Amazon acquisition of online pharmacy startup PillPack sends health care stocks into a nosedive

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Amazon acquisition of online pharmacy startup PillPack sends health care stocks into a nosedive 06.28.2018 21:48

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Amazon.com Inc. is buying the venture capital-backed startup PillPack, confirming the retail giant’s online pharmacy ambitions, which have hung over the U.S. health-care industry for over a year.

Advertised as “a new kind of pharmacy,” PillPack packages medications by dose and delivers them directly to patients, along with other products like vitamins, inhalers and testing supplies. The service is particularly geared toward those who must take several medications daily, including individuals with chronic conditions and seniors.

The Thursday announcement sent the stocks of other pharmacy chains, drug distributors, pharmacy-benefit managers and even health insurers tumbling on Thursday, triggering an 11% decline in Walgreens Boots Alliance WBA, -9.42%shares, 13% drop in Rite Aid Corp. RAD, -10.86%  shares, 11% drop in CVS Health Corp. CVS, -6.56%  shares, 2.3% drop in Express Scripts Holding Co.ESRX, -1.65%  shares, 7% drop in Cardinal Health CAH, -5.61%  shares and 6% drop in AmerisourceBergen Corp. ABC, -4.34% shares.

“Together with Amazon, we are eager to continue working with partners across the health-care industry to help people throughout the U.S. who can benefit from a better pharmacy experience,” TJ Parker, co-founder and CEO of PillPack, said in a statement.

Read our previous coverage: Is Amazon getting into the pharmacy business? This is what you need to know

As many consumers may already be well aware, the world of U.S. pharmaceuticals is complicated at best, and dysfunctional at worst. That has made an entry by Amazon AMZN, +1.86% known for its dominance and disruption of new industries, loom particularly large for current players.

See: How Amazon came to dominate books, electronics and the cloud

There’s also a clear incentive for Amazon, which today sells almost everything but pharmaceutical drugs.

 

Amazon’s interest in the industry was first reported by CNBC in May 2017, though it was unclear then what the company’s approach might be. Because of how highly-regulated the space is — and Amazon’s own stumbles when faced with that complexity — many watchers speculated that an acquisition would be the best way in.

The online pharmacy wasn’t the only one eyeing PillPack, which was founded in 2013, is based out of Manchester, New Hampshire and is covered by most large health insurers. Walmart was reportedly weighing an under $1 billion bid, according to a CNBC report in April.

At the time, Bernstein analyst Lance Wilkes wrote that the shift to online pharmacies was “negative to independent pharmacies and consequently to drug distributors. We also see online pharmacy negative for store level economics of large pharmacy retailers and challenging to [pharmacy-benefit managers] as we believe it creates transparency which can compress retail spread.”

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Read more: There’s a surprisingly messy back story to Amazon’s health care quest

Amazon did not disclose the financial terms of the PillPack deal, which is expected to close in the second half of this year. TechCrunch said it paid just under $1 billion.

Leerink analysts said PillPack’s technology and simple user experience “likely made it an attractive target and good fit.”

“Relative to our expectations and previous research, the news is earlier than expected though given Amazon’s focus on the consumer and technology, and its desire to enter large markets, we expected a retail online pharmacy to be the way AMZN would enter the pharma supply chain,” they wrote in a note.

Separately, Amazon has also announced an initiative with Berkshire Hathaway Inc. BRK.A, +0.83% BRK.B, +0.89%  and JPMorgan Chase & Co. JPM, +1.55%  to make health care better and more cost-effective for their employees. Last week, they named Dr. Atul Gawande, an accomplished surgeon, writer and Harvard professor, chief executive officer of the venture.

Amazon shares rose 1.4% in a falling market Thursday and are up nearly 18% over the last three months, compared with a 2.4% rise in the Health Care Select Sector SPDR XLV, -0.36% a 3.9% rise in the S&P 500 SPX, +0.18% and a 1.1% rise in the Dow Jones Industrial Average DJIA, +0.07%

 

 


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