Amazon gets a drug distribution beachhead in PillPack buy

For about a year, market watchers have been tracking Amazon's every move in healthcare for clues about its intentions in pharmaceuticals. Now, the online retail and tech giant has made perhaps its biggest foray yet into the field, hitting shares of retailers and distributors in the process.

The company picked up independent pharmacy PillPack for an undisclosed amount on Thursday, allowing it access to PillPack's pharmacy distribution system designed to make getting prescriptions simpler for patients. PillPack is authorized to ship drugs in 49 states, according to Reuters. Evercore ISI analysts wrote that it's now "undeniable" that Amazon is entering the pharmacy industry, according to CNBC's Meg Tirrell.

Last year, a PillPack representative said the company is the "only independent pharmacy that currently delivers medications nationwide." The startup serves tens of thousands of customers and last summer launched PharmacyOS, a system designed to simplify interactions between pharmacies, patients and payers and assist patients who manage multiple prescriptions. In a video explaining the system, PillPack CTO and co-founder Elliot Cohen said PharmacyOS is "more than just a rethinking of a pharmacy system."

"It truly represents the early stages of a platform that over time will create a radical shift in chronic care management," he said.

Shares of other drug distributors and pharmacies fell Thursday on the news, including 9% drops at both CVS Health and Walgreens. McKesson, Cardinal Health and AmerisourceBergen shares were all down after the news.

In April, CNBC reported that Walmart was looking to buy PillPack for less than $1 billion. Now, that deal appears to have fallen through as Amazon came through with an undisclosed offer.

Brent Thill, an analyst at Jefferies, told Bloomberg the deal is the "tip of the iceberg" in terms of Amazon's plan in healthcare.

"We wouldn't be surprised to see pharmacies in Whole Foods at some point," he told the news service. "We would not also be surprised to see them push into other areas of healthcare. The process is fundamentally broken. The way we get drugs today is probably one of the worst processes as a consumer."

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The PillPack acquisition comes only a week after Amazon and partners JPMorgan and Berkshire Hathaway announced they're appointing surgeon and public health expert Atul Gawande, M.D., to the CEO role of their healthcare joint venture. The venture, unveiled in January, will focus initially on solutions to provide employees and their families “simplified, high-quality and transparent healthcare at a reasonable cost.” 

For about a year, analysts and industry watchers have been speculating about a potential move by Amazon into the drug distribution business. Along the way, rumors have swirled that the company looked at medical supplies and device sales and generics sales and talked with pharmacy benefit managers about a potential partnership.