Amazon ponders expansion into med supply distribution business

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(Bloomberg) The U.S. healthcare supply and retail industry is folding in on itself amid pressure to cut costs and defend against outsiders, and a potential deal between Walgreens Boots Alliance and AmerisourceBergen would take two major pieces off the table.

A Wall Street Journal report that the companies were in takeover talks sent AmerisourceBergen shares surging late Monday. The discussions are at an early stage and may not ultimately lead to a deal, the paper said, citing people it didn’t identify.

If the companies agree to combine, it would be only the latest such move among firms that distribute, sell or administer healthcare products and services. Last year, CVS Health agreed to pay $68 billion for insurer Aetna after both looked at other companies. More deals could follow—insurer Humana and drug plan administrator Express Scripts could be potential takeout targets, according to analysts.

The threat of or another well-funded outsider disrupting the drug supply chain has loomed over deal discussions.

The tech retail giant has acquired licenses in more than a dozen states that would allow it to distribute and sell healthcare goods as a wholesaler, Bloomberg reported in October. On Tuesday, the Wall Street Journal reported that Amazon had met with hospitals about potentially becoming customers of its business-to-business arm.

The Journal article quoted sources saying that Amazon had invited hospital executives to its Seattle headquarters on several occasions to solicit information about the sector and sound out ideas for expanding the company’s business-to-business marketplace, Amazon Business, into one where hospitals could shop to stock outpatient locations, operating suites and emergency departments.

“The Amazon bogey finally seems to be finally spreading its wings to medical supplies,” wrote Vijay Kumar, an analyst with Evercore ISI. He said the company could be a “formidable player” when it comes to selling basic hospital staples like gloves, catheters, drapes and other products.

Last year, Amazon announced Business Prime Shipping, which brings the quick delivery associated with Amazon household orders to workplaces.

Walgreens Chief Executive Officer Stefano Pessina has long talked about the need for closer ties in the healthcare sector to cut costs out of the system. After the company’s takeover of Rite Aid was sharply scaled back amid antitrust objections by U.S. authorities, he may be turning to other parts of the health system for growth.

According to the Wall Street Journal, representatives of Pessina made a high-level outreach several weeks ago to representatives for AmerisourceBergen CEO Steven Collis. Walgreens already owns 26 percent of AmerisourceBergen, an investment that has strengthened the already close ties between the drugstore chain and one of its main suppliers.

If the companies do make a deal, it would be one of the largest ever for Walgreens. AmerisourceBergen has a roughly $19.6 billion market valuation, of which Walgreens already owns about $5.1 billion.

Bloomberg News