Amazon buys online pharmacy PillPack

Marcus Newton
June 30, 2018

The move represents a formidable threat to pharmacy chains including Walgreens Boots Alliance Inc.

A customer walks out of a Walgreens pharmacy store in Austin, TX, U.S., March 26, 2018. Walgreens also announced a 10% dividend hike to 44 cents a share per quarter.

Financial terms of the deal were not disclosed, but sources cited by TechCrunch peg the price at just under $1 billion.

The transaction is expected to close during the second half of 2018.

The U.S. market for prescription medicine is vast. In 2016, US consumers spent $328.6 billion on retail prescription drugs, according to the USA government. Every year, Americans order 4 billion prescriptions and spend more than $360 billion on medication.

PillPack holds pharmacy licenses in all 50 states. Shares of Cardinal Health, AmerisourceBergen, McKesson, and Express Scripts all dropped more than 3% on the news. Meanwhile, Amazon's market cap rose $5.5B.

Halper doesn't expect the deal to have a material impact on managed-care stocks. That eliminates much of the manual work that pharmacists often are saddled with now.

"PillPack's visionary team has a combination of deep pharmacy experience and a focus on technology", says Jeff Wilke, Amazon CEO Worldwide Consumer. PillPack has also developed expertise in battling with payers and pharmacy benefit managers to have its services covered, and Amazon will bring new clout to those negotiations.

Walgreen CEO Stefano Pessina, on a conference call after reporting quarterly results, said he was "not particularly worried" about the PillPack deal.

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That is because with one move, Amazon answered the question about when - and how - it would grab a piece of the $560 billion prescription drug industry. They're saying they want to get mail order back up to 20% of the United States pharmacy market; and that's probably the threshold they look at in other markets.

Earlier this week, Amazon announced that it hired respected physician and author Atul Gawande to head up the healthcare initiative it launched with Berkshire Hathaway and JPMorgan Chase in January with the goal of providing "high-quality and transparent health care at a reasonable cost". Kroger Co. (KR.N), the biggest USA supermarket chain, saw US$2 billion in market value wiped out in one day.

"When Amazon sneezes, everybody else catches a cold", said Joseph Feldman, an analyst with Telsey Advisory.

Now tell us what you think! It recently began selling medical devices and instruments, as well. That effort ultimately failed and Walgreens purchased the money-losing startup in 2011 and ultimately shut it down.

PillPack utilises convenient packaging, modern technology, and personalised service in their pharmacy brand. The startup has raised upwards of $120 million in funding from backers including TechStars, Menlo Ventures, and Accel.

And if Amazon's torrid stock performance in recent months is any indication, the company's shareholders love the deal activity, among other fundamental drivers.

Amazon's move has triggered a "Wall of worry" that looks "like a scene from 'Game of Thrones."' Muken said investors will be petrified about share loss and margin compression.

Pessina added that physical pharmacies "will continue to be very, very important in the future".

Other reports by MaliBehiribAe

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