I have been closely watching Amazon’s attempts to enter pharmaceutical market,[1] but even for me, Amazon’s acquisition of PillPack came as a surprise.

For those not familiar with PillPack (which has its headquarters on the East Coast), it specializes in single-dose medication packing, deliveries, and prescription management targeting chronic-disease patients. It acts as an online pharmacy, licensed in 49 states. By acquiring PillPack, Amazon effectively steps into the pharmaceutical distribution chain forgoing some preliminary steps of initial licensing, vendor contracting, and infrastructure set-up. (Amazon will still have to go through a change of ownership process with the licensing boards and PBMs).

Some sceptics argue that PillPack gives Amazon a mere fraction of a percent in market share, and it would be difficult to increase the market share due to PBMs’ market control. Currently, PillPack works with all three major PBMs (Express Scripts,[2] CVS Caremark and OptumRX), but they will be wary of Amazon’s entrance into their industry. Due to this middleman between the customers and distributor, many are puzzled on how Amazon’s typical marketplace model would work with PillPack. Some speculate that Amazon might become a PBM itself and then vertically integrate throughout the whole supply chain. With a recent acquisition of Whole Foods – which owns 500 stores – it can open pharmacies in many locations throughout the nation. For a very well written discussion, see Inc’s coverage.

While some do not expect a huge change in the way pharmaceuticals are delivered to consumers (because of the PBM’s shield and because PillPack does not have a large market presence), some – on the other hand – expect the PillPack deal to cause “a pharmacy shakeout over the next five years.” See CNBC’s coverage.

No matter what the experts say, independent pharmacies’ high-profit cash business may suffer.

Realizing this, most pharmacy chains are getting ready for Amazon’s entry. For example, CVS is expanding its one- and two-day deliveries, Rite Aid is merging with Albertsons, Walgreens is partnering with Humana, UnitedHealth, and LabCorp to add more services to its stores.

[1] See my latest post on the topic “Why Amazon shelved its plan to enter the pharmaceutical distribution chain.”

[2] The company was terminated by Express Scripts and had a lengthy public fight over what constitutes a retail pharmacy. Express Scripts recently reinstated PillPack in its network.