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ECommerceTimes.com

Amazon May Disrupt Prescription Drug Space Next

By David Jones
Oct 31, 2017 5:00 AM PT
amazon-health

The rumor that Amazon has set its sights on disrupting the pharmaceutical industry has gained greater currency recently, just months after the company set the grocery business on fire with its acquisition of Whole Foods, and in the midst of its widely publicized search for a second U.S. headquarters location.

Amazon reportedly has taken major steps toward becoming a drug distributor and seller -- actions that have caused concern among potential competitors and may have figured heavily in CVS' negotiations to buy health insurance firm Aetna for US$66 billion.

Amazon has obtained licenses to sell drugs as a wholesaler in 12 states, including Nevada, Arizona, Alabama, North Dakota and Louisiana, according to a report in the St. Louis Post-Dispatch.

The E-Commerce Times was able to obtain documents showing that Amazon has licenses to sell wholesale drugs in New Jersey and Connecticut, two other states on the paper's list.

If Amazon wanted to get into the business of shipping pharmaceuticals directly to consumers, it also would have to obtain pharmacy licenses, the report notes.

The newly obtained licenses are related to the company's growing healthcare supply business, which is part of a growing B2B segment at Amazon, said spokesperson Lori Torgerson.

As part of that business, Amazon sells professional medical supplies to doctors, dentists and other medical professionals.

"Wholesale licenses are required for Amazon Business to sell professional-use only products to healthcare companies," Torgerson told the E-Commerce Times.

B2B Boom

Amazon this summer announced that its Amazon Business segment, which launched in 2015, had reached more than one million customers. The procurement business had grown to reach more than 85,000 business sellers, providing professional supplies to a range of healthcare and other business customers.

Amazon has licenses to sell to various healthcare providers, including hospitals, doctors, dentists and healthcare clinics, in most states.

The news that CVS Health was in talks to buy Aetna, the nation's No. 3 health insurance firm, surfaced last week in a Wall Street Journal report. The rumored $66 billion deal values the Aetna stock at $200 a share. CVS is not only one of the largest retail pharmacy chains, but also one of the largest pharmacy benefit managers in the U.S.

The negotiations, which have been ongoing for months, directly involved the top executives at both firms -- CVS CEO Larry Merlo and Aetna CEO Mark Bertonlini -- according to multiple reports.

A major reason cited for the talks was rampant speculation that Amazon has been making moves to enter the prescription drug business, following its blockbuster $13.7 billion acquisition of Whole Foods, a move that shook the U.S. grocery industry to its foundations.

CVS officials did not respond to our request to comment for this story.

"We don't comment on rumors or speculation," Aetna spokesperson T.J. Crawford told the E-Commerce Times.

Ripe for Disruption

Amazon may be poised to disrupt the retail pharmacy business because it is a highly competitive market where the majority of profits are taken not on the drugs themselves, but on the household products, supplements, groceries and other purchases that customers make while browsing the aisles.

"With Amazon's focus on customer convenience and reorders/auto-orders, this is a logical next step for the company," said Cindy Zhou, principal analyst at Constellation Research.

"Bulk orders for regular prescriptions have been offered by the insurance carriers for decades, but Amazon can deliver it to the end customer conveniently," she told the E-Commerce Times.

Reordering prescription drugs easily could be accomplished using voice-operated Alexa commands or Amazon Dash buttons, Zhou suggested.

"I think the logical reason Amazon would want in is that when consumers go to drug stores they have to walk all the way to the back to pick up their prescriptions," said Paula Rosenblum, managing partner at RSR Research.

"That's how the chain stores get real profit. They have much bigger margins on the products they pick up on the way back there or on the way out," she told the E-Commerce Times. "So I suppose it's another way for them to increase their share of the wallet."


David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.


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