Health firms should prepare for Amazon move, says J&J chief

Johnson & Johnson’s CEO Alex Gorsky says he would welcome the disruptive influence of Amazon should it decide to move into healthcare.

The online shopping giant last year acquired grocer Whole Foods for $13.7 billion, sparking speculation that it might use the company’s outlets to sell prescription medicines purchased on the internet.

Speculation is already mounting that Amazon will make further acquisitions in 2018, with discount retailer Target cited by analysts as the most likely buy.

There are also suggestions that Amazon could move into healthcare by becoming a pharmacy benefit manager (PBM), running formularies on behalf of US health insurers and competing with the likes of Express Scripts, CVS and OptumRx, which cover around 80% of insured Americans between them.

PBMs negotiate with drug companies and receive favourable prices and a cash rebate from manufacturers in exchange for placing a drug on the formulary.

Gorsky said Johnson & Johnson already has a good partnership with Amazon for selling consumer drugs, along with many of the other big pharmacy chains.

But he urged the whole healthcare sector to prepare for the potential impact of a serious move from Amazon, or any other company with the ability to challenge and disrupt the market.

Gorsky told CNBC’s Meg Tirrell at the JP Morgan healthcare conference in San Francisco: “What I would encourage almost anybody, whether it be in pharma, medical device, OTC, we should all be acting like Amazon is getting into our business.”

“Frankly we have got to create a crisis, we have to make sure we are always competitive, we are always thinking about how we can be more effective, how can we be more efficient.”

“We are thinking that way across all of our different businesses. If it leads to better customer satisfaction, if leads to greater transparency for example on pricing, if it leads to better outcomes for patients, of course we welcome it.”

Gorsky said would not comment on whether J&J was in conversations with Amazon about partnerships or acquisitions.

He said: “I won’t go down that road right now, but I think that having healthy competition can be a positive thing but we always have the patient, the consumer in mind.”

Gorsky said president Trump’s reduction of taxes on revenue repatriation will not make a big difference to the company’s acquisition strategy – even though it has around $15 billion that could be brought back into the US.

Instead Gorsky said that M&A “will be driven by science.”

“Right here at this conference [JP Morgan] we have been able to see new technology, see new early science that we have ultimately been able to bring to the market and make a big difference for patients.”

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