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PlanetRx opens online pharmacy

PlanetRx opens its online pharmacy to the public today and also announces a marketing agreement with Web portal Yahoo.

PlanetRx opened its online pharmacy to the public today and also announced a marketing agreement with Web portal Yahoo.

The company will be featured on Yahoo with merchant buttons and banner advertising. Yahoo users viewing the portal's director for a particular medical condition can click on the PlanetRx button and jump directly to the section in PlanetRx. Terms of the deal were not disclosed.

The South San Francisco, California, company is joining Soma.com and Drugstore.com in battling for a piece of the $230 billion market for prescription drugs, personal and beauty products, and vitamins. All three tout their 24-hour services.

But all three companies are struggling to obtain the cooperation of the benefits managers who dictate where those with medical insurance get their prescriptions filled. The largest benefit managers own mail order pharmacies that see the online drugstores as a threat to their share of the $102 billion prescription drug market, according to chief executive Bill Razzouk.

"Given that there would be no economic penalty to customers, it's just blatantly anti-competitive" for benefits managers to exclude online drugstores from their networks, he said.

Other competition will come from the dominant chain pharmacies, which command about 61 percent of all prescription sales. Giants like Rite-Aid and Walgreens have yet to offer online services, though Walgreens last week said the launch of Drugstore.com and PlanetRx has forced it to speed up plans for its own Net prescription drug sales. That service is set to launch this fall.

A venture capital baby, PlanetRx was born on September 15 when Razzouk, former executive vice president of worldwide operations for Federal Express, was brought in as CEO. "I believe PlanetRx has set a record in coming out from the ground to launch in six months and three days," Razzouk said.

Meanwhile, the rivalry between Drugstore.com and PlanetRx, which offer the same types of services and health and drug information, has been painted as a competition between top Silicon Valley venture capital firms. Kleiner Perkins Caufield & Byers backed Drugstore.com and helped it get a substantial investment from Amazon.com; Benchmark and Sequoia, which financed Yahoo, are behind PlanetRx.

The online pharmacies fired shots back and forth today as they each announced a growing list of marketing deals.

PlanetRx and Drugstore.com have also secured prominent placement on America Online's health site, which opens partially today and fully by the end of next week. PlanetRx agreed to pay $15 million to AOL over three years in exchange for positions on health-related areas on the AOL Web site and AOL's Digital City guides. Also today, PlanetRx said that the company has entered a one-year co-marketing agreement with online brokerage E*Trade, another prominent company that has invested an undisclosed amount in PlanetRx.

Drugstore.com also announced a sponsorship agreement with Excite to promote Drugstore.com on select Excite portions of Netscape Communications' Netcenter.

Responding to PlanetRx's launch, Wilson said: "Competition helps grow the category?.it also helps fuel our desire to be the very best."

At its launch, Drugstore.com announced that Amazon.com had taken a 46 percent stake in the pharmacy; PlanetRx will announce new backers upon its debut as well. Among those investing in the company's second round of funding are E*Trade, whose CEO, Christos Cotsakos, sits on PlanetRx's board; Hambrecht & Quist; and TTC Ventures, a subsidiary of Thomson Publishing. Another investor is LVMH Group, a French luxury goods purveyor with partial or full ownership of a variety of global brands, including Louis Vuitton, Moet & Chandon, and Givenchy.

With LVMH on board, PlanetRx "has a tremendous opportunity to be more than a domestic U.S. service over time," Razzouk said.

But there is still that major domestic hurdle of winning acceptance among pharmacy benefit managers. So far, Razzouk estimates, PlanetRx has secured agreements with benefit managers that serve only about 30 percent of those insured, even though PlanetRx is licensed to dispense prescriptions in all 50 states.