For months, rumors have swirled that Amazon.com Inc. (AMZN) has its sights set on disrupting the pharmacy industry next. 

The e-commerce giant has reportedly set a November deadline to decide whether it will move into the drug supply chain market. Should Amazon decide to make a move, the company could help dramatically drive down the cost of drug prices, according to a Wednesday report from Morgan Stanley Inc. (MS) analysts. 

"Pharmacy could be the starting point for something much bigger," the analysts wrote in a note to clients. "Can Amazon help lower drug spend is the underlying question in our mind." 

It would be relatively easy for Amazon to establish pharmacies because there are low regulatory barriers and fragmentation in the market, Morgan Stanley noted. Amazon can work with pharmacy benefit managers (PBMs) to be added to their networks and, from there, could set up retail pharmacies, as well as online ones, to build out a business. Employers are "already inquiring" about Amazon's role in pharmacies, the firm said, and because of that, it would be harder for PBMs to exclude an Amazon pharmacy, were it to launch one. 

In terms of what Amazon's pharmacy network would look like, Morgan Stanley said the company could build virtual pharmacies that leverage its Prime Now network, while using its roughly 460 new Whole Foods locations to add retail pharmacies. This lighter brick-and-mortar footprint could ultimately drive drug pricing down, the firm added.

Amazon has been testing an internal pharmacy benefit manager with its employees and if the program is successful, it could serve as the framework for a larger business. Last week, Leerink analysts claimed that Amazon entering the pharmacy business is a "matter of when, not if," and said it held conversations with pharmacy benefit managers who said they expect an announcement from Amazon in the next one to two years. The company might initially pursue uninsured individuals or people who pay cash for most of their prescription drugs, the analysts wrote.

The hardest part could come as Amazon works to establish direct relationships with brand-name drug manufacturers, such as Pfizer (PFE) , Bristol-Myers Squibb (BMY) , GlaxoSmithKline (GSK) and others. That process could take a "long time," according to Morgan Stanley. 

"If Amazon were successful in changing the brand pricing model to be based on a 'net' price vs. the current gross model, we estimate a portion of rebates and other supply chain discounts currently being retained by plan sponsors, PBMs, and to a lesser degree drug distributors could pass back to consumers," the analysts explained. 

Walgreens (WMB) and CVS Health (CVS) are both at risk if Amazon enters the pharmacy market, the firm added. Both stocks have fallen nearly 10% in the last five days as media reports indicated that Amazon was nearing a decision to sell prescription drugs. 

Meanwhile, shares of Amazon have climbed 4.4% in the past five trading sessions and are up more than 30% so far this year. The stock was rising 1% to $1,005.17 on Thursday morning.

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Editors' pick: Originally published Oct. 12.

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