Quick view: healthcare – Amazon’s next disruption target?



Alison Porter, Graeme Clark, and Richard Clode, Portfolio Managers within the Janus Henderson Global Technology Team, provide their views on the news that Amazon, JP Morgan and Berkshire Hathaway are forming an alliance with the aim of lowering healthcare costs for the companies’ employees.

Testimony to the high regard that the market has for the heads of Amazon, JP Morgan, and Berkshire Hathaway, the recent announcement of a partnership with no management team or headquarters, with a non-profit focus, has had a significant impact on not only the share prices of the three companies but also many others in the healthcare sector. So far there is little detail on what the entity will do other than try and provide technology solutions for "simplified, high quality and transparent healthcare at a reasonable cost."

It is the history and reputation of the three companies, and Amazon in particular, that has filled many with trepidation, be it investors in retail pharmacies, managed care, drug distribution, pharmacy benefit managers, and even pharmaceuticals.

Amazon’s reputation as a market disruptor

In e-commerce Amazon has disrupted retail. Its Prime membership offers faster delivery, a wider array of products, new services for sellers and better product information for consumers. Meanwhile, Amazon Web Services (AWS) began as an internal project to help Amazon manage its own internal IT requirements better. In little than over 10 years AWS has become the world’s largest public clouding platform. Estimated revenue for 2017 is over US$17bn*, providing cheap, fast storage and compute power to internet start-ups, government bodies, such as the Central Intelligence Agency (CIA) and Federal Bureau of Investigation (FBI) in the US; the National Health Service (NHS) in the UK, as well as enterprises across many sectors (Newscorp, GE, and Capital One to name but a few).

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 (AI) that can be applied to the exponential growth we are seeing in data – particularly with regards to health and well-being (eg, Apple Watch, Fitbit, DNA mapping, health checks, MapMyRun app).

A solution to rising healthcare costs needed

The US healthcare sector, which includes insurers, managed care providers, pharmacy benefit managers, distributors, and drug retailers, all sit between the providers of services and goods (drug and medical technology companies, hospitals and physicians), and consumers. In May, Berkshire Hathaway CEO, Warren Buffet at the company’s annual shareholders meeting, remarked that healthcare costs have become a bigger issue for American businesses than tax (healthcare costs have exploded from around 5% of GDP in the 1960s to over 17% in 2015, compared with corporate taxes from 4% to 2% of GDP)*. That leaves the healthcare sector a prime target for disruption. Consumers and employers are desperate for more affordable options, more consumer choice, better outcomes, as well as higher price transparency through improved procurement and distribution. 

Strong potential

The tie-up announcement made it clear that the newly-formed entity had yet to propose solutions. It will take years to form and to build upon systems and learnings from the more than 1.1m lives that the scheme will cover. This is another example of technology continuing to take share in our daily lives and how AI will be deployed across a wide range of sectors. The fact that none of the three companies are in healthcare gives them a fresh perspective and makes this entity so potentially disruptive.

The learning curve will be steep and investors will have to navigate the ‘hype cycle’ on the potential disruption. While margin pressure for the healthcare supply chain is currently premature, as is any analysis of the market size opportunity for the trio, undoubtedly Amazon, JP Morgan and Berkshire have identified a clear problem needing a solution. Amazon CEO, Jeff Bezos once said, “your margin is my opportunity” − the US healthcare system certainly qualifies for providing ample opportunity.
References made to sectors and stocks do not constitute or form part of any offer or solicitation to issue, sell, subscribe, or purchase them.
* CNBC, 2018 and New York Times, 2017

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

For promotional purposes.

Anything non-factual in nature is an opinion of the author(s), and opinions are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time due to changes in market or economic conditions. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its us.

Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Global Technology Fund (SING)

Specific risks

Risk rating

Janus Henderson Horizon Global Technology Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund's value may fall where it has concentrated exposure to a particular industry that is heavily affected by an adverse event.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

Risk rating


Important message