Oppenheimer sees the impact for the PBMs/mail-order pharmacy arms of the insurers as "a little less clear"
Shares of CVS Health (CVS), Walgreens (WBA) and GoodRX (GDRX) are among the many names in the pharmacy supply chain that are under pressure on Tuesday after Amazon.com (AMZN) announced two new pharmacy offerings - Amazon Pharmacy, a new store on its platform, and an Amazon Prime prescription savings benefit. Commenting on the news, Piper Sandler analyst Thomas Champion said the e-commerce giant's further entry into the pharmacy space makes "a great deal of sense," while peers at Goldman Sachs told investors that the news will likely pressure the entire pharmacy supply chain.
NEW PHARMACY OFFERINGS: Amazon.com announced on Tuesday two new pharmacy offerings. Amazon Pharmacy, a new store on Amazon, will allow customers to complete an entire pharmacy transaction on their desktop or mobile device through the Amazon App. Using a secure pharmacy profile, customers can add their insurance information, manage prescriptions, and choose payment options before checking out. Prime members will receive unlimited, free two-day delivery on orders from Amazon Pharmacy included with their membership.
Also new, Prime members can access savings on medications at Amazon Pharmacy when paying without insurance, as well as at over 50,000 other participating pharmacies nationwide. The Amazon Prime prescription savings benefit saves members up to 80% off generic and 40% off brand name medications when paying without insurance, according to the company. Prime members will have access to their prescription savings at checkout on Amazon Pharmacy.
'A GREAT DEAL OF SENSE': Commenting on Amazon's announcement, Piper Sandler analyst Thomas Champion noted that the news builds on the 2018 acquisition of PillPack, and argued that the further move into pharmacy sales makes "a great deal of sense." Prescription medication fits into the Prime bundle as a high frequency purchase, and with the market for prescription pharmaceuticals approaching $350B-plus annually, this represents a large dollar opportunity, he contended. The analyst believes that the impact on Pharmacy Benefit Managers, or PBMs, and retail pharmacy owners depends on resolving trust issues found in his recent survey, staying in network for major insurers, and moving to same day delivery. Champion recalled that Piper's survey of 1,300 consumers indicated that 73% of consumers were worried about chain of custody and counterfeit drugs when purchasing through Amazon.
LIKELY TO PRESSURE SUPPLY CHAIN: In a research note to investors, Goldman Sachs analysts led by Robert Jones, Heath Terry and Kevin Hartman noted that Amazon's new pharmacy offerings represent a further push into the pharmaceutical supply chain. Goldman's team noted also pointed out that the savings benefit is administered by Inside Rx, a subsidiary of Evernorth, which is a part of Cigna (CI). They think the news will pressure the entire Supply Chain on Tuesday, with the pharmacy retailers and "other discount card aggregators" viewed as "most at risk." Goldman's analysts see less risk to Pharmacy Benefit Managers and drug distributors.
Voicing a similar opinion, Oppenheimer analyst Jason Helfstein said that Amazon's continued push into the pharmacy space should continue to disrupt the supply chain. The analyst also highlighted that Amazon's partnership with Cigna's Evernorth will expand its pharmacy capabilities to Prime members in 45 states. The move "should not come as a total surprise" following Amazon's 2018 acquisition of Pillpack, with the potential for this to disrupt the pharmacy supply chain, particularly the brick-and-mortar companies such as CVS, Walmart (WMT), Walgreens, and Rite Aid (RAD), the analyst contended. Helfstein pointed out that the impact, however, is a little less clear for the PBMs/mail-order pharmacy arms of the insurers, which are more insulated but are likely to face disruption over time. For Cigna, "the devil will be in the details," as there could be potential for scale from this new lower-margin business, he added.
WHAT'S NOTABLE: Asked about Amazon's Pharmacy announcement during the company's earnings calls, Walmart U.S. CEO and President John Furner said that "I'll just say in general, we're very excited about health and wellness at Walmart. And health and wellness had a great quarter last quarter. It was one of our best businesses. The team have opened a number of clinics, and we have more plans. Our optimism about the health and wellness space remains high. Throughout the year, we've been delivering prescriptions via mail. We've done this for some amount of time. And then we've expanded the capacity in the summer. So we've got really broad coverage on the ability to deliver prescriptions around the country. And then also during the pandemic, I mean all stores, all supercenters that don't have a drive-through, we also launched curbside pickup. So that customers who need a prescription could pick up their prescription outside the pharmacy. And then we've got 4,000 stores now in 30 states that have no-contact delivery options."
"We're building out an omnichannel health and wellness business, and it will include the big pharmacy business that we have now, vision, hearing, OTC, the things that happen in-store and online, and then increasingly services, as you can see through our additional clinics. So I think omnichannel and health and wellness will matter every bit as much as it does in the rest of retail," Doug McMillion, President and CEO of Walmart, added.
PRICE ACTION: In morning trading, shares of Amazon have gained about 1% to $3,157.30, while CVS has slid over 7% to $68.08 and Walgreens has slipped over 9% to $40.98. Also lower, shares of Rite Aid have plunged more than 13% to $11.22, and GoodRX's stock has dropped over 18% to $38.23. Shares of publicly-traded drug distributors McKesson (MCK), Cardinal Health (CAH) and AmerisourceBergen (ABC) are also being pressured by Amazon's news.