Amazon likely on verge of entering retail drugs business

Amazon.com Inc. is in the final stages of figuring out its strategy to get into the multibillion-dollar prescription drug market, according to multiple reports.

The company will decide before Thanksgiving whether to move into selling prescription drugs online, according to CNBC citing an email from Amazon, which it said it had viewed and a source familiar with the situation.

If it decides to make that move, it will start expanding its senior team with drug supply chain experts, CNBC says.

Bloomberg meanwhile cited two analysts at Leerink Partners, to say Amazon is almost certain to enter the business of selling prescription drugs by 2019, posing a direct threat to the US's biggest brick-and-mortar drugstore chains.

''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.''

Amazon declined to comment.
Amazon typically spends years researching opportunities before it telegraphs its intentions. Selling drugs online is alluring as analysts have estimated the US prescription drug market at $560 billion per year. Amazon is well aware of the complexities, according to CNBC's sources familiar with the company's thinking.

In the past year, Amazon has ramped up its hiring and consulted with dozens of people about a potential move into the pharmacy market. The consumables team, which includes groceries, kicked off the research, with the division's vice president, Eric French, taking the lead.

It brought on Mark Lyons from Premera Blue Cross to build an internal pharmacy benefits manager for its own employees, says CNBC. According to one of its sources, it's possible that the push into the broader drug supply chain hinges on its success with this effort.

In May, the company kicked off its search for a general manager to lead its pharmacy push, externally dubbed "healthcare".

Goldman Sachs published a report on the topic in August of this year, speculating that Amazon will ultimately look to improve price transparency for consumers and reduce out-of-pocket costs.

Amazon already has a business selling medical supplies online, such as gauze and thermometers. It also has a health team called 1492, which is focused on both hardware and software projects, like developing health applications for the Echo and Dash Wand. Its cloud service, Amazon Web Services, continues to dominate the health and life sciences market.

Bloomberg points out that Amazon has a long-standing interest in prescription drugs, an industry with multiple middlemen, long supply chains and opaque pricing. In the 1990s, it invested in startup Drugstore.com and Amazon chief executive officer Jeff Bezos sat on the board. Walgreens eventually purchased the site and shuttered it last year to focus on its own branded website Walgreens.com.

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

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

Walgreens shares closed down 4.9 per cent to $73.20 in New York, and CVS shares also declined 4.9 per cent to $76.92.

CVS declined Bloomberg's request for comment, and referred to remarks made by its chief executive officer, Larry Merlo, on an earnings conference called on 8 August. The pharmacy business has ''many barriers to entry,'' Merlo said at the time. Walgreens declined to comment.

Pharmacy benefit managers, or PBMs, administer drug benefits for employers and health plans, processing the prescriptions pharmacies dispense. Currently, final prices for many drugs are negotiated in secret deals between drugmakers and PBMs.

The three biggest drug benefit managers - CVS, Express Scripts and OptumRx, a unit of insurer UnitedHealth Group Inc - process about 70 per cent of the nation's prescriptions, according to Pembroke Consulting.

Rumblings about Amazon's entry into the drug market have been brewing for months. In May, CNBC reported that Amazon.com had hired an official from Premera Blue Cross and was considering getting into online pharmacy.