Amazon May Increase Competition for PBMs

News of Amazon’s newly-obtained pharmacy licenses caused significant waves in the pharmaceutical industry. The reports caused Amazon stocks to increase more than 13%, while stocks for pharmacies and other entities plummeted, some more than 5%, according to Market Insider.

Amazon first sent shockwaves through the industry due to speculation that it may be preparing to enter the pharmacy space in June, which peaked after the acquisition of Whole Foods. While the prospect of Amazon entering the pharmacy space was nothing new, confirming their licensing caused significant fallout throughout the industry.

It is likely that distributors and pharmacies are concerned over what Amazon entering the pharmacy space would mean for them. However, manufacturers may actually welcome the online retailer’s disruption of the industry, according to a report from CNBC.

"Just like science is disrupted with gene therapy or novel treatments, I think the drug distribution channel also should be disrupted with improvements based on technology or efficiency," said Brent Saunders, CEO, Allergan, told analysts on their third-quarter conference call, according to the article.

It is likely that manufacturers see partnering with Amazon as an opportunity to improve business offerings and may even hold an opportunity reduce drug costs.

"We haven't had any conversations with them [Amazon]," Ian Read, CEO, Pfizer told CNBC. "[We’re] more than willing to talk to anybody who can ensure" the efficiency of the distribution model, according to the article.

Amazon reportedly told CNBC that they will make a decision about whether or not to move into the pharmacy space before Thanksgiving.

This may also be an opportunity to revise the role of pharmacy benefit managers (PBMs), which have been scrutinized recently for some of their practices, including direct and indirect remuneration fees. This is another area that is welcomed by manufacturers who have to negotiate drug costs and discounts with PBMs.

“We'd be fools not to consider anyone who can disrupt the insurance/PBM stranglehold these companies have over patients and us,” a pharmaceutical CEO, who wished to remain anonymous, told CNBC.

Although the complicated nature of the pharmaceutical industry may present several challenges to Amazon, some pharma executives have said it is an area that needs to be disrupted and reinvented.

"It's an area rife with inefficiency and a lot of turf. It's overly complicated; that's the opportunity,” the CEO told CNBC.