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Health food store to join pharmacy wars

Competition in the online pharmacy business grows fierce as Greentree, one of largest e-commerce sites for feel-good products, joins the race.

Greentree, one of the Net's largest health food stores, plans to expand into the online pharmacy business, adding a new category of competitor to an already sizzling space.

Greentree will stake its claim in the prescription space this fall, said Eric Budin, Greentree's cofounder and vice president of corporate development. "We'll be announcing our plans for RX [prescriptions] in the coming few weeks. We will have everything you would find in a drugstore and more."

Daren Marhula, who follows the online pharmacy space for broker U.S. Bancorp Piper Jaffray expects more entrants to follow Greentree, asserting that getting online with a pharmacy "is not a huge leap" for a health goods business to make.

The online pharmacy market has exploded since the first of the year, with pure-play Internet start-ups such as Drugstore.com, PlanetRX, and Soma. Earlier this month, RX.com went live with over-the-counter drugs with plans to add prescriptions in August.

Then traditional pharmacy chains began to jump in. Soma was acquired last month by major brick-and-mortar chain CVS. Walgreens also plans to open online. Earlier this week, Rite Aid and health food chain GNC took stakes in Drugstore.com.

But the exploding market has produced intensified scrutiny, a response to the danger of unregulated prescription drug sales on the Net. The Federal Trade Commission is investigating so-called rogue pharmacies--many of which are based outside the United States--that dispense prescriptions illegally or without medical supervision. The mainstream online pharmacies have cooperated with the FTC probe and with a new certification program run by the National Association of Boards of Pharmacy, an association for state regulators.

Earlier this week, the American Medical Association also tackled the thorny issue of physicians prescribing drugs over the Net.

Regulatory attention is likely to continue as more pharmacies join the online pack. Another new entrant is yourPharmacy.com, a subsidiary of pharmacy benefits manager (PBM) Express Scripts, which in March announced plans to open an online pharmacy later this summer.

PBMs such as Express Scripts play a key role in selling prescriptions both online and offline, Marhula said.

"Generally when someone goes to buy a prescription, they don't pay for it--it's their insurer. The key will be to partner with PBMs to get access to those insurers," Marhula said. Otherwise, consumers must pay out of their own pockets and then must file to get reimbursed by their insurer.

The analyst said Drugstore.com's investment from Rite Aid includes access to PCS, which is owned by Rite Aid and could pave the way for more than 50 million to get their insurance to pay for prescriptions.

In fact, getting a PBM relationship is one thing that delays Greentree's launch of its online prescriptions. In late July, Greentree plans to relaunch its storefront, adding over-the-counter drugstore items, but prescriptions will still come later.

The online consumer market for health care is expected to grow to $1.7 billion by 2003, according to research firm Jupiter Communications. But that's only a tiny sliver of the entire market for consumer health goods, which Jupiter projects will reach $205.2 billion by 2003.

In a recent report, Marhula estimated there are 16,000 Web sites offering health information, including individual physicians, universities, and others. Most of the online pharmacies are positioning themselves to provide not only prescriptions--which unlike health content produces revenue--but also health information.