Amazon rocked healthcare shares yesterday with news it's forming a new venture in conjunction with JPMorgan and Berkshire Hathaway to put a check on skyrocketing costs. But what does the new venture mean for pharma?
That depends who you ask. At least a few analysts are split on whether the retail and tech giant will eventually manage to shake up the drug distribution business. Wells Fargo's David Maris, for one, wrote on Tuesday that "we continue to believe that eventually, Amazon will provide pharmacy services for this entity and others, as it has the logistical capability at a minimum."
Of course, associated challenges remain such as licencing and managing controlled substances and specialized products, Maris pointed out. But he noted that "the fact that three large, well-capitalized companies with the organizational will plan to attack rising healthcare costs and transparency is just another sign that longer-term, generics and branded pharmaceutical margins are in flux."
The team at Jefferies isn't convinced that's the case. Analyst Brian Tanquilut wrote on Tuesday that while the details on the new entity are sparse, the announcement "does not change our belief that [Amazon] is not focused on becoming a pharmaceutical retailer or a distributor. "
Jefferies previously published a report stating that Amazon is eyeing medical device and medical supply distribution. Yet the company still doesn't have pharmacy licenses and isn't a Verified Accredited Wholesale Distributor, according to analysts with the firm, which is required to distribute medicines in most states.
Some market watchers looked to personnel announcements for clues about where the new venture might be headed. Among the leadership at the new company is Marvelle Sullivan Berchtold, a JPM Managing Director and former business development executive at Novartis, according to her LinkedIn profile. For nearly four years, she served as the Swiss drugmaker's global M&A head.
Referencing the leadership announcements, Tanquilut wrote that the team's experience suggests the company's plan will be to partner with or acquire healthcare IT companies. The new entity can push "cost-reducing behavior" through those deals, he added.
Analysts have been watching Amazon's every move for months for clues about whether the online retail and tech giant will look to shake up the pharma supply chain. For its part, Amazon has stayed quiet, fueling speculation about its ambitions.
Some market watchers have said the company will partner with a PBM to enter the drug distribution market, while others see a play in the generic market as logical for the company. Leerink analyst David Larsen previously wrote that "it's a matter of when, not if" that Amazon will move into drugs.
Reacting to the news Tuesday, Leerink analyst Ana Gupte wrote that while it's "unclear if this means [Amazon] will accelerate its entry into the pharmacy supply chain … the quest for transparency, which is lacking currently in drug pricing and also in broader healthcare delivery in America, would point to a more transformative effort by the new entity."