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The face of pharmacy is changing once again as a number of new start-up, web-based drug stores begin operating on the Internet.

In the first quarter of this year, three full-service pharmacy providers hung a shingle on the Internet; one more is scheduled to launch momentarily and more are coming.

Seattle-based Soma.com became the first full-service virtual pharmacy with its launch on Jan 15; Redmond, Wash.-based drugstore.com was next with its launch of a virtual web-based drug store Feb. 25; and San Francisco-based PlanetRx was third with its launch on March 18. At press time, Austin, Texas-based Rx.com was expected to launch momentarily.

A more limited selection site, Chantilly, Va.-based Rx Drug Store, located at Fuiszdrugstore.com, launched last year, but does not have a pharmacy department, although management said it will open one in the future. New York-based Mybasics.com is already online with a selection of HBC/OTC products, with a pharmacy department planned or later this year. Los Angeles-based Health & Vitamin Express (www.hve.com) has been online the longest, selling healthcare products and vitamins for the past three years, and it has also announced plans to expand soon into pharmacy.

Pleasantville, N.Y.-based Reader's Digest is "currently in discussion" with potential partners and acquisition candidates and has announced that it could launch a mail pharmaceuticals and vitamin business on the web sometime in the year 2000.

Newport Beach, Calif.-based Biomerica Inc., a global medical company that makes advanced diagnostic products for the early detection of diseases, launched a home medical test web site, www.testathome.com, on March 3, and soon plans to open an online drug store, HomeDrugStore.com, which will market a broad range of medical products to consumers.

Of brick and mortar retailers, Drug Emporium first began exploring opportunities in e-retail in October 1997, when the company launched Dedirect through its web site at www.drugemporium.com. And last July, Drug Emporium added a pharmacy element, DEdirect Rx. PharMor launched an online vitamin store in late February, PVSvitamins.com, and in early April, unveiled the second part of its online store, Cyber PharMor, at pharmor.com. CyberRx Express currently features online services for New Jersey shoppers only. Bentonville, Ark.-based Wal-Mart has also announced that it will be opening an online pharmacy in the near future.

The first PBM to venture into online retailing will be Express Scripts, which announced it is launching YourPharmacy.com in the next few months.

Because online retail pharmacies/drug stores are competing with each other and against existing mail order companies with established relationships with managed care and third party insurance providers, the future growth prospect for e-retailing companies is still unclear. But drugstore.com and PlanetRx.com, in particular, both have major investment partners fueling their start-ups, and both are preparing to make significant investments to build equity for their brands.

None of the start-ups were willing to disclose financial information, but the New York Times has reported that drugstore.com had raised $60 million and had sold 46 percent of its shares to Amazon.com, a leading online book and CD retailer, which is sitting on $1 billion raised in a junk bond offering earlier this year.

All of the full-service online retailers-drugstore.com, PlanetRx.com, Rx.com and Soma.com- seem to have the infrastructures in place to support their strategic initiatives.

The stakes are large. According to Cambridge, Mass.-based Forrester Research Inc., a market research company that follows online retailing, consumers spent $7.8 billion to shop for goods and services on the web in 1998, excluding automobile purchases. Forrester is projecting that by 2003 online retail sales will grow to $108 billion.

In 1998, just $213 million of total online retail sales were for health and beauty care products, but that number is expected to soar to $6.3 billion by 2003, according to Forrester.

Each of these new startups will be pursuing the $103 billion that the National Association of Chain Drug Stores estimates was generated in retail sales in 1998, as well as the $57 million in HBC/OTC sales generated in 1998.

How much of those dollars will be cannibalized from the brick and mortar chains or from mail order pharmacies is still anybody's guess.

But according to the U.S. Commerce Department, Internet sales more than tripled last year, a growth rate that bodes well for all kinds of online stores.

All the online retailers Drug Store News interviewed declined to estimate total sales for marketing year one or to estimate what percent of those sales might come from pharmacy.

But at this stage of the game, pharmacy does seem to be the intended core business for most of these pioneering virtual drug store retailers.

But there are also existing and emerging on-line retailers focused on other core drug store categories, including cosmetics, fragrances, beauty care, vitamins and wellness.

