DRUGS ON-LINE

DALE D. BUSS

Will supermarket pharmacies and drug stores face the same competition that bricks-and-mortar booksellers do with the likes of Amazon.com? It's actually somewhat of a surprise that Internet pharmacies didn't pop up until this spring, because the numbers are the kind that make Web czars drool: Americans purchased more than $150 billion in prescriptions alone last year, more than six times what they doled out on books. What's more, Web-based retailing is a proven business model by now, and Amazon itself even owns 40% of Drugstore.com.

But now the sale of prescription drugs, over-the-counter remedies, medical-assistance devices and even health-and-beauty aids is rapidly moving on-line. Besides Drugstore.com, at least a half-dozen other Net-only companies also are trying to mainstream drug dispensation on-line. Woonsocket, R.I.-based CVS Corp., the nation's largest drug store chain and highest-volume prescription provider, for example, just acquired a Drugstore.com competitor, Soma.com, for $30 million. Numerous other Web sites that dispense health-care information or otherwise are wiring the nation's medical system also are sniffing the possibilities in e-commerce.

The only thing left is for this formula to work in real life. And there's the potential fly in the ointment: Drugs aren't New York Times bestsellers, and ordering prescription arthritis medication on the Net is a lot more complicated -- as well as consequential -- than finding the lowest price and quickest delivery of "White Oleander," the hot novel. The necessary involvement of doctors and licensed pharmacists and the potential stakes of insurance companies and still other parties make the prescription transaction potentially very complex.

For a business that is supposed to have become "frictionless" just because it has hopped onto the Web, in fact, purchasing prescription drugs on the Internet remains a quirky and even awkward pursuit that still turns on the sensitivities of safety and prior relationships -- and on old-fashioned technologies like faxes and telephones -- as much as it does on low prices and the desire for privacy. That's largely because Net pharmacies must track down your doctor and get confirmation that your prescription is legitimate, often a time-consuming hassle, before processing it.

"It is complicated: This isn't like books," said David Ricci, Internet-stocks analyst for William Blair & Co., the Chicago-based securities firm. "People aren't going to run out overnight and start buying prescriptions this way. It will be a slow build."

Add to that the general hesitance of Americans, especially older adults, to change health-care routines anyway. "People are reluctant sometimes to change the way they get their medications," said Chris D. Robbins, chief executive officer of VitaRx, a New Orleans-based mail-order pharmacy.

"It's one thing buying furniture on-line. But many people still want interaction with their pharmacist." Robbins predicts that no more than 10% of Americans ultimately will go on-line to fulfill prescriptions -- and it may be roughly the same 10% that now get them via mail-order.

Americans surely are going to give on-line pharmacies their due, just as they have nearly every other activity that has moved to the Web. A pill-bottle full of these services has popped into existence in the last several months, and each offers far, far more than prescription services: thousands of health-related goods ranging from OTC medications to insulin pumps, vitamins to bedwetting alarms.

In addition to wide variety and low prices, Net pharmacies emphasize services such as easy prescription refills; e-mail renewal reminders; voluminous advice about drug interactions, nutrition, health conditions and therapies; and the capability to establish a continually updated individual medical record.

"We like to call ourselves an 'e center' because we're really a combination of content and commerce," said Stephanie Schear, co-founder and vice president of business development for San Francisco-based PlanetRx Inc., which launched in March.

PlanetRx and rivals also dispatch their goods in plain brown wrappers and make no bones about the fact that the privacy attendant to an on-line transaction is of great appeal for many consumers. "If you think your kid is strung out on LSD, you don't want to be going into the drug-store to pick up a PDT-90 [narcotic-detection] kit and run into your neighbor," said Michael Covel, chief executive officer of HomePharmacy.com, an Alexandria, Va.-based startup that specializes in high-priced products with sensitive social connotations, such as HIV tests and a kit that detects blood in stool.

Evie Black Dykema, health-care analyst for Forrester Research, in Cambridge, Mass., said that by leveraging such advantages, the services hope to build relationships with consumers that are akin to those at the corner drugstore.

"They want consumers to get used to using the on-line content to better understand their own health situations and grow comfortable with it," she said. "That's why there's an opportunity for a much deeper relationship for an on-line pharmacy than in virtually any other on-line market. What's closer to consumers' hearts than their own health?"

At this point, of course, the companies themselves would rather have eyeballs than hearts.

Like every other Net-based startup, they and their venture-capital backers are aiming at going public quickly -- and nothing attracts Internet investors more than skyrocketing visitor numbers. With a high profile thus paramount, Drugstore.com, for example, appears on Amazon.com's oft-visited home page, and PlanetRx is all over America Online, Yahoo! and other Web portals.

And Soma.com differentiates itself by the fact that it alone, among the young industry's "big three," offers toll-free telephone access to pharmacists around the clock. "And we have co-pay acceptance for the highest number of insurers by far, covering more than 110 million lives," said Mitchell Reed, a vice president of Seattle-based Soma. "That's radically more than Drugstore.com, for instance, maybe by a factor of five or 10."

The insurance issue underscores the fact that on-line pharmacies also face limitations that make their industry a bit unusual in the expansive atmosphere of the Internet. The most daunting is that on-line drug services don't currently have access to most of the 80% of U.S. drug spending controlled by insurers and pharmacy-benefit management (PBM) companies, said Stephen Gold, vice president of electronic commerce for Merck-Medco Managed Care LLC, a Montvale, N.J.-based, mail-order-PBM unit of drug giant Merck Co.

And of the remainder of the business, about half is totally impractical for the Net because it represents drugs aimed at mitigating acute concerns -- such as wound care or a sudden bout of the flu -- rather than the chronic conditions that lend themselves to Web-based transactions, said David Restrepo, health analyst for Jupiter Communications, a New York City-based Internet-research firm.

There's also growing competition for the chronic-condition prescription market. Increasing numbers of brick-and-mortar drugstore chains now are muscling on-line. CVS, for example, expects the acquisition of Soma.com to "accelerate the execution of our Internet strategy by immediately giving us an expanded on-line presence," said Tom Ryan, chairman and chief executive officer. "It will also provide us with a platform to build upon, to reach new customers and expand CVS as a national pharmacy brand. This will give us a valuable head start and significant first-to-market advantages as the only major drugstore chain with a complete on-line pharmacy and front-store offering. "

Powell, Ohio-based Drug Emporium Inc., and other drug store chains also are plotting imminent entry or expansion to the Net. "If they're able to match the functionality of Drugstore.com, they've won," said Dykema, the Forrester analyst. "The market is theirs to lose because they've already got the brick-and-mortar customer."