Is Amazon stepping back from pharma?

Amazon has put its plans to sell medicines to hospitals on hold, according to US media reports

Earlier this week CNBC’s Eugene Kim and Christina Farr reported that Amazon’s plan to sell and distribute pharmaceuticals through its Amazon Business marketplace have been put aside for now.

The two report that the retail giant found it difficult to persuade large hospitals to start purchasing from Amazon instead of their existing networks, “which typically involves a number of middlemen and loyal relationships”.

Major hospital networks have long-standing contracts with existing distributors such as Cardinal Health and McKesson, and many have a stake in group purchasing organisations which negotiate on their behalf, boosting their collective bargaining power.

Citing “people familiar with the matter” as their sources, the reporters say Amazon also needs to work on its logistics process in order to deliver temperature-sensitive drugs.

Suggestions that Amazon is aiming for a direct-to-consumer medicines business remain speculation, they say.

However, Amazon may be exploring “other health care projects” including via its Alexa virtual assistant, and what CNBC calls its “secretive” Grand Challenge team, also known as “1492”.

“The hospital and health-care 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 health care.”

CNN Money reported that pharmacy stocks rose after the CNBC report, with Rite Aid and Walgreens stocks jumping by more than 6%, while CVS stocks rose by up to 7%.

Shares of the drug distributors Cardinal Health and McKesson, meanwhile, climbed up 5% after the news.

Morningstar analyst Vishnu Lekraj told CNN Money that the report was likely to have “alleviated at least an immediate threat” posed by Amazon’s interest in entering the pharmaceutical sector.

While Amazon’s OTC private label Basic Care line is now on the market, its entry into the prescription side of the sector may not be so easy, he said.

“The threat posed by Amazon wasn’t as great as … what the market believed.”

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