Amazon in the USA has been growing its medical supply business - selling gloves, syringes and other health-care sundries to dentists, doctors and hospitals - in an early sign of its efforts to enter the health care industry. But Reuters reports that Henry Schein Inc and Patterson Cos Inc have bigger things to worry about than Amazon potentially disrupting the niche dental-equipment market they dominate in the US.
Stocks for companies that distribute medical supplies tumbled after the Wall Street Journal reported that Amazon has been holding meetings with hospital executives to learn more about the needs of the industry. Brian Tanquilut, an equity analyst at the investment firm Jefferies, said Amazon's play to sell commodity medical supplies, such as medical gowns and masks, has been going on for some time. It is seen as a good entry point to health care because it doesn't involve complex regulatory approvals; many states don't require a license at all. Amazon has been particularly aggressive, he said, in courting dentists, setting up booths at dental conferences.
"They see health care as a very big market; it's one of the growth markets in the economy that they do not have a toehold in. They look at areas where it's relatively easy to get into without high-level government level scrutiny, and this is kind of the low-hanging fruit, in health care entry," Tanquilut said.
Legal hurdles, not Amazon, key concern for U.S. dental supply firms, says Reuters. Their stocks, as well as those of other U.S. drug and medical equipment suppliers, have taken a beating in the past year as speculation over Amazon expanding its considerable reach gained momentum.
But investors and analysts told Reuters that the larger overhang on the two dental suppliers, and privately held Benco Dental Supply, is a recent complaint filed against them by the U.S. Federal Trade Commission. The complaint alleges that the three companies broke antitrust law by conspiring to refuse discounts to dentists. The administrative trial is scheduled to begin on Oct. 16.
The trial could last years, and even a quick settlement could force the companies to ramp up discounts to customers and in turn pressure their margins, investors and analysts said. “I think for now I would avoid investing in that particular industry, and kind of keep a careful watch,” said Michael Arone, chief investment strategist at State Street Global Advisors, which owns shares in Henry Schein and Patterson.