The Digital Retail Giant Could be a Major Disruptor For Pharmacy Benefits Management (PBM) Space
Amazon has taken a serious move to get into the prescription drug business by gaining approval to become a wholesale distributor from a number of state pharmaceutical boards. As the nation enters its post-Thanksgiving shopping frenzy, a time of year when Amazon seems omnipresent, speculation continues over the company’s pharmacy plans.
There has been a lot of speculation in recent months about Amazon entering the pharmacy market, a move that could be a major market disruptor, but details about the company’s plans have been scant, and it’s not clear which business model the company will pursue. What is known is that the company has received approval for wholesale pharmacy licenses in 12 states: Alabama, Arizona, Connecticut, Idaho, Louisiana, Michigan, New Hampshire, New Jersey, Nevada, North Dakota, Oregon, and Tennessee. A license application in Maine is pending. These licenses are associated with three fulfillment centers in Indiana. Some of the license applications, such as Nevada and North Dakota, mention distribution rights for medical devices and medical gas. The application in Tennessee also hints toward some association with a former Express Scripts operations manager. Amazon has hired a few business leaders from pharma space.
After its recent acquisition of Whole Foods Market chain, which was completed in August 2017, speculation about the company’s entry into the pharmacy sector ramped up, the rationale being that the company could follow the retail pharmacy route fairly quickly. However, given its robust home delivery model and its successful Prime business, Amazon entering the PBM business and particularly mail-order pharmacy seems to be a more likely point of entry.
As it is, the PBM industry is dominated by the three largest pharmacy benefit managers: Express Scripts, CVS/caremark, and OptumRx. An Amazon entry into the space would be a disruptor of significant proportion – but it also presents some opportunities. Amazon can enter the PBM business by building something internally or acquiring or partnering with any bigger or mid-size PBMs. After the recent decision of Anthem opening its own PBM in partnership with CVS, Express Scripts could be a more viable option for acquisition or partnership target. Express Scripts in its third-quarter earnings noted the company was open to the idea of initiating a relationship with Amazon. After Anthem’s major blow (its contract with Express Scripts ends in 2019), a partnership with Amazon would mitigate the potential effect of competitive shifts. It also would position Express Scripts to keep pace with CVS, which can build off its recent alliance with Anthem and is also rumored to be weighing a massive deal with Aetna.
Mid-size PBMs such as Prime Therapeutics and EnvisionRx are also possible acquisition targets or joint-venture partners for Amazon. Prime Therapeutics has formed some powerful alliances – most recently launching AllianceRx Walgreens Prime, a combined central specialty pharmacy and mail services company. To further enhance its mail penetration business, a partnership with Amazon could be a wise move. EnvisionRx, owned by RiteAid, is also in struggling shape due to a merger between RiteAid and Walgreens. Thus, a takeover from Amazon, would be a positive step for EnvisionRx and RiteAid.
As it is, Amazon isn’t publicly shedding much light on its intended path forward when it comes to pharma. But if rumor becomes reality, the ripple effect of an Amazon PBM or Amazon pharmacy will be huge, particularly for giants such as Walgreens, CVS, and Walmart. The anticipated competition could drive competitors further into diversification and it could also affect drug wholesalers such as Carinal Health, Amerisource Bergen, and McKessen. Its entry could also have broad implications for consumers, given Amazon’s growing digital services and investments in healthcare IT. Whether Amazon makes the move into the pharma space or not – the speculation machine will be the gift that keeps on giving.
For more on PBM Trends, follow Sonali Prusty @SPrustyDRG
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