Amazon.com has been one of the most innovative and disorganized companies of this century, with incredible success in areas beyond historically considered its core business (book sales).
Thus every ad or speculation Amazon AMZN,
Whoever enters a particular industry sends the shares of that industry into the tailspin. Investors sell first and ask questions later. For example, when Amazon announced its purchase of Whole Foods, rival grocery store shares fell as much as 30%. Also Tesco TSCO,
, Separated from the sea by whole foods, it was down on the news.
Much of Amazon’s success has come from not being taken seriously by its competition. Amazon was able to build a big lead in AWS (Amazon Web Services) because of the competition (GGGL,
And MicroS MS FT MSFT,
) Not given enough respect to Amazon. The contestants thought, “What does a book seller know about the cloud?” Well, according to Amazon CEO Jeff Bezos, such thinking gave Amazon a much bigger lead than its competitors. Today, everyone takes Amazon seriously. Indeed, the fear of the Amazon is reaching the level of peronoia.
McCason MCK,
For example, Amazon U.S. stocks fell on speculation that stocks took a 20% dive in the fourth quarter of 2017. As a shareholder in MKCason, My Pay took this speculation seriously, but after further investigation it became clear that such concerns were suppressed. Shares of McKesson recovered after the market cooled by fourth-quarter concerns about Amazon.
Then in January 2018, Amazon, JPMorgan Chase JPM,
, And Berkshire Hathaway BRKA,
BRK.B,
Announced that they Will join forces to reduce health care costs, criticizing health-care sector stocks, including McKesson.
Earlier this week, Amazon.com announced the pharma online pharmacy offering fur. How big a punch can this be?
Read: How bad is Amazon Pharmacy for CVS and Walgreens?
McKesson is the largest distributor of pharmaceuticals in the US with sales of over 5 235 billion by 2020. It is important to point out that McCasan is not a pharmacy, but a distributor, so it does not compete with Amazon in selling drugs. That U.S. McCason is one of the three railroads for drugs in, distributing the drug to thousands of independent pharmacies, as well as giants such as CVS Health CVS.
, Religious Aid RAD,
And Walmart WMT,
. McKesson operates two distribution businesses: Branded and Generics. Although these businesses look similar on the surface, the economic models of branded and general industries are quite different.
In the distribution of branded drugs (approximately 70% of McKesson’s revenue and 30% of profits) McCasson has a fee model for service. Pharmaceutical companies want to get involved in high-value activities: primarily, the discovery and manufacture of drugs. Taking medicines to thousands of pharmacies on time and collecting accounts for procurement is not the business they want to be in. They have no knowledge of the scale and distribution of McCasan, Cardinal Health CAH.
, And Emersourceburg ABC,
– The U.S. Controls 0% of drug distribution en masse. Thus, like Pfizer and Bristol-Meyers Squibb, drug distributors negotiate prices for “service fees”, and pharmaceutical companies (not distributors) negotiate prices with pharmacies.
More than 90% of McKesson’s profits in this segment run by volume, while only 10% is linked to a change in drug prices. Pfizer PFE,
, For example, despite its power, it will still cost more distribution than McKesson because it does not have McCason’s scale and does not focus on distribution efficiency. So Pfizer is happy to pay the service fee to McKesson and not to think about drug delivery.
In its general drug distribution business (about 30% sales, 70% earnings), Maxison uses its enormous purchasing power to buy drugs at lower prices from generic manufacturers and to sell them at higher prices in pharmacies. It can produce the same drug from different manufacturers, so it offers better prices than the choice of Mylan VTRS,
And teva Pharmaceutical Industries TEVA,
. Drug distributors are a significant deflationary force in general prices – good for consumers, not great for Teva or Mylan.
McKesson therefore has a huge defensive rock, including the obvious possibility that Amazon’s venture into drug distribution could lead to pathetic failure. Here’s why:
1. Amazon doesn’t match McCason’s purchasing power or negotiating power when it comes to generics. Pharmaceuticals’ current Amazon sales are slightly below zero and somewhere between zero. McCasson’s sales are pushing for 23 235 billion, about a third of which comes from generics.
