Could the largest online retailer in the world enter the U.S. pharma industry? It may be a smart growth move for a company known for its distribution network. "Amazon may be speaking with mid-sized PBMs now in an effort to get into the pharmacy services space… our specialists believe that this is the direction Amazon is moving in," said a recent Leerink Partners report. While Leerink believes it could take 18-24 months, others say it could even happen much more quickly if Amazon buys a small company that currently has pharmacy licenses in 50 states. Amazon is already in the pharma market in Japan; in April Japan Times reported that the company expanded its Prime Now delivery to include drug and cosmetic sales, with the support of local partners. Amazon's Japanese site now includes "pharmaceuticals," and sells drugs to patients with approval from a pharmacist.
About 80% of the market is currently controlled by the biggest three Pharmacy Benefits Managers (PBMs): Express Scripts, CVS Health and UnitedHealth Group. Amazon could be a serious threat to these PBMs, but what about its effect on drug makers?
Friend or Foe to Big Pharma?
Some pharmaceutical companies may initially welcome a new entrant to the marketplace especially since online ordering programs can increase adherence. Many medical supply companies have increased sales from a high traffic channel. On the other hand, Amazon is a giant who may soon have a lot of power when negotiating with big pharma. Drug companies have been blaming growing PBM rebates for a rise in prices, while PBMs say their tough negotiations save the health systems billions so there’s already a complex relationship between manufacturers and PBMs.
Amazon could become a much more formidable player in the health care industry than any current PBM. “Amazon is as strong a brand and disintermediator as the business world has ever seen,” claims Scott Davis, a Forbes contributer and chief growth officer at Prophet. He describes a “$465 billion market cap giant, with plenty of cash on hand to invest, a CEO who is committed to taking on every category he can and winning, and a track record that proves Amazon rarely gets it wrong.” Amazon has influence over 300 million active shoppers which means the online retail giant could change how big pharma negotiates with middlemen. Davis explains that the younger generations have grown up with Amazon as their “go-to” provider so “Amazon’s entry into the pharmaceutical industry should have every player in the space terrified.”
Davis isn’t the only one impressed by Amazon’s power. Wells Fargo conducted a nationwide survey and found that five in 10 U.S. adults would probably use Amazon Pharmacy if the company pursued it. In Prophet’s annual Brand Relevance Index, Amazon ranked only second to Apple as the most relevant brand in the U.S. It ranked number one on critical attributes such as being a dependable and trustworthy brand as well as “meets an important need in my life” and “makes my life easier.” Any brand to which consumers feel so strongly connected is one that should “put the pharma industry on high alert.”
What can you do to prepare? Now is the time to intensify bonds and make plans to guard against market disruptions caused by a new giant such as Amazon. Do you have a plan to strengthen your relationships with PBMs and HCPs?
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