Walgreens falls 11% to drive down drugstore inventories after beginning the 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.
The average member of the Dow Jones Industrial, Walgreens Boots Alliance, was down more than 11% in premarket trading. CVS Health stocks lost over 8%. Rite Aid's shares fell 12.8%, while GoodRx stock also fell.
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 rose 2.4% in premarket retailing after the announcement.
The pressure from Amazon comes from the fact that pharmacy stocks already underperformed the broader market in 2020. CVS stocks are down 1% year-to-date, while Rite Aid is 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.