Amazon Eyeing The Pharmacy Business

Reports indicate that Amazon is holding contract discussions with middlemen in the drug supply chain who are referred to as PBMs – pharmacy benefits managers. According to a Morgan Stanley analyst, Ricky Goldwasser, this is the fifth time in the last five months that Amazon has been holding the talks and is thus an indication that the online retail giant is looking to get into the drug supply business. In Goldwasser’s view, pharmacy is the most likely area that Amazon is eyeing.

With Amazon having acquired Whole Foods Market, Amazon now possesses the physical retail outlets that are needed in order to start retail pharmacies. However, Amazon won’t have it easy entering the drug supply space since pharmacy benefits managers such as United Health’s OptumRX, Express Scripts and CVS possess long-existing enterprise contracts. Rather than partnering with one pharmacy benefits manager, one option is for Amazon to get all pharmacy benefits managers on board and have a network contract.

Pharmacy benefits managers

“Commercial PBM contracts often require members to use their PBM’s mail order pharmacy, making online/mail order pharmacy business difficult to penetrate. If Amazon opted to contract with a single PBM, it would limit its opportunity for that specific PBM covered population,” read a client note from Morgan Stanley.

Besides Morgan Stanley other analysts who are also of the view that Amazon is eyeing the pharmacy business includes Leerink Partners. According to Leerink, it will take a considerable amount of time before Amazon is able to get into the business. This is because between one and a half years and two years are required for the online retail giant to acquire licenses to operate a pharmacy business in all the 50 states across the U.S.

Regulatory requirements

Earlier in the year there were reports that Amazon had hired a general manager who was charged with the responsibility of leading the online retail giant’s efforts to get into the pharmaceutical prescription market. The reports further indicated that Amazon had made additional recruitments from the pharmacy sector. And in order to meet the regulatory requirements employees are being hired for the online retail giant’s professional healthcare program.

Some of the reasons cited for Amazon’s renewed interest in the pharmacy business include the fact that consumers are moving towards insurance plans that have high deductibles as well as the fact that there are more out-of-pocket expenses that consumers have to cater for. In Japan Amazon has already ventured into the pharmacy business on a limited scale as its Prime Now program now offers deliveries of medicines and cosmetics.

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