Amazon Buys PillPack—Rx Chain Stocks Lose Billions

Online retail behemoth Amazon.com Inc. (AMZN) has made its big splash in the U.S. health care industry with the acquisition of PillPack, an online prescription-drug company that packages, organizes and delivers presorted doses of medications. Shares of drugstore chains Walgreens Boots Alliance Inc. (WBA), Rite Aid Inc. (RAD) and CVS Health Corp. (CVS) all tanked on the news on Thursday, down 10%, 10.6% and 7.8%, respectively, by noon ET. (See also: CVS Offers Rx Delivery to Stay Ahead of Amazon.)

Manchester, New Hampshire-based PillPack is licensed to ship prescriptions in 49 states. Late last year, the five-year-old company said it was on track to post more than $100 million in revenue for 2017. The firm raised $118 million from venture capital firms including CRV and Menlo Ventures. According to a CNBC report in April, Walmart Inc. (WMT) was reportedly weighing an under-$1 billion bid for the startup. While Amazon did not disclose financial terms of the PillPack deal, expected to close in the second half of this year, TechCrunch reported that the price was just shy of $1 billion. 

Online Giant Makes Long-Anticipated Jump Into Meds

The news confirmed chatter surrounding Amazon's long-anticipated push into the multi-billion-dollar pharmacy space and its 4 billion-plus prescriptions in the U.S. each year. In May 2017, CNBC reported that the Seattle-based retail giant was hiring specifically for its entrance into the market, followed a report by the St. Louis Post-Dispatch in October that indicated that Amazon had won approval for wholesale pharmacy licenses in at least 12 states. 

Earlier this year, traditional health care leaders across pharmacy and insurance were rocked by an announcement that Amazon CEO Jeff Bezos was teaming up with JPMorgan Chase & Co. (JPM) CEO Jamie Dimon and Berkshire Hathaway Inc. (BRK.A) CEO Warren Buffett to form a joint health care venture intended to reduce costs for employees and disrupt the industry through innovation and technology

Many on the Street, including analysts at RBC, warn that Amazon's entry in the space will limit the valuations of drug supply companies, "regardless of whether or not Amazon is able to scale the PillPack business," wrote RBC, and as reported by CNBC. 

Walgreens' CEO Stefano Pessina responded to the announcement during the company's quarterly earnings call on Thursday, indicating that the firm is "not particularly worried." Pessina also announced a $10 billion share buyback program of WBA stock. (See also: Bezos-Buffett-Dimon Health Care Company Names CEO.)