As e-commerce and cloud computing behemoth Amazon.com Inc. (AMZN) pushes into new markets ranging from smart homes to delivery, grocery and health care, the retailer has reportedly taken a step back in its pursuit of the pharmacy space. On Monday, CNBC broke news that the Seattle-based retailer had put an end to an initiative to sell and distribute pharmaceutical products through Amazon Business, its marketplace for business customers. (See also: Health Insurance: New Front in Walmart Vs. Amazon?)
Anonymous insiders cited by CNBC suggest that the effort was halted due to a couple of reasons weighing on the tech titan, including the challenge of selling in bulk to large hospitals and of building a logistics network to handle the demands of pharma delivery. People familiar with the matter suggested that Amazon has instead focused on selling less-sensitive medical supplies to hospitals and smaller clinics, and has faced more roadblocks than expected in doing so.
CNBC reported that AMZN has had trouble swaying large hospitals away from their traditional purchasing process, which typically involves a handful or so of middlemen and loyal relationships. The firm would also need to invest in a logistics network that would account for temperature-sensitive pharma products, according to the report.
Good for Them, Bad for Amazon
Pharma giants shouldn’t celebrate right away, however, as the deep pocketed FAANG stock component could enter the market via a different avenue. The tech giant maintains multiple teams that are working on its health care push, including its artificial intelligence (AI) unit Alexa and its secretive Grand Challenge team, often referred to as 1492. Many speculate that the company will add a direct-to-consumer prescription drug service, while others see potential for Amazon Business to revamp the initiative once it gains more scale.
Nonetheless, the setback reflects the complexities and barriers to entry facing the medical supply and pharmaceutical industries, even for a cash-rich, far-seeing company like Amazon. The retail behemoth, which entered the brick-and-mortar space with its $13.7 billion acquisition of Whole Foods Markets last year, has shown it is willing to shell out in new markets, even risking short-term losses for the prospect of a long-term revenue boost. Its investors have been patient with Amazon and its CEO), Jeff Bezos, as the red-hot stock has returned 23% to shareholders year-to-date (YTD) and 430% over the most recent five years, compared to the broader S&P 500‘s near-flat return and 70% gain over the same respective periods.
With the immediate threat of Amazon disruption out of sight for the meantime, shares of pharmacies and drug distributors such as CVS Health Corp. (CVS), Walgreens Boots Alliance Inc. (WBA) Cardinal Health Inc. (CAH) and McKesson Corp. (MCK) have all jumped on the news. (See also: Amazon Launches Its Own Line of OTC Drugs.)