Amazon.com Inc (NASDAQ:AMZN) and its founder and CEO, Jeff Bezos, have a reputation for disrupting whatever sector they move into.
First, it was simply books and music sales. But since then, its breadth and depth has become impressive. Not only is AMZN now a major consumer goods company, but it also has a strong entertainment division, a cloud computing company and a burgeoning logistics wing. Now, it looks like Amazon will soon be a player in the healthcare industry.
Wherever there is a sector that lacks visibility and is operating on an aging model, AMZN sees opportunity.
The company is looking to move into the pharmacy business now. It has already begun testing a prototype in Japan, and it is starting to hire more staff and leadership for the program. AMZN recently started selling medical supplies and equipment in the U.S., so this next step — an Amazon pharmacy business — makes perfect sense.
According to CNBC, more than 4 billion prescriptions in the U.S. are filled every year, which makes for a $300 billion annual business. That’s a significant opportunity.
In recent years, there has been some consolidation in the industry as pharmacy benefit managers (PBMs) have become the middlemen between consumers, drug companies and insurance carriers. PBMs like CVS Health Corp (NYSE:CVS), Express Scripts Holding Company (NASDAQ:ESRX) and Catamaran Corp (USA) (NASDAQ:CTRX), as well as other healthcare insurance spinoffs, decide the fate — and price — of pharmaceuticals and whether they will support them.
For example, a drug may come to market with a $12,000 annual price tag. The PBMs (one of them, some of them or all of them) then determine whether that price is too high and how much will get passed along to customers.
Many times, the drug companies will discount their price to the big PBMs to make their drug more attractive. But even then, if the drugs are too expensive, a PBM may decide not to support it because it’s not much different from a current drug that treats the same condition, but is significantly cheaper.
For the consumer, this means paying full price if they want the new drug, which may doom the drug over time. But, as healthcare costs are increasingly shifted to consumers, this arcane pricing strategy is becoming less efficient and less competitive.
Now Is the Time for Amazon Pharmacy
All of this is what makes now a very good time for some AMZN disruption.
This isn’t the first time AMZN has waded into these waters, either. Almost 20 years ago, AMZN joined forces with Drugstore.com, which was exploring this same model. The site was eventually bought by PBM Walgreen Boots Alliance Inc (NASDAQ:WBA) and ingested into its own operations.
The point is, if AMZN decides it wants a piece of this pie, it will likely take a large chunk pretty fast and change the way we buy prescriptions for years to come. Get ready.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.