Amazon could partner with a PBM to blaze its trail into pharma: analysts

Word is tech giant and retail category-killer Amazon might jump into the drug business. While the company itself hasn't revealed any plans, a new Goldman Sachs report details just how the company might look to shake things up for pharma, with an initial eye on the supply chain.

Goldman believes Amazon would focus on drug middlemen that seem at first glance to be "‘primed’ for disruption." But as the analysts note in their 30-page report, a few big players dominate the sector and it's tough to scale up enough to compete. Plus, as drugmakers well know, pricing through the supply chain is tricky. In short, it's complicated.

"As a means to navigate these challenges, we see a partnership with an existing player as the path of least resistance," Goldman Sachs analysts wrote in their report. And Amazon might not have to look very hard for a collaborator, if response in the industry is any indicator. 

Companies in the drug supply chain take home $125 billion in annual profits, or 30% of U.S. net pharma spending, according to the analysts, making it an attractive target for would-be disruptors. What could Amazon offer? To start with, a strong user experience and a top-notch logistics network. The company could later try to bring more transparency to pricing for drugs.

Partly thanks to pharma industry lobbying, pharmacy benefits managers and other drug middlemen have come under scrutiny in recent months for allegedly triggering drug-price increases. Pharmaceutical companies say PBMs are demanding higher rebates, forcing them to adjust their prices higher to compensate. PBMs counter that drugmakers always set their own prices and that tough negotiating saves billions in annual costs.

PBM giants are certainly keeping an eye on Amazon’s moves. During a recent analyst call, Express Scripts CEO Timothy Wentworth said "if Amazon were looking to be an efficient provider in networks, we would welcome that opportunity," according to a transcript from Seeking Alpha.

"We think Amazon is a great client for us," Wentworth continued. "We think they are obviously a company that if they choose to move in a direction, we'd be interested in working with them."

For Amazon, other strategies to enter the drug business might be as an online pharmacy, a retail plus online pharmacy, an integrated PBM plus online pharmacy, or a drug distribution player to pharmacies, according to Goldman Sachs. The analysts noted that it’s tough to say where Amazon will end up and that the report is intended to start the conversation among investors