Amazon just bought a tiny startup most people have never heard of, and it's spooked pharmacy shareholders

Getty ImagesCEO of Amazon.com, Inc. Jeff Bezos.
  • Amazon on Thursday announced plans to buy the online pharmacy PillPack, marking its latest push into the healthcare industry.
  • The announcement reverberated through the pharmacy supply chain, with the stocks of pharmacies and drug wholesalers getting hit hard.
  • This is just the most recent example of Amazon’s ability to disrupt an industry with a single action.

Amazon on Thursday announced it had signed an agreement to acquire PillPack, an online pharmacy.

PillPack’s business is built around customers who take multiple daily prescriptions. It offers medications in presorted dose packaging, coordinates refills, and handles shipments.

The $US1 billion cash deal marks Amazon’s latest push into the healthcare industry. In January, the company announced a collaboration with JPMorgan and Berkshire Hathaway meant to reduce healthcare costs for US workers.

“PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology,” Jeff Wilke, Amazon’s CEO of worldwide consumer, said in a release. “PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier.”

Pharmacy stocks in the US market dropped on the deal announcement, most notably those of CVS (-8.1%), Rite Aid (-3.1%), and Walgreens Boots Alliance (-9.2%).

The damage also spread through the pharmacy supply chain, with drug wholesalers seeing deep losses. Shares of Cardinal Health, AmerisourceBergen, McKesson, and Express Scripts all dropped more than 3% on the news.

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Amazon’s ability to rock an industry

Pharmacy shareholders will perhaps find solace in the fact that they’re not the only industry to have billions in market value erased by a single Amazon announcement. The trend has been playing out repeatedly over the past year, with grocery stores, athletic-apparel retailers, and package-delivery services among the afflicted groups.

The reasoning is simple: Amazon has a ton of cash and an unparalleled logistical network, and when it looks poised to enter or expand its position in a market, traders get scared and bail out of holdings in competing companies.

And if Amazon’s torrid stock performance in recent months is any indication, the company’s shareholders love the deal activity, among other fundamental drivers. The firm’s shares have spiked 435% since the beginning of 2015, more than 14 times the return for the benchmark S&P 500 over the same period.

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Getting one up on Walmart

Amazon’s acquisition of PillPack is sure to rankle the business-development team at Walmart, which was reportedly looking at buying the pharmacy startup in early April.

As Business Insider’s Lydia Ramsey has pointed out in the past, the two rivals are locked in a battle to reach the elderly market, which by 2050 is expected to double from where it was in 2012.

An aging population means we’ll see an increase in health concerns and chronic conditions like heart disease, neurodegenerative diseases, and cancer that can be costly to manage. It also offers a business opportunity for those companies best placed to meet the healthcare needs of this growing population.

Based on Thursday’s news, Amazon appears to have the leg up, at least for now. Stay tuned for the latest twists and turns as the nation’s largest corporations battle for healthcare supremacy.

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