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Amazon buys online pharmacy PillPack for $ 1 billion



Amazon.com
Inc.

AMZN 1.87%

buys online pharmacy PillPack Inc. in a store that could turn the e-commerce giant into a nationwide force in prescription drugs and threatens to create an industry which is at the heart of the US economy

The agreement will give Amazon Pharma licenses and the ability to ship prescriptions in 49 US states, with the exception of Hawaii, and overnight in the more than $ 400 billion Pharmacy business to invest. PillPack mixes medicines and sends them to customers' homes.

Amazon pays about $ 1 billion in cash for the five-year-old startup, according to the people who are familiar with it. The online retailer gets his way

Walmart
Inc.,

That was also in talks for PillPack, one of the people said. Walmart had no immediate comment.

The deal for PillPack fires a warning shot to drug chains and retailers

CVS health
Corp.

and Walmart, who have large chunks of the prescription market. While the industry has been preparing for months for a potential Amazon market entry, the concrete step is now becoming reality that they will deal with the proven Disrupter.

The news could also impact other companies playing important roles in the drug supply chain beyond pharmacies, including middlemen like

Express Scripts


ESRX -1.71%

Holding Co., which prescribes prescription medicines for employers and health insurers as well as drug wholesalers

AmerisourceBergen
Corp.


ABC -4.06%

The acquisition adds to Amazon's recent moves to delve deeper into healthcare, from providing supplies to hospitals to helping to set up a non-profit organization focused on rising costs. It's also the latest move from Amazon to a new main category through acquisition, after Whole Foods was bought last year, which allowed it to buy supply chain expertise and a physical network of stores.

The news sent CVS shares

Walgreens boots alliance
Inc.


WBA -10.62%

and

Rite Aid
Corp.


RAD -10.86%

thundering Thursday. These three companies lost market values ​​of more than $ 12 billion. Shares of Express Scripts and AmerisourceBergen also retreated.

Walgreens held a conference call with financial analysts when Amazon announced the deal. Walgreens CEO

Stefano Pessina

The company was "not particularly worried" about the move.

The drugstore chain is "not complacent," he said, "but the world of pharmacies is far more complex than the delivery of certain pills or packages. I firmly believe that the role of the physical pharmacy will continue to be very, very important

CVS also downplayed the threat of Amazon's deal, saying it already offers multi-dose packaging that can be mailed to a patient home or local pharmacy for pickup. "We believe that we are well positioned and proactive in this area," said a spokesman. "Remember, we did not see a large number of patients looking for a delivery of their medication, rather than taking them to a pharmacy."

Founded in 2013, Boston-based PillPack has raised $ 118 million from venture capitalists such as Atlas Venture, Accel Partners and CRV. Its co-founder and CEO TJ Parker said in November that it had tens of thousands of customers and was on track for more than $ 100 million in annual sales.

Amazon has been debating internally for years whether he should enter the pharmacy market to people who are familiar with his thinking. It's a natural next step for the online retail giant, but the industry is complex.

Amazon usually builds most companies from the ground up and chooses acquisitions when it believes that a deal gives it a faster way to market or acquire needed business expertise, according to people who are familiar with their thinking. PillPack's case is probably a combination of both.

The transaction is expected to close in the second half of this year, companies said Thursday

to fend off competition from Amazon and other competitors CVS has signed a deal with the US Postal Service earlier this month to make prescriptions in the US Pick up CVS stores and bring them home to customers in a day or two. Customers are charged $ 4.99 per delivery, including over-the-counter products such as aspirin or face wash.

CVS's $ 66 billion bid for insurer Aetna Inc. was partly an attempt to better defend the company against Amazon as a potential competitor.

Medication Benefit Manager, such as CVS Caremark Unit, Express Scripts and

United Health

OptumRx from Group Inc. has mail order pharmacies that send prescriptions to patients. PillPack works with all major drug managers, but the purchase of Amazon threatens to become a new competitive source of competition.

The online retailer's market entry could also put pressure on a number of other companies that play an important role in the drug supply chain. Wholesalers like AmerisourceBergen,

McKesson
Corp.

and

Cardinal health
Inc.

Buy medicines from their manufacturers and ship the therapies to pharmacies. Their relatively low margins could be further under pressure from Amazon.

But Evercore ISI notes that Amazon tends to use secondary distributors, such as:

FedEx

and UPS instead of undercutting them for profit.

Anticipating the online threat to their businesses, the pharmaceutical supply chain has shifted towards consolidation. Express scripts have agreed to be bought by health insurance

Cigna
Corp.

for $ 54 billion, while AmerisourceBergen has a deal with Walgreens, reports the Wall Street Journal.

Amazon has a renewed interest in health care. In 1999, Drugstore.com bought a 40% interest in Drugstore.com Inc. Drugstore.com was eventually bought by Walgreens, which said it would shut down the website in 2016 to focus on its own digital endeavors.

Amazon shook the healthcare market when it announced earlier this year that it was establishing a non-profit business

JPMorgan Chase

& Co. and

Berkshire Hathaway
Inc.

aim to reduce the health costs of the three companies. The company announced its new CEO last week.

Write to Sharon Terlep at sharon.terlep@wsj.com and Laura Stevens at laura.stevens@wsj.com


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