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Drug firms end rivalry, form Web alliance

CVS and Merck-Medco start an alliance that will allow customers on one Web site to buy from the other, a move that reflects fundamental changes in the drug industry.

    Two major pharmaceutical companies are forming an online alliance in a move that reflects fundamental changes in the drug industry forced by the Internet.

    Under the agreement, CVS, the No. 2 U.S. drugstore chain by sales, and Merck-Medco, a pharmacy benefits management (PBM) plan, will allow customers on one Web site to buy from the other. Members of Merck-Medco will be able to purchase over-the-counter medicines and general health items on its site, where will be the exclusive provider of the products.

    The agreement marks a resolution by two of the biggest players in the online selling of mail-order prescriptions arena--an area of potential conflict between retail drugstores and PBMs.

    Companies such as CVS have been operating online pharmacy sites that allow customers to order prescriptions and then pick up the drugs at their local pharmacy or receive them through the mail.

    But PBMs, the intermediaries between health insurance payers and drugstores, have also used the Internet to deliver mail-service prescriptions. The PBMs have viewed mail-order prescriptions as their exclusive domain, leading to concern that they would withhold the rights to fill prescriptions online from retail drugstores.

    The move is also an attempt by CVS to strengthen its presence online and try to compete with Internet-only pharmacies that have launched to strong, and sometimes debilitating, consumer traffic to their sites. These sites--including and PlanetRx--allow users to fill prescriptions 24 hours a day. They also give users information to comparison shop between generic and brand name products.

    "This agreement between the nation's No. 1 pharmacy benefit management company and the nation's No. 1 pharmacy chain creates a unique partnership within the national healthcare arena," Tom Ryan, chief executive of CVS, said in a statement.

    For CVS, the agreement provides exclusive access to all of Merck-Medco's more than 51 million members nationwide, many of whom are west of the Mississippi, where CVS does not have retail stores, Ryan stated.

    The deal makes the only online retail pharmacy to accept prescription orders from Merck-Medco members over the Internet for delivery either by Merck-Medco's nationwide network of 13 mail-service pharmacies or for pickup at CVS stores, the companies said.

    The agreement also makes CVS's subsidiary specialty pharmacy company, ProCare, the exclusive provider of specialty pharmacy mail-order services for Merck-Medco plan members.

    In return, Merck-Medco will acquire an equity interest of up to 10 percent in ProCare.

    Reuters contributed to this report.