Amazon (NASDAQ: AMZN) finally took the plunge into the pharmaceutical market with its approximately $1 billion acquisition of five-year-old PillPack, an online pharmacy startup based in Manchester, New Hampshire.
Financial terms weren’t disclosed in the deal’s announcement, but on June 28, the day of the announcement, The Wall Street Journal quoted sources on the price. In April 2018, Walmart (NYSE: WMT) was reported to be in discussions with PillPack, and targeting a price under $1 billion, according to CNBC. Amazon was also said to be holding discussions with the company at the time.
PillPack is an online pharmacy that delivers medications in pre-sorted dose packaging and also coordinates refills and renewals. It holds pharmacy licenses in all 50 states, has URAC and VIPPS accreditation and is an in-network pharmacy with most pharmacy benefit managers (PBMs).
It has raised $118 million in funding, beginning with a $50 million round in June 2015 led by CRV, with participation from Accel Partners, Atlas Venture, Menlo Ventures and Sherpa Ventures.
The deal is strategically important for Amazon, which has made a few attempts to break into the healthcare arena before. In October 2017, it was reported to hold wholesale pharmacy licenses in at least 12 states, including Alabama, Arizona, Connecticut, Idaho, Louisiana, Michigan, Nevada, New Hampshire, New Jersey, North Dakota, Oregon and Tennessee.
The e-commerce giant also began expanding its medical supplies business through its Amazon Business marketplace, with deliveries to hospitals as its first target. Stocks of rivals such as McKesson Corp. (NYSE: MCK), Cardinal Health (NYSE: CAH) and Owens & Minor (NYSE: OMI) fell on the news.
In January 2018, it joined Berkshire Hathaway (NYSE: BRK.A) and JPMorgan Chase (NYSE: JPM) in announcing the formation of an independent healthcare company that would operate free from profit-making incentives and constraints. On June 20, the partners announced that Dr. Atul Gawande would serve as CEO of the company, which will be headquartered in Boston.
The PillPack announcement immediately sent shares of retail pharmacies down, including CVS Health (NYSE: CVS), Walgreens (NYSE: WBA) and Rite Aid Corp. (NYSE: RAD).
CVS, which announced its acquisition of Aetna (NYSE: AET) in December 2017, has already begun experiments with home delivery of prescription medicines through the U.S. Postal Service. Two-day turnaround is promised on the CVS website, and other items from the front of the store can be added to the delivery, for a $4.99 charge. Ordering through the CVS app is also available.
Drug company stocks were largely unaffected by the news, however. Pfizer (NYSE: PFE), Bristol-Myers Squibb (NYSE: BMY) and others continued trading within normal ranges after Amazon’s announcement. Although high drug prices are supposedly on the Trump administration’s target list, the industry hasn’t been overly concerned. Yet.