When Amazon announced plans to buy pharmacy startup PillPack, the reckoning across the entire industry’s supply chain was swift and brutal.
Drug wholesalers like Cardinal Health, AmerisourceBergen and Express Scripts experienced deep losses. Meanwhile, Walmart— another mega-cap retail with designs on entering healthcare— also saw shares fall.
But no area of the market felt the pain worse than pharmacies themselves. Losses in Walgreens Boots Alliance, CVS, and Rite Aid exceeded 10% at their worst, with nearly $15 billion of market value wiped out.
What transpired was the most recent in a long list of instances where Amazon has taken huge bites out of entire industries. And what’s notable about this particular case is the outsized degree of the market cap erased, relative to the price Amazon paid for PillPack.
If Amazon can carve a $15 billion chunk out of just three companies with a $1 billion deal, just think of the damage it could inflict once it starts throwing around more money. After all, the Jeff Bezos-led juggernaut had $25 billion of cash on its balance sheet at the end of the first quarter — and it could amass more if it ever decides to spend less on corporate reinvestment.
In a conference call with analysts on Thursday, Walgreens CEO Stefano Pessina seemed nonplussed about the damage coursing through his company’s stock, saying he’s “not particularly worried” about the one-day move.
“The pharmacy world is much more complex than just delivering certain pills or packages,” said Pessina. “I strongly believe that the role of the physical pharmacy will continue to be very, very important in the future.”
It wouldn’t be unprecedented for a stock in one of Amazon’s target markets to recover. For evidence of that, look no further than Kroger, which found itself at the center of a previous Amazon-driven industry scare.
Kroger dropped as much as 19% in a single day in June 2017 after Amazon announced a $13.7 billion acquisition of Whole Foods, and then experienced a fresh bout of weakness two months later after price cuts were announced. The stock has since rallied as much as 30%, climbing back near the levels seen before Amazon’s mega-deal.
So while Amazon’s influence isn’t necessarily a deathknell for a stock, it’s undoubtedly a short-term inconvenience, at the very least. Stay tuned for the next round, which could very well catch a whole new industry off-guard.
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