If CVS Health's reported $66-billion bid to acquire health insurer Aetna is approved, it could give the retail pharmacy chain an infusion of customers through Aetna's members and more leverage when it negotiates drug prices.
But beyond that, the tie-up could help prepare the two companies for what analysts believe will be the industry-rattling arrival of Amazon into the pharmacy business.
"A potential combination would diversify CVS profit streams ahead of an Amazon entry and set the stage for a new healthcare/retail delivery model," Morgan Stanley analysts wrote in a research note Friday.
Amazon has won approval for wholesale pharmacy licenses in at least 12 states, including Nevada, Arizona, North Dakota, Louisiana, Alabama, New Jersey, Michigan, Connecticut, Idaho, New Hampshire, Oregon and Tennessee, according to the St. Louis Post-Dispatch.
Amazon declined to comment but hinted the licenses were needed to sell medical devices for its Amazon Business platform.
Still, news of the e-commerce giant's potential expansion into the sector Thursday dragged down shares of pharmacy companies such as Walgreen Boots Alliance Inc. and Rite Aid Corp. into Friday.
A push into pharmaceuticals by Amazon would shake up an industry that's already going through major changes — especially for pharmacy benefit managers, companies such as Express Scripts that negotiate drug prices for insurers.
In an effort to boost efficiency and profits, insurance companies have been moving to cut ties with pharmacy benefit managers by doing the negotiating themselves. Anthem announced earlier this month that it would launch its own pharmacy benefit manager called IngenioRx. UnitedHealth Group already has its own, called Optum. CVS also operates its own pharmacy benefit manager.
CVS has had to diversify its business to counter declining revenue at its stores, which have morphed into mini-markets over the years. Retail sales accounted for 46% of CVS' total revenue last year, down from 52% in 2013, according to the Wall Street Journal, which first reported the proposed merger with Aetna on Thursday.
Aetna and CVS both declined to comment for this report, citing company policy not to address rumors.
The addition of Amazon, America's third-largest company by market capitalization at $524 billion, into healthcare could spark a scramble to protect market share, analysts say.
"If Amazon jumps in the pharmacy pool they will make a loud splash and cause major M&A in this arena over the coming months," said Daniel Ives, chief strategy officer and head of technology research for GBH Insights.
Those mergers will have to be creative, much like CVS and Aetna's proposed deal. Walgreen had to scale back its attempt to take over Rite Aid after regulators fretted over concentrating too much power into too few companies.
Ives said established companies should be wary of the so-called Amazon effect. After conquering online retail, Amazon has successfully disrupted other industries such as cloud computing, logistics and groceries. It's even setting its sights on banking.
Companies such as Wal-Mart have been on a buying binge to protect against Amazon's onslaught. The largely brick-and-mortar retailer has acquired Jet.com and smaller brands such as Bonobos, ShoeBuy and Moosejaw. It's also reportedly close to adding Lord & Taylor to its e-commerce offerings.
Scott Galloway, a professor of marketing at NYU Stern School of Business and author of "The Four: The Hidden DNA of Amazon, Apple, Facebook and Google," said bitter business rivals may even have to band together to fend off Seattle-based Amazon.
"You will see strange bedfellows," Galloway said in an email. "P&G and Unilever, Nike and Adidas are going to come to the realization that they are competitors, not enemies. Their real enemy is in Seattle.
"When German tanks rolled into Slovakia and Poland, the Russians, British and Americans found a way to get along," Galloway added. "The tanks [Amazon] have rolled in."
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