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To: Mohan Marette who wrote (133522)	6/19/1999 10:48:00 AM
From: stockman_scott	Respond to of 176387

~OT~ Mohan: Some Insights on the Online Drugstore Marketplace... <<Prescription for growth Science Horizon 06/18/99 4:00 PM By Wilhelm Puricz Raging Bull Two years ago, a medical student from the University of Pennsylvania named Mike Bruner had a brainstorm about creating an online pharmacy. He dubbed his vision PlanetRx. Earlier this year, that vision emerged into cyberspace along with two competitors, Drugstore.com and CVS Corp.'s (CVS) Soma.com. Each company is furiously pursuing the same prize, a stake in the $230 billion market for prescription drugs, personal and beauty products, and vitamins. The budding cyberpharmacies derive 47% of their prescription revenue from refills, and we shouldn't be surprised. Why should you bother taking a trip to the store, waiting in line and having to face the angry “God bless you” of the customer in front of you who just received a back full of germs and mucus? Online drugstores deliver the goods to your door and let you order them from the comfort of your home for a lower price. Out of the $110 billion prescription market, $55 billion is spent on drugs treating chronic illness, making it a gold mine for online pharmacies. A problem with tapping the market, however, is that most of the potential customers are not computer literate. PlanetRx opened another revenue channel, by registering domain names like diabetes.com, where it plans to offer information strictly on diabetes and include links to its online store. The company recently signed a multi-million dollar pact that will allow Warner Lambert's (WLA) Parke-Davis division to advertise on PlanetRx's additional sites. The online drug stores hope to lure customers by providing the convenience of many different pharmacy products at one site. PlanetRx offers more than 25,000 different products to choose from, and Drugstore.com is not too far behind. Soma.com is more concentrated on the pharmacy aspect and does not offer as many items, but it does offer things such as prescriptions for controlled substances, which the other two don't. All three of the companies know that the variety of products will not tell the tale of success. A strong brand name is absolutely necessary to overcome the insecurity of the Internet and compete with already established brands with loyal customer bases. Soma.com's recent buyout by CVS gave that site a head start, as did Drugstore.com's deal to sell a 40% stake in the company to Amazon.com (AMZN). Drugstore.com and PlanetRx have also struck marketing deals with various Internet portals. At this early stage, it has been hard to put a price on these online pharmacies. Part of the reason is the forthcoming of established brand names like CVS, Walgreens (WAG) and Rite Aid (RAD), which have realized that in order to avoid sluggish growth, they must open their doors to the Internet. CVS paid $30 million for Soma.com, while PlanetRx has raised more than $60 million in funding so far. Given the potential of the online pharmacies, it is no surprise that CVS decided to snap up Soma.com before the market decided its value. Drugstore.com, which filed an initial public offering last month, hopes to raise at least $67 million. Two stumbling blocks still stand in the way. The first is the issue of third-party payees. While online pharmacies are already signing up with health maintenance organizations, it has been reported that many payers require that the provider offer a combination of convenient in-market accessibility as well as mail order. That could imply that PlanetRx and Drugstore.com will be looking for agreements with brick-and-mortar pharmacies to satisfy the requirement. Soma.com boasts the highest number of third-party contracts among the three online pharmacies, possibly one of the reasons it sold out to CVS at an early stage. The second issue is pharmacy benefit management services. The large PBM providers already offer their own mail order services and will likely try to keep such business in-house. The large drug store chains already have their own Web sites performing a variety of services. Despite the problems, online drugs is still an explosive industry with much room left for growth.>>