1. “A Very Healthy Way to Shop” TM
Group 4: M. Wilhoite, S. Allred, J. Iverson, B. Larsen

2. What is Drugstore.com? Two-part business
Health, Beauty & Wellness Retailer
Online Pharmacy
1 million customer accounts

3. Health, Beauty & Wellness
20,000+ products (3X small drugstores)
OTC Medicines
Beauty & Spa
Nutrition & Wellness
Personal Care
Specialty Stores
Information
Company-generated newsletter w/ wellness, health, beauty advice, tips

4. Pharmacy Fills prescriptions Prescriptions mailed or phoned in
Verified Internet Pharmacy Practice Sites certification by the National Association of Boards of Pharmacy
Accepts many insurance plans within PCS network
Provides information
View prescription history, health profiles, order status, insurance info
Find drug prices & information

5. Value Propositions Health & Beauty
Lower prices, on average, than nat’l chains
In-depth product information
reminders to replenish regularly used products
Interaction with customer service reps via phone or
Personal Shopping Lists
Private access to beauty experts
100% return guarantee

6. Value Propositions Pharmacy Open 24/7 Same-day pickup at Rite Aid
Private access to pharmacists
reminders for refills
Online health history archive & interaction notification
In-depth information on drugs and drug prices

7. Business Overview Ownership 28% Amazon.com 24% Rite Aid
16% Kleiner Perkins Caulfield & Byers
8% GNC
6% Vulcan Ventures
5% Peter Neupert

8. Management Team Peter Neupert, Chmn. Of the Board, Pres. & CEO
Former MSFT MSNBC guru
Jeff Bezos, Brook Byers, John Doerr, Howard Schultz, William Savoy, Directors
David Rostov, CFO
Former CFO Nextel
Kal Raman, CIO
Former director info systems Blockbuster & director int’l div. Wal-Mart

9. The Mail Order Pharmaceutical Industry
and the
The Online Pharmacy Industry

10. The Facts
Total Market Value = $145.8 Billion in Sales (Acute and chronic maintenance)
PBM’s Control 75% of Drug sales
3 PBM’s control 43% of Market
400 Online Pharmaceutical Sites
HBA helps drive traffic to the sites
Source: Forresters, WSJ

11. The Beasts are the portal to the customer
The Nature of the Beast
The Beasts are the portal to the customer
PCS (Drugstore.com)
50 million customers and 15% market share
Merck-Medco (CVS.com, Merck-Medco.com)
52 million plan members and holds 16% of the market
MM provides Rx and CVS provides HBA
Express Scripts (PlanetRx.com)
38.5 million customers and has a 12% market share
The rest of the industry controlled by the remaining 64 PBM’s
Clinton pushing for 39 million Medicare recipients to have pharmacy benefits

12. The Mail-Order Supply Chain
Targets chronic maintenance drug market
PBM
Insurance Co’s
Mail Order
Pharmacy
Distributor
Manufacturer
Rite Aid
Drugstore.com
Manufacturer
Distributor
Shipping
Doctor
Transfer Rx
Customer
Current Weaknesses
Misses out on the acute Rx market
Controlled by PBM’s - limit access
Most online don’t do Class II (narcotic) Rx’s
No major changes in value chain
Just a few efficiencies

13. Unknown Factors Issues the online industry must face
Security and Privacy - Being addressed by the Health and Information Portability Act VIPP
Gov. Regulation - DOJ investigating PBM’s for illegally controlling drug lists
Congress likely to act if privacy is breached

14. The Competitive Edge

15. Competition Highly fragmented both online and off-line
Fierce competition within and across both channels
First tier online presence
Second tier online presence

16. Competition
No online presence yet
Sleeping giants

17. Pricing
Drugstore is very competitive with pricing relative to other HBA sources – online and offline
Differences are so small, however, that no advantage is gained by lowering prices
Source: Market-basket Analysis Conducted in Seattle and Online 5/24/00

18. Comparison Grid

19. Key Partnerships Amazon.com Rite Aid
Drugstore.com pays Amazon $35MM per year over a 3 year period
Customers can click on Health & Beauty tab on Amazon site (Live - 4/17/00)
Gateway positioning exposes 17+MM well qualified online shoppers to Drugstore.com
Rite Aid
Two-way benefit program
Rite Aid benefits by fulfilling prescriptions from Drugstore
Rite Aid benefits by avoiding site creation/maintenance/fulfillment issues
Drugstore.com benefits via access to PCS members
Drugstore.com benefits via Rite Aid buyer power
Drugstore.com benefits via in-store branding elements at Rite Aid
Drugstore.com benefits by creating an alternate fulfillment channel to lessen consumer concerns with mail order fulfillment

20. The Bottom Line

21. Online Consumer Healthcare Traffic
Source: Media Metrix

22. Revenue & Customer Growth 2000 - 2004

23. Lifetime Revenue vs Acquisition Cost

24. Improving Margins
22%
20%
16%
12% 3%
-10%

25. Translation to Net Income

26. Sales vs External Funding Needed

27. The Future

28. Five Years from Now Two Options Exit Ongoing Concern
Liquidate assets, sell URL
Acquired by Amazon, Rite Aid/PCS or large retailer, keep URL
Ongoing Concern
Several scenarios

29. Ongoing Concern Merge with or acquire online health care companies
more.com and smaller players can’t go it alone
Opportunity to pick up their customers, pharmacy partnerships.
Stay as-is, outlast the competition
If online competition folds, pick up alliances with their pharmacy management and pharmaceutical co’s and B&M pharmacy partners
Win their customers with superior selection, service, information, reliability
Bricks-and-mortar presence, seamless insurance coverage (through PBMs), and customer access/retention vital to success

30. Ongoing Concern
E-volve through emergent strategy, strategic partnerships w/ Kmart, Costco, etc.
Maybe forge a delivery agreement with Kozmo.com for acute need delivery, especially for OTC items!

31. ?’s