Report says Amazon won’t enter market to sell drugs to hospitals

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(Bloomberg)—A published report Monday that had shelved plans to sell drugs to hospitals and other businesses breathed a sigh of relief for companies such as CVS Health, along with rival drugstores and drug distributors.

The report by CNBC said little about whether Amazon would ultimately enter the broader retail prescription-drug market, but the idea that the online giant might not take on one segment of the supply chain was enough to buoy investors in pharmacies and drug distributors. Bloomberg has previously reported that Amazon’s health efforts have been mostly focused on selling basic medical supplies to physician offices and hospitals.

Shares of drug-supply-chain stocks have been in a tizzy for months over what Amazon might do to enter the pharmacy or pharmaceutical-supply business.

Amazon declined to comment on the CNBC report.

“This is not necessarily an all-clear event for the supply chain,” said Eric Coldwell, an analyst at Robert W. Baird & Co., in a note to clients. “Still, it’s a good reminder that Amazon’s supply chain ambitions might not be as big as feared or valuations indicate.”

Hospitals and doctors’ offices are an attractive target for Amazon Business, a marketplace launched in 2015 to help Amazon expand its reach into workplaces and factories by selling industrial and office products. Ownership of hospitals and doctor’s offices is highly fragmented but the businesses need many of the same supplies.

Amazon executives say that the company can pool these healthcare organizations’ buying power and share the savings, while improving distribution.

The market for hospital drugs is distinct from the retail prescription market, which is focused on generic and brand-name pills and other basic drugs bought at retail or mail-order pharmacies. Hospital drugs, by contrast, more often come in sterile injected formulations to enable nurses to administer them to sick patients.

Many hospitals already belong to group purchasing organizations that negotiate discounts on drugs and other products, and they may be reluctant to uproot established purchasing procedures, given their need to maintain timely and certain delivery of life-sustaining drugs.

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