Amazon Eyes PBMs

Though it is still only speculation, it seems more and more likely that Amazon will be entering into the pharmacy marketplace in the near future.

Amazon may be in talks with some middle-market pharmacy benefit managers "in an effort to get into various contract arrangements," according to analysts at investment bank Leerink Partners who spoke with pharmacy executives, Axios reported.

Amazon may pursue a mail-order pharmacy, initially targeting uninsured customers or people who have high deductibles and pay cash for most of their prescription drugs, Axios said.

However, Leerink estimates that it will take from 18 to 24 months for Amazon to get pharmacy licenses in all 50 states.

CNBC reported that Goldman Sachs created a 30-page report detailing Amazon’s likelihood of entering the space. They cited recent efforts, such as the secret “1492” team at Amazon, which is dedicated to efforts like telemedicine and electronic medical records.

Related article: Why PBMs Lead in Prescription Revenue Growth

According to Goldman Sachs, Amazon might start by partnering with a PBM rather than replacing pharmacies right away. It could become an online pharmacy, retail and online pharmacy, integrated PBM and online pharmacy, or simply a drug distributor to pharmacies. The tech giant also has the ability to improve price transparency and reduce out-of-pocket costs, but would likely begin by speeding drug delivery and setting up at-home delivery. Goldman Sachs analysts say Amazon could move into the digital health space using its Echo ecosystem in clinical settings, such as developing tools for telemedicine or remote patient monitoring.

One challenge Goldman Sachs found for Amazon was the age gap. Amazon’s customers tend to be younger, and therefore not the age group taking the most prescription medications.

In May, a CNBC report speculated that Amazon was getting into the drug retailing business, noting that the retailer was hiring a pharmacy business lead and had started to recruit more broadly from the pharmacy sector.

However, many analysts are not convinced that Amazon will excel in the PBM or drug retailing business.

“On the PBM side, the three largest players each process over 1 billion claims annually,” wrote J.P. Morgan analyst Lisa Gill in a May report, according to a Forbes article. “Importantly, the scale they have aggregated allows them to negotiate attractive rebates/discounts with manufacturers and attractive reimbursement terms with retail pharmacies.”

“While we believe Amazon has the monetary resources to enter the space, we do not think Amazon’s entry would be market disruptive,” wrote Ann Hynes, analyst at Mizuho Securities USA, in a research note in May. “Given the regulatory, payer and generational hurdles, we do not think the investment Amazon would need to make would garner the meaningful ROIC it typically enjoys and expects.”