Amazon has several hurdles to jump before it could enter pharmaceuticals
According to a Morgan Stanley note sent out to clients on Thursday, US prescription sales were a $465 billion industry in 2016 with $106 billion coming from mail orders. Finding a way into the market would increase Amazon's potential US revenue by 20%.
But even if reports are true that Amazon is looking to break into the prescription sales business - the internet giant has not publicly commented on its intentions - a number of obstacles would need to be overcome.
For starters, even if healthcare customers wanted to place their orders with Amazon, they may be prevented from doing so. Contracts between healthcare providers and pharmacies often require customers to use their pharmacy benefit manager's (PBM) mail order service.
And without a PBM of its own, Amazon could find itself locked out as companies like CVS, Express Scripts, and United Health/OptumRX all have longstanding contracts and working relationships.
"The press has reported that Amazon hired an executive from Premera Blue Cross to explore the PBM model," the Morgan Stanley report notes. "But we see little fit for the pharmacy benefit management service offering with Amazon's."
Additionally, mail orders have been in decline for the last decade as pharmacies have introduced programs accommodating customers who prefer to pickup their prescriptions directly from their pharmacists.
Lastly, Amazon would likely need to increase its brick and mortar presence, according to the Morgan Stanley note. While Amazon has opened roughly 12 stores to gauge public interest in potential brick and mortar stores, competing with the likes of CVS and other pharmacies would require an investment far beyond Amazon's current level.
This is all in addition to industry-specific challenges that Amazon would need to address. Logistically, shipments need to temperature controlled, connections with physician offices need to be established, and complicated billing systems need to be navigated.