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What PillPack Purchase Means for Amazon, Healthcare

The online giant gains a foothold within the pharmaceutical supply chain.

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The other shoe finally dropped:

We see Amazon's acquisition of online/mail-order pharmacy PillPack as a logical way to further its push into the pharma category while offering layers of potential synergies. PillPack, which generated around $100 million in revenue during 2017 according to PitchBook data, distributes presorted medications in personalized packages while offering services such as 24/7 online pharmacist support. From Amazon's perspective, acquiring PillPack could resolve some of the regulatory hurdles the company would face in building out a larger mail-order prescription business (PillPack CEO TJ Parker has previously stated the company is licensed across the continental United States). However, PillPack also offers a new source of customer data that could be utilized for future cross-selling opportunities (both online and in physical stores) or the new Amazon/

Terms of the transaction were not disclosed, though Tech Crunch reported that Amazon's purchase price was "just under $1 billion" (and more than

However, we also believe it will still be tough for the Amazon to create any major disruption within the healthcare space given the insurance dynamics that drive the market. From our perspective, any new competitor will need to deal with the large and powerful customers. Despite what some market participants believe, the true end customer in the pharmaceutical space is not the consumer of drugs, but rather the insurer/employer/government that pays for the health benefits of the consumer. Accordingly, the expertise needed to profitably navigate the space precludes an easy opportunity for new entrants. We believe the current downward stock price move from fears of new disruptive competition for the drug space creates an opportunity for investors to acquire the solid moaty firms of drug wholesale and PBM industries at discounts.

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About the Authors

RJ Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

Vishnu Lekraj

Senior Equity Analyst
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Vishnu Lekraj is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the healthcare services industry.

Lekraj joined Morningstar in 2008 after receiving a master’s degree in business administration from the University of Florida’s Hough Graduate School of Business. Before business school, he was a financial analyst for HSBC bank.

Lekraj holds a bachelor’s degree in finance from the Warrington College of Business Administration at the University of Florida, where he graduated summa cum laude. He is also a member of the Beta Gamma Sigma international honor society. In 2012, Lekraj ranked first in the professional services industry in the StarMine Analyst Awards, presented by the Financial Times.

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