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Analyst: Why Diplomat Could Be Amazon's Ticket Into The Pharma Space

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Analyst: Why Diplomat Could Be Amazon's Ticket Into The Pharma Space
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Amazon.com, Inc. (NASDAQ: AMZN) confirmed its interest in the health care space earlier this year when it announced a health care partnership with J.P. Morgan Chase & Co. (NYSE: JPM) and Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B).

The M&A environment in the health care space has been heating up in anticipation of Amazon’s presence. Amazon could be among the buyers if it chooses to make a big splash in the pharmacy benefit manager market by acquiring Diplomat Pharmacy, Inc. (NYSE: DPLO), said Height Capital Markets analyst Andrea Harris. 

“In December, we wrote that the political and market headwinds facing pharmacy benefit managers make them attractive M&A targets, and that vertical integration among health care companies — driven by failed managed care mergers and propelled by corporate tax cuts — would lead standalone PBMs to combine with other parts of the health care delivery chain,” Harris said in a Tuesday note. 

At the time, Height identified Diplomat and Express Scripts Holding Company (NASDAQ: ESRX) as the two most likely buyout targets. CIGNA Corporation (NYSE: CI) recently announced a buyout bid for Express, which leaves Diplomat as the most strategic PMB buyout option, Harris said. 

“While a managed care organization or retail pharmacy would be the most straightforward potential purchaser, we have our eyes on serial disruptor Amazon,” the analyst said. 

If Amazon declines to pull the trigger on Diplomat, Harris said Humana Inc (NYSE: HUM) and Centene Corp (NYSE: CNC) would likely see Diplomat as an attractive buyout target.

Diplomat stock appears to be benefiting from the rumors: shares are up roughly 50 percent in the past year.

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