Amazon's potential leap into pharmaceuticals has weighed on drug distributors and pharmacies for months, but those companies are getting relief from news that the online retail giant has put at least one of its plans on ice.
CNBC reported that Amazon Business—a unit that sells bulk products to companies—hasn't been able to convince hospitals to get on board with its plan. One reason: The company doesn't have a proper cold-chain logistics network, which is crucial to distributing many drugs, according to CNBC's sources. Amazon has now backed away from the effort, the publication reported.
This doesn't mean drug suppliers should rest easy, however. The company is pressing ahead with other healthcare projects, though it's unknown whether they involve pharmaceutical sales. Among those are programs underway with Alexa and at the "1492" team, according to CNBC.
In a note to clients Monday, Wells Fargo analyst David Maris wrote that while the "report may suggest Amazon Business has shelved its drug distribution plan for the time being, we strongly suggest investors continue to pay close attention to Amazon’s actions in this arena."
"Amazon has a history of disrupting even previously entrenched industries and business methods and its entry does not usually spell increased profit margins for its competitors," he wrote in the note.
Still, shares of drug distribution and pharmacy companies, such as CVS Health, McKesson, Cardinal Health, jumped on the news.
Meanwhile, the pharma distribution business has been undergoing significant change even without an Amazon move into the sector. UnitedHealth and Aetna recently pledged to provide drug rebates to certain members, addressing a longstanding complaint by pharma that patients aren't benefiting from tough pricing negotiations.
And last month, leading independent pharmacy benefit manager Express Scripts agreed to sell itself to Cigna in a $52 billion deal. With that acquisition, the top three PBMs by market share will be tied to insurers. At the time, Paula Wade, a principal analyst at Decision Resources Group, told FiercePharma the buyout was "part of a realignment of the whole industry in response to the frustration" over drug pricing. CVS and Aetna are also merging in a $69 billion deal, tying CVS' PBM Caremark with the insurer.
Apart from those moves, Amazon itself made a headline-catching announcement in January with its decision to partner with JP Morgan and Berkshire Hathaway to try and curb growing healthcare costs, though details about the approach remain unknown.