Will Amazon.com, Inc. (AMZN) succeed in the pharmaceutical business? Research firm Morgan Stanley has a new note out analyzing the Seattle-based company's prospects in the pharma industry. The firm estimated that the pharmaceutical business in the U.S. was worth $465 billion, with mail order prescriptions accounting for $106 billion of that total. According to Morgan Stanley, Amazon's revenue would increase by 20 percent if it were to get a share of the market. In its note, the firm has outlined two things that Amazon needs to do to gain a foothold in the market. (See also: Amazon to Make Key Hire for Pharmacy Push.)

First, Amazon should strike a contract with an established pharmacy benefit manager (PBM) or create a new PBM to deliver mail order prescriptions to customers. The PBM market is dominated by established players, such as Express Scripts Holding Company (ESRX) and CVS Health Corporation (CVS), which are hardly likely to cede their position to Amazon. The Morgan Stanley report is also not enthusiastic about Amazon's moves so far. "The press has reported that Amazon hired an executive from Premera Blue Cross to explore the PBM model," the report's authors write. "But we see little fit for the pharmacy benefit management service offering with Amazon's." (See also: What Is the Pharmacy Benefit Management Industry?)  

Second, Amazon would need to be increase its physical retail presence to cater to patients. This is because there is a growing industry trend toward patients picking up their prescriptions. Amazon has been slow on the uptake as far as increasing its physical presence is concerned. That said, the company's moves into developing its own logistics system should help it. This is because medical shipments require their own temperature-controlled systems and complicated billing systems. (See also: Unwrapping Amazon's Logistics Moves.)

To be sure, Amazon's entry into the pharmacy space may have come at an opportune moment. Express Script's stock was battered last year when Anthem, Inc. (ANTM​), a leading insurer, demanded renegotiation and more transparency in its contract. The Health Transformation Alliance, a consortium of 30 leading employers, is already pressuring PBMs to bring more transparency into contracts or face the consequences. According to a report in business publication Barron's last year, the coalition wants PBMs to eliminate drug-price markups and simply charge administrative fees. (See also: Pharmacy Benefit Managers and Insulin Makers Face Price Scheme Lawsuit.)