What PillPack Purchase Means for Amazon, Healthcare
The online giant gains a foothold within the pharmaceutical supply chain.
The other shoe finally dropped:
We see Amazon's acquisition of online/mail-order pharmacy PillPack as a logical way to further its push into the pharma category while offering layers of potential synergies. PillPack, which generated around $100 million in revenue during 2017 according to PitchBook data, distributes presorted medications in personalized packages while offering services such as 24/7 online pharmacist support. From Amazon's perspective, acquiring PillPack could resolve some of the regulatory hurdles the company would face in building out a larger mail-order prescription business (PillPack CEO TJ Parker has previously stated the company is licensed across the continental United States). However, PillPack also offers a new source of customer data that could be utilized for future cross-selling opportunities (both online and in physical stores) or the new Amazon/
Terms of the transaction were not disclosed, though Tech Crunch reported that Amazon's purchase price was "just under $1 billion" (and more than
However, we also believe it will still be tough for the Amazon to create any major disruption within the healthcare space given the insurance dynamics that drive the market. From our perspective, any new competitor will need to deal with the large and powerful customers. Despite what some market participants believe, the true end customer in the pharmaceutical space is not the consumer of drugs, but rather the insurer/employer/government that pays for the health benefits of the consumer. Accordingly, the expertise needed to profitably navigate the space precludes an easy opportunity for new entrants. We believe the current downward stock price move from fears of new disruptive competition for the drug space creates an opportunity for investors to acquire the solid moaty firms of drug wholesale and PBM industries at discounts.
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