Amazon to Buy PillPack in Potentially Disruptive Drug Retail Push

Ankur Banerjee

June 28, 2018

June 28 (Reuters) - Inc said on Thursday it would buy small online pharmacy PillPack, a move that will put the world's biggest retailer in direct competition with drugstore chains, drug distributors and pharmacy benefit managers.

The potential of Amazon's move to disrupt major players across the drug supply chain on a nationwide level prompted a selloff in shares of potential future rivals, while sending its own shares up 2 percent.

PillPack supplies pre-sorted prescription drugs and other services for people who take multiple medications, a growing market as the U.S. population ages and requires treatment for multiple complex, chronic conditions.

The value of the deal was not disclosed. Bloomberg reported it to be $1 billion, citing a person it said was familiar with the matter.

The announcement cost drug store and medical wholesaler investors around $19 billion in stock losses on Thursday, while Amazon gained about $5.2 billion in value.

Shares of CVS Health were down nearly 8 percent, while Walgreen Boots Alliance fell 10 percent. Shares of drug wholesalers McKesson Corp, Cardinal Health and AmerisourceBergen also fell sharply.

The news comes just a week after a joint venture of Amazon, Berkshire Hathaway Inc and JPMorgan Chase & Co named a CEO who will be tasked with significantly cutting healthcare costs.

Although brick-and-mortar stores might feel the effects of Amazon's competition, the biggest battles will likely be fought by the mail-order pharmacies, which generally serve patients with chronic conditions such as heart disease that may require drugs to control blood pressure, cholesterol and other problems.

Some of the largest mail order pharmacies are controlled by pharmacy benefit managers such as Express Scripts and CVS, which offer financial and other incentives to patients to fill their prescriptions with them.

"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.

Walgreens Chief Executive Stefano Pessina, in a conference call after reporting quarterly results, said he was "not particularly worried" about the PillPack deal, describing it only as a "declaration of intent" by Amazon.

"The pharmacy world is much more complex than just delivering certain pills or certain packages," Pessina said.

Some analysts played down the immediate threat.

"At this juncture we are not worried about Amazon's entrance into the prescription market," Cantor Fitzgerald analyst Steven Halper said in a note. "Pharmacy networks are controlled by managed care companies and pharmacy benefit managers with captive mail order capabilities."

PillPack holds pharmacy licenses in all 50 states and is authorized to deliver in 49 states and is an in-network pharmacy for major Medicare Part D plans.

The company had attracted interest from Walmart Inc, which was looking to buy it for less than $1 billion, CNBC reported in April. The PillPack deal is expected to close during the second half of 2018.

(Reporting by Sonam Rai and Ankur Banerjee in Bengaluru; additional reporting by Ben Hirschler in London, writing by Bill Berkrot; Editing by Anil D'Silva and Bill Rigby)