Analysts Say Prescription-Drug Market Is Next Destination For Amazon

Two analysts at Leerink Partners said that Amazon is poised for a direct threat to the U.S.’s biggest brick-and-mortar drugstore chains and the e-commerce company is almost certain to enter the business of selling prescription drugs by 2019.

“It’s a matter of when, not if,” Leerink Partners analyst David Larsen said in a report to clients late Thursday. “We expect an announcement within the next 1-2 years.”

The industry with multiple middlemen, long supply chains and opaque pricing has been an industry of a long standing interest for Amazon. Amazon Chief Executive Officer Jeff Bezos sat on the board of startup Drugstore.com where it had invested in the 1990s. But the site was later shuttered by Walgreens last year to focus on its own branded website Walgreens.com after it had purchased the site.

Larsen’s colleague, Ana Gupte, wrote in a separate report Friday that Amazon “is in active discussions” with mid-size pharmacy benefit managers and possibly larger player such as Prime Therapeutics, suggests Leerink’s calls with industry experts.

There were no comments from representatives for Amazon.

While not naming its sources, a report that Amazon could make a decision about selling prescription drugs online before Thanksgiving was published by CNBC on Friday.

Gupte said that it would pose “an immediate near-term threat” to retail pharmacy chains such as CVS Health Corp. and Walgreens Boots Alliance Inc., if the online retail giant does enter the pharmacy market.

While referring to remarks made by its chief executive officer, Larry Merlo, on an earnings conference called on Aug. 8, CVS declined to comment any further. Merlo had said at the time that the pharmacy business has “many barriers to entry”. Walgreens declined to comment.

Linda Cahn, a consultant at Pharmacy Benefit Consultants in Morristown, New Jersey, said that especially if it bought a mid-sized drug benefit manager and used it to create a more transparent pricing model, Amazon could quickly grow in prescription drug sales and distribution.

Processing the prescriptions pharmacies dispense, pharmacy benefit managers, or PBMs, administer drug benefits for employers and health plans. Currently, secret deals between drugmakers and PBMs negotiate the final prices for many drugs.

“Amazon could bring transparency into a marketplace that is entirely lacking,” said Cahn. “They are disruptive instantly if they do it differently.” Cahn is a critic of PBMs’ business models.

According to Pembroke Consulting, about 70 percent of U.S.’s prescriptions are processed by the three biggest drug benefit managers — CVS, Express Scripts and OptumRx, a unit of insurer UnitedHealth Group Inc.

Larsen said in his report that MedImpact Healthcare Systems Inc., a privately held PBM based in San Diego, is one possible partner for Amazon. There were no comments from MedImpact. Drug benefits for nonprofit Blue Cross and Blue Shield plans in a number of states is managed by Prime Therapeutics, which is another potential partner for Amamzon.

“We are unable to confirm any conversations that may or may not have occurred,” said Karen Lyons, a spokeswoman for Prime Therapeutics.

(Adapted from Bloomberg)

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