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Pharma is right to be scared of Amazon and Buffett

Fund manager Alison Porter says the 'trepidation' from healthcare companies at Amazon and Warren Buffett's move onto their turf is justified.

Pharma is right to be scared of Amazon and Buffett

Veteran investor Warren Buffett has teamed up with Amazon to take on the US healthcare system, leaving investors to navigate a sector that could be widely disrupted.

Buffett, founder of Berkshire Hathaway, Amazon’s Jeff Bezos, and JPMorgan’s Jamie Dimon announced a new not-for-profit venture in the healthcare sector.

The details are scarce but they said it will focus on technology for ‘simplified, high-quality, and transparent healthcare at a reasonable cost’ for their combined 500,000 employees. Healthcare experts have already predicted the new venture, which has no management team or headquarters at present, could go on to deal directly with drug manufacturers and hospitals to reduce costs for patients.

Shares in healthcare and pharmaceutical companies fell on the news. Alison Porter, manager of the Janus Henderson Global Technology fund, said the market reaction showed the ‘high regard’ the market has for the three chief executives.

‘It is the history of these companies that has filled... pharma with trepidation,’ she said.

‘The fact that none of these companies are healthcare companies gives them a fresh perspective and makes this entity potentially so disruptive,’ said Porter.

It is clear the trio has identified a problem in the need for more affordable healthcare in the US and are used to finding solutions to problems.

Amazon disrupted retail, forcing faster delivery and a wider array of products and Porter said the ‘parallels have not been lost on the market’.

‘Amazon has capabilities in logistics, procurement and in cloud services, as well as its growing skill set in artificial intelligence that can be applied to the exponential growth we are seeing in data - particularly relating to our health and well-being,’ she said.

‘The US healthcare sector has many layers, from insurers, managed care, pharmacy benefit managers, distributors, and drug retailers who all sit in between the providers of services and goods and consumers.’

Buffett (pictured) has already made his concerns about the US healthcare sector clear, pointing our that it has become a bigger cost for US businesses, increasing from 5% of GDP to 17% since the 1960s.

‘That leaves healthcare ripe for disruption with consumers and employers with a high appetite for more affordable options, better consumer choice, better outcomes, and higher price transparency through better procurement and distribution,’ said Porter.

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Alison Porter
Alison Porter Average Total Return:
15/24 in Equity - Technology (Performance over 3 years)

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