July 10, 2018
After years of speculation, Amazon finally made its move into the world of prescription drugs with its acquisition of online pharmacy PillPack. The value of the deal wasn’t disclosed, but Bloomberg reported it to be roughly $1 billion, citing a source familiar with the companies.
The deal puts Amazon in direct competition with drugstore chains, drug distributors, and pharmacy benefit managers (PBMs). The total prescription drug market tops $450 billion, according to research firm IQVIA.
PillPack, which holds pharmacy licenses in all 50 states and supplies pre-sorted prescription drugs and other services to people who take multiple medications, expects sales to exceed $100 million this year. It is an in-network pharmacy for some PBMs and for major Medicare Part D plans.
“Amazon’s acquisition of PillPack is a warning shot in what is about to become a major battle within the pharmacy space,” said Neil Saunders, managing director of GlobalData Retail.
The market reacted to the news by stripping about $14 billion in market value from pharmacy chains and drug wholesalers late last week. Shares of CVS closed down 6.1%, while Walgreens fell 10%. Shares of drug wholesalers McKesson Corp, Cardinal Health and AmerisourceBergen all fell. Amazon, meanwhile, gained about $5.5 billion.
Industry experts agree the deal will have a small impact on brick-and-mortar stores. But, more than likely, the biggest battles will be fought by mail-order pharmacies, particularly CVS Pharmacy, Express Scripts, and UnitedHealth Group.
Experts say Amazon’s huge customer base and existing shipping infrastructure could allow PillPack to scale up quickly. Moreover, Amazon could negotiate directly with pharmaceutical companies to offer cheap generic drugs to customers without health insurance.
PillPack reportedly received interest from Walmart, before Amazon swooped in with a higher offer. The deal is expected to close during the second half of 2018.
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