PillPack, Proximity, and the Amazon Future of Pharmacies

If you want to predict the path of innovation in your industry, consider one unifying strategic concept: proximity. Introduced by innovation guru Rob Wolcott, proximity is the theory that the production and provision of value moves ever closer to the point of demand. Viewing your industry through this lens can reveal new opportunities, help you clarify where to focus your innovation efforts, and help you better anticipate which innovations will thrive and which will fall.

Consider TJ Parker, a second-generation pharmacist who came to realize the pharmacy industry was broken. Over the years, he observed how convoluted the experience was for patients, particularly those with multiple prescriptions, to get the drugs their health depended on.

Multiple prescriptions meant multiple trips to the drugstore. At home, they had to handle multiple bottles of drugs and keep track of how often they took each one (some once per day, some multiple times per day, others only on certain days of the week). They might sort the pills at home into pill organizers. But, still, the time and effort was onerous, resulting in low compliance and poorer health.

The complex web of the pharmacy industry

Behind the scenes, the process is even more complicated. You see, regulations and historical practices have evolved the pharmacy industry into a complex web of players. Doctors give consumers prescriptions, which are partially paid for by pharmacy insurance they receive from employers or the government.

But pharmacies do not directly negotiate prices or choose which brands of drugs to give the patient. Instead the system is administered by Prescription Benefit Managers (PBMs), which negotiate with pharmaceutical producers and insurance companies. Pharmacies purchase drugs at prices negotiated by PBMs from wholesalers. Money flows back and forth between these players, sometimes even in circles.

For example, a patient might make a copayment that flows to the PBM, the PBM sends money to the pharmacy as incentive, the pharmacy pays wholesalers for drug supply, and then the wholesaler makes payments to the PBM in order to be part of the PBM’s network. By some estimates, these intermediaries add 100% of the drug manufacturing cost to the end price of the pills you buy.

In 2012, while finishing pharmacy school, Parker participated in a hackathon organized by MIT, and began developing an idea. If one rethought the complicated system by which pharmaceuticals are produced and provisioned to point of demand, could the proximity of patients to the drugs they need be radically shortened?

Parker met Eliot Cohen at the MIT hackathon and together they decided to launch a company called PillPack to take this idea on. Their idea was elegant and simple on the surface, though it did require untangling a web of regulations, norms, and operational complexities.

PillPack: the big idea

Instead of patients leaving their home to visit a drugstore, drugs would be delivered directly to their home. Instead of pills coming in separate bottles, they would come presorted into individual packets. Each packet would contain just the drugs a patient needed at any given time, with the packets attached in the order in which you would take them. Your first packet, for example, would be marked “Monday, 8am” and contain the three pills you needed to take at the beginning of the week, the next would be for “Monday, 7pm,” and so on.

As with most innovators seeking to introduce a better approach, the team faced resistance and disbelief. But they persisted, committed to their belief that their approach was better.

In 2013, they raised start-up funds from investors including IDEO and Techstars. The next year they launched their first pharmacy in Manchester, New Hampshire. In 2016, they won a tussle with one of the largest PBMs (Express Scripts) who said PillPack’s claim it was a retail pharmacy was a misrepresentation. They worked through the regulatory process to get approval to operate in most US states and developed a proprietary software system for managing the pharmacy supply chain.

Amazon pounces on proximity

With winds of proximity at their backs, Parker and Cohen pursued their vision doggedly. They began negotiations to sell the company to Walmart when, in 2018, Amazon swooped in and bought the company for $753 million, beating out Walmart’s offer.

Amazon was drawn to PillPack by the proximity opportunity. PillPack had already dramatically cut the proximity of patients to their prescription drugs dramatically, but Amazon could bring them even closer, potentially disrupting the $330 billion prescription drug market.

Imagine a day when you say “Alexa, refill my prescription,” and your drugs are delivered to your door by Amazon’s finely tuned distribution machine in a matter of hours. But don’t imagine for too long, because they day will be here soon.

Conclusion

To see what your next $1 billion idea may be, simply put on the lens of proximity. Consider the following:

• In your industry, what would it look like if proximity reached zero?
• What is blocking a leap in the production and/or provision of demand being instantaneously at the point of demand? List as many blockages as you can.
• Rate those blockages based on three criteria:

1. Which would have the biggest impact?

2. Which would be the most profitable?

3. Which would be the most fun to dislodge?

Photo by ready made from Pexels