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Amazon threatens to disrupt the prescription drug delivery business, analysts say

Samantha Liss, St. Louis Post-Dispatch on

Published in Science & Technology News

ST. LOUIS -- In 23 years, Amazon has transformed itself from a relatively unknown online retailer into a behemoth that has toppled traditional big-box stores by attracting consumers to its speedy home delivery model and low prices.

Now, on the heels of acquiring the Whole Foods grocery chain, some analysts say Amazon has set its sights on entering the pharmaceutical industry, in particular Express Scripts' territory of managing prescription drugs for millions of Americans.

Analysts at Boston-based Leerink Partners say it's no longer a question of if Amazon enters the industry but when -- even though many details are still unclear, such as the type of business model the online retailer is likely to pursue.

If the analysts are right, how would Amazon's entry into the prescription drug management business affect Express Scripts? Could the St. Louis-area company, a leading local employer, become an acquisition target by Amazon?

There are no clear answers, but Leerink, in its Oct. 5 report, says Amazon should be taken seriously.

"While (Amazon) is likely still researching what its ultimate strategy should look like, with (75 million Prime members) seemingly unlimited resources, and highly advanced technology capabilities, we believe (Amazon) can create disruption to the existing market," Leerink wrote.

The industry currently is dominated by three pharmacy benefit managers, or PBMs: Express Scripts, CVS' Caremark and UnitedHealth's Optum.

All three have distinctly different business models.

Express Scripts operates as a standalone PBM. CVS leverages its 9,700 retail pharmacy locations to manage prescriptions for its clients. UnitedHealth's OptumRx operates under the umbrella of its health insurance business, which is the nation's largest.

PBMs act as the middleman between drug manufacturers and employers or health plans. They negotiate drug prices on behalf of their clients and decide what drugs are covered -- and ones that aren't.

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