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What would it take for Amazon to sell drugs in Pa.?One analyst says Amazon-Rite Aid merger would make sense

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When Amazon takes baby steps toward a new business venture, speculation runs rampant about how the internet behemoth might upend an industry.

It happened when the online retailer was an up-and-comer nearly a generation ago with books, movies and music. Earlier this year, the supermarket industry took notice, then action, with Amazon's purchase of Whole Foods.

The latest conjecture involves whether Amazon will become a wholesale distributor of pharmaceuticals, a highly regulated industry that would take years of federal red tape and state-by-state licensing paperwork to wade into, industry observers note.

Now that speculation includes Rite Aid Corp., based in East Pennsboro Township, Cumberland County.

Reports last week noted that Rite Aid should be an acquisition target because it would offer Amazon entry to pharmaceutical sales in nearly half the country, while bypassing much of the regulation.

A spokesperson from Rite Aid, Ashley Flower, said the company would not comment.

Lori Torgerson, an Amazon spokesperson in Seattle, responded with an email.

"We don’t comment on rumors or speculation," Torgerson said.

In the absence of such a deal, the process of entering the wholesale pharmaceutical market would be cumbersome. Prescription drug sales are regulated in all 50 states, as well as on the federal level. For example, the Pennsylvania Department of State, whose duties include licensing new businesses in the commonwealth, deals with permitting retail pharmacies.

An agency spokesperson said the department has not been contacted about Amazon or any moves it might try to make in the state involving pharmaceutical sales. The agency addressed, generally, what a company would need to do.

"If the company intends to sell as a retailer, then they would need to apply for a pharmacy permit," the statement said. "If they are an out-of-state pharmacy, then they would need to apply for a nonresident pharmacy registration."

If a company wanted to become a wholesaler or distributor, the state Department of Health would handle the process, the department added. A spokesperson for the Department of Health said she wasn’t aware of any applications or inquiries involving Amazon entering the wholesale market.

Wall Street analysts have been discussing the wisdom of Amazon entering the pharmaceutical market since earlier this year. The speculation about a Rite Aid -Amazon marriage was fueled by a Nov. 21 CNBC report that quoted an industry analyst as saying a deal would make sense.

John Blackledge, an analyst with Wall Street firm Cowen, has suggested that Amazon would benefit by getting the conduit to sell pharmaceuticals, which could then be expanded to Whole Foods and then, perhaps, online, CNBC reported.

Patricia Epple, CEO of the Pennsylvania Pharmacists Association in Harrisburg, said she has been watching the trade news and is intrigued about what might happen. But she said she wasn’t aware of any specific steps Amazon might be taking in Pennsylvania.

A national trade group for wholesale distributors, the Healthcare Distribution Alliance, based in Washington, D.C., also said through a spokesperson that it didn’t have enough information about Amazon to discuss how its entry might affect the industry.

If history offers lessons, observers can look at how Amazon changed the way consumers buy everything from music to microwaves through online orders. With Whole Foods, supermarket experts suggested that competitors will have to take notice of how Amazon weaves its online strengths into the brick-and-mortar grocery stores and determine whether they must match or counter any moves.

In fact, CVS, the retail pharmacy giant, has reportedly been an acquisition target of health-insurer Aetna. Such a deal would have similar benefits as a Rite Aid-Amazon agreement.

A company selling highly regulated pharmaceuticals online would have to monitor them from the time they are ordered to the moment they are delivered to the front doors of consumers. But the cost savings and convenience would be attractive. In the CNBC report, Blackledge said his company’s surveys show that 67 percent of Amazon Prime members would purchase prescription drugs online. If it were to buy Rite Aid, Amazon would get pharmacy licenses in 19 states, as well as six distribution centers.

In Pennsylvania, Amazon has a significant presence with a distribution center in Fairview Township, York County. And Pennsylvania officials are among the movers and shakers nationwide trying to woo the Seattle-based company as it ponders where to put a second headquarters.

The company’s website touts that its "Amazon HQ2" project will lead to a $5 billion investment and provide 50,000 high-paying jobs. More than 200 bids were offered. The company intends to make a decision next year.

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Write to the Editorial Department at editorial@cpbj.com

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