Amazon.com Inc. agreed to buy the online pharmacy startup PillPack, jumping into the health-care business with a deal that will give the retail giant an immediate nationwide drug network.
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The move represents a formidable threat to pharmacy chains including Walgreens Boots Alliance Inc., which earlier Thursday reported tepid U.S. same-store sales, and rival CVS Health Corp. Walgreens was down 10 percent at 10:18 a.m. in New York, while CVS shares shed 8.9 percent.
Terms of the deal weren’t disclosed. The transaction is expected to close in the second half of 2018, according to a statement from the companies.
The U.S. market for prescription medicine is huge. In 2016, U.S. consumers spent $328.6 billion on retail prescription drugs, according to the U.S. government. CVS reported prescription sales of $59.5 billion last year, and Walgreens sold $57.8 billion worth of drugs in its fiscal 2017.
PillPack has mail-order pharmacy licenses in all 50 U.S. states, which could allow Amazon to expand quickly. 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 U.S.
PillPack sells pre-sorted packets of prescriptions drugs, delivering them to customers in their homes. The closely held firm has software that automates many routine pharmacy tasks, such as verifying when a refill is due, determining co-pays, and confirming insurance. That eliminates much of the manual work that pharmacists often are saddled with now.
The pact follows months of speculation about Amazon’s plans to get into the pharmacy or drug-distribution business. Despite the retailer’s vast reach, entering the market presented a daunting logistical challenge in terms of licensing and dealing with a range of private and government payers. Acquiring PillPack’s networks helps Amazon surmount those hurdles.
Amazon has been disrupting businesses from electronics to household staples and even package delivery. Pharmacy and health-benefits companies have long fretted that they’d be next. Chief Executive Officer Jeff Bezos signaled his interest in health-care earlier this year when he teamed up with Berkshire Hathaway Inc.’s Warren Buffett and JPMorgan Chase & Co.’s Jamie Dimon to form a health-care company to manage the health plans of their more than 1 million employees.
The selloff 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 packaged food 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.”’