Amazon.com Inc. buys itself into the heart of the US healthcare system and is immediately shaking a prescription drug industry that is already in the midst of a broader transition.
Insurance companies and drug benefit managers have made a number of deals over the last few months, some of which have been designed to prevent a possible big stir in Amazon's healthcare world. But the decision of the online retail giant to buy online pharmacy PillPack quickly accelerates the risk posed to entrenched retailers, suppliers and middlemen.
Most directly, the move represents a daunting challenge for pharmacy chains, including Walgreens Boots Alliance Inc. and 1
"This offers Amazon a way to disrupt the big pharmacy They've cracked chains so that they bother booksellers, pet supplies, clothing, and other major retailers," said Lisa Bielamowicz, president of consulting firm Gist Healthcare.
According to Boston PillPack, Amazon will pay about $ 1 billion to PillPack person familiar with the matter. The transaction is expected to close in the second half of 2018, according to a statement from the companies.
The US market for prescription drugs is huge. In 2016, US consumers spent US $ 328.6 billion on retail prescription drugs, according to US government data. CVS had $ 59.5 billion in sales last year, while Walgreens sold $ 57.8 billion in fiscal 2017.
Jeff Bezos, the managing director of Amazon, has integrated his own child into the world's largest online retailer engineering and acquisitions to infiltrate a growing number of businesses. With last year's purchase of Whole Foods, he took over the $ 800 billion food industry and broke into consumer electronics with the development of the Kindle E-Reader and the Echo Voice-controlled Speaker.
Bezos has already signaled his frustration with a health. Care system characterized by rising costs for consumers and businesses, sometimes poor results and unnecessary complexity. Earlier this year, its two CEOs, Warren Buffett and Jamie Dimon of Berkshire Hathaway Inc. and JPMorgan Chase & Co. agreed to start a new business to reshape the way companies with health benefits bypass the employee. The company has recently hired celebrated surgeon and health journalist Atul Gawande to direct the effort.
PillPack has mail order pharmacy licenses in all 50 states that allow Amazon to expand rapidly. PillPack also has relationships with most major drug managers, including Express Scripts and CVS, and says it works with most Medicare Part D drug plans. These compounds will give Amazon access to much of the US prescription drug market
PillPack sells presorted prescription drug packages and delivers them to customers in their homes. The hand-held company has software that automates many tasks, such as checking when a refill is due, co-pay payments, and confirming the insurance. This eliminates much of the manual work that pharmacists are now often employed with.
The pact follows months of speculation about Amazon's plans to come to the drugstore or the drug trade. Despite the retailer's broad reach, entry into the market posed a huge logistical challenge to licensing and dealing with a range of private and government payers. By acquiring the PillPack networks, Amazon can overcome these hurdles.
Michael Rea, CEO of Rx Savings Solutions, said PillPack could change the industry, and employers and health plans would benefit from the deal he described as a "sign of the times".
"This move signals the market opportunities to change the pharmacy landscape," Rea said in an email.
The sell-off of drugstore stocks recalled the impotence of the food industry in June 2017 When Amazon said it was buying Whole Foods Market Inc., Kroger Co., the largest supermarket chain in the US, had a market value of $ 2 billion one day wiped out. Large packaged food stocks were also hit.
"When Amazon sneezes, everyone will catch cold," said Joseph Feldman, an analyst with Telsey Advisory. "And I think that's more likely than what you'll see today."
Long Time Coming
Prescription medicines are largely intertwined with food and personal items such as makeup and shampoo and Amazon already sells mass-produced packs of latex gloves, bed pads and syringes. Recently, medical equipment and instruments have also been sold.
Bezos has been thinking about the drug business for nearly two decades; In 1999, Amazon bought a stake in Drugstore.com. These efforts eventually failed and Walgreens bought the loss-making startup in 2011 and eventually shut it down.
Pharmacist TJ Parker and computer scientist Elliot Cohen founded PillPack in 2013 after meeting a medical technology program at the Massachusetts Institute of Technology. The company raised more than $ 118 million from brand investors such as Accel, Sherpa Capital and Queensbridge Venture Partners, a New York rapper from Nas.
Parker will remain with PillPack after the deal, as one person who knows his plans knows A round of financing in September 2016 estimated the startup to be around $ 360 million, according to the venture capital database PitchBook. In April, Walmart Inc. is said to have held talks to buy the company.
Walgreens provisionally stated that it was in no hurry, despite the damage to its stock. During a teleconference for financial reporting, Walgreens CEO Stefano Pessina had several questions from analysts about the PillPack deal.
"It's a letter of intent from Amazon," Pessina said.
He said Walgreens knew that PillPack was for sale "It was for sale for a while," but that the retailer would not do business that was based on emotion or took steps that could destroy value. Pessina insisted that physical pharmacies would continue to be "very important".
The collapse of Walgreens' stock weighed on the Dow Jones Industrial Average, which expanded its share to 30 companies this month, and General Electric Co.  – With support from Spencer Soper, Craig Giammona, Gerrit De Vynck, Emily McCormick and Jared S Hopkins
( Stock price update in the third paragraph.) An earlier version of this story corrected the second paragraph of the day. )