Amazon looks set for a major push into the online healthcare market. The ecommerce giant recently appointed a string of high-profile medtech experts and has established a secret team dubbed 1492 to explore the opportunities in healthcare technology.

The prescription medicines market may be the biggest attraction. Spending on prescription drugs in the USA hit $323 billion in 2016 and is likely to rise to up to $405 billion by 2021, according to analysis by QuintilesIMS.

Image: iStock/ironstealth
Image: iStock/ironstealth

Goldman Sachs released a 30-page report in August outlining how Amazon could enter the market.

CNBC, which reviewed the report, said it suggested Amazon could either first partner with third-party administrators of prescription drugs, or immediately build its own online pharmacy.

In April, Amazon added drug and cosmetic sales to its Prime Now service in Japan, where it already sells drugs that require approval from a pharmacist before purchase, but the UK could provide a better testing ground for the US market.

"They like to trial things in the UK before a major US launch," says David Jinks, head of consumer research at ecommerce delivery company ParcelHero. "They can test it in the English language, test it with our similar scale of cities and see how it goes."

It wouldn't be the first time Amazon used the UK as a training ground for its plans. The company also trialed its Amazon Logistics delivery arm in the country, to perfect the Amazon Prime Now one-hour delivery service before it was rolled out across the USA.

Digital pharmacies in the UK

The UK could be a lucrative investment in its own right. The domestic pharmacy market is worth £12 billion a year and growing by around two percent, but is also one of the most heavily regulated in the world.

Amazon would need to register with the Medicines and Healthcare products Regulatory Agency (MHRA), and fulfill a number of requirements before it can sell medicine online.

If it wants to provide a UK-based online doctor service, its doctors would need to be NHS-qualified GPs, and any medicine prescribed would need to be reviewed by a fully qualified GP. Amazon could also only sell medicines authorised for sale in the UK, including any of its own-label medicines.

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Companies such as Pharmacy2U provide a glimpse of how the service could work. The UK mail order pharmacy offers customers an online consultation that is approved by GPs it employs before the prescription is delivered.

Pharmacy2U is part of the growing trend towards digital pharmacy services being followed by Amazon.

"The whole of that sector is moving online," says Jinks. "NHS has got an online subscription service, LloydsPharmacy has got online doctors and online purchasing, [and] they'll deliver it to your door. Boots also will deliver it to your door or into a store.

"It's already happening, so Amazon would really have to run to catch up with this, plus they would have to fit the UK regulatory framework in ways that they wouldn't have thought about before, and it's quite tough for a company based overseas."

Amazon's moves in the market

The US pharmacy sector is undergoing big changes of its own. An increase in consumers who are paying for health care and a growth in high-deductible insurance plans that are making them analyse their options more closely has opened up an opportunity for Amazon to disrupt the market.

In May, CNBC revealed that Amazon had created a new general manager position to review the business prospects and develop an entry strategy for the market.

The CNBC sources claimed that Amazon holds at least one annual meeting to discuss the possibility of moving into the pharmacy business.

Its recent recruitment of several leading heath technology executives adds further substance to the story.

In July, Amazon hired health technology executive Missy Krasner from Box to join its special projects-disruptive innovations team. Krasner had built up and lead the healthcare and life sciences industry division at the cloud storage company and has also worked as a special adviser on IT healthcare deals at Canvas Venture Fund.

Amazon also recently hired Mark Lyons as its senior manager of pharmacy benefits, who was previously a a director with Washington health insurance company Premera Blue Cross.

The company has been busy exploring a number of related markets. It already sells medical supplies and equipment and in November 2016 made Seattle's Bartell Drugs the first drugstore to join the Prime Now service.

Amazon previously had a partnership with online retailer Before it was purchased by Walgreens for $429 million in 2011, Amazon owned 12 percent of the company, which paid Amazon a substantial fee to display its products as a featured shopping tab on the Amazon site.

The $13.7 billion acquisitions of Whole Foods in June showed Amazon has few fears over complex delivery requirements, but the pharmaceuticals sector has some unique barriers to entry.

Pharmacy challenges

Regulation is one of a number of challenges facing Amazon.

The established players will also provide stiff competition, both in the UK and US. Wal-Mart has already introduced a "skip the line" service for prescriptions ordered via the retail giant’s app.

Locality is another. Immediate access and professional advice remain valuable to healthcare customers, who are less happy to wait for medication and often want in-person consultation prior to making a purchase. This is particularly common in the prescription drugs market, which has a high proportion of elderly consumers.

Amazon's recent experiments with physical shops could prove a model for its pharmacy. In August, the company launched an Instant Pickup service, which gives Prime and Prime Student members a collection point for popular products within two minutes of ordering.

The company appears to have big ambitions for the high street. In December it unveiled a concept for a physical store called Amazon Go.

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Amazon automatically identifies when customers add products to their shopping basket and removes the need for a checkout till by automatically charging them to the user account when they walk out the door. The inaugural store in downtown Chicago remains open only to the Amazon employees participating in the beta testing.

Pharmacy presents unique challenges, but few sectors have managed to repel the invasion of the Amazon juggernaut.

“I think certainly the larger players like Boots and Lloyds are already there, so they're not going to be too concerned," says Jinks

"It's going to be your old-school high street chemists that would really be the companies that worry, just like the independent book stores that really took a hit when Amazon first came out.

"But everyone needs to be on their mettle as soon as they hear that Amazon is moving into their market."