Amazon has sent a shockwave through the retail pharmacy sector after buying PillPack, an online pharmacy group.
The announcement caused shares in the US’s top pharmacy chains CVS Health, Walgreens Boots Alliance and Rite Aid to go on the slide amid investor fears that the online retail behemoth would extend its one-stop-shop model to healthcare. Drug wholesalers Cardinal Health, AmerisourceBergen and McKesson also came under pressure.
Speculation about Amazon’s ambitions in healthcare was rife towards the end of last year, and focused on the likelihood that it would leverage its massive distribution muscle to disrupt the medicines supply market.
The subsequent announcement that it would set up a non-profit company with JPMorgan and Berkshire Hathaway to providehealthcare benefitsto their one million-plus employees temporarily alleviated fears that it was planning to sell medicines, but the move on PillPack shows that is now part of its healthcare strategy.
PillPack is a five-year-old company that provides online pharmacy services with an emphasis on serving the needs of people who take multiple medications, helping them manage their treatment by supplying drugs in pre-sorted dose packages. Amazon isn’t revealing how much it is paying for the firm, which is predicting revenues of around $100m this year, although estimates are that it cost around $1bn or less.
“Together with Amazon, we are eager to continue working with partners across the healthcare industry to help people throughout the US who can benefit from a better pharmacy experience,” PillPack’s co-founder and chief executive TJ Parker (pictured) said in a statement.
The Financial Times suggests that the threat posed by Amazon has prompted the recent spate of consolidation in the healthcare sector, with CVS agreeing a $69bn takeover of health insurer Aetna last year and Cigna paying $67bn for pharmacy benefits manager Express Scripts in March.
The big question now is how much Amazon expects to build in healthcare distribution, both within the US and overseas. PillPack is a minnow in the sector at the moment, but there is speculation that Amazon may continue to buy up assets to build scale – something that it is already doing in the food sector.
That could be a long process, according to analysts, but Amazon’s willingness to trim profits back to the bone in order to attract customers – and its legions of existing customers – means that the big pharmacy retailers are right to be concerned.
GlobalData’s Neil Saunders said that “In our view, this is only the first play in what will be an increasingly aggressive strategy by Amazon to develop a much more significant presence in the pharmacy market.”