Amazon to buy online pharmacy PillPack
Retail giant outbids Walmart, gets nationwide access to prescription business
Amazon.com Inc. is buying online pharmacy PillPack Inc. in a deal that could transform the e-commerce giant into a nationwide force in prescription drugs and threatens to upend an industry that is core to the U.S. economy.
The deal will give Amazon pharmaceutical licences and the ability to ship prescriptions to 49 U.S. states, excluding Hawaii, and give it an overnight footprint in the more than $400-billion pharmacy business (all figures US). PillPack presorts medications and ships them to customers’ homes.
Amazon is paying roughly $1 billion in cash for the five-yearold startup, according to people familiar with the matter. The online retailer beat out Walmart Inc., which also was in talks for PillPack, one of the people said. Walmart had no immediate comment.
The deal for PillPack fires a warning shot to drug chains and retailers, including CVS Health Corp. and Walmart, which have big pieces of the prescription market. While the industry has been bracing itself for a potential Amazon entry into the market for months, the concrete move now makes it a reality that they will be facing off with the proven disrupter.
The news could have an impact on other companies that play important roles in the drug-supply chain beyond retail pharmacies, including middlemen such as Express Scripts Holding Co. that oversee prescription-drug benefits for employers and health insurers, as well as drug wholesalers such as AmerisourceBergen Corp.
The acquisition adds to recent moves by Amazon to wade deeper into health care, from pushing supplies for hospitals to helping form a non-profit aimed at addressing rising costs. It is also the latest move by Amazon into a major new category via acquisition, following its purchase last year of Whole Foods Market, which allowed it to buy supplychain expertise and a physical network of stores.
The news sent shares of CVS, Walgreens Boots Alliance Inc. and Rite Aid Corp. tumbling Thursday. Those three companies lost more than $12 billion in market value. Shares of Express Scripts and AmerisourceBergen also retreated.
Walgreens executives were holding a conference call with financial analysts when Amazon announced the deal. Walgreens CEO Stefano Pessina said the company is “not particularly worried” about the move.
The drugstore chain is “not complacent,” he said, but “the pharmacy world is much more complex than just delivering certain pills or packages. I strongly believe that the role of the physical pharmacy will continue to be very, very important in the future.”
CVS also played down the threat from Amazon’s deal, saying it already offers multi-dose packaging that can be mailed to a patient’s home or local pharmacy for pickup. “We believe that we are well-positioned in the market and ahead in this area,” a spokesperson said. “Keep in mind that we have not seen a large shift of patients that are looking for their medications to be delivered versus coming to a retail pharmacy.”
Boston-based PillPack, which was started in 2013, has raised $118 million from venture capitalists including Atlas Venture, Accel Partners and CRV. Its cofounder and CEO TJ Parker said in November that it had tens of thousands of customers and was on track for more than $100 million in annual revenue.
Amazon has been debating internally whether to enter the pharmacy market for years, according to people familiar with its thinking. It is a natural next step for the online retail giant, but the industry is complex.
Amazon typically builds most businesses from scratch, choosing acquisitions for when it thinks a deal will give it a faster road to entering that market or acquiring needed expertise, according to people familiar with its thinking. In PillPack’s case, it is likely a combination of both.
The deal is expected to close during the second half of this year, the companies said Thursday.
To stave off home-delivery service competition from Amazon and other rivals, CVS earlier this month struck a deal with the U.S. Postal Service to pick up prescriptions at CVS stores and bring them to customers’ homes in one or two days. Customers will be charged $4.99 per delivery, which could include over-thecounter products such as aspirin or face wash.
CVS’s $66-billion bid for insurer Aetna Inc. was in part an attempt to position the company to better defend against Amazon as a potential rival.
Drug-benefit managers, such as CVS’s Caremark unit, Express Scripts and UnitedHealth Group Inc.’s OptumRx, have mail-order pharmacies that ship prescriptions to patients. PillPack works with all of the major drug-benefit managers, but Amazon’s purchase threatens a powerful new source of competition.
The online retailer’s entry could also squeeze another set of companies that play an important role in the drug-supply chain. Wholesalers like AmerisourceBergen, McKesson Corp. and Cardinal Health Inc. buy drugs from their manufacturers and ship the therapies to pharmacies. Their relatively low margins could be pressured even further by Amazon.
But Evercore ISI notes that Amazon tends to use secondary distributors, such as FedEx and UPS, rather than undercut them in order to extract profit.
In anticipation of the online threat to their businesses, the drug-supply chain has been moving to consolidate.
Express Scripts agreed to be bought by health insurer Cigna Corp. for $54 billion, while AmerisourceBergen has discussed a deal with Walgreens, The Wall Street Journal has reported.
Amazon has had an on-againoff-again interest in health care. In 1999, it bought a 40 per cent stake in Drugstore.com Inc. Drugstore.com eventually was bought by Walgreens, which said in 2016 it was shutting down the site to focus on its own digital efforts.
Amazon rattled the healthcare market when it announced earlier this year it was forming a non-profit venture with JPMorgan Chase & Co. and Berkshire Hathaway Inc. aimed at reducing the three companies’ healthcare costs. The company last week announced its new CEO.