Amazon to acquire PillPack online pharmacy

by Kim Souza ([email protected]) 288 views 

Amazon continues diving into the healthcare arena announcing Thursday (June 28) plans to acquire Boston-based PillPack, an online pharmacy that offers pre-sorted doses of medications and home delivery. Terms of the deal were not disclosed, but company officials said they expect the transaction to close in the back half of this year subject to regulatory approval.

Earlier this year, Walmart was believed to have been bidding on PillPack according to multiple media reports indicating the retail giant would like to buy PillPack at a cost of less than $1 billion.

The drug retail industry (Walgreens, CVS, Rite-Aid) lost more than $11 billion in market value Thursday after the Amazon deal was announced as it’s seen as another way Amazon will disrupt the drugstore market.

PillPack is licensed to do business in 49 states with annual revenue of around $100 million last year. Amazon’s market cap rose Thursday more than 5.5% on the news. Walmart shares dipped about $1 per share, taking market cap down $3 million on the day.

“PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology,” said Amazon’s Worldwide Consumer CEO Jeff Wilke. “PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier. We’re excited to see what we can do together on behalf of customers over time.”

The move came as no real surprise to Amazon and healthcare insiders who have been expecting the Seattle-based company to score big in pharmacy after it began getting pharmacy licenses in multiple states last year.

“We suspect Amazon’s official entry into the space will now place a cap on drug supply chain multiples regardless of whether or not Amazon is able to scale the PillPack business,” RBC Capital Markets analyst George Hill said in a note to clients Thursday. “While Amazon represents a significant new entrant in the space, we remind investors that Rxs are sticky and PillPack focuses on difficult to serve patients without access to adequate pharmacy services.”

The news comes just one week after Amazon and its partners Berkshire Hathaway and JPMorgan named Dr. Atul Gawande, a surgeon and writer, to head up their venture to cut healthcare costs. Rising specialty drug prices are the largest driver in rising healthcare costs, making the U.S. pharmacy business is a $400 billion industry ripe for disruption.

“This is the sweet spot that Amazon works in — Amazon is particularly skilled at fulfillment, at consumer engagement in terms of the supply chain and delivery of product,” noted Marianne Udow-Phillips, executive director of the Center for Healthcare Research & Transformation at the University of Michigan. “They really have deep skills and ability to increase the efficiency of the supply chain. I think it’s the perfect entry for them into the prescription drug field.”

That said, the prescription drug market has been a hard nut to crack, protected by active lobby and stringent U.S. drug laws. Phillips said for a company that has prided itself on relentlessly driving down consumer prices — sometimes to the detriment of traditional industry players — prescription drugs may represent an outsized beast waiting to be tamed.

The press release was short on details but insiders are already mulling over the possibilities of Amazon to merge PillPack benefits into its massive Prime Membership base that now includes 45% of U.S. households.

“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.

PillPack CEO T.J. Parker said together with Amazon the company is eager to continue working with partners across the healthcare industry to help people throughout the U.S. benefit from a better pharmacy experience.