Amazon Health Foray More Bark Than Bite for Now: Street Wrap

(Bloomberg) -- Health-care stocks from Express Scripts Holding Co. to CVS Health Corp. were roiled by news that Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. were entering the space to aid their workers and cut costs. The “Amazon boogie-man” hit pharmacy benefit managers and insurers the hardest as the news spoiled investor sentiment. However, the group’s decision is “more bark than bite at this point,” Cantor Fitzgerald analyst Steven Halper wrote in a note.

Piper Jaffray health services analyst, Sarah James

• Views the partnership as "noise," adding that today’s selloff is a buying opportunity for "high quality leaders" such as UNH and ANTM
• "Many have tried, but few have succeeded," she wrote. "We do not expect this JV to be a meaningful disruptor to the industry, despite the stock reaction indicating that it is."
• Says insurance is a complex industry with high barriers to entry and nuanced expertise required, noting that Berkshire has a history as a long-time Aetna supporter
• Says health-care IT already offers some solutions for bending the U.S. cost curve, adding that it would be difficult for a purely technology-based company to compete against the size and cost-savings capabilities from the likes of UNH

Cantor Fitzgerald health services analyst, Steven Halper

• “Too early to cede victory,” but does not want to discount the clout the companies bring to the table
• Sees group’s effort as “more bark than bite at this point”
• Partnership fully supports thesis that employers, providers and health plans will have to embrace consumer engagement technology

RBC Capital Markets health services analyst, George Hill

• “If this was the Amazon announcement drug supply chain investors have been fearing since early 2017, consider us relieved”
• Notes the group is not the first to “work together to rein in healthcare costs”
• Move plays well, validates CVS Health-Aetna vertical integration investment thesis

BMO Capital Markets managed care analyst, Matt Borsch

• Announcement is “tailor-made” to spoil strong investor sentiment toward managed care in the near-term
• Inferred targeting of managed care likely driven by description of the company as “free from profit-making incentives and constraints” since managed care industry is more than 50% for-profit
• Sees investor reaction depending on further detail and shaping of market opinion surrounding the new initiative

Leerink health IT and distribution analyst, David Larsen

• News is consistent with expectations Amazon’s health-care efforts are “heating up”
• Project will take years to build, though a lack of clarity and uncertainty will create fear and pressure CVS, Walgreens Boots Alliance, and other supply chain stocks today
• Comments from Warren Buffett, Jeff Bezos and Jamie Dimon all highlight the complex nature of the industry

Oppenheimer health IT and distribution analyst, Mohan Naidu

• "This is the beginning of a new type of offering for the consortium of employers to bypass well-established healthcare entities and adopt a disruptive offering," he said, projecting that this will likely accelerate M&A within health care
• Says PBMs are likely to be significantly affected, followed by dispensaries and supply chain names
• Says partnership unlikely to have any influence in 2018 or even 2019

Wells Fargo specialty pharmaceuticals analyst, David Maris

• The fact that three large, well-capitalized companies will plan to attack rising health-care costs and transparency "is just another sign that longer-term, generics and branded pharmaceutical margins are in flux"
• Generic margins could stay under pressure in a more transparent environment, but branded drugs might even see a benefit if rebating is reduced or eliminated, with savings going to both the patient and manufacturer

Loop Capital Markets analyst covering Amazon, Anthony Chukumba

• Not surprised by today’s announcement, as health-care is a large and growing industry with relatively high profit margins: "just the type of sector Amazon typically targets"
• Reminds investors of one of Bezos’s favorite sayings: "Your margin is my opportunity."
• Finds it noteworthy neither of Amazon’s partners are currently in the health-care industry but given their resources and expertise, he’s optimistic about the partnership’s chances of long-term success

Cowen health care team, led by Charles Rhyee

• Distributors are least affected, PBMs and drug retailers are possibly at some risk, while health care technology is “probably a mixed bag”
• Sell-off in the managed care sector is an over-reaction given historical challenges
• New entity doesn’t appear to break any new ground, should work within the existing system vs creating one from scratch

Related stories from today

• Cigna Most Exposed to Amazon-Led Health Effort, Analysts Say
• JPMorgan May Help Amazon Health JV Smooth Payments: Barclays
• Aetna CEO ‘Encouraged’ By Amazon-Led Effort in Health Care

©2018 Bloomberg L.P.