Amazon RxPass: A Prescription For Profits? (NASDAQ:AMZN) – Seeking Alpha


Daria Nipot

Amazon.com, Inc. (NASDAQ:AMZN) announced on Tuesday, January 24th, that it was rolling out the launch of new generic prescription drug service called RxPass. In this article, we’ll dive into why, unlike Amazon’s other forays into
Amazon has wanted to break into the $4 trillion healthcare market for some time. In 2018, the company acquired PillPack, an online pharmacy that shipped medications to your door in daily, pre-packaged doses, for $1 billion. While the move was initially seen as the opening move in what would surely amount to Amazon’s dominance of the healthcare space, the reality is that the venture more or less fizzled.
In the same year, Amazon announced plans for a healthcare venture called Haven. This new operation, run along with unlikely healthcare partners Berkshire-Hathaway (
“a wide range of health care solutions, as well as pilot, new ways to make primary care easier to access, insurance, benefit, simpler to understand, and easier to use, and prescription drugs more affordable.”
In 2021, Haven was quietly shuttered, as what was expected to change the medical landscape with a roar died out with a whimper.
Given Amazon’s reputation as a relentless operator, it’s not surprising then that the company would continue to iterate on its plans to break into the healthcare market rather than scrap them.
Discount or cost-plus generic pharmaceutical operations have recently generated headlines, as Mark Cuban launched Cost Plus drugs with the aim of making prescription medication more affordable to those without healthcare or those simply wishing to pay less.
Amazon, given its ownership of PillPack, was doubtless watching these developments and fledgling business operations closely. It also gave leadership a chance to observe the popularity and viability of such an operation without having to commit capital resources to it.
RxPass has a simple premise. First, customers must be members of Amazon Prime. Then, for an additional $5 per month, customers can have prescriptions filled. There are currently more than 50 generic prescriptions on offer, ranging from depression and hair loss treatments to blood pressure and prostate health.
It’s unclear from initial information if the $5 per month is a flat fee regardless of the number of prescriptions, or if it is per prescription. While it would be much bigger deal certainly if it were $5 flat regardless of the number of prescriptions, we don’t believe that five dollars for each prescription would pose a material issue to the viability of the business.
The generic drug market in America is, to put it mildly, large. With sales in 2022 estimated to be $82 billion, the opportunity to leverage existing infrastructure in PillPack and its extensive logistics network has the possibility of moving the needle for Amazon.
For reference, the cost for Amazon Prime without RxPass is either $14.99 per month ($179.88 per year) or $139 if subscribers pay annually. Add on the $60 annual charge for RxPass and monthly subscribers will pay $239.88 per year, while annual subscribers would pay $199.
Prime is estimated to have a little over 200 million subscribers. Assume the company converts a base of 10% of those users who require generic prescriptions (assuming that the 10% includes new prime subscribers who join for RxPass).
If you’re wondering why we are assessing a 10% initial adoption rate, our assessment is driven by two main considerations:
By this math, 10 million households over a 12-month period (10% of Prime users 7.5% of Americans utilizing prescription drugs), equates to a $600,000,000 bump in top-line revenue for Amazon. This is a more than 1% bump overall based on 2022 revenue estimates. (Which may not sound like a lot, but anytime analyst estimates are revised upward, stocks tend to respond.)
Amazon shares a problem with Netflix (NFLX) that isn’t much talked about–Prime sharing. Like the ever-present problem of password-sharing among households at Netflix, Amazon has a problem with household sharing. To combat this, Amazon has established Amazon Household, which allows for sharing with up to two adults and four children, but the enforcement has been weak at best (this author knows from… um… personal experience).
Enrolling an adult in RxPass could help strong-arm Prime users into self-enforcement. If the primary registrants on an RxPass prescription do not match the Prime holder, Amazon could simply refuse to fill the order. Consequently, households finding ways around establishing multiple Prime accounts could see a true benefit in setting up individual Prime Household accounts.
In short, there is no compelling reason that Netflix can lever over users to stop password sharing; but by dangling massively cheaper prescription generics in front of customers, Amazon may have found a solution. Of course. there is virtually no way to numerate this thought, but it seems, on its face, to be a compelling reason for consumers to halt a behavior that has long reduced Amazon’s top-line.
We believe that if consumers exhibit this behavior–as we believe they would–that this would serve to magnify the expected (and conservative) 1% annual top-line bump.
2022 was a big year for generic drugs. According to recent study:
Generics for each of these–as well as generics for high blood pressure, cholesterol, hair-loss, Parkinson’s and restless leg syndrome, and diabetic kidney disease–are available with RxPass.
Consider Pramipexole–a generic used for symptoms of Parkinson’s disease. According to GoodRx.com at the time of this writing, the average cost to fill a Pramipexole prescription was $47.96.
Now, this isn’t a nice-to-have drug. People who need treatment for Parkinson’s symptoms really need it. And $47 per month is the average price they need to pay. That’s $564 per year. Imagine, now, that this same person can fill the same prescription and enjoy Prime access for $199 per year–you don’t need to believe in the mythical “rational consumer” to understand that people will flock to this.
We have previously written that cracks in the AWS infrastructure could spell near-term problems for Amazon. While we do not reverse that opinion, we believe that the launch of RxPass could create synergies within Amazon’s legacy business that:
Lastly, while we are not making any concrete predictions given Amazon’s rocky healthcare track record, we believe that the innate appeal of $5 per month generics could create a runway for a second AWS-like healthcare business within Amazon. It is, to be sure, an exciting day for the company’s investors.
We eagerly await details from company leadership on Amazon’s upcoming earnings call and will be monitoring progress of RxPass closely.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of AMZN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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