Walmart is the fourth largest pharmacy in the U.S., with sales of 20 billion. He distributed the drugs, but in 2016 he signed a distribution deal with McKesson. Vartmart realized that he could get a better price for Jenners through McKesson. Amazon, with almost zero sales, can’t stand a chance.
2. Amazon has no structural advantage. In the fight against Barnes and Noble and Best by BBY,
, Amazon may charge lower prices than brick-and-mortar retailers because it has a structural advantage – it does not own the stores and all the additional costs associated with it. On one of his conference calls, McCasan CEO John Hammergren said that Amazon was his company Amazon before Amazon. Really. McKesson has a highly specialized warehouse designed to distribute drugs. He can get any medicine in any pharmacy in the US within hours.
Mc. McKesson’s practice margin is only 1.3%. If Amazon is looking to reduce fat in the pharmaceutical industry, it doesn’t have to be fat.
Drugs. Distributing and selling drugs is not like selling or distributing anything else. First, some drugs require refrigeration and others contain controlled substances. Distributing them puts additional regulatory (and self-policing) burden on the distributor. McCasan has been fined and has recently received a lot of negative publicity from “60 Minutes” for distributing opioid pain drugs in legal pharmacies that sell the drug illegally on the black market.
Second, unlike almost any other industry, pharma consumers are price sensitive. If you’re on a Medicare, Medicaid, or Kopay / low deductible private insurance plan, you don’t really care if you pay the lowest price because you don’t see the price (except Kopay). U.S. For this group of drug consumers who make up a large part of the population, there is no incentive to change the low price of the drug.
In addition, let’s say that Amazon starts an online pharmacy and self-distributes. Internet-savvy millennials do not consume most drugs in the US, their parents and grandparents do. This demographic subject still has a habit of brick and mortar which is unlikely to break down anytime soon. Also, major pharmacies already have mail-order orders. It would make sense for Amazon to try to enter the nearly trillion-dollar pharma business, but its success here will be limited, and it will take decades to gain a meaningful market share.
5. Assume that Amazon opens a pharma online pharmacy and succeeds. Let’s say it will take five to 10 years to reach વેચાણ 10 billion (half of Walmart’s current drug sales). Let’s assume that Amazon self-distributes and will not use McKesson, or that it decides to hire Cardinal Health Services. This will steal less than a year of current growth from McKesson, in five to 10 years.
“
The laws of economics still apply – even on Amazon.
”
Simply put, the laws of economics still apply – even on Amazon. Drug dealers are economically strong and have tremendous advantages in scale and purchasing power. Distributors’ stocks may take a dive but in the long run their business will be good. The only competitive advantage Amazon has over drug dealers is that Wall Street completely ignores its profitability and only focuses on revenue growth.
McCason is one of the most interesting investments in the US stock market. His business is future proof. Demand for this specialty has grown significantly as a result of recent corporate scandals. Their growth is likely to increase as the population ages. Higher or lower interest rates, recession or no recession, inflation or depreciation, McCasson’s earning power will no longer move forward.
McKesson has a fixed balance sheet of Rs. He can pay off his debt in less than two years. McKesson pays less dividends than his competitors, but he has bought a third of his shares in the last decade. Expected earnings per share of about ડ 15 this year, with very modest earnings growth expectations, could rise to ડ 20 in 2024. At a time when earning 15 times the fixed amount, the cost of a McKesson is at least 300 300.
How does one invest in this super-expensive market? Our strategy is described in this fairly long article.
Vitaly Kutsenelson is chief investment officer at Investment Management Associates in Denver, holding positions at McKesson, Cardinal Health and Emerisoursbergen.
More: Amazon will launch a pharma online pharmacy store with discounts for Prime members
Plus: Amazon pharmacy poses risk oses but CVS can be to the challenge
.
