Amazon forges into healthcare by buying PillPack

Amazon.com has agreed to buy PillPack, an online pharmacy startup, its first visible foray into the healthcare business through a deal that will give the retail giant an immediate nationwide drug network.

The move represents a formidable threat to pharmacy chains, including Walgreens Boots Alliance, which earlier Wednesday reported tepid U.S. same-store sales, and rival CVS Health. Prices of shares of both stocks dropped about 10 percent Thursday morning after the announcement.

Terms of Amazon’s acquisition weren’t disclosed. The transaction is expected to close in the second half of the year, according to a statement from the companies.

PillPack sells pre-sorted packets of prescriptions drugs, delivering them to customers in their homes. Importantly for Amazon, the company already has mail-order pharmacy licenses in all 50 states, which could enable Amazon to expand quickly into the broader mail-order pharmacy business.

PillPack also has relationships with most major drug-benefit managers, including Express Scripts and CVS’s drug-benefit unit. The company said it also works with most Medicare Part D drug plans—those ties will give it links to much of the prescription drug market in the U.S. PillPack, which is closely held, also has software that automates many routine pharmacy tasks, such as verifying when a refill is due, determining co-pays, and confirming insurance. That eliminates much of the manual work that pharmacists often are saddled with now.

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An Amazon.com Inc. package sits in a bin before being placed on a delivery vehicle at the United States Postal Service (USPS) Joseph Curseen Jr. and Thomas Morris Jr. processing and distribution center in Washington, D.C., U.S., on Tuesday, Dec. 12, 2017. The USPS said it expects to deliver over 15 billion total pieces of mail this holiday season with expanded Sunday delivery operations in certain areas, delivering over six million packages each Sunday in December. Photographer: Andrew Harrer/Bloomberg

The pact follows months of speculation about Amazon’s plans to get into the pharmacy or drug-distribution business. Despite the retailer’s vast reach, getting into prescription drugs presented a daunting logistical challenge in terms of licensing and dealing with a range of private and government payers. Acquiring PillPack’s networks helps Amazon overcome those hurdles.

Amazon has been disrupting businesses from electronics to household staples and even package delivery—pharmacy and health benefits companies have long fretted that they’d be next. Chief Executive Officer Jeff Bezos signaled his interest in healthcare earlier this year when he teamed up with Berkshire Hathaway’s Warren Buffett and JPMorgan Chase’s Jamie Dimon to form a healthcare company to manage the health plans of their more than 1 million employees.

The selloff in drugstore stocks was reminiscent of the food industry swoon that resulted in June 2017 when Amazon said it was buying Whole Foods Market. “When Amazon sneezes, everybody else catches a cold,” said Joseph Feldman, an analyst with Telsey Advisory.

Pharmacist TJ Parker and computer scientist Elliot Cohen founded PillPack in 2013 after meeting at a medical tech program at MIT. It’s raised more than $118 million from brand-name investors, including Accel, Sherpa Capital and New York rapper Nas’s Queensbridge Venture Partners.

A September 2016 funding round valued the Boston-based startup at around $360 million, according to venture capital data base PitchBook. In April, CNBC reported Walmart was in talks to buy the company for “under $1 billion,” citing unnamed sources.