Amazon pharmacy tests low-volume mail-order sector: analyst

Amazon’s new pharmacy service is not surprising, but increases the pressure on brick-and-mortar pharmacies that have already been affected by the global epidemic this year.

Amazon (AMZN) Pharmacy is the latest move by the e-retail giant after acquiring mail-order startup Pill Pack for $ 750 million in 2018. This service, offered in 45 states, includes discounting drug prices as well as insurance, payment through cash. And health savings accounts. Prime members will get two days of free shipping, while non-prime members will have to pay $ 5.99 for it. The service also allows for exemptions to apply to traditional pharmacies.

Key components of the strategy rely on Prime Member Networks and Cygnus (CI) spinoffs EverNorth and ExpressScrips for discount programs — which can also be used in traditional retail pharmacies.

Like GoodRx (GDRX), Amazon is offering discounted prices if patients choose to pay without insurance – which gives both an opportunity to compare the price as well as ordering convenient prescriptions for the unwary Opens the door — usually a low-volume market — and possibly in direct negotiations with pharmaceutical companies, eventually pushing Amazon.

“If they are negotiating rates on drugs … it becomes a PBM [pharmacy benefits manager] For the Reluctant, ”Craig Garthwaite, Professor of Program Strategy and Director of Healthcare at Kellogg School at Northwestern University.

Garthweight told Yahoo Finance that the announcement was a disruption and added an additional competitor to the space.

White Paper, San Ramon, California, close-up of logo for pill pack by Amazon Pharmacy on December 15, 2019. (Photo by Smith Collection / Gado / Getty Images)

Amazon’s delivery network is already so strong that it can overtake other pharmacies because “startup costs and marginal costs are lower than its rivals,” he said.

Analysts at JP Morgan said on Tuesday that the news is hardly a surprise and that its target customer base is unlikely to cause true disruption for a variety of reasons.

Analysts say, “We do not believe that Amazon has a specialized solution at this point, which combines completeness with clinical capabilities (note that the specialty currently accounts for almost all of the total prescription drug spending.” Half), “analysts said the cash-paying market is just under 5s. % Of the overall prescription market.

What remains to be seen is whether or not it increases prime membership, and if it can capitalize on mail-order, which traditionally had fewer pickups.

“Each major PBM has offered mail pharmacy services for over 30 years. Interestingly, despite the convenience, mail usage is actually steadily decreasing per data from IQVIA data … Mail is just 5% of total adjusted scripts in 2018, down from double-digit levels a decade ago, “According to JPM.

But with the reach and experience of virtual health care due to the epidemic, as well as consumers’ online behavior change, analysts at Morgan Stanley believe the company could do well.

Analysts wrote that on the one hand, the Prime Minister does not have that strong penetration among the 55 and older population, but if it is competitive enough, prices can rise.

Bank of America analysts noted on Tuesday, “Although it’s important to remember that although Amazon clearly brings a refreshing competitive dynamic to the market, Mail Pharmacy is still only a piece of the market.

Others say the service’s pick-up is likely to slow, as has traditionally happened when Amazon enters a new territory.

Analysts at Goldman Sash said that it usually takes years before AMZN gets meaningful market share in new end-markets. We also think that there is some convenience factor for being able to take a rapid script the same day from a pharmacy. “

But some analysts believe the move could be a major disruption

“Represents a disruption in the news system and competitive threat, which is likely to shift the script away from the retail channel, in our opinion,” said Ralph Giacobbe of Citi in a note on Tuesday that it would also benefit SIG. is likely to.

“Evernorth could benefit directly from this relationship, requiring prescriptions that were filled at pharmacies that were not contracted with Evernorth because their PBMs had previously shifted to Amazon Pharmacy and cash instead of insurance to generate savings -Using payments, ”he said.

Typically, analysts believe that CVS (CVS) and Walmart (WMT) are the best in the space to compete with Amazon, given their scale and diversity. Walmart has had $ 4 generic drugs for over a decade and recently launched several clinics. CVS has moved away from being a health care provider with clinics, long-term care services and the recent acquisition of insurer Aetna, being completely a pharmacy and PBM.

One question that remains is the economics of operations for Amazon, and possible changes in the future. Analysts wonder whether the company will get a discount cut, as is the practice in the industry, and if the new service is more of a learning process for Amazon to eventually compete directly with PBM.

As Oppenheimer analysts put it, “Overall, although details are still scarce, the long-anticipated announcement by Amazon continues its push into the pharmacy space that should continue to disrupt supply chains.”

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