Drugstore.com plans to sell its pharmacy business to BioScrip Inc., which then will become the pharmacy services provider for the online retailer's customers.

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Drugstore.com taps BioScrip as pharmacy partner

May 6th, 2010

BELLEVUE, Wash. – Drugstore.com plans to sell its pharmacy business to BioScrip Inc., which then will become the pharmacy services provider for the online retailer's customers.

Under the agreement, announced late Wednesday, drugstore.com will sell its DS Pharmacy assets to BioScrip Pharmacy Services for $10.9 million. BioScrip will pay $5.9 million at the close of the sale, subject to adjustment for changes in inventory, and approximately $5 million into escrow over the 12 months after the closing. The final amount paid out of escrow will be determined based on the profitability of the prescription pharmacy business during that period.

At the close of the sale, the companies will enter into a five-year marketing pact in which drugstore.com pharmacy customers will continue to order as they always have through the drugstore.com online store. BioScrip will pay drugstore.com a fee to continue to market the drugstore.com pharmacy, which will be served by BioScrip. The deal is slated to close midyear.

Drugstore.com noted that its customers can continue to order and refill their prescriptions through its web site. Through the partnership, BioScrip will provide drugstore.com customers with an expanded specialty pharmacy offering, robust clinical resources and greater access to third-party insurance reimbursement, including Medicare, according to drugstore.com.

"We strongly believe we should offer our customers the convenience of a pharmacy, and in BioScrip we believe that we've found the right company to provide, as well as expand, services to our customers," drugstore.com chairman and chief executive officer Dawn Lepore said in a statement.

Elmsford, N.Y.-based BioScrip provides retail and specialty pharmacy services along with pharmacy benefit management, infusion and other health care services. It operates a network of 33 retail community pharmacies in 17 states and the District of Columbia.

Since its launch in 1999, drugstore.com has partnered with Rite Aid Corp. for pharmacy services. On drugstore.com's "About Our Pharmacy" web page, the company states that all prescriptions currently sold by its DS Pharmacy units are dispensed via a Rite Aid store in Swedesboro, N.J. Drugstore.com also has an over-the-counter products store partnership with Rite Aid, and last year drugstore.com launched an online OTC store for Medco Health Solutions under an alliance formed in late 2008.

In explaining the move to sell the pharmacy business, Lepore said drugstore.com wants to concentrate on its faster-growth businesses — namely its expanding family of microsites, which include Beauty.com, VisionDirect.com, TheNaturalStore.com and, more recently, SexualWellBeing.com, AtHisBest.com, SkinStore.com and AllergySuperstore.com.

"While drugstore.com started more than a decade ago as an online pharmacy, over the past few years, the company has evolved and experienced accelerated growth in health, beauty and vision products," Lepore commented. "We now believe we're at a point where we need to focus on our strategic growth markets."

In a conference call in February to discuss drugstore.com's fiscal 2009 results, Lepore said this year the company plans to launch five to eight new microsites. For 2009, drugstore.com saw revenue rise 12.6% to $412.8 million. And on Wednesday, the company reported that its first-quarter 2010 sales surged 20% to $118.3 million, fueled by strong OTC and Beauty.com sales.

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