Markets

Walgreens drops 9% to lead drug store stocks lower after Amazon launches pharmacy business

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Amazon launches online pharmacy in the United States

Pharmacy stocks fell sharply on Tuesday after Amazon launched its new Pharmacy offering, which includes online ordering and delivery for prescription drugs.

Dow Jones Industrial Average member Walgreens Boots Alliance dropped 9.6% on Tuesday. CVS Health shares lost 8.6%. Shares of Rite Aid fell 16.3%, while GoodRx stock declined 22.5%.

Amazon Pharmacy is available in 45 states and accepts most forms of insurance. Amazon Prime members can also receive discounts on generic and name-brand drugs when paying without insurance, the company said.

Amazon has been building its pharmacy offerings for several years, including acquiring PillPack in 2018. Shares of the tech giant closed marginally higher on Tuesday amid a broader decline for the market.

The pressure from Amazon comes as pharmacy stocks have already underperformed the broader market in 2020. As of Monday's close, shares of CVS were down 1% year to date, while Rite Aid had lost 16%.

Investment firm Evercore ISI said in a note to clients that the drug store stocks will continue to struggle until investors can get a better sense of how successful Amazon Pharmacy will be.

"Today's announcement is a net negative and will likely bring back conversations about the appropriate multiples despite recent positive news about the role of drug stores in coronavirus vaccine distribution," the note said. "This will likely create an overhang for the group until we determine the take up of Amazon Pharmacy."

The sell-off for pharmacy stocks follows a long pattern of Amazon's new ventures leading to underperformance among market leaders. When the company announced its deal to buy Whole Foods in 2017, grocery store stocks like Kroger and Costco were hit hard.