Pharmacy stocks are getting slammed after Amazon buys PillPack (AMZN, WBA)

Amazon buys online pharmacy in move into drug business | TheHill

Shares of Walgreens and CVS Health Corp. dropped in pre-market trading today on news that Amazon.com Inc.is poised to acquire PillPack, an online pharmacy service that holds licenses in all 50 states.

Walgreens Boots Alliance (RL) announced a $10 billion stock buyback and raised its dividend as the drug store giant reported issued its first quarterly earnings as a Dow Jones industrial average component.

Terms were not disclosed. The deal is expected to close in the second half of 2018, according to a statement from the companies.

Importantly for Amazon, PillPack already has mail-order pharmacy licenses in all 50 USA states, which could enable Amazon to expand quickly into the broader mail-order pharmacy business.

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"This is incredibly bad news for traditional players, like Walgreens and CVS, who stand to lose the most from Amazon's determination to grow its share".

As a smaller player, PillPack might also have trouble offering pharmacy benefit managers and insurers the types of discounts on medications they'd like, Lekraj said.

The potential of Amazon's (AMZN.O) move to disrupt major players across the drug supply chain on a nationwide level prompted a selloff in shares of potential future rivals, while sending its own shares up 2 percent.

Amazon did not say how much it was paying for PillPack.

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An Amazon package is seen after being delivered in London, Britain February 29, 2016. "Pharmacy networks are controlled by managed care companies and pharmacy benefit managers with captive mail order capabilities".

The acquisition comes after Amazon in January teamed with Warren Buffett's holding company Berkshire Hathaway and financial services giant JPMorgan Chase to form a not-for-profit organization aimed at serving the health care needs of their US-based employees.

Echoing that sentiment, Morningstar senior analyst Vishnu Lekraj called the stock's tumble after the Amazon news a "huge overreaction", in an interview after the call.

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