Amazon to buy Somerville online pharmacy startup PillPack

PillPack delivers medications in presorted dose packages and employs more than 700 people.Pat Greenhouse/Globe Staff/Globe Staff

For years, drugstore chains have held their breath as rumors circulated about Amazon’s interest in capturing some of the 4 billion prescriptions filled for Americans each year.

On Thursday, the retail giant made its move, saying it would buy PillPack, a Somerville startup that delivers medications by mail.

The deal makes clear that the Seattle company, which has upended retail category after retail category, is now targeting an industry with 60,000 pharmacy locations across the United States.

The acquisition is Amazon CEO Jeff Bezos’s second recent foray into health care, coming on the heels of the announcement that the country’s richest man is helping to launch a Boston-based joint venture that aims to reinvent health care delivery.

PillPack, which delivers medications in presorted dose packages and employs more than 700, also has offices in Manchester, N.H. With its user-friendly packaging and design, the company has shaken up the pharmacy business, generating more than $100 million in revenue last year.

The company had previously been rumored to have been in talks with Walmart.

Terms of the arrangement with Amazon were not immediately disclosed; The Wall Street Journal reported the sale price was approximately $1 billion. The companies said the deal would have to clear regulatory hurdles before it is complete. They expected to close the deal by year’s end.

Kenneth Kaufman, managing director of the health care consulting firm Kaufman Hall, said the acquisition falls into the sweet spot of Amazon’s targets, in part because of PillPack’s emphasis on helping people take their medications as directed.

Poor “drug adherence” is a major problem in the United States, according to a report in the Annals of Internal Medicine. The study said the problem is to blame for 10 percent of hospitalizations, 125,000 deaths per year, and as much as $289 billion in added medical costs annually.

“If you’re a person who fills prescriptions, you know it’s an inherently clunky process,” Kaufman said. “Amazon wants to do things where it makes the retail transaction much, much easier than it was, and they want to do things that make people’s lives a lot easier. What PillPack does seems to fit right smack in the middle of the Amazon business model.”

PillPack is licensed to ship prescriptions to customers in every state but Hawaii, and it says it has tens of thousands of customers.

Shares of Walgreens Boots Alliance and CVS Health Corp. were both down by the close of business as investors reckoned with the reality that Amazon is making a serious play for the drugstore chains’ business. Walgreens closed at $59.70 a share, down 9.9 percent, while CVS closed at $65.78, down 6.1 percent.

Meaghan Werle, an analyst who follows Amazon at Kantar Consulting, said the move is part of Amazon’s effort to create a “lifestyle ecosystem” for its customers with its popular Prime service, which offers shipping benefits and access to exclusive television programming, among other things.

She said the company’s recent acquisition of Whole Foods Market meshes with the PillPack deal in the service of supporting members “living a healthier lifestyle.”

Werle said she imagines a day when Amazon customers could refill prescriptions through their voice-activated Amazon Echo devices. Or the company could offer tailored meal plans to people with conditions such as diabetes.

“Other retailers cannot compete with that because they have so many touchpoints,” Werle said of Amazon.

The prospect of major retailers like Amazon getting into the business has already roiled the traditional pharmacy world. In February, the grocery chain Albertsons Cos. said it would buy Rite Aid in an effort to hold off Amazon.

And CVS is acquiring the insurer Aetna in a bid to strengthen its business of managing pharmacy benefits in the face of new competition. The Woonsocket, R.I., pharmacy giant also announced this month that it was launching its own pharmacy delivery service nationwide, with prescriptions delivered in one or two days for $4.99.

But analysts said the unique challenges inherent in the prescription drug market will keep Amazon from disrupting the industry at the same pace as it has with retail. For one thing, the major pharmacies have a massive head start: Of the $350 billion that Americans spend annually on prescription drugs, CVS and Walgreens account for 40 percent, and Walmart for just 5 percent, said Brian Owens, a health care retail analyst at Kantar.

And while Amazon may streamline online prescription deliveries, the majority of customers still trust human pharmacists more than automated services.

There’s another hurdle for Amazon: HIPAA regulations that safeguard the privacy of medical information. It may be in the company’s interest to try to sell kale from Whole Foods to customers with heart disease, Owens said, but they’re not legally able to do so unless a customer opts in.

If anything, Amazon’s move will force the major players to be more agile and to reinvest in serving their customers, he said. “I think this will elevate CVS and Walgreens’ game,” Owens said.

PillPack, which raised $118 million in venture capital funding, was an early disruptor in Internet-based delivery of medications.

“Together with Amazon, we are eager to continue working with partners across the health care industry to help people throughout the US who can benefit from a better pharmacy experience,” PillPack chief executive TJ Parker said in a statement.

Parker, a licensed pharmacist, grew up behind the counter of his father’s drugstore in Concord, N.H., and has spoken of his exasperation in seeing customers resort to spreadsheets to figure out how to schedule and sort their medications.

PillPack set out to help people who have multiple prescriptions better manage them. The company ships its customers refillable dispensers along with rolls of plastic packages that hold their pills. The pills are sorted into packets with other medications that customers are supposed to take at specific times of the day.

“PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier,” Jeff Wilke, chief executive of Amazon Consumer Business, said in a statement. “We’re excited to see what we can do together on behalf of customers over time.”

Amazon’s acquisition of PillPack could give the retailer another major foothold in New England, where it has made several major acquisitions and investments in recent years. It has also laid out plans for a major new office with 900 workers in Boston’s Fort Point neighborhood.

And that number does not take into account the 50,000 employees Amazon has said it could hire here if it selects the Boston area for its so-called second headquarters.

Bezos and two other major US business leaders, investor Warren Buffett and JPMorgan Chase CEO Jamie Dimon, also chose Boston as the locus of their new venture to transform health care delivery. The new company will be led by doctor, author, and health policy advocate Atul Gawande.

“My vision,” Gawande wrote of the effort, “is to develop high-impact collaborations across the health care sector.”

Amazon made a splash in 2012 when it paid $775 million for Kiva Systems, a North Reading robotics company that has helped it automate warehouse operations. Late last year, it bought the Andover company that makes the Blink line of home security cameras. It also recently acquired Sqrrl Data Inc., a Cambridge cybersecurity firm founded by former employees of the National Security Agency.