An Amazon distribution center
Ina Fassbender/AFP via Getty Images
Amazon.com officially entered the pharmacy business on Tuesday, unveiling Amazon Pharmacy and stinging the shares of drug chains CVS Health and Walgreens Boots Alliance.
The online colossus (ticker: AMZN) will offer free two-day delivery of prescriptions to its Amazon Prime members, a pharmacist-staffed help line, and a discount card for uninsured consumers. This last feature could become a headache for the recently public GoodRx Holdings (GDRX), and Amazon’s announcement socked GoodRx shares for a 20% loss Tuesday morning, at $37.50.
As for the drugstores, CVS stock (CVS) sank 9% to $67. Walgreens (WBA) also lost 9%, at $40, while the smaller Rite Aid (RAD) fell 16%, to $10.88. Even the drug distributors AmerisourceBergen (ABC), McKesson (MCK) and Cardinal Health (CAH) saw their stocks sink, as traders extrapolated Amazon’s impact along the supply chain.
Investors are overreacting. Amazon entered the pharmacy business two years ago, with its purchase of PillPack. Tuesday’s announcement of free shipping and discount cards adds nothing that is not available from CVS and Walgreens. UBS analyst Eric Sheridan sees the Amazon’s move as a way to add value to its Prime membership program and capture more of its members’ spending.
At Bank of America Securities, Michael Cherny notes on Tuesday that mail-order represents less than 20% of all prescription drug sales. CVS and Walgreens are expanding their high-touch services, making their stores into health-care outposts staffed by medical professionals. With its Aetna acquisition, CVS is well on the way to integrating services from insurance to retail, so Cherny maintains his Buy rating on the stock.
Walgreens is proceeding more slowly through a partnership with VillageMD medical clinics, so the BofA analyst says he is maintaining his Underperform rating on Walgreens stock.
The heaviest impact from Amazon’s news may be on GoodRx, says UBS’s Sheridan. After the drug discount card company came public in September, Sheridan launched coverage last month with a Buy rating.
On Tuesday, he acknowledged that Amazon had become a significant competitive threat by offering its Prime members the InsideRx discount program run by Cigna (CI). That could challenge growth and customer acquisition at GoodRx, Sheridan says.
Write to Bill Alpert at [email protected]
