(Bloomberg) – Amazon.com Inc. is casting a long shadow over the healthcare industry.

The prospect of the giant Internet retailer entering the business is beginning to cause far-reaching reverberations for a range of companies, roiling the shares of drugstore chains, drug distributors and pharmacy-benefit managers, and potentially precipitating one of the biggest corporate merger deals this year.

On Thursday, the pressure was plain to see. A report that Amazon had received pharmacy-wholesaler licenses in a dozen states triggered a fast and steep selloff that wounded the likes of McKesson Corp., AmerisourceBergen Corp. and Cardinal Health Inc. And late in the day, shares of Aetna Inc. surged after a Wall Street Journal report that it’s in talks to be taken over by CVS Health Corp. for more than $200 a share.

CVS and Aetna have held discussions about a potential deal, according to people familiar with the matter who asked not to be identified as the details aren’t public.

 Bloomberg

Representatives for both companies declined to comment.

Executives in the drug industry say that Amazon could use its expansive online reach and its logistical muscle to threaten companies that ship and sell medicines to consumers and cut pricing deals with drug makers.

“Size and scale-wise, they can disrupt anywhere they want to disrupt,” said Chip Davis, president of the Association for Accessible Medicines, a trade group for generic medication, in an interview Thursday.

Competitive Squeeze

A deal for Aetna could conceivably move CVS further away from the business of brick-and-mortar retail drugstores and deeper in health services such as pharmacy benefits, where it already has a sizable presence.

Combining Aetna and CVS would create a health-services giant and a bigger competitor for UnitedHealth Group Inc., which is the largest U.S. health insurer and has its own own clinics and a pharmacy-benefits unit.

The presence of Amazon is already being felt by retailers and companies that sell drugs over the counter. The head of of Bayer AG’s consumer-health business said on a conference call with analysts Thursday that the wider shift to online shopping by U.S. consumers was hurting its business. Erica Mann, the division’s chief, dubbed it the “Amazon effect,” saying buyers are looking for value.

At the same time, the pecking order in the health-supply chain is beginning to shift.

Earlier this month, insurance giant Anthem Inc. said it was cutting ties with Express Scripts Holding Co. after a long dispute over pricing and starting its own pharmacy-benefits manager in 2020. A bulked-up CVS and Anthem’s new venture could raise the pressure on Express Scripts, which has touted its independence.

Any tie-up of Aetna and CVS would follow a pair of failed mergers among health insurers. The deals would have reduced the ranks of big U.S. health insurers from five to three, a prospect that led the Justice Department to oppose both prospective tie-ups.

If the Aetna deal happened, “CVS would have a dominant position” in the drug-benefits business, said Michael Rea, founder of Rx Savings Solutions, which has an app that helps patients find low cost drugs.

 

Bloomberg News
Published
  • October 27 2017, 12:01pm EDT

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