As Amazon entry into pharma looms, CEOs see plenty of room for change in distribution

For months, analysts have been speculating that Amazon wants to enter pharmacy.

Online retailing giant Amazon has yet to publicly disclose any plans to get into drug sales, but the mere speculation has pharma CEOs thinking, and speaking, about how it could entirely remake their world.

Pfizer CEO Ian Read Tuesday told analysts "any system of distribution that can cut costs and get a wide availability of products to patients is something that the whole industry would be interested in." But he added that it's "somewhat more of a difficult strategic proposal" if the tech giant tries getting into the pharmacy benefit manager industry, as that's a "whole different skill set." 

Addressing the current drug distribution landscape, Allergan CEO Brent Saunders said he believes the "whole ecosystem is ripe for disruption." But he stressed the changes should be associated with "improvements based on technology or efficiency," such as the way new treatments are reshaping care for patients.

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Analysts and industry watchers have been talking about Amazon's options in pharmaceuticals for several months, presenting a number of scenarios about moves it might make. CNBC has reported that the company plans to make its decision whether to enter the pharma space by Thanksgiving. 

Speculation about Amazon becoming a drug retailer ratcheted up last week after the St. Louis Post-Dispatch reported that it has secured wholesale pharmacy licenses in multiple states. Speaking with CNBC, one expert cautioned that the news doesn't necessarily mean the company plans an entry into the drug space, rather that it needs the licenses for its existing medical businesses. 

Amazon has remained publicly noncommittal. Questioned on the topic during Amazon's earnings call, the company's chief financial officer said he couldn't "confirm or deny any of the rumors related to pharmacy or anything else." 

However, Wells Fargo analyst David Maris noted that AmazonRx.com is licensed to the Amazon Legal Department. The analyst and his team wrote that Amazon's entry into the drug business would be a "negative headwind for branded retail pharmaceuticals, retail generics and OTC products." 

"We find it easy to envision that, if it entered pharmacy, Amazon could offer unique value to some customers, such as the easier ability to manage prescriptions and perhaps discounts, such as free generics to Prime users," the analyst wrote. 

On GlaxoSmithKline's third-quarter call, Maris noted, executives explained that the company's OTC business is seeing pricing pressure from traditional retailers who are trying to compete for business against online players. They're going to the manufacturer to try and get better pricing, he said.

Goldman Sachs analysts have put out a 30-page report outlining several options for Amazon in pharmaceuticals, writing that a partnership with an existing PBM is a "path of least resistance." One Bernstein analyst said he believes the company will have its pharmacy business set up by 2019 and ready to compete for business in 2020, while a Leerink analyst has said "it's a matter of when, not if" that Amazon will move into drugs. 

For his part, Maris wrote that "even though Amazon has not stated a goal to be in pharmacy, history has shown it is better to consider Amazon's disruptive potential beforehand rather than afterward."