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Investors Shouldn't Panic About Amazon's PillPack Purchase

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Shares of pharmacy giants CVS (CVS - Free Report) , Rite Aid (RAD - Free Report) , and Walgreens Boots Alliance (WBA - Free Report) all plummeted on Thursday morning after Amazon (AMZN - Free Report) announced its purchase of online pharmacy delivery startup PillPack. The move clearly has some investors worried that Amazon’s push into the pharmaceutical industry will hurt the current powers. So let’s take a look at more of the details to find out what’s really going on.

PillPack

Amazon is reportedly set to acquire PillPack for $1 billion in cash, in a deal that is expected to close in the second half of 2018. PillPack launched in 2013 and ships pre-sorted medications by the dose to patients on a monthly basis. The company, which is a full-service pharmacy, works mostly with customers who take multiple daily prescriptions and coordinates refills and renewals with doctors and customers.

The Manchester, New Hampshire-based pharmacy delivery startup said that it ships everywhere in the U.S. except Hawaii. PillPack has raised $118 million in venture capital funding, and its co-founder and CEO TJ Parker said last fall that the company had tens of thousands of customers and was set for more than $100 million in annual revenue.

The deal should be hugely beneficial for Jeff Bezos’ behemoth, which now enters the quickly growing, $400 billion U.S. pharmaceutical industry. The news saw shares of CVS sink 9.36% through early morning trading, with Rite Aid down 11.17% and Walgreens down 8.59%.

Meanwhile, shares of Amazon climbed over 1.1%. But pharmaceutical industry investors shouldn’t be too worried that Amazon will simply waltz in and take over.

It’s Not Over, Yet

Amazon’s PillPack acquisition comes roughly a year after the company shook up the grocery industry with its Whole Foods purchase. Investors worried at the time that grocery heavyweights such as Kroger (KR - Free Report) , Walmart (WMT - Free Report) , Costco (COST - Free Report) , and Target (TGT - Free Report) would all take a big hit, and possibly crumble underneath Amazon’s quick delivery e-commerce model. This turned out not to be the case—at least not yet (also read: Should You Buy Grocery Stocks After Kroger's Strong Quarter?).

All four of these grocery industry powers simply revamped their business models and dove right into everything from same-day delivery and easy to use e-commerce portals, through partnerships with startups as well as in-house initiatives. Today, the grocery industry and customers are likely better off than they were before Amazon bought Whole Foods for roughly $14 billion because it forced them all to offer more.

Sometimes lost in the narrative that Amazon will one day dominate the world, is that the e-commerce giant’s multibillion-dollar competitors, many of which have been around much longer than Amazon, can adapt—and have every reason to fight back. In fact, Walgreens executives were in the middle of a call with analysts when Amazon announced its PillPack deal. CEO Stefano Pessina said his company is “not particularly worried” about the e-commerce giant’s newest acquisition.

Pessina went on to say that his drugstore chain is “not complacent.” He also said that “the pharmacy world is much more complex than just delivering certain pills or packages. I strongly believe that the role of the physical pharmacy will continue to be very, very important in the future.”

Investors should note that Walgreens is ramping up its delivery options and adding to its in-store health-related services. Meanwhile, CVS announced just last week that it will offer its customers prescription delivery options through a new deal with the U.S. Postal Service.

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