The founder and CEO of Amazon, the wealthiest man in the world, Jeff Bezos once famously said that if your business has a margin of profit, that’s his opportunity to make a profit. Before the computer revolution and, especially, the Internet, many more businesses operated on large margins than most people realized. Of all companies, Amazon has been the most effective at going after retail stores. They started with just books, but soon expanded. And Wal-Mart had already done an extremely effective job of disrupting traditional, small retail stores using economies of scale to reduce prices. But now Amazon’s market capitalization is bigger than Wal-Mart’s.
According to former Wall Street insider and financial newsletter writer Paul Mampilly, Amazon has identified another area of “margin” that it could profitably take over. In a recent blog article Paul Mampilly says David Larsen, an analyst of health care stocks Mampilly respects, agrees with him. Amazon will soon target the pharmaceutical drug business. People in the United States spent $457 billion on prescription drugs in 2015. By 2021, that will go up to $610 billion. Just think about all the baby boomers who are getting older and, therefore, more at risk from various medical problems.
Yet middle men take as much as 36% of that total, according to the research of Paul Mampilly. That includes Walgreen’s, CVS and Express Scripts. The process of drugs going from the actual manufacturer to the drug store where patients fill prescriptions is much more complicated than most people realize. Paul Mampilly put an interesting infographic in his blog post. Those companies are getting rich off everybody who is financing prescription drugs. That includes patients making co-pays or outright buying the drugs, people who pay health insurance premiums and taxpayers who supply their cash to Medicare and Medicaid.
Reducing the cost of pharmaceutical drugs is one of the political promises President Trump has made. And Amazon made help him fulfill it by lowering their margin by close to that 36%. Healthcare in the United States is about 17% of the Gross National Product. Cutting the cost of prescription drugs by up to 36% would reduce that, but it would come out of the profits of the drugstores and pharmacy benefit managers who are in control of the pipeline now.
Paul Mampilly says Amazon will lower prices drastically, bringing efficiency and transparency to this market. That’s good for everybody paying for healthcare directly or indirectly, but it’s terrible for the pharmacy benefit managers, and pharmacy stocks.
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