Please ensure Javascript is enabled for purposes of website accessibility

Amazon's PillPack Purchase Puts It on a Collision Course With the Pharmacy Sector

By Motley Fool Staff - Jul 5, 2018 at 6:12PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

For $1 billion, the e-commerce giant got an instant large-scale entry into prescription drug sales.

In this segment from Motley Fool Money, two growth industries collide: e-commerce and healthcare. Host Chris Hill and senior analysts Jason Moser, Matt Argersinger, and Ron Gross consider what Amazon's (AMZN 1.74%) acquisition of online pharmacy PillPack will mean for the pharmacy industry broadly.

Wall Street made its opinion quite clear: The three biggest brick-and-mortar drugstore chains lost a combined $10 billion in market cap the day the deal was announced. And that wasn't even the only major industry Amazon moved to disrupt last week.

A full transcript follows the video.

This video was recorded on June 29, 2018.

Chris Hill: This week, Amazon moved even further into the healthcare industry when it bought PillPack, an online pharmacy business, for $1 billion. PillPack is licensed to ship prescriptions. Matty, just like that, Amazon has scale in this game.

Matt Argersinger: I know. If there was any doubt that Amazon was going to get into the drug distribution business, quashed that this week. I'll just note that the disruption that this has done, particularly to Walgreens (WBA 0.87%), CVS and Rite Aid, if you look at when the news was announced on Thursday, those three companies lost $10 billion in combined market value. By the way, the market was up on Thursday. Really, that's the story.

This is the big step. I think Amazon made one step a week ago when they announced who the director of this new healthcare company was going to be. Now, they've firmly put their foot into the drug distribution business, where there is this middleman, high-margin distribution business that is ripe for disruption.

Ron Gross: Also interesting news recently, they're trying to really work on that last mile, the actual delivery to the home. Now, you can become your own trucker, franchisor, with an Amazon van. For a $10,000 investment, you, too, can have your own Amazon delivery business. That's going to be really interesting, too, especially as we move to things like one-day, same-day delivery of things like prescriptions.

Hill: That sounds like an adult version of having a paper route. That sounds like the paper route of the 21st century.

Argersinger: I'm glad Ron brought that up, because if you look at FedEx and UPS, another $3 billion in market cap lost on Thursday as well!

Hill: Let's go back to the drugstores for a second. Beyond the loss in market cap -- I don't want to paint them all with the same brush, but the head of Walgreens made some comments that really struck me as whistling past the graveyard, in terms of, "Well, there's a lot more to the pharmacy business than delivering medication." I understand that, and yet it really did seem like they're not taking this threat very seriously.

Argersinger: I question that. It's probably more complex than we think, but ultimately, that's what we're doing here, people are getting drug, whether it's drugstore or delivery. The nice thing about PillPack is, it's delivered, it's on-demand, it comes in pre-sorted packages, so you know what to take on a given day. I just think that's a really compelling value proposition for customers. So, I question whether it has to be any more complex than that.

Hill: By the way, I know we're long-term investors, but Walgreens has been in the Dow Jones Industrial Average for less than a week, and it's already down about 10%.

Argersinger: Congratulations!

Hill: Some bad timing there.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,260.09 (1.74%) $38.54
Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
WBA
$43.41 (0.87%) $0.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.