Amazon Diversify into Health Care With The Buying of Pillpack - CALIPHATE MEDIA

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Thursday, 28 June 2018

Amazon Diversify into Health Care With The Buying of Pillpack

Amazon.com Inc. agreed to buy the online
pharmacy startup PillPack, jumping into the
health-care business with 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 Inc., which earlier Thursday reported
tepid U.S. same-store sales, and rival CVS Health
Corp. Walgreens was down 10 percent at 10:18
a.m. in New York, while CVS shares shed 8.9
percent.

Terms of the deal weren’t disclosed. The
transaction is expected to close in the second half
of 2018, according to a statement from the
companies.
The U.S. market for prescription medicine is huge.
In 2016, U.S. consumers spent $328.6 billion on
retail prescription drugs, according to the U.S.
government. CVS reported prescription sales of
$59.5 billion last year, and Walgreens sold $57.8
billion worth of drugs in its fiscal 2017.

PillPack has mail-order pharmacy licenses in all 50
U.S. states, which could allow Amazon to expand
quickly. PillPack also has relationships with most
major drug-benefit managers, including Express
Scripts and CVS, and says it works with most
Medicare Part D drug plans. Those ties will give
Amazon access to much of the prescription drug
market in the U.S.

PillPack sells pre-sorted packets of prescriptions
drugs, delivering them to customers in their
homes. The closely held firm 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.

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, entering the market 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 surmount those hurdles.

Michael Rea, chief executive officer of Rx Savings
Solutions, said PillPack could transform the
industry and that employers and health plans
would benefit from the deal, which he called a
“sign of the times.”

“This move signals just how big of a market
opportunity there is to change the pharmacy
landscape,” Rea said in an email.
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
health-care earlier this year when he teamed up
with Berkshire Hathaway Inc.’s Warren Buffett
and JPMorgan Chase & Co.’s Jamie Dimon to form
a health-care 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 Inc. Kroger Co., the biggest U.S.
supermarket chain, saw $2 billion in market value
wiped out in one day. Big packaged food stocks
also took a hit.

“When Amazon sneezes, everybody else catches a
cold,” said Joseph Feldman, an analyst with Telsey
Advisory. “And I think that that’s more likely than
not what you’re going to see today.”’


Prescription drugs sales are largely intertwined
with groceries and personal items like makeup
and shampoo and Amazon already sells bulk
packs of latex gloves, bed pads and syringes. It
recently began selling medical devices and
instruments, as well.

Bezos has been thinking about the drug business
for nearly two decades; in 1999, Amazon
purchased a stake in Drugstore.com. That effort
ultimately failed and Walgreens purchased the
money-losing startup in 2011 and ultimately shut
it down

Pharmacist TJ Parker and computer scientist Elliot
Cohen founded PillPack in 2013 after meeting at a
medical-technology program at the Massachusetts
Institute of Technology. The company 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 database PitchBook.
In April, CNBC reported Walmart Inc. was in talks
to buy the company for “under $1 billion,” citing
unnamed sources.

For now, Walgreens indicated that it was in no
hurry to find a deal to respond to Amazon, despite
the damage to its stock. On an earnings conference
call, Walgreens CEO Stefano Pessina faced multiple
questions from analysts about the PillPack deal.
“It is a declaration of intent from Amazon,” said
Pessina.

He said Walgreens knew that PillPack was for sale
as “it had been for sale for a while,” but that the
retailer wouldn’t do deals based on emotions or
make moves that could destroy value. Pessina
insisted that physical pharmacies would continue
to be “very important.”

The slump in Walgreens shares weighed on the
Dow Jones Industrial Average, which added the
stock to its index of 30 companies this month,
replacing General Electric Co.

Source:Bloomberg

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