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What Happened
Shares of Leading Drug Stores CVS Health Corp. (NYSE: CVS) Rite Aid Corporation (NYSE: RAD) and Walgreens Boots Alliance Inc. (Nasdaq: WBA) sank 9% or more from 11:07 EDT Thursday. The three great values were touched by the same big news: Amazon (NASDAQ: AMZN) acquisition of PillPack.
Amazon announced Thursday morning that she had entered a definitive position. agreement to buy PillPack, an online pharmacy with licenses in the 50 US states. Jeff Wilke, head of Amazon's global consumer business, said the online sales giant wanted to help PillPack "continue to make it easier for people to save time, simplify their lives and feel better." health".
Source: Getty Images
Then
Reports surfaced there are more A year that Amazon was exploring the possibility of entering the pharmacy market. However, major pharmacy chains appeared to have paused in April with rumors saying that Amazon could stay clear of the prescription drug market after all. The acquisition of PillPack, however, means that Amazon is now likely to compete directly with CVS Health, Rite Aid, and Walgreens.
The impact of the Amazon agreement could be important. Millions of customers purchase other products via Amazon for convenience, reduced costs, and speed of delivery. With PillPack, Amazon is gaining a team with vast experience in the pharmaceutical industry. PillPack is also already in the networks of most major drug benefit managers and Medicare Part D plans.
However, some pharmacy chains may not be as affected by the entry of a new great competitor than others. CVS Health has already started implementing a home delivery program, offering overnight delivery of all its stores and same-day delivery in some major markets. Wall Street analysts have dubbed it "Amazon Strategy" when CVS announced plans late 2017.
Walgreens Boots Alliance CEO Stefano Pessina said Thursday morning in his company that he was not going to Was not particularly worried about Amazon's competition. With the purchase of a large number of Rite Aid stores, Walgreens now has more than 13,200 retail pharmacies in 11 countries. Pessina views PillPack as a small player that can not match the scope of Walgreens' operations, and it seems doubtful that Amazon is capable of handling the complexities of pharmaceutical activity.
Rite Aid, by contrast, is much smaller after selling 1,932 stores at Walgreens. The company does not have the economies of scale that its rivals have – and these rivals could soon include Amazon.
Now what
Amazon has stated that the PillPack agreement should be finalized in the second half of this year, pending regulatory approvals. It could be fine in 2019 or even later before Amazon's presence in the retail drugstore market starts to be felt.
However, investors should not ignore the disruptive potential that Amazon could bring to the retail pharmacy sector. The sale of prescription drugs is certainly a highly regulated activity, but Amazon has the financial resources to quickly acquire the expertise it needs to overcome any obstacles.
CVS Health, Rite Aid and Walgreens Boots Alliance could end up in a different battle in the future. Investors might want to be wary of the actions of these big players who do not take seriously the threat of Amazon.
John Mackey, CEO of Whole Foods Market, an affiliate of Amazon, is a board member of The Motley Fool's Board of Directors. Keith Speights has no position in any of the actions mentioned. The Motley Fool owns shares and recommends Amazon. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.
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