Walgreens courts Amerisource Bergen in the face of Amazon healthcare supplier threat

Feb. 15, 2018

The remaking of the U.S. healthcare industry is gaining speed, and some of the industry’s biggest players are racing to make sure they aren’t left behind.

No link in the long chain connecting drugmakers, distributors, and insurers to doctors and patients has been untouched by an increasingly vigorous shakeout created by the threat of new competition from Internet giant Amazon.com Inc. and a shifting regulatory landscape.

In the latest sign that companies don’t want to be left in the cold, the Wall Street Journal reported on Feb. 12 that giant drugstore retailer Walgreens Boots Alliance Inc. was in talks to take over AmerisourceBergen Corp., one of the three largest drug distributors in the U.S. Walgreens already owns 26% of the company.

Distributors like AmerisourceBergen are an often-unseen but critical part of the apparatus that gets medication into the hands of patients. In acquiring it, Walgreens could gain more control over drug prices at a time when rising costs are splintering relationships across the health business, and are in ever-greater focus in Washington.

The discussions between Walgreens and AmerisourceBergen are at an early stage and may not ultimately lead to a deal, the paper said, citing people it didn’t identify.

Looming large over the deal talks is the prospect of Amazon entering the health-supply business. Fears about such a move have gripped investors and executives for months, and have helped spur deal making and other defensive maneuvers by healthcare companies.

Amazon acquired licenses in more than a dozen states that would allow it to distribute and sell healthcare goods as a wholesaler, Bloomberg reported in October. On Feb. 13, the Wall Street Journal reported that the Internet giant had met with hospitals about potentially becoming customers of its business-to-business arm, which aims to bring the same logistical convenience to workplaces that it has to consumers.

“The Amazon bogey finally seems to be finally spreading its wings to medical supplies,” wrote Vijay Kumar, an analyst with Evercore ISI. He said the company could be a “formidable player” when it comes to selling basic hospital staples like gloves, catheters, drapes and other products.

And while the threat to retail pharmacies from Amazon is generally viewed as less imminent, it has nonetheless played a part in driving other companies into each other’s arms.

Walgreens rival CVS Health Corp. agreed last year to pay $68 billion to acquire the health insurer Aetna Inc. after both considered deals for other companies. That tie-up is expected to shorten the links between payers, patients and care providers, making it easier for Aetna policy holders to get prescriptions and visit clinics in CVS stores.

CVS already has a vast pharmacy-benefit management division, and acquiring Aetna will give it yet another degree of remove from its retailing roots, which have been challenged as consumers buy more and more drugstore staples online from sites, including Amazon.

Inefficiencies in the supply chain are an increasing focus of critics of high pharmaceutical prices. President Donald Trump’s fiscal 2019 budget, released this week, wants to reduce consumers’ out-of-pocket health costs, mostly by targeting insurers and pharmacy-benefit managers.

If Walgreens and AmerisourceBergen do reach an agreement, it would be one of the largest-ever deals for Walgreens. AmerisourceBergen has a market value of roughly $21.7 billion.

Bloomberg has the full story

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