The incumbents in the US healthcare sector have sought to calm investors spooked by the arrival of Amazon’s long-awaited pharmacy, with executives lining up to peg the effort as a minor threat.

Still, four of America’s largest healthcare stocks — CVS, Walgreens, Cigna and United — will begin Monday’s trading a combined $40bn lighter after a sell-off since Amazon declared last Tuesday that it would bring its “customer obsession to an industry that can be inconvenient and confusing”.

Amazon’s offering — a mail order drugstore and discount card — was made immediately available in 45 US states, building on what had already been offered by PillPack, the online pharmacy Amazon acquired in 2018 for $753m. 

But industry figures and analysts say Amazon’s famous strengths — wide selection, price and fast delivery — will not necessarily help it upend the retail pharmacy business.

“People [stock market investors in rivals] have been freaking out,” said Brian Tanquilut, a healthcare analyst at Jefferies. “But in reality . . . it doesn’t seem like there should be much concern here, at least in the near term.”

He added that “there’s still a lot of people who like going to their pharmacy”, including older customers “who view the trip as one of the highlights of their week”.

Lawton Burns, healthcare management professor at the University of Pennsylvania’s Wharton School, said Amazon’s plan would attract a comparatively less lucrative cohort of drug buyers.

Bar chart of Market share (%) showing Mail order accounts for limited share of prescription volumes but higher revenues

“They may get the young millennials who occasionally need an acne drug,” he said. “Or young people who have herpes or who want birth control. That’s not where the money is in healthcare, or where the money is in the sale of pharmaceuticals.”

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Mail order accounts for less than a tenth of prescription volumes, according to data from Drug Channel Institute, although it has an outsized presence in the market for higher-priced medications for chronic and complex illnesses such as cancer, multiple sclerosis and HIV. Amazon Pharmacy does not offer those kinds of drugs. It instead competes with what is available at local stores.

“They are a formidable competitor in every sense,” conceded James Kehoe, chief financial officer at Walgreens Boots Alliance, speaking at Wolfe Research’s Annual Healthcare Conference. “But this is a little bit apples compared to oranges. When you want to go and get your Covid vaccination, are you going to call Amazon or are you going to call Walgreens or CVS?”

Cigna, the insurance and pharmacy group, saw its stock fall 6 per cent over the week on fears Amazon would upend the industry — despite being an exclusive partner with Amazon on the new endeavour. Evernorth, a Cigna subsidiary, will administer Amazon’s prescription discount card, offered to members of its $119-per-year Prime subscription offering. 

The card, one of several on the market, allows the customer to find a better deal on drugs than offered by their insurance plan. The card can be used to buy drugs through Amazon Pharmacy’s mail order, or from one of 50,000 participating pharmacies that were already part of Evernorth’s scheme. They include CVS, Walgreens, Rite Aid and the other big names.

“Our thinking is real simple here,” said Timothy Wentworth, Evernorth’s chief executive, at the Wolfe Research event. “Amazon is going to go into pharmacy. If they’re going to go into pharmacy, I would much rather be working with them than not. I would much rather harness what they do and create value for my book of business rather than view it as some threat that I have to stop.”

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Amazon’s discount card is similar to one already offered by GoodRx, a Santa Monica-based company that went public just last month. Last week it lost 28 per cent of its value in the aftermath of Amazon’s announcement — before staging a small rally.

“We’ve had a few competitors pop up over the last decade of doing this,” Mr Hirsh told the Financial Times. “And every time a competitor pops up, our traffic goes up, and our business goes up because people do some homework, or they talk to their doctor, and the doctor recommends GoodRx.”

A study by investment bank SVB Leerink suggested prices for the 10 most commonly prescribed drugs were almost 50 per cent lower on GoodRx than on Amazon, on account of GoodRx working with a larger number of pharmacy benefits managers (PBMs), the middlemen that dictate much of how drugs are priced.

With its discount card, Amazon offers prices from just one PBM: Evernorth’s Express Scripts. GoodRx has a deal with Express Scripts, plus a dozen more.

But some analysts feel Amazon has laid the groundwork for a deeper push into the multitrillion-dollar healthcare industry. The pharmacy comes alongside other health initiatives, including Amazon Cares, a telehealth-focused service for its own employees, and Haven, a joint venture with Berkshire Hathaway and JPMorgan Chase, launched in 2018 with the aim of reducing healthcare costs for those three companies, and eventually others.

“The effect that Amazon ultimately has on these businesses takes years,” said Stephen Tanal, from SVB Leerink. “The company just grows. It’s like this giant sucking sound that you’ll never hear.”

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