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Amazon Fear Grips Retail Pharmacy Space, Alliances Continue

By Zacks Investment ResearchStock MarketsJan 15, 2019 08:39PM ET
Amazon Fear Grips Retail Pharmacy Space, Alliances Continue
By Zacks Investment Research   |  Jan 15, 2019 08:39PM ET
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It seems that e-commerce giant Amazon's (NASDAQ:AMZN) entry in the pharmacy retail market along with other non-healthcare heavyweights like Berkshire Hathaway (NYSE:BRKa) and JPMorgan (NYSE:JPM) has initiated a new episode in the healthcare space. According to many market watchers, the traditional retail pharmacy and drugstore industry is set to undergo a sea change.

This development has been taken quite seriously by drugstore industry players who are unwilling to give up and lose their turf. These traditional pharmacy players are currently coming together to defend their position.

Consolidations in the Traditional Pharmaceutical and Drug Retail Space

After underperforming for a year, shares of Walgreens (NASDAQ:WBA) finally rallied 1.6% to close at $71.79 after the company entered into a seven-year alliance with Microsoft Corporation (NASDAQ:MSFT) .

The partnership will combine Microsoft Azure, Microsoft's cloud and AI platform, health care investments and new retail solutions, with Walgreen’s customer reach, convenient locations, outpatient health care services and industry expertise. According to a CNBC article, this alliance will explore digital health opportunities within stores and develop software for managing patient engagement.

While Amazon is trying to figure out ways to enter the multibillion dollar pharmacy industry, this is not the first attempt made by Walgreens to counter competition. Following Amazon’s foray into the healthcare retail industry last June (through the purchase of online pharmacy PillPack in December), Walgreens formed an alliance with Alphabet’s (NASDAQ:GOOGL) life sciences and healthcare segment, Verily, to collaborate on multiple projects. According to Walgreens, this strategic tie-up was designed to combine Verily’s healthcare technology innovation with Walgreens’ pharmacy services.

In this regard, we note that following Amazon’s PillPack deal, Walgreens CEO Stefano Pessina stated he was "not particularly worried" about Amazon. Walgreens currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another established player CVS Health (NYSE:CVS) is also following Walgreens’ footstep. This Zacks Rank #1 PBM (pharmacy benefit manager) company achieved a momentous healthcare consolidation by acquiring United States’ third largest health insurer Aetna (NYSE:AET) for a colossal sum of $70 billion.

Last month, prominent health insurer Cigna (NYSE:CI) merged with PBM player, Express Scripts (NASDAQ:ESRX). This latest deal can effectively drive the breadth of value-based relationships for Cigna and add to its fast-growing collaborative care network.

Summing Up

In any business, bankable human resource and strong financial position matter the most. And Amazon has both. Undoubtedly, Amazon’s entry has resulted in an upheaval in the prescription drug industry with major players struggling to keep afloat.

However, some analysts believe those preferring cash payments are expected to opt for Amazon’s pharmacy services. However, the percentage of this population is quite nominal. Moreover, patients with the need for immediate drugs will prefer buying them from stores over waiting for online delivery.

Considering these factors, major analysts believe there is enough scope left for the existing industry behemoths to maintain a competitive edge.

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Amazon Fear Grips Retail Pharmacy Space, Alliances Continue

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Amazon Fear Grips Retail Pharmacy Space, Alliances Continue

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