Health and Science

Barriers to entering the pharmaceutical industry are too high even for Amazon: Billionaire investor

Key Points
  • Larry Robbins says although Amazon will likely try to enter the market, the odds are stacked against the company.
  • In addition, he says the delivery model is not the reason for rising health-care costs.
  • Robbins is bullish on several health-care companies.
Top hedge fund manager's best stock picking ideas
Top hedge fund manager's best stock picking ideas

Barriers into the pharmaceutical business might be too high even for Amazon, said billionaire hedge-fund manager Larry Robbins.

Last fall, a report surfaced that the e-commerce giant had obtained wholesale pharmacy licenses in multiple states in an attempt to enter the pharmaceutical market and decrease rising health-care costs.

While Robbins acknowledged Amazon will likely try in some form to enter the market, the odds are stacked against the company.

"You need separate custody, pick, pack, and ship facilities around the United States," Robbins told CNBC's David Faber during the Sohn Conference in New York on Monday. "You can't commingle opioids or narcotics with other general merchandise goods. You need cold storage through the entire chain. Plus, you need to connect all the suppliers with all the customers. The customers aren't necessarily Amazon's consumers, but the customers are places where pharmacy actually happens."

Health-care costs are rising not because of the delivery model, Robbins added, but rather because the U.S. population is aging and because the U.S. is a "compassionate nation."

"We spend a lot in end-of-life care," he said. "I don't think any of those companies or any of us are going to change those facts and circumstances."

Robbins, who is the CEO and founder of Glenview Capital Management, a firm that has more than $16 billion in assets under management, pointed out that UPS tried unsuccessfully to enter the pharmaceutical distribution business in 2006.

Most of the 4 billion prescriptions dispensed in the U.S. each year are filled at one of 60,000 retail pharmacy locations.

In January, a report from the financial research firm Leerink said Amazon had expanded its team exploring entry into the pharmaceutical business to as many as 40 people.

Then earlier this month Amazon Business, which sells in bulk to businesses, put the brakes on its plan to sell and distribute pharmaceutical products after it failed to persuade big hospitals to alter the way they purchase supplies. Typically, hospitals buy supplies in bulk through a series of middlemen and long-standing relationships.

And nothing beats an in-person pharmacist, Robbins said.

"Unlike many businesses that Amazon has appropriately automated, there's always going to be a human pharmacist that has a role both regulatorily as well as consumer preference because we're dealing with life-saving medical issues," he said.

However, Robbins remains bullish on health-care stocks and made his pitch for companies to watch. His picks include the Express Scripts-Cigna and CVS-Aetna mergers and McKesson.

"In this market where everyone keeps telling us where the market's so expensive, everything's picked over, we've now talked about five or six or seven stocks that all seem to be trading around 10 times earnings," he said.