Internet is prescription for profit among drug companies in US

Drugs - the legal kind - are at the centre of the latest online marketing war in the US, but don't expect to place an online Viagra order with an Irish chemist any time soon.

With prescription drug sales in the US peaking at $102 billion (€96 billion) in 1998, and the 1999 market estimated at $150 billion, it's easy to see why investors are showing keen interest in the online pharmacy phenomenon - especially when 20 per cent of the online population in the US comprises senior citizens. US broadcasting giant CBS has just taken a 20 per cent stake in Rx.com, for example. In June, bricks-and-mortar pharmacy Rite Aid and vitamin and supplements chain, General Nutrition Centers, took respective $7.6 million (25.3 per cent) and $2.5 million (8 per cent) stakes - paid in cash - in Drugstore.com. Amazon.com also owns a large stake in Drugstore.com.

Thus, when Drugstore.com had its initial public offering in the last week of July, the price, predictably, went through the roof. Shares opened at $18 and closed the first day at $50.25, almost a 300 per cent gain. Drugstore.com's market valuation is now a whopping $2.13 billion. Perhaps the big-bucks result helped the company lure Ms Melinda French Gates, wife of the Microsoft billionaire, onto its board of directors last month. At the same time, Drugstore.com's founder, Mr Jed Smith, said he was leaving to pursue new entrepreneurial interests.

Analysts also point out that it's not just online prescriptions which attract consumers to virtual pharmacies. Many people pick up toiletries and over-the-counter preparations online, and the pharmacies believe that people particularly appreciate the privacy of the Net for ordering items that often cause embarrassment. Of four featured products on the home page of Rx.com on a recent visit, three might fit into this category - a laxative, an itch-stopping spray and Odor-Eaters, the deodorant shoe liners. Over-the-counter items account for a hefty $30 billion annual market of their own in the US.

The surprising speed at which US consumers have accepted the notion of ordering prescription drugs and miscellaneous over-the-counter preparations from online pharmacies has accelerated the consolidation of the market into four top players, Drugstore.com, Rx.com, CVS.com and Planet Rx (Rx.com won't be filling prescriptions, though, until the autumn).

Back in January, analyst Forrester Research released a report about the sector that presciently predicted the frantic consolidation, investment and promotional deals that have occurred over recent months: "The Amazon-versus-Barnes-and-Noble battle will pale in comparison to this fight. We expect a brutal struggle for market share, as players race to lock in relationships before the bricks-and-mortar guys arrive," said the report.

Actually, some of the bricksand-mortar guys have arrived now and are inking deals with the online operators. CVS is a traditional, real-world chain that bought out online pharmacy Soma.com to jump straight into the virtual market, and Drugstore.com is linked to Rite Aid. The pharmacy sector is so hot that several analysts have said they believe Soma.com sold out too early for too little - just $30 million in CVS stock. Many predict that Planet Rx will be the next up for an IPO, following Drugstore.com's success.

Other giant bricks-and-mortar pharmacy chain stores in the US, such as Walgreens, Longs Drugs and WalMart have so far taken a conservative approach to the Internet. All three offer prescription refills over the Internet but customers must collect their orders from one of the company stores. Such operators with a massive bricks-and-mortar presence are expected in coming months either to offer a full online service themselves or move to align themselves with one of the major online players.

Such deals are particularly attractive at the moment to the online pharmacies. Real-world pharmacies have existing relationships with the private healthcare programmes to which the bulk of people in the US belong. The programmes enable patients to purchase prescriptions from affiliated pharmacies at a discount, subsidised by the healthcare insurers offering the programmes. The affiliations are negotiated by brokers called pharmacy benefit managers (PBMs).

Patients, of course, are unlikely to choose a pharmacy from which they cannot purchase discounted drugs. Online pharmacies are at a disadvantage if they cannot either forge relationships directly with a PBM or acquire an existing relationship by merging with a real-world pharmacy that has PBM affiliations already.

But Irish consumers won't see much action in the online pharmacy sector here unless - oddly - postal regulations change. Irish law currently prevents Irish pharmacists from mailing out prescription drugs to addresses within the State, which makes purchasing them from an Irish online chemist - should such a thing exist - rather pointless. "If you're selling them over the Internet, you're actually sending them through the mail, and that's illegal," says a Department of Health and Children spokesman.

But, confusingly, prescription drugs can be legally posted to an Irish address from an address outside the State, he says. Finding a pharmacy willing to post prescriptions is a task in itself, though, for most drugs. The main US online druggists, including Drugstore.com, Planet Rx, CVS.com and Rx.com do not ship orders outside the US. But many speciality websites for specific prescription items exist and will happily ship their goods abroad - there are dozens of sites for Viagra, for example. One even offers translations of the site into five other languages.

Such sites will fill an existing prescription, which can be faxed through to them, or visitors can fill in a five-minute "online consultation" form that, the site says, goes to a qualified doctor. Sites add a once-off charge for the consultation - typically about $75 - and then ship the order once the prescription is approved. Such sites are currently under investigation in the US, mainly at the instigation of medical organisations and the online pharmacies. The American Food and Drug Administration has asked for help from the Federal Trade Commission to crack down on sites which prescribe online and online pharmacies would like to see a programme set up that would offer a seal of approval to bona fide prescription sites.

The Irish Medical Organisation opposes the whole idea of dispensing prescriptions online. "The concern that the IMO would have is that the patient isn't receiving the kind of attention the patient needs," says Ms Maria Murphy, IMO press officer. She says patients need to be re-evaluated before receiving refills of existing prescriptions and adds that if a person is brought to hospital and has been ordering prescriptions online, the hospital would find it difficult to find records of what a person might have been taking.

And, she says particularly with rogue sites: "There would be a concern that people are practically self-prescribing on the Internet, without any qualified supervision."

But given the success of pharmacy sites in the US, it seems likely that the model will cross the sea to Britain and Ireland before long, forcing another traditional system and industry to scramble to compete.

Karlin Lillington is at klillington@irish-times.ie