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How Caused CVS Health's Shares to Drop 6% in May

By Todd Campbell – Updated Jun 9, 2017 at 10:15AM

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Rumors is considering launching a pharmacy business took a tool on pharmacy retailers and pharmacy benefit managers last month.

What happened

Amazon (AMZN 2.19%) could compete head-to-head against pharmacies and pharmacy managers someday, and that news was enough to send shares in CVS Health (CVS 0.30%) reeling more than 6% last month, according to S&P Global Market Intelligence.

So what

According to CNBC, is hiring the people necessary to create a pharmacy benefit manager for its employees, and that could eventually lead to it rolling out pharmacy services commercially

A CVSHealth banner showing a heart hangs from a building


The company has hired Mark Lyons, a former director at Premara Blue Cross who joined Amazon as senior manager of pharmacy benefits in April, according to his Linkedin profile.

In his past roles, Lyons led a team of clinicians and analysts that supported national account managers with clinical consulting, including employer reporting and benefit consulting. He also has experience implementing pharmacy programs that manage prescription drug costs. hasn't officially let anyone in on its plans, but the potential to leverage its massive buying power and distribution infrastructure to cut costs out of the pharmacy supply chain was enough to spark worry in CVS Health investors. As a refresher, CVS Health operates a massive retail pharmacy footprint that includes over 9,600 stores, and it also manages pharmacy benefit programs for health insurers and self-insured companies.

In the first quarter, CVS Health's retail and pharmacy benefit business generated a combined $44.5 billion (yes, billion) in revenue and net income of $953 million. 

What now

It's no shocker that the drug distribution model is ripe for someone like to disrupt it. Drug companies have been all over the news because of alleged price gouging, and the current distribution model means wholesalers and retailers are increasing drug costs to consumers, too.

Having said that, is famous for throwing everything at the wall to see what sticks, and as fellow Fool Billy Duberstein recently pointed out, has traveled this road previously via an investment in, a now shuttered business.

Perhaps, as Dubenstein suggests, the experience provides lessons learned that can leverage for success. Or, perhaps's willingness to let Walgreens Boots Alliance acquire is a sign that it has no interest in the regulatory craziness involved in running such a business.

Only time will tell if will make a splash in pharmacy, but the threat to CVS Health's share price will likely remain until investors have a better understanding of its plans. 

Todd Campbell owns shares of Amazon. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool owns shares of Express Scripts. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.

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