What's going on?
On Thursday, Amazon rocked the healthcare sector by announcing it’ll buy American online pharmacy PillPack for $1 billion (tweet this).
What does this mean?
The US healthcare sector is in the midst of disruptive change, leading drug retailers to buy up data-heavy insurance companies and middle men in the drug distribution process. When Amazon (along with JPMorgan Chase and Berkshire Hathaway) launched a new healthcare company in January, investors thought it might dominate the sector with further deals – disrupting the industry like it has with books, clothes and pet products.
Founded in 2013, PillPack delivers packets of prescription drugs to people’s homes – and uses customers’ data to remind them when to order more drugs, or check that they have the right insurance. The company’s got licenses to operate all over the US, meaning it’s well placed to supercharge its growth under Amazon’s umbrella of “everything”.
Why should I care?
For markets: Bad news for traditional pharmacies.
Stocks of the two largest pharmacies in the US, Walgreens Boots Alliance and CVS Health Corporation, fell by almost 10% as the news hit. Investors are likely selling their shares because they’re worried these companies will lose customers to the ecommerce giant. Amazon has a history of slashing prices in order to dominate a market – and trying to compete could dent profits, without any guarantee of success.
The bigger picture: Consumer healthcare is a large market.
Americans spent almost $330 billion on prescription medicine last year – and this is forecasted to almost double by 2021, which may explain why Amazon and co. are interested in the market. Walgreens’s recent addition to the Dow Jones Industrial Average – a group of thirty significant US companies – shows healthcare’s increasing importance in the US economy. It replaced General Electric, which was once the world’s most valuable company.