Amazon Should Acquire Rite Aid, Start Selling Prescription Drugs, Analyst Says

Amazon acquired Whole Foods Market for $13.7 billion just a few months ago, and now analysts are thinking about what the company should buy next. An analyst from Cowen suggested on Tuesday that the online retailer should buy the pharmacy chain Rite Aid, according to CNBC.

Cowen’s John Blackledge, said Amazon should buy Rite Aid to obtain state pharmacy licenses and add regulatory-cleared drug-selling infrastructure. The suggestion of a Rite Aid acquisition was part of a report by the analyst on why the online retailer should get into selling prescription drugs.

Blackledge said that if Amazon opened up pharmacies in Whole Foods, Prime and Prime Now, the purchase of Rite Aid would boost market share gains. He said the merge would mean Amazon's U.S. retail pharmacy business could generate about $20 billion in 2019 with 10 percent market share. With the deal, Amazon would also obtain pharmacy licenses in 19 states, adopt six distribution centers and 2,575 regulatory-cleared stores.

The analyst said:

"Our Cowen proprietary survey data suggests 67 percent of Amazon Prime members would purchase prescription drugs through Amazon if they were available [...] Depending on the pace Amazon would seek to enter the market, an acquisition such as Rite Aid could accelerate the pace and be a relatively low-risk acquisition given that it currently trades at an enterprise value of only about $5 billion."

The Amazon-Rite Aid deal could also allow consumers to get their prescription drugs in the mail, taking advantage of Prime's delivery service.

"We think Amazon could enter the pharmacy benefit manager business (PBM)," Blackledge said. "A simple case one can make for Amazon to enter the PBM space is that it can serve as its own mail pharmacy, and capitalize on Prime 2-day delivery. From there, Amazon could build out its own retail network, and find itself working with other retail pharmacy chains to participate in its retail network."

If Amazon were to acquire Rite Aid it wouldn’t be a shock, since the online retailer has been quietly looking into expanding into the health care sector. Earlier this year, it was reported that Amazon was recruiting experts to figure out how it can break into the pharmacy industry. Amazon has reportedly held at least one annual meeting at its Seattle headquarters to discuss the topic.

While the Rite Aid acquisition was only a suggestion, Wall Street took the news in well. Rite Aid shares increased nearly six percent on Tuesday after Blackledge’s report. Meanwhile, Amazon, like Apple, is poised to become a $1 trillion dollar company in 2018, Morgan Stanley analysts said this month.

The suggested acquisition comes after Amazon announced in June its $13.7 billion Whole Foods acquisition, and took over the supermarket company in August. The online retailer offered a $42 per share price. With the acquisition of Whole Foods, Amazon’s net sales in the third quarter 2017 increased 34 percent, compared to Q3 2016.