We believe the moaty nature of the pharmaceutical supply chain and the formidable competitive advantages that have insulated its major players could be underappreciated. Potential new competitors would face significant headwinds trying to break into any vertical along the chain, because the dynamics of the drug market are very difficult to navigate.
Speculation that Amazon (AMZN) will disrupt the space by leveraging its impressive capital war chest and customer-servicing expertise has caused valuations of pharmacy benefit managers, or PBMs, and drug wholesalers to fall. However, unlike other markets, which rely on demand/supply cycles, the healthcare industry is driven by a reimbursed compensation system predicated on risk-based insurance underwriting.
Vishnu Lekraj does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.