Amazon buying online druggist

PillPack provides access to market

Amazon announced Thursday that it would acquire PillPack, an online pharmacy with a nationwide reach, in a deal that stands to make the online giant a major player in the drug business.

The deal is precisely the kind of news that the health care industry has been fearing for months, as Amazon hinted that it was interested in expanding its reach to include prescription drugs.

One barrier to entry for Amazon had been the bureaucratic hassle of securing pharmacy licenses in each state. But in acquiring PillPack, it is essentially leaping over that hurdle because the company is licensed to ship prescriptions in 50 states.

PillPack also has relationships with most major drug- benefit managers, including Express Scripts and CVS, and says it works with most Medicare Part D drug plans. Those ties will give Amazon access to much of the prescription drug market in the United States. The closely held firm has software that automates many tasks, such as verifying when a refill is due, determining copays, and confirming insurance. That eliminates much of the manual work that pharmacists often are saddled with now.

Shares of Amazon rose 2.5 percent to $ 1,701.45. Drugstore chain Walgreens’ stocks fell 9.9 percent to $59.70, Rite Aid dropped 11 percent to $1.76 and CVS Health dropped 6.1 percent to close at $ 65.78. Pharmacybenefits manager Express Scripts dipped 1.4 percent to $77.62.

“PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology,” Jeff Wilke, Amazon’s chief executive of its consumer business, said in a statement. “We’re excited to see what we can do together on behalf of customers over time.” Terms of the deal were not announced. It is expected to close in the second half of 2018. The U.S. market for prescription medicine is vast. In 2016, U.S. consumers spent $328.6 billion on retail prescription drugs, according to U.S. government data. CVS had prescription sales of $59.5 billion last year, while Walgreens sold $57.8 billion worth of drugs in its fiscal 2017. Anxiety over what Amazon might do in health care has unsettled the industry and has been seen as one factor in a wave of recently proposed mergers, including CVS’ acquisition of Aetna and a union between the health insurer Cigna and Express Scripts. Last fall, perhaps in a move to get ahead of Amazon, CVS announced it would offer next-day delivery of prescription drugs and same-day service in some big cities. The next-day delivery began this month, for a fee of $4.99. PillPack, founded in 2013, is an online mail-order pharmacy that distributes its pills in easy-to-use packages designed for consumers with chronic conditions and multiple prescriptions. It has long been seen as a potential target for larger businesses, including Amazon and Walmart, which were looking to expand their reach in online drug sales. TJ Parker, co-founder and chief executive of PillPack, said in a statement: “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.” Amazon Chief Executive Officer Jeff Bezos, after building his brainchild into the world’s biggest online retailer, has been using in-house engineering and acquisitions to infiltrate a growing number of businesses. He took on the $800 billion grocery industry with last year’s purchase of Whole Foods, and broke into consumer electronics with the creation of the Kindle ereader and Echo voice-controlled speaker. Bezos already has signaled his frustration with a health-care system characterized by rising costs for consumers and companies, sometimes-poor outcomes, and unnecessary complexity. Earlier this year, he and fellow CEOs Warren Buffett and Jamie Dimon of Berkshire Hathaway Inc. and JPMorgan Chase & Co., respectively, agreed to form a new venture to reshape how the companies handle worker health benefits. The entity recently hired celebrated surgeon and health journalist Atul Gawande to steer the effort. Michael Rea, CEO of Rx Savings Solutions, said PillPack could transform the industry and that employers and health plans would benefit from the deal, which he called a “sign of the times.” “This move signals just how big of a market opportunity there is to change the pharmacy landscape,” Rea said in an email. The sell-off in drugstore stocks was reminiscent of the food-industry swoon that resulted in June 2017 when Amazon said it was buying Whole Foods Market Inc. Kroger Co., the biggest U.S. supermarket chain, saw $2 billion in market value wiped out in one day. Big packagedfood stocks also took a hit. “When Amazon sneezes, everybody else catches a cold,” said Joseph Feldman, an analyst with Telsey Advisory. “And I think that that’s more likely than not what you’re going to see today.” A September 2016 funding round valued the startup at around $360 million, according to venture- capital database PitchBook. In April, Walmart Inc. was said to be in talks to buy the company. On an earnings conference call, Walgreens CEO Stefano Pessina faced multiple questions from analysts about the PillPack deal. He said Walgreens knew that PillPack was for sale as “it had been for sale for a while,” but that the retailer wouldn’t do deals based on emotions or make moves that could destroy value. Pessina insisted that physical pharmacies would continue to be “very important.”