It’s a 20-minute trip to the nearest pharmacist and you’re in a rush. You haven’t got long before you need to be back at the office, so you put up with the long line of customers for 10 minutes before giving up. Your Norvasc can wait – you still have a few tablets left from your last prescription, anyway. Seven days later, however, you run out. And it’s another week before you make it back to the pharmacy with the crumpled prescription found at the bottom of your bag.
At the online pharmacy things would have been different. No wait, no opening hours, no traveling. You wouldn’t even need to leave your desk. You could read about side-effects and doses without embarrassment or email a pharmacist with your concerns. And your crammed schedule wouldn’t get in the way of Pfizer’s revenues.
One prescription falling by the wayside may not seem a big deal in the multimillion-dollar pharmaceutical industry. But lack of compliance among patients is a real issue – almost half fail to take medications as prescribed by their doctors. Unfilled scripts cost pharmacies approximately $25bn in lost sales annually.
Somewhere between the physician’s office and the drugstore pharmaceutical companies are collectively losing out on an estimated $20-30bn per annum, according to Datamonitor. ePharmacies are ideally placed to help recover some of these losses.
Enter the ePharmacy
Pureplay online pharmacies like PlanetRx and drugstore.com strutted onto the scene in early 1999. They soon realized that the business does not operate by the same consumer-is-king rule that other retailers, focusing on convenience and cost, have exploited. Instead they need to negotiate with third party payers and physicians and check patient histories for possible drug side effects.
Despite these regulatory complications, Internet drugstores have been quick to evolve and fit their environment. In April, for instance, PlanetRx teamed up with ePhysican to provide one-click prescriptions whereby physicians can send orders directly through the Internet to PlanetRx.
We are answering industry demand for cost effective, flexible drugstore choices by leveraging our leadership in eCommerce technology. According to Peter Neupert, President and CEO of drugstore.com, customer service, product selection and value-added information services are all part of the plan.
Wary pharma
Like most dotcoms, however, ePharmacies have yet to turn a profit. In 1999 they reported $11m in revenues – a tiny fraction of the $87.5bn prescription-only medication market. Pioneering pureplays like PlanetRx are struggling to keep their heads above water. With its stock facing delisting from the Nasdaq for trading below a dollar a share, PlanetRx recently employed defensive measures – a 1-for-8 reverse stock split.
This shaky start and uncertain future makes pharmaceutical companies wary of ePharmacies. Their business models are based on forecasts for increasing eCommerce, but pharmaceutical companies are unsure whether these are realistic.
It is not only negligible revenues and plummeting stock prices that worry pharmaceutical manufacturers. They are also concerned that ePharmacies are not providing enough good product and medical information to warrant any investment. Recent reports that some online enterprises have allowed people to obtain Viagra for a man taking nitrates, a sixteen-year-old boy and a neutered cat cast an incriminating light on the entire concept.
Instead, pharmaceutical companies have sought to exploit the Internet to build up a direct relationship with patients. Why shouldn’t their own sites help increase compliance too? Thus Prozac.com emails alerts that remind users to refill their medication; Lipitor.com fosters a sense of community for overweight people who feel isolated by their condition.
The Internet will allow us to get to consumers in another way. It is a first step toward eliminating barriers between drug companies and consumers. You can see a future of direct-to-pharmacy without middlemen, thus saving a chunk of money, commented Sir Richard Sykes, former chairman of Glaxo Wellcome recently.
Raising revenues through compliance
But the drug manufacturers face an uphill battle. A recent survey showed that while 60% of Internet users have visited a health or medical site this year, the company sites lost out to the likes of DrKoop, WebMD and OnHealth. Consumers tend to distrust information they receive from pharmaceutical companies, preferring health sites run by trusted third parties, confirms Rachael Terrace, health analyst at Jupiter Communications.
ePharmacies are ideally positioned to exploit their third party status, providing information and driving compliance. As HealthCentral’s acquisition of DrugEmporium has demonstrated, by adding content to the prescription process, value can be added. Patients can read reports about drug trials and new research and testimonials from other patients who have taken a particular drug. Forrester projects that ePharmacy-based interactive compliance programs aimed at helping patients take their medications as prescribed will add $1.3bn in incremental drug sales in 2004.
Some people still have faith. PlanetRx may be bleeding heavily, but Alpha Venture Capital has injected $50 million of equity financing into the company. Gomez Advisors expects online drug sales to explode to $3.9bn by 2004 as the potential of the Internet is further embraced and top companies start to take customer service more seriously.
The pharmaceutical companies, therefore, should seek closer ties with online drugstores and exploit strong synergies rather than try to bypass them. A few have already identified the opportunity. Last year Warner Lambert entered an agreement with PlanetRx to sponsor disease-specific sites, beginning with diabetes.com. The deal allows Warner-Lambert to advertise its products on these websites and patients will be able to fill prescriptions for these drugs through PlanetRx. The disease-specific sites include disease management programs, which advise patients how best to manage their condition through suggested therapy, diet and exercise. Patients will also be emailed reminders to warn them when their prescriptions are about to run out. Such initiatives, which aim to increase compliance, have the potential to be extremely profitable.
However, pharmaceutical sponsorship or advertising alliances will raise objections. Can a pharma-sponsored pharmacy be trusted to give objective medical information? In the case of diabetes.com it looks like it can, but companies will need to tread very carefully to ensure that such ventures retain credibility. Nevertheless, if ePharmacies can enter joint ventures and retain their third party status, the formula could be a winner. Incremental sales are music to big pharma’s ears, notes a Forrest report. Manufacturers like Merck and Pfizer will happily supply online pharmacies with unrestricted educational grants that help drive increased drug use, although deals will be carefully structured in deference to the FDA’s strict labeling standards.
The wait and see strategy that most pharmaceutical companies have so far employed with ePharmacies in the US is misguided if they want to take advantage of the promise to recoup the losses associated with poor compliance. The early movers are already insisting on exclusivity from their online pharmacy partners in key therapeutic domains and the opportunities will soon sell out. There should still be long lines at the ePharmacies. Not customers this time, though, but big pharma desperate to get on board.
