Wall Street Journal Article:
One thing that worries me is that at least 75% of prescription drugs are paid using insurers and that online pharmacies have huge hurdles in establishing relationships with these insurers. But I think it was either the PlanetRx or Drugstore.com CEO who said that over 90% of insurers will establish business with the online pharmacy by the end of the year...
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May 18, 1999
Tech Center
CVS Agrees to Buy Soma.com
For $30 Million in Stock Deal
By LAURA JOHANNES
Staff Reporter of THE WALL STREET JOURNAL
CVS Corp., eager to gain a foothold on the Internet, agreed to acquire online
start-up Soma.com for $30 million in stock.
For CVS, the nation's largest prescription retailer, the move represents an
important strategic expansion. Buying Soma will allow CVS to open a full-service
online pharmacy late this summer, instead of in November as previously planned,
said Chief Executive Tom Ryan. And in the fast-moving online arena, that time
could prove critical, particularly in forming alliances -- with Internet portals, for
example -- that can funnel people to its Web site, he said.
CVS said it plans to market the online option
aggressively, aiming to pick up new customers as
well as bolster the loyalty of existing ones. "It's all
about making life easier for the customer and giving
them what they want," Mr. Ryan said.
In New York Stock Exchange composite trading Monday, shares of CVS rose 50
cents to close at $46.
Soma, founded in 1997 by entrepreneur Tom Pigott, in January became the first
major site to begin selling a wide range of prescription drugs online. It was
quickly followed by two others, PlanetRx Inc. and Drugstore.com Inc., which is
40% owned by Internet retailer Amazon.com Inc. All see a chance to grab a
slice of the $150 billion in U.S. drugstore sales, $78 billion of which is in
prescription drugs.
Soma will retain its Seattle headquarters and operate as a unit of CVS. Mr.
Pigott, who is 30 years old and retained a 75% stake in Soma, will be chief
executive of the unit. CVS says it will use its own brand name in online
commerce.
The name Soma was chosen by the start-up because it means "whole body" in
Greek. It is also an odd trademark for a drug vendor -- the name Aldous Huxley
gave to a feel-good drug in his novel "Brave New World."
So far, CVS is the only major drugstore chain to make such an aggressive push
into Internet retailing. Walgreen Co. to date has limited its Internet commerce to
refilling prescriptions. That is because it is taking the time to build its own
full-service online pharmacy, which it expects will be operational by the end of
the year. Walgreen, of Deerfield, Ill., leads CVS in total sales but trails it in
prescription drugs.
With its backing by Amazon and other
significant funding, Drugstore.com will likely
prove a formidable competitor for CVS. But
Mr. Ryan says that online startups are at a
disadvantage without broader relationships
with health insurers, which pay for many of
the medicines bought in the U.S. CVS has
relationships with a broad spectrum of
insurers, and has the added advantage of
being able to offer customers the choice of
having drugs delivered by mail or picking
them up at one of its 4,100 stores.
Drugstore.com spokeswoman Debby Fry
Wilson said CVS's involvement will likely
"bring more customers to the whole
category and create more opportunities for
everyone. Once customers are sold on the concept, changing providers is just a
click of the mouse."
CVS, however, also boasts major marketing muscle, including television ads and
newspaper inserts. "They're going to start putting a dot-com on the bottom of
three quarter of a billion bags," said Mr. Pigott. "How are you going to compete
against that?"
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