CVS and Walgreens stock both dropped Wednesday on the speculation that Amazon will enter the pharmacy business.
Shares in both retailers closed down more than 3% on May 17, soon after a CNBC report speculated that Amazon is getting into the drug retailing business.
While the move is not definite, the massive global retailer is hiring a business lead to figure out how the company can break into the market, according to CNBC. In addition, a CNBC source said that Amazon has started to recruit more broadly from the pharmacy industry.
Amazon is also reportedly considering the development of a pharmacy benefit manager for its employees.
Amazon recently started selling medical devices and equipment in the United States, so a move into other health-care sectors is not out of the question. However, while the news may affect the stock performance of drug store chains in the near-term, some analysts are doubtful that it will have a long-term impact. Drug chains have relationships with PBMs, payers, physicians, and others that span decades.
“While we believe Amazon has the monetary resources to enter the space, we do not think Amazon’s entry would be market disruptive,” wrote Ann Hynes, analyst at Mizuho Securities USA, in a research note. “Given the regulatory, payer and generational hurdles, we do not think the investment Amazon would need to make would garner the meaningful ROIC it typically enjoys and expects.”
For example, CVS Health said in mid-March that its PBM clients achieved the lowest drug trend in the past four years in 2016, despite rising drug prices. CVS Caremark clients saw their prescription drug trend drop to an average of 3.2% last year, compared to 5.0% in 2015.
“On the PBM side, the three largest players each process over 1 billion claims annually,” wrote J.P. Morgan analyst Lisa Gill in a report, according to a Forbes article. “Importantly, the scale they have aggregated allows them to negotiate attractive rebates/discounts with manufacturers and attractive reimbursement terms with retail pharmacies.”
However, Adam Fein, PhD, president of Pembroke Consulting, told The Orlando Sentinel he could see Amazon most easily entering the market for patients who pay cash because they're uninsured or they're looking for a better deal than what they would get through their health insurance provider.
"Prescription drugs is such a big market, and Amazon, I think, looks at every big market and figures out if there's a place for them to play," Fein said. He estimates that Amazon could capture 5% to 10% of the market if they put enough resources behind the effort.