Why Drug Stores Should Fear Amazon's OTC Move

Drug stores-both independents and chains-should be concerned about Amazon’s foray into OTC healthcare products, consultants tell Drug Topics.

The world’s largest global retailer quietly launched a line of private label OTC healthcare products, called Basic Care, last summer. The line, manufactured by Perrigo, includes ibuprofen, loratadine, children’s cold medicine, laxatives, and a host of other OTC medications.

This is just Amazon’s latest move into the healthcare industry, after reports surfaced that Amazon was meeting with some middle-market PBMs in an effort to get into various contract arrangements.

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In addition, Amazon entered the medical suppliers business when it signed a deal with Cardinal in 2014, sources tell CNBC. Amazon has snagged wholesaler licenses-which would allow the retailer to distribute medical suppliers to doctor’s offices-in 12 states.

Pharmacies and others in the healthcare industry “do need to be concerned anytime Amazon so much as blinks in their direction and rapidly develop a strategy to co-exist in today’s market,” John Santilli, president of Market Access Intelligence, tells Drug Topics.

“Amazon has been selling OTC products in its Basic Care line since last summer, but its recent agreement to sell Perrigo’s products raises the stakes and increases the pressure on drug chains and independents,” Santilli says. “An increasing number of customers are currently bypassing drug stores to purchase some OTC products, along with products such as cosmetics and sundries, on Amazon.” 

Amazon is leveraging its size and reach to offer lower prices on the OTC products than drug stores may offer, according to Santilli. In addition, Amazon’s use of Prime delivery service “undercuts the argument that consumers often wait until they need certain OTC products, such as flu or cold medicine, and then run out to the nearest drugstore,” Santilli says. “By delivering products the next day-or soon, the same day-this further pressures the drug stores.”

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“More people don’t have the time [to run to the drug store] when they can order it on Prime,” agrees Perry Cohen, CEO of The Pharmacy Group and a member of the Drug Topics editorial board. Amazon will likely expand its offerings of OTC medications as well as, eventually, enter the market for prescription drugs, Cohen predicts. “Both are low-dollar, high-volume transactions in healthcare,” he says.

As Amazon adds OTC healthcare products, it will likely contract with generic manufacturers, rather than manufacture products itself, according to Cohen. “[Amazon CEO Jeff] Bezos is likely to approach generic manufacturers and say, ‘I am thinking about selling these products next year, and I want you to get a good price,’” Cohen says.