Amazon’s imminent entry into the drug arena poses a huge threat to drug distributors and retailers. The mere prospect of it has led to massive losses on the stock market for these companies running into hundreds of millions of dollars. Pharmaceutical companies however, have welcomed the prospect, pegging their enthusiasm on the impact that the tech giant will bring on board by leveraging on technology to enhance efficiency.
According to Allergan CEO Brent Saunders, disruption in the drug distribution sector is long overdue. He added that to bring in efficiency, the use of technology should be embraced in the same way breakthrough treatments have changed the course of science. Ian Read, Pfizer’s CEO echoed the same sentiments saying the company is ready to engage anyone who can change the distribution network in a way that ensures value for money.
Amazon’s decision on whether to be involved in the drug business is expected by Thanksgiving. The company has already acquired wholesale pharmacy licenses in 12 states and owns the URL AmazonRx.com. it also has a business dealing in medical equipment that would benefit from the licenses but analysts believe that Amazon is poised to enter the pharmacy services sector at some point in the future.
However, all indications are that Amazon is planning an entry into the sector. Mark Lyons was lured from insurer Premera Blue Cross to put together an in-house PBM after Amazon announced it was looking to hire a general manager to lead its pharmacy enterprise. This was reported back in May by CNBC.
Most actors in the drug supply chain depicted Amazon as a prospective partner rather than a direct threat and expressed pessimism the retail giant would be willing to plunge into such a highly controlled environment.
The drug distribution system has been rife with inefficiencies arising from its basic structure. Between the pharma companies and end-users sit two entities – the insurers and pharmacy benefit managers (PBMs). The PBMs negotiate drug prices on behalf of insurers and employers and are also allowed to operate mail-order pharmacies.
If Amazon were to enter the drug distribution business three major players are likely to feel the heat that comes with the e-commerce giant’s clout; PBMs, major drug retailers and distributors. In the direct line of fire will be CVS Caremark, Optum and Express Scripts which are PBMs, while in the retail space CVS, Rite-Aid and Walgreens will be the most affected. AmerisourceBergen, Cardinal Health and McKesson will also be under pressure in drug distribution.
Analysts believe that Amazon’s penchant for the unexpected and for areas that have potential for disruption may be the attraction. they argue that the inherent inefficiencies that are rife in the drug business offer an excellent opportunity for Amazon to use its systems and processes to change the very nature of drug distribution.
It’s a wait and see situation as Amazon ponders on its next move considering that such a complicated drug industry with heavy red-tape may be just what the online behemoth is yearning to disrupt.