Amazon has shelved plans to become a wholesale distributor of prescription drugs due to the cost and complexity, CNBC reported.
The news lit a fire under shares of beaten-down drug retailers and distributors. CVS Health (CVS) shot up 4.2% and Walgreens Boots Alliance (WBA) jumped 3.8% on the stock market today. Both were off session highs.
Among drug distributors, McKesson (MCK) rose 3.5%, AmerisourceBergen (ABC) 2.25% and Cardinal Health (CAH) 3.1%.
Amazon shares didn’t react negatively to the news, rising 0.75% on Monday.
The report seemed to have the most direct connection to the trio of major drug distributors that handle logistics for major drug manufacturers, a big revenue but low-margin business. Complexity, such as handling temperature-sensitive products, and the lack of interest among hospitals in switching purchasing relationships, will keep Amazon out of the business.
Investors seemed to interpret the move as decreasing the likelihood that Amazon will enter the retail prescription business, giving a boost to CVS and Walgreens. If so, then Amazon investors apparently don’t think the internet retail giant needs prescription drugs to win over and keep customer loyalty.
Amazon could still enter the prescription business, such as via an acquisition of Walgreens. Or it could start small with just online pharmacy.
Walmart Mulls Health Care Moves
Meanwhile, Walmart appears to be increasingly focused on health care and pharmacy as a key to boost sales and loyalty. Walmart is reportedly in talks to merge or deepen its partnership with Humana (HUM), whose managed care businesses is focused on the Medicare population.
Shares of Walmart climbed about 1%, but didn’t see much of an uptick after the Amazon news broke.
Cigna (CI), the managed care provider that is buying pharmacy benefit manager Express Scripts (ESRX), rose 2%.
Shares of UnitedHealth (UNH), the largest managed care provider, rose 2.7%. UnitedHealth reports before the open on Tuesday.