|
BUSINESSWEEK ONLINE: DAILY BRIEFING | |||||||||||
| |||||||||||
|
BW ONLINE DAILY BRIEFING |
 | |
 | |
 |
||||||
The Logic behind the PlanetRx-Express Scripts Deal Paying customers are hard to find for online drugstores. So they're linking up with the real thing The concept sounds deceptively logical: If consumers will make impulse purchases of books, music, computers, and even cars over the Web, imagine how eager they'll be to make convenient Net purchases of something they must have at regular intervals -- like drugs. In less time than it takes to say Prozac, a handful of Web sites have sprung up to cash in on this market -- sites with names like Soma.com, Drugstore.com, WebMD, Healtheon, MSN Health, and PlanetRx.com. There's just one problem, says Scott Reents, manager of health-care strategies at Web database marketer Cyber Dialogue: So far, hardly anyone has bought prescriptions online. "Based on a sample study we did for July," says Reents, "only about 200,000 people have used the Net to fill prescriptions, which is statistically the same as zero." What do you do if you build an online drugstore and nobody comes? All these sites seem to agree on the answer: Find out who's already serving boatloads of customers -- and who has access to those covered by insurance -- and make deals with them. So it is that since May, Soma.com has been acquired by CVS Corp. (CVS) for $30 million; Rite Aid (RAD) has picked up 25% of Drugstore.com for $8 million; and WebMD and Healtheon have joined forces in a merger valued at $5 billion -- and promised to help Microsoft Corp. launch MSN Health in return for a promised $250 million in Microsoft (MSFT) stock. The latest such deal occurred on Sept. 1, when PlanetRx.com landed a deal with Express Scripts Inc., the country's third-largest pharmacy benefits manager (PBM) -- a company that administers the drug part of health plans. Express Scripts, which covers 36 million people, will take a 20% stake in PlanetRx after the Web company goes public in late September. PlanetRx, in turn, will take over the E-commerce part of Express Scripts' Web site, YourPharmacy.com, and become Express Scripts' exclusive online pharmacy. COSTLY ENTRY. Almost overnight, PlanetRx appears to have gone from a long shot to a sure shot -- and may at least temporarily become the leading online pharmacy. "Consumers expect a direct link to their health insurance plan to buy prescription drugs," wrote Forrester Research analyst Evie Black Dykema in a June report. "And [they] will prefer pharmacies that offer individualized, integrated services across all channels." The price of entry won't be cheap for PlanetRx. Under its five-year agreement, it will pay Express Scripts more than $11 million annually -- in addition to the post-IPO equity stake -- to take over the E-commerce role of YourPharmacy.com. Express Scripts will keep the YourPharmacy.com domain name, providing account summaries and co-pay information to patients who use its service. It will also continue to post information about prescription drugs online, via a site called DrugDigest.org. An alliance with Express Scripts could prove more lucrative for PlanetRx than one with a offline pharmacy, analysts say, because PBMs have direct control over consumer spending. As the middleman between insurance companies and pharmacies, benefit managers decide where patients can use their co-pay to fill prescriptions and are responsible for reimbursing drugstores for prescription costs. Moreover, their power is highly concentrated: The top three PBMs -- Merck & Co.'s Merck-Medco Managed Care unit, Rite Aid Corp.'s PCS Health Systems division, and Express Scripts -- control prescription payments for more than half the people covered by health plans in the U.S. Rite Aid's PCS Health Systems may be a larger PBM than Express Scripts, but PlanetRx still stands a slightly better chance to be the market leader because it has exclusive access to all Express Scripts customers, while Drugstore.com can fill prescriptions only for insured customers whose co-pay would be accepted at one of Rite Aid's bricks-and-mortar pharmacies. BROADER BASE? "The deal with Express Scripts is important because PlanetRx has a [low-margin] business plan that requires a high volume of customers," says Martin DeBono, an analyst with Gomez Advisors. "About 80% of prescriptions are covered by insurance, which means it's vital that online pharmacies get access to the networks that reimburse these people." All the more so since sites such as PlanetRx and Drugstore.com use deep discounts and giveaways to attract business. PlanetRx CEO Bill Razzouk is well aware of this. "What matters is the number of customers who come to your site and buy, so we're working to build a broad constituency base," he says of his alliance with Express Scripts. Of course, PlanetRx isn't out of the woods yet. "It is likely that some insurance companies and PBMs will contract with only one or a limited number of online pharmacies. If our online competitors obtain these contracts and we do not, we would be at a competitive disadvantage," the company says in the public offering statement it filed with the Securities & Exchange Commission on July 7. In its SEC filing, PlanetRx said it intends to raise $69 million. It also said it lost $20.1 million on $817,000 in revenue through the first six months of this year. PlanetRx's prospectus specifically mentions Drugstore.com's deal with Rite Aid as a competitive threat. In fact, Rite Aid customers and those served by its benefits manager, PCS Health, can order their prescriptions on the Net via Drugstore.com and pay the same co-payment they would at a regular drugstore in much the same way as Express Scripts members can do at PlanetRx. As the second-largest PBM, PCS Health handles $10 billion in drug sales a year, while Express Scripts does $8 billion. And Drugstore.com has a 10-year deal with RiteAid, vs. PlanetRx's five-year deal with Express Scripts. Just to keep things interesting, the leading PBM, Merck-Medco, has yet to pick an online partner. "Merck's site already has the functionality and the traffic, so I don't think we'll see them making any deals with one of the general-purpose online drugstores," Reents says. "They don't need to. And besides, there's not really anyone left. What we might see is an alliance with an alternative-health site like Greentree.com," he says. RIGHT TRACK. PlanetRx's biggest advantage may be the kudos it has attracted. Gomez Advisors' DeBono recently rated it the best online pharmacy. Drugstore.com was No. 2 in his ranking, and Express Scripts' YourPharmacy.com No. 3. "PlanetRx and Drugstore.com are both excellent sites, but PlanetRx takes the top spot on the strength of its customer service and content," DeBono says. "If you can`t find what you need in any of its databases, post a question to the administered message boards or call the 24x7 customer-service phone number," he writes in his report. For now, the traffic trends suggest that PlanetRx is on the right track. According to Media Metrix, the number of unique monthly visitors to the site rose from 291,000 in May to 1.17 million in July. This compares with Drugstore.com's 910,000 unique monthly visitors in May and 1 million in July. The biggest challenge for PlanetRx is maintaining its identity as it forms closer ties with Express Scripts. "PlanetRx has basically become a prescription-fulfillment and distribution channel for Express Scripts," says Cyber Dialogue's Reents. "For PlanetRx, [the deal] is a reaction. I don't think it was in their plan to align so tightly with a PBM, but they realized that the [online pharmacy] business wasn't quite as lucrative as they thought it would be." Now comes test No. 2: Will the Express Scripts deal work the type of magic PlanetRx needs? By Stefani Eads in New York
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
| |
 | |
 Assistive Technology barker.online Byte of the Apple Eye on Japan Hers.online Inside Wall Street Not-So-Neutral Corner Online Asia Power Lunch Privacy Matters Sector Scope Sound Money Street Wise Washington Watch News Flash Archive | ||||||