Most of the online drug store retailers emphasize that they are not just in the business of selling products. Drugstore.com, PlanetRx, Rx.com and Soma.com are all positioning their sites as information resources, locations where consumers can research healthcare issues, look up information or consult with pharmacists who in chat rooms and through e-mail will answer their questions for free.

Drugstore.com

Peter Neupert, president of Redmond, Wash.-based drugstore.com, and Suzan Fine DelBene, vice president of marketing and store development, said they plan to establish swiftly a strong point of difference by providing shoppers with value-added services they can't easily receive from other competitors.

In its initial marketing efforts, drugstore.com plans to focus on the traditional benefits of competitive prices, convenience and breadth of assortment, but the company will also stress its ability to provide privacy, one-on-one counseling and a unique new way for consumers to quickly find answers to many types of medical questions for free.

Consumers are able to send e-mail to pharmacists and other category specialists, which Fine DelBene said will be answered within 24 hours.

In addition to the free counseling services consumers can find from the "Ask The Pharmacist" department and the beauty experts in the beauty care department, drugstore.com may also in the near future detail doctors, herbalists, cosmeticians and other professionals who could refer clients to the products and information services available at drugstore.com.

The company has set up an easy-to-access information database that will let consumers search for answers to questions they may have about product ingredients; for example, what is the difference between ibuprofen and acetaminophen, when should a patient take Robitussin CF vs. Robitussin DM or why does tartar control matter in a toothpaste.

PlanetRx.com

San Francisco-based PlanetRx is also trying to establish a unique marketing identity by providing educational information to consumers.

Stephanie Schear, co-founder of PlanetRx and vice president of business development, described PlanetRx as a place where consumers can find accurate medical information about prescription drugs and healthcare products, including information on herbal supplements, alternative medicine and personal care products such as skin and beauty care products.

In addition to providing healthcare products at prices competitive to traditional drug store channels, PlanetRx also provides educational information, including a drug interaction database.

Like drugstore.com, PlanetRx has an "Ask the Pharmacist" e-mail service. The company has a number of pharmacists and Pharm.D.s on staff, in both its Memphis, Tenn., distribution facility--where pharmacists run the call center and dispense prescriptions--and in its San Francisco office, where pharmacists develop editorial content for PlanetRx.

Rx.com

Like drugstore.com and PlanetRx.com, Austin, Texas-based Rx.com will provide information and products to its customers. In addition to using some licensed content, the company is creating its own editorial content on health care, making it user friendly so consumers can drill down into the information to get the level of detail they require.

The communication center will accept inquiries by fax and phone, as well as through e-mail. Pharmacists will also be available for real-time encrypted chats or by telephone 24 hours a day, seven days a week.

Soma.com

Seattle-based Soma.com, the first virtual-only pharmacy that launched on the Internet in mid-January, just unveiled a more than $10 million advertising campaign to build the Soma.com brand and to raise the public's awareness about the site.

The campaign, which broke in March, uses the marketing concept that Soma is "A Better Way to Feel Better." It is designed to position Soma.com as a reinvention of the old-fashioned pharmacy drug store, the kind of store where the pharmacist takes time to sit down and talk to people; the kind of store where, in the words of Mitchell Reed, vice president of corporate communications for Soma.com, "People are treated as patients and not customers."

Reed said the company is spending tens of millions of dollars on the campaign, which will run 70 percent offline and 30 percent online. The major off-line vehicles will be television, radio, print, newspapers and billboards.

Online, ads will be linked to the health care departments of leading portal sites. But Soma.com, he said, is not seeking banner position on portals such as AOL, Excite and Yahoo because in these locations, its ads would be in a non-health-related environment, surrounded by ads for books, flowers and CDs.

"We don't want to be the McDonald's of pharmacy," Reed said. There will also be prominent links to sites such as Intellihealth.com, one of the premier healthcare web sites.

Privacy a key element

Delivering privacy is also a key marketing differential. "In a store, you can have 50 people milling around. It's hard to have an intimate conversation," said drugstore.com's Fine DelBene. "Some people are also reluctant to discuss personal problems. Some AIDS patients, for example, prefer to remain anonymous."

