Published: Oct 27, 2017 8:54 a.m. ET
CVS needs to step up to
competition from Amazon, analyst says
Daniel Acker/Bloomberg
MARKETS REPORTER
The
proposed merger between CVS Health Corp. and Aetna Inc. may not be a done deal
yet. But analysts are already cheering the prospects of the two healthcare
giants teaming up against increased competition, including the new threat from
Amazon.com Inc.
The
Wall Street Journal reported on Thursday that CVS CVS, +0.94% has
made a bid to buy Aetna AET, +1.34% for
more than $200 per share, which would value the health insurer at more than $66
billion.
Shares
of Aetna rallied 12% after the reports, while CVS closed 2.9% lower on
Thursday. CVS shares were 0.3% higher in premarket trade on Friday, while Aetna
rose 1.3%.
According
to the WSJ sources, the merger proposal was spurred by expectations that
Amazon AMZN, +8.80% would
enter the pharmacy business.
That
concern that was underscored on Thursday by reports Amazon has obtained approval to
become a wholesale pharmaceutical distributor in a number of states. Such
a move would likely threaten a number of industry players,
including drug wholesalers, pharmacy chains and pharmacy-benefit managers,
middlemen that negotiate drug prices.
Here’s
what analysts are saying about the prospects for a merged company:
•
“CVS clearly needs a strategic response to the onslaught of the captive
[pharmacy benefit managers] which are turning into fierce competitors from
customers...
“Amazon’s
speculated entry into the Drug Value Chain is becoming more real, with
wholesale pharmacy licenses in over 12 states and a massive threat to CVS
across the lucrative $560 billion prescription pharmaceutical market, and the
associated and already dwindling front store sales.”
“[The]
Aetna management is dealing with its own growth challenges and needs to
re-invent its business model with the likes of CVS.”
— Ana Gupte, managing director for healthcare services at Leerink
•
“We think a CVS/AET combination makes a lot of sense... Similar to formulary
management in pharmacy, this type of partnership between a retail pharmacy and
a managed care company could be the next generation of formulary management in
health care services. ER expenses are massive for managed care companies, and a
lot of non-acute cases are treated in this setting unnecessarily.”
— Mizuho Securities analysts
•
“This transaction is exactly in line with our investment thesis, and we believe
the combined company would be a behemoth in the future of consumer oriented
vertically integrated care delivery, while at the same time diversifying CVS
away from parts of its business most susceptible to competition from Amazon.”
— RBC Capital Markets analysts
•
“A CVS acquisition of Aetna should not come as a complete surprise... Given
[UnitedHealth’s] success with OptumRx — as well as intensifying or emerging
themes in health care such as consumerism, accessibility, comprehensive care
coordination, and overall cost reduction — we see the potential combination of
CVS and AET as a logical progression of the two companies’ relationship.”
— Jefferies analysts
•
“While obviously the terms of any potential deal would be key, we think the
combination would make sense, like the strategic rationale and view the
existing relationship as an attractive facilitator.”
“We
view any potential transaction as further diversifying CVS’ business,
decreasing overall company exposure to a challenging retail pharmacy
environment and positioning the company well in a healthcare environment
increasingly moving towards integrated management of both medical and pharmacy
costs.”
— SunTrust analysts
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