It has long been rumored that online retail giant Amazon was getting into the $560 billion prescription drug industry. Amazon’s announcement that it was acquiring PillPack, an online pharmacy, dropped shares of Walgreens and Rite Aid by 9 percent and CVS Health by 6.6 percent, reported Claire Ballentine and Katie Thomas of the New York Times.
PillPack has a work force of about 1,000 people, but it is licensed to ship drugs in 50 states, facilitating Amazon’s ability to become a major player in the business. Amazon, with a market value of over $840 billion, is paying about $1 billion for PillPack. Amazon beat out Walmart in acquiring the company.
Jeff Wilke, Amazon’s chief executive of its consumer business, said, “PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology. We’re excited to see what we can do together on behalf of customers over time.”
The health care industry has been concerned over what Amazon was planning to do in the area of prescription drugs. Its interest in selling prescription drugs has triggered a host of recently proposed mergers, such as CVS’s acquisition of Aetna and a collaboration between the health insurer Cigna and Express Scripts, the pharmacy benefit manager. By adding a new competitor, Amazon’s entry into the market could make it simpler for some of the deals to get approval from regulators.
Last year, to get ahead of Amazon, CVS said it was going to offer next-day delivery of prescription drugs and same-day service in some large cities. That began in June, for a fee of $4.99.
In 2013 TJ Parker, a pharmacist, and Elliot Cohen, an engineer, who met at a health care innovation program at the Massachusetts Institute of Technology, founded PillPack. The company distributes pills in easy-to-use packages designed for consumers with chronic conditions and multiple prescriptions. PillPack sorts prescriptions by the dosage and includes a label showing a picture of each pill and directions on how to take it.
PillPack’s main pharmacy is in Manchester, N.H. It has additional pharmacies in Miami, Brooklyn and Austin, Texas. The company, which has licenses to deliver drugs in all 50 states, does not ship its products to Hawaii now.
PillPack, which has raised $118 million in funding, has investors such as Accel Partners, Atlas Venture, CRV, Founder Collective, Menlo Ventures, Sherpa Ventures and Techstars. Its revenue was $100 million in revenue in 2017, and it has been considered as a potential target for larger businesses looking at online drug sales because of its national reach and its ability to work with major benefit managers and insurers.
While Americans buy many products online, prescription drugs are an exception. Industry analysts say that 90 percent of prescriptions are filled at a pharmacy counter. If Amazon gets its foot in the door, it could make a drastic change in the industry.
Analysts think that the deal for PillPack could be just one element of Amazon’s broader health ambitions. Amazon, Berkshire Hathaway and JPMorgan Chase are forming an independent health care company for their U.S. employees. Recently, the companies announced that Dr. Atul Gawande, a Harvard surgeon and staff writer for The New Yorker, would become the company’s chief executive. Amazon is also trying to expand its medical supplies business and has gotten wholesale pharmacy licenses from several states this year to sell medical equipment to businesses. Amazon products could be supplying operating and emergency rooms, as well as outpatient locations.