Analyst: Amazon's Entry Into Pharmacy Sector Isn't As Lucrative As Many Assume

Many pharmacy investors are concerned that Amazon.com, Inc. AMZN could soon enter the pharmacy space by partnering with or acquiring a pharmacy benefit manager. But these concerns may be overblown, at least according to one analyst.

The Analyst

Cowen's John Blackledge.

The Thesis

If Amazon enters the pharmacy space, it will be competing in a $200 billion retail and mail market that represents 43 percent of the total U.S. pharmaceutical space, Blackledge said during CNBC's "Squawk on the Street" segment Tuesday (see his track record here).

The remaining market may be too complex given the specialty nature of drugs and reimbursements, while Amazon is also likely to avoid the hospital and clinical prescription drug sales, he said.

In other words, Amazon's potential market isn't as big as many assume, Blackledge said. In fact, when considering a handful of potential verticals for Amazon to tackle, pharmaceutical is the sixth-largest segment it can enter, he said. Cowen predicts the apparel, consumables and food/beverage/groceries segments will be 12, eight, and five times bigger, respectively, than the pharmacy business in 2020.

The demand from Amazon Prime subscribers to buy their pharmacy needs online is very much real, but at the end of the day there are bigger opportunities for Amazon to tackle elsewhere, Blackledge said. 

Price Action

Shares of Amazon ended the day Tuesday up 1.17 percent at $1,139,49. 

Related Links:

Amazon Could Partner With UnitedHealth For Pharmacy Unit By Thanksgiving

Analyst: Amazon's Entry Into Pharmacy Is All But Certain At This Point