Amazon drops plan to become a major pharmaceutical distributor: 7 things to know

Amazon Business, the e-commerce giant's separate business-to-business marketplace, shelved its push to become a major pharmaceutical supplier to large U.S. hospitals and outpatient clinics, reports CNBC.

Here are seven things to know.

1. Amazon Business already sells a limited selection of medical supplies on its platform — ranging from sutures to band aids to hip implants — as well as industrial supplies and office supplies. However, Amazon was hoping to expand this marketplace into a one-stop shop where large hospitals could stock up on pharmaceutical products as well as medical supplies for emergency rooms, operating suites and outpatient facilities.

2. While Amazon has abandoned its plan to sell and distribute pharmaceutical products for now, the e-commerce giant hasn't completely ruled out entering the pharmaceutical distribution space. Some reports have speculated that the company will aim to become a direct-to-consumer prescription drug business in the future.

3. The change in plans is partially because Amazon has been unable to convince larger hospitals and health systems to adhere to a different purchasing process. The traditional provider-supplier relationship typically consists of loyal relationships and a few middlemen.

4. In addition, Amazon would need to build a more sophisticated logistics network to handle pharmaceutical products, according to sources familiar with the matter. Amazon's warehouse and shipping infrastructure is not equipped with cold chain technology, meaning it is not set up to store and deliver temperature-sensitive pharmaceutical products. This would be an expensive project to undertake.

5. Instead of working to become a major pharmaceutical distributor to major hospitals, the e-commerce giant will focus on beefing up its less sensitive medical supply offerings to smaller hospitals and clinics, sources familiar with the matter told CNBC.

6. With the proper licensing in 47 states and the District of Columbia, Amazon has been selling medical products like gloves, stethoscopes and sutures to medical clinics for several years. However, the e-commerce giant has struggled to sign contracts with large hospital networks, despite talking with and inviting hospital executives to its headquarters in Seattle on numerous occasions. These larger hospital networks have contracts and relationships with large distributors such as Cardinal Health and McKesson.

7. "The hospital and healthcare systems have entangling alliances with their existing purchasing and supply chain partners," Tom Cassels, head of strategy and business development at Leidos Health, a healthcare consulting firm, told CNBC.  "It's very difficult to replicate the Amazon buying experience in healthcare."

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