Amazon has reportedly shelved plans to sell and distribute pharmaceuticals to hospitals and health systems through its Amazon Business unit, a move which analysts said illustrates the difficulty outside companies face in disrupting the existing healthcare supply chain.
CNBC first reported the news of Amazon’s strategic shift, which had caused months of turmoil for pharmaceutical stock prices after it was reported last year the company had obtained distributor licenses in many states. Those reports were even cited as a potential reason for CVS Health’s $66 billion proposed acquisition of Aetna.
According to CNBC, Amazon found selling pharmaceuticals to hospitals and physician practices to be more challenging than expected because of the existing supply chain. Facilities with long-standing contracts with distributors such as McKesson and Cardinal Health or which are part of group purchasing organizations were reluctant to break those relationships for less-experienced Amazon, which couldn’t offer higher risk “Class III” medical devices such as pacemakers or store temperature-sensitive products.
“The hospital and healthcare systems have entangling alliances with their existing purchasing and supply chain partners,” Tom Cassels, head of strategy and business development at Leidos Health, told CNBC. “It's very difficult to replicate the Amazon buying experience in healthcare.”
Amazon wouldn’t officially comment on the rumors. According to CNBC, it will instead focus on existing sales of less sensitive supplies to smaller practices, dental offices and ambulatory surgical centers.
The retail giant could get into the space later once Amazon Business scales up or start selling prescription drugs direct to consumers. So while the fears of established drug suppliers appeared to have been overblown for now, Amazon could be a competitor in the future.
“This is not necessarily an all-clear event for the supply chain,” said Eric Coldwell, an analyst at Robert W. Baird & Co., in a note to clients. “Still, it’s a good reminder that Amazon’s supply chain ambitions might not be as big as feared or valuations indicate.”
The reports about Amazon sent pharmaceutical stocks soaring on Monday. Bloomberg reported CVS rose as much as 8.7 percent, its biggest single-day gain since December 2011. Cardinal Health shares jumped 6.4 percent and McKesson share rose 5.5 percent.
John joined TriMed in 2016, focusing on healthcare policy and regulation. After graduating from Columbia College Chicago, he worked at FM News Chicago and Rivet News Radio, and worked on the state government and politics beat for the Illinois Radio Network. Outside of work, you may find him adding to his never-ending graphic novel collection.