Walgreens falls 9% to cut back drug retailer inventories after beginning pharmacy enterprise on Amazon

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

Dow Jones Industrial Average member, Walgreens Boots Alliance, fell 9.6% on Tuesday. CVS Health shares lost 8.6%. Rite Aid’s shares fell 16.3% while GoodRx shares fell 22.5%.

Amazon Pharmacy is available in 45 states and accepts most forms of insurance. Amazon Prime members can also get discounts on generic and branded drugs if they pay without insurance, the company said.

Amazon has been building its pharmacy offering for several years, including acquiring PillPack in 2018. The tech giant’s shares closed slightly higher on Tuesday as the market continued to decline.

The pressure from Amazon comes from the fact that pharmacy stocks were already lagging behind the broader market in 2020. At the close of trading on Monday, CVS shares were down 1% year-to-date while Rite Aid was down 16%.

Investment firm Evercore ISI said in a notice to customers that drugstore stocks will continue to struggle until investors get a better sense of how successful Amazon Pharmacy will be.

“Today’s announcement is net negative and is likely to lead to discussions about the multiples in question despite recent positive news about the role of drugstores in distributing coronavirus vaccines,” the statement said. “This will likely create a slack for the group until we determine the inclusion of Amazon Pharmacy.”

The sell-off of pharmacy stocks follows a long pattern of Amazon’s new ventures, resulting in underperformance among market leaders. When the company announced its purchase agreement for Whole Foods in 2017, grocery stores like Kroger and Costco were hit hard.

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