Amazon's new pharmacy deal ruined a perfectly good earnings report for Walgreens

Thursday started off with a bang for Walgreens shareholders.

When the company reported quarterly earnings at 7 a.m. ET, investors apparently liked what they saw, and the stock rallied as much as 1.5%. They were most likely enticed by the $US10 billion buyback authorised by Walgreens, as well as by a reported jump in prescription sales.

The good times in the premarket lasted less than 90 minutes, however, thanks to Amazon’s latest foray into a new industry. When the Jeff Bezos-led juggernaut announced it would buy PillPack, an online pharmacy, Walgreens shares dropped immediately. They’re now trading about 10% lower on the day.

Investors in Walgreens weren’t alone. The damage was felt all along the pharmacy supply chain, with the likes of CVS, Rite Aid, Cardinal Health, AmerisourceBergen, McKesson, and Express Scripts all dropping on the news.

On a broader basis, the pharmacy space is just the latest area to feel the disruptive force of Amazon. Industries as varied as grocery stores and athletic-apparel retailers and package-delivery services have also seen billions in market value erased in the past year by single Amazon announcements.

If Walgreens’ stock is to recover, the company will have to contend with Amazon’s vision for healthcare, which is increasingly coming into focus. Once the deal closes, Amazon could start selling prescription drugs directly through its site, delivering them via mail and skipping retail pharmacies.

That’s bad news for Walgreens.

After Thursday’s losses, Walgreens is trading 18% lower for the year.

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