Two of the CEOs running a pair of the biggest pharmacy distribution companies, Timothy C. Wentworth, CEO of Express Scripts Holding Co., and Larry J. Merlo, CEO of CVS Health Corp., were each asked by Wall Street analysts on their recent earnings calls what they think of potential competition from Amazon.com.

Frequent media reports that Amazon.com, the world’s biggest online retailer, may take on the pharmacy industry by launching its own web pharmacy is capturing the attention of Wall Street.

Two of the CEOs running a pair of the biggest pharmacy distribution companies, Timothy C. Wentworth, CEO of Express Scripts Holding Co., and Larry J. Merlo, CEO of CVS Health Corp., were each asked by Wall Street analysts on their recent earnings calls what they think of potential competition from Amazon.com.

Express Scripts is the largest U.S. pharmacy benefit management company with annual revenue of $100.75 billion. CVS Health operates 9,700 retail pharmacies and more than 1,000 Minute walk-in clinics nationwide and has annual sales of $177.52 billion.

In a series of stories, the latest of which ran in late July, CNBC reported that Amazon.com has quietly assembled a research and development staff named 1492 and is looking at developing a slew of digital healthcare applications that may include electronic health records designed for easy sharing and telemedicine applications that digitally connect patients and doctors. In May, CNBC reported that Amazon.com also was developing possible plans to get into the online pharmacy business, which would put the leading online retailer in direct competition with the likes of Walgreen Co. and CVS Health or new startups such as PillPak.com.

There's no question that Amazon is a competitor in the marketplace .

Amazon hasn’t said anything publicly about what it may do in digital healthcare, and Amazon has yet to respond to an interview request from Internet Health Management. But the speculation of Amazon taking on big established retail pharmacy chains and prescription benefits managers has piqued the interest of Wall Street analysts—and CEOs.

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“There’s no question that Amazon is a competitor in the marketplace because they’ve done a great job, and you don’t take anything that they’re doing for granted,” Merlo told analysts on the CVS earnings call based on a transcript on SeekingAlpha.com. “But at the same time, I think that we have a lot of capabilities and a value proposition that can compete effectively in the market.”

If Amazon wants to be an online pharmacy, it will need to do more than just distribute medications, he told analysts. “Pharmacy is also about the clinical outcomes that are provided,” Merlo noted. “In an environment where there’s a migration to more value-based care, those clinical capabilities are going to continue to grow in importance. It’s highly regulated, so the barriers to entry are high.”

For Amazon to compete as an online pharmacy, Amazon would need to learn how to work with insurance companies. “Today you’ve got more than 90% of prescriptions that are covered by some type of third-party insurance, so there’s an awful lot of work that exists between pharmacists working with payers and physicians to provide that care.” Merlot told analysts. “We know the role that pharmacists play in the community. We’ve seen mail-order pharmacy decline to some degree over the last couple years, and patients put a lot of value in the trust and the relationship that they have with their community with their retail pharmacist.”

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Amazon also would need to master the complexities of drug interactions at the same time it was learning to deal and connect with health insurers, Wentworth of Express Scripts told analysts based on a transcript from SeekingAlpha.com. “As I think about Amazon and what they may choose to do in pharmacy, you said it right in the beginning, which is, you know, becoming a pharmacy benefits manager (PBM) is a lot more than dispensing drugs,” Wentworth noted. “In fact, becoming a PBM requires you to figure out how not to dispense drugs or to dispense the right drugs as much as it does to dispense them.”

From the perspective of CVS, customers prefer an “omnichannel” approach to getting prescriptions filled and not just online, Merlo told analysts.

“There are many more online retailers today than what we had five years ago and the CVS pharmacy model is built on convenience, when you think about 9,700 points of access and the fact that you’ve got almost 80% of the U.S. population that lives within a few miles of a CVS,” he told analysts. “Over the last couple years we’ve been working hard to define what omnichannel means for us and means for those customers, and have been investing in our digital tools and capabilities to provide more of an omnichannel experience.”

 

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