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The much followed and widely speculated entry by Amazon.com, Inc. ( AMZN – Free Report) ceased operations in the pharmaceutical sector in announcing that she would buy PillPack, an online drugstore delivery company
Eying a Attractive Market
The purchase of PillPack for $ 1 billion would provide Amazon with instant access to the Internet. US pharmaceutical industry worth nearly $ 370 billion. In the wake of news, shares of pharmaceutical companies CVS Health Corp. ( CVS – Free Report), Rite Aid ( RAD – Report Free), and Walgreens Boots Alliance ( WBA – Free Report) have expressed their fears that the entry of the giant company Amazon is taking away market share. Other companies UnitedHealth Group Inc. and Humana Inc. having Rx pharmacy activities and would be affected by the presence of Amazon and would lose value.
Amazon already sells medical supplies and equipment such as blood pressure monitors, orthopedic appliances, hearing aids and even walkers and wheelchairs in the United States. Entering the pharmaceutical industry was therefore the next step towards the expansion of the health care industry.
The entry of Amazon in the distribution of drugs would certainly change the deal, but the immediate implications would be more limited.
The US pharmaceutical industry is opaque and divided into specific slices such as drug manufacturers that manufacture drugs, PMPs that negotiate drug prices with manufacturers, process drug claims and manage pharmacies home delivery. Wholesalers physically distribute drugs to pharmacies and hospitals, and basically, retail pharmacies.
The complex arrangements between these different players and the consolidation of space have led them to reap profits with end consumers falling off the rise in drug prices. Amazon, with its digital capabilities and great logistical strength, aims to distribute drugs at low prices.
In a year, the Retail Drug Store industry lost 11.8% compared to the 1.9% growth of the S & P 500 and a decline of 1.92% for the medical sector
Price performance over one year
And then, Amazon must have a pharmaceutical benefits manager to have an end-to-end solution. Thus, the company could opt for a PBM alliance or acquisition. Any news on this from the company should not be surprising. It is certain that the company will not rest here and will take new steps in other areas of health since its CEO has evacuated his frustration with an inefficient and expensive American health care system. To this end, recently, Amazon with Berkshire Hathaway and JP Morgan have formed a health care business to provide health insurance for their employees who together is over a million. At the end of last month, the company got its CEO, Dr. Atul Gawande, which suggests that he is on track to start his business.
The Threat
Amazon is known to be a formidable figure in conquering huge market shares. puts the finger on innovative market practices and competent leadership. Until now, he has carved out a place in companies such as books, retail, supermarkets, consumer electronics and cloud computing.
Amazon's pharmacy plans date back to last year. As a result of retaliation, CVS acquired Aetna Inc. and Express Scripts sought a partnership with Cigna. Recently, Walgreens reached an agreement with Humana to create primary care clinics that would expand its pharmacy services and expertise.
While Amazon is unlikely to give traditional health care companies a short-term run, they will certainly need to reorganize business strategies to use technology, data, and analysis in order to 39, offering better products and user-friendly services. The entire exercise should modernize the health system and give investors more reasons to stay attentive.
As a result of the news from Amazon, the FDA chief said that disruptive competition is a good thing.
Ana Gupte, senior health services analyst at Leerink Partners, advised clients to keep in mind that the arrival of Amazon in the pharmaceutical industry will not happen at night and it will take some time. But the threat that Amazon's share will increase over time is huge.
We believe it will be like walking a tightrope for players in place
Zacks Rank
Among the companies mentioned above, Aetna Inc. (AET) Express Scripts, CVS Health and Amazon each have a Zacks Rank # 3 (Hold).
You can see the complete list of Zacks # 1 Rank (Strong Buy) shares of today .
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