Merck-Medco, CVS Deal Blocks Competitors

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CVS.com has locked out potential competition by being named sole online retailer of nonprescription drugs and general healthcare products to 51 million Americans who use pharmacy benefit manager Merck-Medco Managed Care's plans.


The early October deal won by CVS Corp., Woonsocket, RI, also includes a mail-order alliance with Merck-Medco and comes less than two months after CVS.com launched as the first significant Internet retailing attempt by a major U.S. drugstore chain.


"The critical benefit of the Merck-Medco deal for CVS.com is that CVS.com shoppers who also happen to be Merck-Medco plan members will be reimbursed for their prescriptions when they shop at CVS.com," said Jupiter Communications analyst David Restrepo. "Before this deal, Merck-Medco was not extending this sort of cooperation to an online store."


"The [added] benefit that CVS gets is that it expands its reach beyond the West of the Mississippi, where it does not have stores," said Rachel Templeton, spokeswoman of Seattle-based CVS.com. "What Merck-Medco members get are one-stop shopping options, so they can fill all their prescriptions online and get them at CVS/pharmacy stores."


The untapped potential of the online pharmacy market has already attracted many marketers. PlanetRx.com announced Aug. 31 the acquisition of yourPharmacy.com. GreenTree.com recently renamed itself More.com. CVS rival Rite Aid in June bought 21.6 percent of drugstore.com for $234 million in cash and kind.


As the holiday season nears, the launch fever rises. RxDrugstore.com this month opened for business and Walgreens, the nation's No. 1 drugstore chain in sales, will by month's end launch its full-service online pharmacy after delaying a planned September entry.


"The nation's three largest pharmacy benefit managers have now chosen their initial online partners: PCS and drugstore.com, Express Scripts and PlanetRx, and Merck-Medco and CVS.com," said Jupiter's Restrepo. "Whereas PlanetRx and drugstore negotiated from a position of weakness when they struck their PBM deals, the CVS and Merck-Medco deal was one of equals."


According to Jupiter Communications, New York, the online health care market will reach $1.7 billion by 2003. Forrester Research, Cambridge, MA, estimates the overall online health and beauty category will grow from $509 million this year to $10.4 billion in 2004, accounting for 5 percent of the combined online and off-line market.


According to Evie Black Dykema, senior analyst at Forrester, four key attributes will define online pharmacies in the year ahead: Health insurance plan coverage, personalized advice, content and privacy, convenience stemming from off-line and online retail integration, and streamlined administrative processes surrounding paperwork and medical records.


CVS.com meets most of these requirements. Parent CVS Corp. weighs in with a $200 million ad budget for an entrenched CVS brand, bargaining clout with suppliers, more than 9,000 insurance plans, and a network of 4,200 stores. Last year it filled 250 million prescriptions for 55 million Americans, with total sales at the profit-maker up 11 percent to $15.3 billion.


The result of a $30 million stock buyout of Internet pharmacy Soma.com, the CVS site offers a vast array of prescription drugs and 10,000 OTC products, including private-label products and round-the-clock access to registered pharmacists via e-mail or a toll-free number.


"We also decided that because we were a full-service pharmacy, we'd fill all prescription medications, including strong painkillers, or Schedule II's - medications you would normally receive after major surgery," said CVS.com's Templeton.


Consumers can place a prescription order online - which CVS.com will verify with the pertinent physician's office that prescribed the medication - and choose between same-day in-store pick-up at a traditional CVS/pharmacy store or optional overnight or regular delivery to the consumer's home or office.


Another feature is a 24-hour call center manned by qualified CVS pharmacists who offer patients access to free and confidential information on drugs being taken or intended to be bought, prescriptions or OTC.


Supporting the effort is a new 55,000-square-foot fulfillment center in West Chester, OH, capable of filling up to 50,000 prescriptions a day.
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