Move over, Apple(AAPL) - Get Report and Alphabet (GOOGL) - Get Report . Wall Street thinks Amazon (AMZN) - Get Report will be the one to lead Silicon Valley's looming disruption of the healthcare industry.
A recent report from Wells Fargo shows that consumers are clamoring for the Seattle-based tech behemoth to enter the prescription pharmaceuticals business. The firm conducted a nationwide survey and found that five in 10 U.S. adults would probably use Amazon Pharmacy if the company pursued it.
"We believe the results show very positive support of the concept of Amazon Pharmacy, which we believe could translate into fast adoption," said Wells Fargo analyst David Maris in a note to clients.
Apple and Google have both dedicated significant resources to entering the healthcare market, such as Apple's CareKit apps for managing medical conditions and Alphabet's Life Sciences unit, which focuses on diabetes research.
Rumors have been building that Amazon may also venture into the pharmacy business. In May, CNBC reported that Amazon hired a general manager to lead its push into the healthcare market, after holding at least one annual meeting to discuss its plans in this area. A new report from CNBC said Amazon is finalizing its pharmaceutical plan. Amazon recently expanded its Prime Now service in Japan to include drug and cosmetic sales and has also formed a Professional Health Care Program to regulate the sale of medical supplies and equipment in the U.S.
Amazon is no stranger to disruption, having revolutionized the e-commerce, cloud computing, logistics and artificial intelligence markets, among others, since its inception in 1994. Wells Fargo said Amazon could have the same effect on the pharmaceutical industry by providing downward pressure on prescription drug pricing. On top of that, the firm added that Amazon's low prices, same day or next day delivery and free shipping would likely spur competition among distributors and pharmacies.
Amazon would be following in the footsteps of Costco (COST) - Get Report , Target (TGT) - Get Report and Walmart(WMT) - Get Report, who all started dabbling in pharmaceuticals to drive further top line growth, said Maxim Group analyst Tom Forte. Amazon's Prime Now shipping service, as well as its growing number of physical stores, would help Amazon expand into pharmacies, Forte added.
Cutting out the bricks and mortar expenses of pharmaceutical distribution could be a "big benefit" that persuades major drug companies to work with Amazon, Wells Fargo said. In this scenario, drugstrore chains like Walgreens (WBA) - Get Report , CVS(CVS) - Get Report and Rite Aid (RAD) - Get Report could all take a hit.
Initially, distributors and pharmacies may argue that controlled substances and other products "may not be best" for mail delivery, but Wells Fargo said the possibility of price disruption would probably overshadow those concerns. The firm added that it spoke to executives from a major drug company who said that Amazon probably wouldn't impact branded pharmaceutical pricing, instead it would disrupt generic drug pricing.
As is customary for Amazon, pharmaceuticals would probably be "just the beginning" for the company in healthcare.
"With experience in video streaming, content creation, and the continued emergence and acceptance of telemedicine, Amazon may have eyes on an even larger prize - fully integrated digital healthcare," Maris explained. "So maybe Amazon will first conquer the pharmacy, and then conquer the doctor visit."
Amazon's on a mission to "own your wallet" and starting a pharmacy business is a natural extension of that effort, said Steve Kraus, a partner with venture capital firm Bessemer Venture Partners. Bessemer was an early investor in Diapers.com, which Amazon bought as part of its $545 million of Diapers.com parent Quidsi in 2010 and then shut down in March.
"The area where Amazon doesn't have exposure to the consumer wallet is clearly health," Kraus said. "Prescription drugs are very shippable and mailable."
Based on the dynamics of the prescription drug market, Kraus said Amazon might take a "crawl, walk, run" approach to entering it, starting with easier, cheaper generic drugs, then specialty drugs and, eventually, compounded medications, which are formulated for a specific patients' needs. If Amazon were "truly bold," it might spin off its own pharmacy benefit manager unit, he added.
In order to scale out its healthcare ambitions, Amazon could look to make some tangential acquisitions that help them build some sort of business strategy, Kraus explained.
If Amazon Pharmacy comes to fruition, the company would be tapping into a market that's primed for exploding with value. Forte estimates that the global pharmacy market could be worth at least $2 billion in 2019.
That's on top of a bullish report from longtime internet analyst and venture capitalist Mary Meeker, which showed that the rise of wearables has translated into massive interest in greater consumer health and wellness data. Meeker also surveyed consumers to see which tech company they'd share their health data with and found that 60% would choose Google, while 50% and 39% would share it with Apple and Amazon, respectively.
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