According to Fine DelBene, drugstore.com launched with 15 pharmacists on staff. One team of pharmacists, based in Redmond, Wash., is dedicated to customer service. The company is answering the e-mail questions consumers pose as they visit the "Ask the Pharmacist" section of the drugstore.com web site.

The other team is dedicated to dispensing the prescriptions from the drugstore.com Rx America fulfillment center, which is based in Fort Worth, Texas.

The web site has been set up so that a dispensing or fulfillment question is routed to the dispensing pharmacists, while a question about a prescription that requires counseling is referred to the Ask the Pharmacist team.

PlanetRx's management, said Schear, considers it "very important to integrate commerce with content and community." Not only is PlanetRx designed to be a place where consumers can get healthcare information, it is also a place where people can talk to one another about common problems, sharing information about disease management with each other eventually through the use of message boards and chat rooms.

Schear said PlanetRx currently has information on almost 100 disease states in its online database, including transitory conditions such as hay fever or allergies.

Schear called it ironic that PlanetRx is using technology to bring community (in this case, the community of a web site) back to pharmacy. In the brick and mortar world, she noted, busy pharmacists don't always have the time they would like to counsel patients. But online, using the content assembled in PlanetRx's databases, consumers will be able to search for answers to any questions they may have, or they can e-mail the PlanetRx pharmacists.

Joe Rosson, Rx.com's president and chief executive officer, said the Rx.com web site will be primarily focused on health care. "Our name, Rx.com," Rosson said, "means drugs. We think it's a powerful name and it will be an important part of our branding effort."

By using the Internet as a distribution channel for health care and related products, Rosson said Rx.com will "streamline the way prescription and over-the-counter medicines are prescribed, ordered and fulfilled."

Rosson said the company has invested more than $4 million in a large automated dispensing system from Easton, Pa.-based SI/Baker. The system has the capacity to handle up to as many as 40,000 scripts a day, working two shifts. The automated system, he said, will help Rx.com drive down fulfillment costs and help keep prescription prices low, a benefit that Rosson feels will appeal to third party providers, who, he said, currently account for about 75 percent of all prescription sales.

Rx.com will be operating its own fulfillment centers for both prescriptions and OTC products from its Austin, Texas, locations. The prescription center is approximately 50,000 square feet, while the OTC fulfillment center is 35,000 square feet.

By the end of 1999, Rosson estimates Rx.com will employ between 55 and 60 pharmacists.

Unlike two prominent, well-funded drug store online start-ups, drugstore.com and PlanetRx.com, Rx.com will be spending more advertising money off-line than online to build its brand. Rosson said Rx.com has allocated $11 million for advertising support in 1999.

Rx.com plans to do very little with broad portal exclusivity deals, instead using links, button placement and affiliations to drive consumers to its web site.

"Our foundation is customer service, customer service, customer service. We will be using print, radio and television to build the Rx.com brand and to reach our target market," Rosson said, noting the first wave of advertising will break in May and continue throughout the year.

Soma.com's founder, president, chief executive officer and major investor Thomas Pigott, said technology is a way to revive the old-fashioned neighborhood pharmacy, and in the process, is a way to make Soma.com the world's finest Internet pharmacy.

Pigott believes that as chain drug stores evolved, taking over or eliminating many independent pharmacies in the process, they inadvertently created the perception that the old fashioned, caring pharmacy--the pharmacy focused on patient care--was disappearing.

Fairly or not, there is a number of consumers who view chain pharmacies as uncaring places where pharmacists are too busy counting scripts to provide comprehensive counseling.

Reed said Soma.com is not intimated by the sudden rush of web-based competition. He said the media noise surrounding the recent launch of drugstore.com, PlanetRx.com and the pending launch of Rx.com has increased the traffic to the Soma.com site.

An Internet pharmacy, he said, can address these unmet needs, particularly if, like Soma.com, they see pharmacy as the core of their business.

"A rising tide lifts all ships," he noted.

Although Reed declined to disclose sales of volume information, he said Soma.com has been exceeding its projections since its launch Jan. 15.

COPYRIGHT 1999 Lebhar-Friedman, Inc.
COPYRIGHT 2000 Gale Group