Amazon has shelved plans to sell and distribute pharmaceutical products through Amazon Business, sources told CNBC.
Amazon Business, which sells bulk items to business customers, is instead focusing on selling less sensitive medical supplies to hospitals and smaller clinics. Amazon is also continuing to explore healthcare projects through Alexa and its Grand Challenge team.
While Amazon hasn't abandoned the idea of getting into the pharmaceutical distribution space eventually, it encountered two main entry barriers.
1. Amazon hasn't been able to land contracts with big hospitals.
Despite convening an advisory board comprised of hospital executives, Amazon is struggling to get hospitals to change their purchasing processes. This is in part because hospitals have loyal relationships and longstanding contracts with distributors, such as Cardinal Health and McKesson. Hospitals are also hesitant to switch to Amazon because the company doesn't sell high-risk "Class III" devices.
Because of these barriers, settings such as dental offices, freestanding ASCs and small physician practices seem to be the most promising entry points for Amazon Business, for now. Several physicians CNBC interviewed from those spaces said they're turning to Amazon for some items or in emergencies because of the convenience and affordability. However, they're still maintaining existing distributor relationships.
"Amazon Business serves healthcare customers of all sizes, from large IDNs [integrated delivery networks, meaning systems that provide both medical services and a health insurance plan to patients] to small- and medium-sized community hospitals. We also serve customers from physician and dental offices to senior living and long-term care facilities," Amazon told CNBC.
2. Amazon lacks a warehouse and logistics infrastructure advanced enough to handle the storage and distribution of temperature-sensitive pharmaceuticals.
Biopharma products often must be stored and shipped in carefully controlled environments, like ice-cold warehouses for certain products with insulation. Some Amazon sellers with temperature-sensitive products go through a customized delivery process because Amazon currently doesn't have this type of "Cold Chain" infrastructure they require, and it would be expensive to develop.
"You can't use FedEx or UPS trucks for delivery of these products," an anonymous healthcare product seller on Amazon told CNBC. "It would be a massive undertaking [to build the infrastructure]."