Lisa Gill, the company's management had indicated that "it was not particularly worried about the [Amazon] deal and was confident that is could compete." Gill also reported that the company was going to continue to "invest in new technologies that support patients."

So the question is: should retail pharmacies be worried about disrupters such as Amazon encroaching onto their patch?

Customer convenience

Back in 2016, Wired Magazine published an article with the headline, "Pharmacies Are Awful..." - a good representation it seems of how the retail pharmacy is viewed by the general public. Many customers looking to get their prescriptions from their local pharmacy are frustrated with long waiting times and their medicines being out of stock – even with repeat prescriptions or long-lead notice times. For those waiting for antibiotics it's an irritation, but for those who suffer from chronic conditions such as diabetes and asthma, it puts a life in danger.

Like many other retail industries on the high street, pharmacies are facing off against online-only services which provide patients with what they need, when they need it. Services provided by PillPack or Pharmacy2U, which is working with the NHS, are putting customers in control. The additional factor of having prescriptions delivered directly to their door, especially for those people who are not easily mobile, also provides customers with the incentive to leave the traditional brick and mortar stores behind, and it seems to be working.

“We are adding around 7,000 patients per week, which is the equivalent of 16 new high street pharmacies opening each month," says Andy Williams, director of customer care, Pharmacy2U. The company is also looking to provide a more streamlined service using different synced up channels such as phone, email or webchat. Compared with brick and mortar stores, this added convenience makes digital pharmacies more appealing.

But there is more at stake than just convenience – within retail, customers value their privacy. According to a report by Capgemini, "Privacy Please: Why Retailers Need to Rethink Personalisation", consumers are strongly dubious of retailers' privacy initiatives. In fact, 93% of all consumer sentiment on the subject was negative, citing fears around data security and invasion of privacy. This rings true as some pharmacies still use Windows XP today, even though it is unsupported by Microsoft and therefore vulnerable to cyberattacks. Furthermore, with companies such as Boots and Superdrug providing integrated services to customers, there is more room for mistakes to be made, especially with the recent news of 20,000 customer profiles being stolen from Superdrug. Under the General Data Protection Regulation (GDPR), which came into force in May 2018, brick and mortar pharmacies cannot be complacent if they wish to take on technology giants such as Amazon and disruptors such as PillPack. 

The government seems to also back the move towards more convenient and technology-led services. As part of its target to deliver £22 billion in efficiency savings by 2020/2021, the Department of Health and Social Care wants to reduce the amount of "clusters" of pharmacies and see them keep up with the pace of technological progress, offering services such as click & collect.

Pharmacy fulfilment

But the future of the pharmacy seems to be transitioning to something more than click & collect. Capsule, for example, offers prescription delivery services straight to a patient's door, on the same day, as well as coordinates with doctors and insurance companies. This removes the patient from the scenario, reducing frustrations with primary care.

Meanwhile, in Liverpool, a robot-powered digital pharmacy is about to open. Aimed at helping people with chronic conditions, it will use artificial intelligence mobile app, Now Patient, to get medicines delivered for free. Developed by the Now Healthcare Group, the pharmacy will be able to dispense around 500,000 prescriptions per month using the latest robotic distribution technology, enabling up to 15 million people living with long-term health conditions to get free delivery of their repeat prescriptions.

Lee Dentith, founder and CEO of Now Healthcare Group, set up the company when he couldn't get a GP appointment for his son. This started a chain reaction, starting with having appointments on phones, and now this AI mobile offering, which is available to the whole of the UK.

“The NHS is evolving, and digital innovation is crucial to offering patients quality care and choice. 15 million people in the UK are suffering from chronic conditions," said Dentith. "Now Patient enables them to be empowered to manage their own healthcare needs and to reduce the strain on our country’s overstretched health services.”

So as brick and mortar stores close across the UK, the retail pharmacy industry declining, and technology seemingly taking the front-foot, it looks like the future of pharmacy is very much online. According to Gartner, Amazon, in particular, is already "well-established through Amazon Web Services (AWS)" and has "a long client list spanning across the [healthcare] industry from large firms such as Johnson & Johnson and Philips."

"Amazon already provides several over-the-counter (OTC) drugs through its price-competitive Basic Care line," says Anurag Gupta, vice president and research analyst, Gartner. The acquisition of PillPack also gives the company "a possibility to cross-sell to its Prime members (just like Amazon is doing now with Whole Foods Market).

"Amazon will aim to replicate its success in the consumer space, where it has more than 100 million Prime members, as well as in the business space."

However, it's not looking likely that Amazon will be the main contender anytime soon.

Gill, JP Morgan, says: "While [PillPack] transaction does establish an initial foothold for Amazon in the mail pharmacy space, we do believe it will take time to scale up."

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