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Drugstore.com allies with Rite Aid, GNC

Rite Aid and GNC each take a stake in the online pharmacy in return for exclusive rights to sell through the site.

    One month after drugstore chain CVS jumped online by buying Soma.com, Drugstore.com has inked its own heavyweight deal.

    Rite Aid will invest $7.6 million and General Nutrition Centers $2.5 million--both in cash--in Drugstore.com to own 25.3 percent and 8 percent of the company, respectively. Both Rite Aid and GNC will make Drugstore.com their exclusive online retailer, meaning each will direct customers who want to order products online to Drugstore.com.

    In addition to the financial windfall, the Rite Aid investment should allow more than 50 million people to apply their health insurance toward prescriptions bought on Drugstore.com, according to David Restrepo, health care analyst at Jupiter Communications.

    Health insurance has been a thorn in the side of online pharmacies. Health insurance companies usually have exclusive arrangements with pharmacy chains that are brokered by third parties called Pharmacy Benefit Managers (PBMs). But PBMs typically have their own mail order businesses, which represent half of the overall prescription market, according to Restrepo, and it's not a piece they've been willing to surrender to online pharmacies.

    As a result, PBMs have held off on signing affiliation deals with firms such as Drugstore.com and Soma.com.

    But through its alliance with Rite Aid, Drugstore.com gets access to Rite Aid-owned PCS, one of the leading PBMs. In the process, Drugstore.com gains a captive audience. PCS's some 50 million customers will only be able to order through Drugstore.com if they want to get their prescriptions online.

    Neither CVS-Soma.com nor Planet Rx can claim such a large, captive audience.

    "It means that Drugstore has a huge leg up on its competitors," Restrepo said.

    Soma.com spokesman Mitchell Reed said his company didn't see the deal that way.

    "Drugstore.com has their first leg over the fence," Reed said. "When they have their second leg up and standing on the same ground we've been standing on, we'll be much more interested."

    Reed downplayed Drugstore.com's pharmacy potential, noting that CVS is also affiliated with some 9,000 health plans in the United States. Customers will be able to use their health insurance to pay for a prescription at CVS stores and Soma.com, he said.

    Planet Rx, the other major online player, is not linked with a brick-and-mortar pharmacy. Stephanie Schear, the company's co-founder and vice president for business development, said Planet Rx doesn't see that as a necessity.

    "Consumers like the idea of a Net pure play," Schear said.

    Shear did say that Planet Rx was in "strategic discussions with a lot of companies," but declined further comment.

    Drugstore.com filed for an initial public offering last month--two days after the Soma-CVS deal. The company filed to sell up to $67.5 million worth of stock, but has not yet stated how many shares it will sell or set a target price for them.

    Taken at face value, the deal values Drugstore.com at about $30 million, the amount CVS paid to acquire Soma.com.

    Drugstore.com launched its site in February with backing from Amazon.com. According to regulatory filings, Amazon.com currently owns 43.8 percent of the company, though the Rite Aid and GNC deals will dilute Amazon's stake, a Drugstore spokeswoman said.