The buzz about Amazon's potential play in the drug business has persisted despite the e-retailing giant's refusal to comment. Now, CNBC reports the company has had discussions with generic drugmakers—Mylan and Sandoz among them—about strategies for entering the industry.
The discussions have been preliminary and high-level, according to CNBC, but the news signals that Amazon is continuing to investigate whether and how it could shake up the drug industry, a move that could remake the traditional supply chain and delivery systems. Previous reports have said the tech and retail giant has had discussions with pharmacy benefit managers as it eyes pharmaceuticals.
Weighing in on the subject in a discussion with CNBC's Meg Tirrell, Express Scripts CEO Tim Wentworth said Amazon "could make an interesting partner" under certain scenarios. He declined to comment on whether the top PBM has had discussions with Amazon, but said he is "confident that they are looking at the market, as they should be."
"They look at every market they are not in and try to evaluate things, as I believe," Wentworth said during the segment. "From our perspective, if they take a good hard look I think what they will see is a very competitive market, [and] a tremendous need being served by what we do."
Express Scripts is a pure-play PBM and a company some market watchers see as vulnerable to an Amazon entry into drugs. But Wentworth said his company's service "has never been more needed than it is right now."
For months, analysts have been digging into Amazon's intentions in the drug industry, all while the company itself has remained silent. The St. Louis Post-Dispatch reported in October that the company secured pharmacy licenses in several states, but Jefferies analysts pointed out based on government filings that Amazon intends to take on a simpler market first: devices and medical supplies.
Reacting to the latest report, Wells Fargo analyst David Maris wrote that news of generic discussions "does not surprise us, as we see generics as an attractive entry point if AMZN were to go into pharmacy." He wrote that while some market watchers are viewing the news as a positive for generic companies, his team is more cautious.
"Given how disruptive AMZN has been to other areas, we would not jump to the conclusion it will be good for any particular supplier yet," Maris wrote in a note early Friday.
Highlighting another potential strategy, Goldman Sachs analysts wrote this summer that Amazon could partner with a PBM in order to enter the drug industry. More recently, Bernstein's Ronny Gal wrote that he believes a play in the generic space makes sense.
In a November note, Gal said the "simplest strategy" for Amazon to enter the pharmaceuticals would be to establish a mail-order generic pharmacy and charge customers directly. Many mass-market generic prescriptions are under $5 at the wholesale level and cost several times that at retail, he noted. Gal suggested Amazon could charge its customers less than $10 per generic prescription.
As the discussion and speculation about Amazon has continued, some pharma CEOs have welcomed improvements to the drug supply chain. Allergan's Brent Saunders said on the company's recent third-quarter conference call that the "whole ecosystem is ripe for disruption."
He added that changes should be associated with "improvements based on technology or efficiency," such as the way new treatments are reshaping care for patients.