Walmart was poised to buy online pharmacy start-up PillPack before Amazon swooped in with a higher offer.
Sources say that PillPack and Walmart were in talks for months about an acquisition for less than $1 billion, but Walmart was dragging its feet on making a final offer. When CNBC reported the deal in early April, Amazon, which had previously been pitched to a lukewarm reception, moved to step up with an offer for around $1 billion in cash, says a source familiar with the discussions.
Two people say PillPack was also fundraising earlier in the year to help it move into the next phase of growth, while kicking off its search for a buyer. From the beginning, PillPack was clear to potential buyers that it would continue operating its business that delivers to tens of thousands of customers with complex medical conditions.
PillPack declined to comment.
What Amazon stands to gain from the deal is pharmaceutical licenses in 49 U.S. states, excluding Hawaii. PillPack, which neatly packages and delivers medicines across the country, also has a mail-order contract with Express Scripts, which manages prescription drug benefits on behalf of insurers and is the largest U.S. pharmacy benefits manager.
That agreement expires at the end of July, said Express Scripts spokesman Brian Henry, and would need to be renegotiated.
The deal for PillPack is a potential threat to drug stores and retailers ranging from CVS to Walmart. Walgreens executives told analysts on Thursday that the company is "not particularly worried" about this move.
Amazon for months has been gearing up for a move into the pharmacy space, through conversations with drug supply chain experts and key hires. But the move to buy PillPack puts Amazon more concretely into the space, in addition to its partnership to disrupt health care with J.P. Morgan and Berkshire Hathaway. That group's CEO, Atul Gawande, has already made clear that the venture will take aim at health-care "middlemen" with a focus on innovative new technology.