Drug suppliers' shares rise as looming Amazon threat appears to ease

(Reuters) - Shares of U.S. drug suppliers rose on Monday after a report that Inc had dropped plans to sell drugs to hospitals, in a boost to a pharmaceutical supply chain rattled by the looming threat of competition from the online retailer.

FILE PHOTO: Amazon boxes are seen stacked for delivery in the Manhattan borough of New York City, January 29, 2016. REUTERS/Mike Segar/File Photo

Stocks of drug distributors McKesson MCK.N, AmerisourceBergen ABC.N and Cardinal Health CAH.N rose 2 to 3 percent, while drugstore chains Walgreens Boots Alliance WBA.O and CVS Health CVS.N each advanced about 5 percent.

Healthcare investors expect Amazon AMZN.O will become a major force in the industry, fuelled by recent media reports that the Seattle-based company was considering entering the pharmacy business.

CNBC, which reported Amazon’s plans on Monday, said the change comes partly because the e-commerce company had not been able to convince big hospitals to change their traditional purchasing process.

The company, through its Amazon Business unit, will instead focus on selling less sensitive medical supplies to hospitals and smaller clinics, CNBC said, citing people familiar with the matter.

Amazon told Reuters it does not comment on rumours or speculation.

“After months of hype and fear it appears now that Amazon’s entry into the drug distribution space has been indefinitely delayed,” said Evercore ISI analyst Ross Muken. Amazon is likely to remain focused on selling dental and medical products, he added.

The presence of established drug suppliers, along with difficulties in distributing highly regulated treatments, likely deterred the technology giant from entering the industry, analysts said.

“Even with Amazon’s large war-chest, it is still a difficult prospect given the dynamics of the whole pharmaceutical market,” Morningstar analyst Vishnu Lekhraj said.

In January, Amazon, Berkshire Hathaway Inc BRKa.N and JPMorgan Chase & Co JPM.N unveiled plans to form a company to cut healthcare costs for hundreds of thousands of employees.

Reporting by Manas Mishra in Bengaluru; Editing by Sai Sachin Ravikumar