Amazon CEO Jeff Bezos. Photo credit: Getty Images

Amazon’s gravitational pull often wreaks havoc on the stocks of other Fortune 500 companies. Last month, the victims included pharmacy chains and drug wholesalers. On October 27, a report broke that Amazon had acquired wholesale pharmacy licenses in 12 states, sending the stock prices of companies including CVS, Cardinal Health, Express Scripts, AmerisourceBergen, and McKesson into a tailspin.

Amazon, it seemed, was getting into the prescription drug business.

Since then, more details have come to light that cast a shadow on this prediction. A note from Jefferies analysts revealed that Amazon’s licenses apply only to medical supplies and devices. In theory, this means drug distributors and pharmacy benefit managers (PBMs) could breath a sigh of relief. In reality, investors were clearly still spooked. It’s hard to blame them: Amazon’s acquisition of Whole Foods is a $13.7 billion indication that a) it’s not afraid to take big swings and b) it’s ambitions extend beyond e-commerce.

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And so the frenzied speculation about if—or when—Amazon will go after prescription drugs continues. “That’s all anybody wants to talk about,” Lisa Gill, a JP Morgan healthcare analyst, told CNBC.

Earlier this year, Amazon approached Stephen Buck, a drug supply chain consultant, about potentially building a business case to do exactly that. “They said, ‘We’ve looked at the pharmacy market every year for the past 10 years,’ but they understand how complex it is and how many barriers to entry,” Buck tells MM&M. His sense was the call was exploratory: “They looked under the rock and put the rock back in its place.”

In its public comments, Amazon has voiced a distaste for “regulatory complexity,” says Jefferies analyst Brian Tanquilut. (It’s struggled to break into the alcohol distribution market, which is governed by strict laws and requirements.) And the obstacles in healthcare extend beyond regulations—the entire system is fragmented and complex. “There are so many gatekeepers,” Buck says.

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A nonexhaustive list of structural issues Amazon would likely have to contend with: opening physical pharmacies, managing a more expensive workforce, and negotiating drug prices. No one questions Amazon’s logistical brilliance, but many people, particularly seniors, “like going to retail pharmacies and having a face-to-face with the pharmacist,” Tanquilut says. While Whole Foods gives the tech giant a physical anchor, it’s neither robust nor geographically diverse enough to compete with existing pharmacy chains. (Whole Foods has less than 500 U.S. locations vs. CVS and Walgreens, which have 9,700 and 8,100 locations, respectively.) What’s more, running a chain of pharmacies means hiring pharmacy techs and pharmacists. “That’s a different type of workforce, a much more expensive workforce,” Gill told CNBC.

And then there are the PBMs, the middlemen responsible for negotiating drug benefits for employers and health insurance plans. The three biggest players—CVS Health, Express Scripts, and OptumRx—process about 70% of U.S. prescriptions and are unlikely to work with a potential rival. Without a partnership, Amazon would be relegated to selling drugs to consumers paying out-of-pocket. The company could also create its own PBM, but it wouldn’t be a quick, cheap, or easy process. Another option: simply buy one. Express has been floated as a possible acquisition target, although it would come with a hefty price tag (the company’s market cap is more than $35 billion). According to Buck, the smarter move would be to buy a smaller, second-tier PBM and invest in scaling it up.

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These hurdles are significant, but not significant enough that PBMs and pharmaceutical companies can rest easy. The carrot is too juicy. To sustain meaningful growth Amazon, which brought in $136 billion last year, needs to continue to make big bets. “If there is anything bigger than healthcare, I don’t know what it is,” says Harry Kraemer, the former CEO of Baxter International and an executive partner with Madison Dearborn Partners. In 2015, healthcare spending accounted for 17.8% of the GDP (around $3.2 trillion). As the population ages, that percentage is expected to rise.

“If the question is whether Amazon is going to get into this, the answer is ‘absolutely,’” says Kraemer. “And so the question becomes, how hard will it be and how long will it take?”

When Amazon approached Buck, he told the company he thought it was more than capable of adding prescriptions to its delivery service, particularly if it started with signing up cash and mail-order customers. Buck’s hypothesis is that it hasn’t jumped because it’s going after lower hanging fruit. Flush with cash, logistical dominance, and a recognizable and well-liked brand, “the world is Amazon’s oyster,” he says. “They have more attractive alternatives.”

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But what happens when Amazon picks up the rock and decides to make a move? Once the decision is made, “It will happen sooner than people think,” Kraemer says. (Buck estimates Amazon could acquire the necessary state and federal licenses “within six months.”)

For now, however, the giant appears to slumber on. That hasn’t stopped traditional players from making pre-emptive moves. CVS’s $70 billion acquisition of health insurer Aetna is expected to close in December. And last month, in what could be read as a nervous middle finger to Amazon, both CVS and Walgreens announced they will start offering free same-day prescription delivery.

For a March 2024 article on Eli Lilly partnering with Amazon to deliver GLP-1 drugs Mounjaro and Zepbound, click here.