Bessemer Venture Partners health investor Steve Kraus remarked on a move by Amazon today, explaining that the company is looking to break into the pharmacy industry. The move into the pharmacy space, he says, is actually not very surprising at all; after all, he notes, it would make sense for just about every major technology company to get intoo the estimated $3 trillion health care sector.
Furthermore, Kraus thinks this could be quite a blow to the bevy of new online, on-demand, drug delivery startups, like Zipdrug, in New York. In fact, pharmacies themselves are already finding stiff competition in this emerging industry and Amazon’s size—and, therefore, power—could do some serious damage. After all, he comments, “Look at what Amazon has done to malls.” He adds, “In the future, when people say they’re going to a Walgreens or CVS, they might instead choose to go to Amazon.com.”
That said, not everyone necessarily believes that Amazon getting into the game will shake things up too much. Mizuho Securities USA analyst Ann Hynes, for example, says, “While we believe Amazon has the monetary resources to enter the space, we do not think Amazon’s entry would be market disruptive.” Following Amazon’s announcement of its potential pharmacy business, Hynes went on to say, “Given the regulatory, payer and generational hurdles, we do not think the investment AMZN would need to make would garner the meaningful ROIC it typically enjoys and expects.”
On the one hand, most prescription consumers get cheap generics in the mail. CVS, then, owns a pharmacy benefit manager which can compete with companies like Express Scripts, which is a giant PBM which processed nearly 1.5 billion prescriptions just last year, alone.
Accordingly, JP Morgan analyst Lisa Gill wrote, in a report on Wednesday, “On the PBM side, the three largest players each process over 1 billion claims annually. Importantly, the scale they have aggregated allows them to negotiate attractive rebates/discounts with manufacturers and attractive reimbursement terms with retail pharmacies.”
Finally, CVS chief executive Larry Merlo—in a first quarter earnings call with analysts, earlier this month—noted, “The opportunity is not just in terms of what we can do across our pharmacies, but now you think about infusion in the home, the role of MinuteClinic, now long term care. I think that there are some exciting opportunities as we think about partnering more broadly.”