From A to One Medical: Amazon buys clinic operator for $4B

Amazon set its health care efforts to warp speed with an all-cash agreement to purchase Carlyle-backed primary care network One Medical for $3.9 billion including debt.

Why it matters: Amazon's health tentacles — already far-reaching in virtual and in-person care, pharmacy and wearables — are now threatening to firmly edge out its retail pharmacy and Big Tech competitors.

• While the deal, announced this morning, is a small drop in the bucket for the e-commerce giant from a dollar perspective, Amazon is making its commitment to health care delivery (and a physical footprint) crystal clear.
• The buy also gives Amazon a foothold in the large Medicare market, given One Medical's previous purchase of Iora Health.
• Finally, it puts Amazon in a favorable geographic position to unify its efforts in in-person and virtual care, creating a widespread national network.

Deal details: Amazon will pay $18 per share for ONEM, a nearly 77% premium over the clinic operator's closing share price on Wednesday.

• Carlyle, which invested up to $350 million into One Medical in 2018 and remained invested post its 2020 IPO, will exit its position in full with the transaction, sources tell Axios.
• Morgan Stanley advised One Medical on the deal, three sources say. There was no formal sale process, with the outcome based on inbound interest, one source says.

State of play: Amazon's booming health conglomerate already includes:

• Virtual and in-person primary care, including Amazon Care and a network of clinics it operates for Amazon staff with Crossover Health.
• Amazon Pharmacy, built from its acquisition of PillPack.
• Fitness trackers in the form of the Amazon Halo.
• Diagnostics for COVID testing and more, with Amazon Dx.

The big question: Where among Amazon's sprawling health care efforts does One Medical fit, and how will the tech behemoth weave the buy into its existing primary care bets?

• The buy gives Amazon access to One Medical's employer relationships, which it could leverage in new ways (either in tandem with Amazon Care or separately).
• It also beefs up its existing medical group, Care Medical.

What they're saying: By gaining another employer channel, Amazon now has the wherewithal to expand into other areas like mental health, women's health or pediatrics — potentially via M&A, sources tell Axios.

• It could also move into higher acuity areas like chronic care management.

• Or perhaps, sources speculate, set up pharmacy kiosks to fill prescriptions at Whole Foods, build its own "minute clinics," or even start a One Medical membership as part of Amazon Prime.

Catch up quick: One Medical under Amazon is presumably positioned to turbocharge growth, but seems to have been a home run for exiting investor Carlyle.

• Over the course of Carlyle's investment, One Medical grew from about $200 million in revenue in 2018 to roughly $1.1 billion projected this year — reflecting about 400% top-line growth, sources say.
• One Medical's employee base grew 3x to 3,000; it added health system partnerships in 29 new markets; and more than 100 new clinics to a total of 188 today.

Yes, and: One Medical was also at the forefront of the digital health IPO boom as one of a handful of such public companies in January 2020, alongside a few other players like Teladoc and Phreesia.

The bottom line: While the cohort of value-based primary care players is getting crushed in the public markets, the deal arguably validates the role and inherent value of the segment's disruptors going forward.

• "Anyone competing with them should be terrified," one source comments.