Amazon Makes $1 Billion Splash in Health Care, Buying PillPack

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Amazon.com Inc. is buying its way into the heart of the U.S. health-care system, instantly shaking up a prescription-drug industry already in the midst of a broader transformation.

Insurance companies and drug-benefit managers have struck a series of deals in recent months designed in part to thwart a potential big splash in the health world from Amazon. But the online retail giant’s decision to buy online pharmacy PillPack rapidly accelerates the threat posed to entrenched retailers, suppliers and middlemen.

Most immediately, the move represents a formidable challenge to pharmacy chains including Walgreens Boots Alliance Inc. and CVS Health Corp., the two largest drugstore chains in the U.S. Walgreens shares sank 8.5 percent at 10:49 a.m. in New York, while CVS shares shed 8.9 percent.

“This provides an avenue for Amazon to disrupt major pharmacy chains the way that they’ve disrupted booksellers, pet supplies, clothing and other big-box retailers,” said Lisa Bielamowicz, president of consultancy Gist Healthcare.

Amazon will pay about $1 billion for Boston-based PillPack, according to a person familiar with the matter. 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 vast. In 2016, U.S. consumers spent $328.6 billion on retail prescription drugs, according to U.S. government data. CVS had prescription sales of $59.5 billion last year, while Walgreens sold $57.8 billion worth of drugs in its fiscal 2017.

Amazon Chief Executive Officer Jeff Bezos, after building his brainchild into the world’s biggest online retailer, has been using in-house engineering and acquisitions to infiltrate a growing number of businesses. He took on the $800 billion grocery industry with last year’s purchase of Whole Foods, and broke into consumer electronics with the creation of the Kindle e-reader and Echo voice-controlled speaker.

Bezos already has signaled his frustration with a health-care system characterized by rising costs for consumers and companies, sometimes-poor outcomes, and unnecessary complexity. Earlier this year, he and fellow CEOs Warren Buffett and Jamie Dimon of Berkshire Hathaway Inc. and JPMorgan Chase & Co., respectively, agreed to form a new venture to reshape how the companies handle worker health benefits. The entity recently hired celebrated surgeon and health journalist Atul Gawande to steer the effort.

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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 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.

Bloomberg

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