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					             Briefing on
Major Drug Companies and the Internet
 How Technology is impacting the Value Chain
John Cabot International
Major Drug Companies and the Internet


This briefing is a sampling of the pharmaceutical industry at the manufacturer level, wholesale
distribution level and of Internet retailers. The report includes three companies from each sector
of the industry that are prime examples in their field and are US-based. Included in each
description are short overviews of who that company is and details of their relationship to the use
of Internet technology in the pharmaceutical industry. In addition there are lists of currently
available solutions and industry sources that may be helpful in a more exhaustive study.

                                   Major Drug Manufacturers

Bristol-Myers Squibb

Business Description
Some 70% of sales come from pharmaceuticals. The company focuses on cardiovascular treatments and
related products, such as cholesterol-reduction drugs and anticancer and anti-ineffective drugs. Bristol-
Myers Squibb also makes baby formula, wound-treatment, and orthopedic products.
Online Initiatives
This company has 45 different web sites and none offers direct distribution of products. Each
web site is designed to be a delivery tool for value added information to either consumers or
There is no indication that BMS will be investing in a new system any time soon. There is most
likely a study underway but this could not be confirmed through their logistics department. In
1998 a group of drug companies including Glaxo Wellcome, Astra Pharma and BMS
implemented a new EDI system through the formation of a Canadian non-profit group. The
group selected a turn-key EDI solution from SoftCare Electronic commerce.

American Home Products Corporation

Business Description
Almost 70% of sales come from pharmaceuticals. Among AHP's products are estrogen-
replacement drug Premarin (the US's most-prescribed drug) and such familiar consumer products
as Advil, Robitussin, and Preparation H. The company operates through its subsidiaries,
including Fort Dodge (animal health care products), Whitehall-Robins Healthcare (consumer
health products), Wyeth-Ayerst Laboratories (prescription drugs), and Genetics Institute
(biotechnology). AHP also owns a majority stake in biotech firm Immunex Corp.
Online Initiatives
AHP runs a decentralized company and each subsidiary sets its own policy. An interview with a
company official reveled that AHP are working on plans for more advanced EDI systems but
would not confirm if the system was related to B2B or B2C. There are ten web sites offering
company and product information from a marketing perceptive. Some value-added content is
presented for consumer awareness on health issues.
AHP communication with the public is through the Internet. More online content sites are sure to
follow. Their site is focused on company and product marketing and value-added contend for

John Cabot International
Major Drug Companies and the Internet
Johnson & Johnson

Business Description
The company operates in three sectors: consumer products (Tylenol and Motrin analgesics,
Reach toothbrushes, Band-Aid bandages), professional products (ACUVUE contact lenses,
surgical instruments, joint replacements), and pharmaceuticals (including Ergamisol cancer
treatment, and Ortho-Novum oral contraceptives).
Online Initiatives
JNJ has 130+ web sites covering each of their companies. Half of the sites are used to provide
information on specific products or information on a subject matter e.g. “Caring for your baby” Most of the
sites are designed for consumers.

An official at JNJ indicated that the company is interested in web-based technologies and would
entertain product pitches.

Additional Players

   Abbot Labs
   Forest Labs
   Merck & Co.
   Eli Lilly & Co.
   Pfizer

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Major Drug Companies and the Internet

                                     Wholesale Distributors


Business Description
Wholesale distributor of pharmaceuticals with over 75,000 products operating nationwide.
Integrates services of Health management programs, product contracts, inventory and marketing
programs. Offer several value-added services to reduce costs. Clients range from chain pharmacy
to healthcare institutions.
Operates through a proprietary system. Offers web interfaces to gain access to internal system
but the applications are not web-based themselves. Access is limited to the 18,000 retailers,
hospitals and other providers that pay a membership fee for the service.

Bindley Western

Business Description
Value-added national distributor that deals primarily with retail pharmacy.
Bindley use proprietary systems consisting of several AS/400s and a new PC-based
pharmaceutical ordering system called RxVectorTM. This system will evolve but the Internet is
not an immediate concern for Bindley, they feel that their system is sufficient.

Bergen Brunswig

Business Description
Over 100 years in this business sector, the company has established specialized subsidiaries and
operates 33 distribution centers. Bergen is a Fortune 200 company with over $15B in sales.
Currently they are expanding by acquiring smaller companies and entering into the Internet
Recently the company has teamed up with PDX, an industry software provider. PDX is the industry leader
in management systems. Their products provide Internet interfaces for both the clients and consumers to
manage purchases of drugs. Although PDX would not disclose details of the product they did confirm that
it could interface with the back-end process. Just this week Bergen Brunswig disclosed a relationship
with ePills, an Internet pharmacy similar to

Additional Players

   World Wide Pharmaceutical
 Value In Pharmaceuticals
 International Healthcare Distributors
 Cheshire Pharmaceutical Systems

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Major Drug Companies and the Internet

                                       Internet Storefronts


Business Description
National full service online only pharmacy that provides everything from beauty supplies to
prescriptions. In addition PlanetRx has created a community surrounding the site to add value to
the experience. They have acquired Express Scripts to provide their 35M HMO members with
web-based services. The two sites will integrate services. This includes a central distribution
facility in Memphis TN.
Key Technologies
PlanetRx is still in a quiet period that will expire by the end of November.

Business Description
Most analysts believe that this company is currently leading in this space. claims
over 200K registered members with access to approximately 30M clients. They have created
alliances with brick and mortar companies like Rite Aid and GNC and are working on
undisclosed Managed Care providers.
Key Technologies
The company has developed a complete proprietary system. Disclosure of any technology partnerships is
being held in confidence for now.

Business Description
This is a Brick and Mortar company that has migrated to the web and is providing both health,
beauty and pharmacy products. Recently they have created an alliance with Merck-Medco, the
largest PBM (Pharmacy Benefits Manager) in the US. This now will make the sole online
provider to 50M people that are served by HMOs. This effectively eliminated the need for
distributors and the need for Merck-Medco to purchase a costly web infrastructure.
Key Technologies
CVS has implemented a paperless transaction process that allows consumer users to make web-
based transactions. It is unknown if this actually interfaces with the back end of the process e.g.
procurement. CVS uses three databases to cross-check patient history, drug information and
patient medical data. MedicaLogic Inc. developed the system.

Additional Players
 Rite Aid Also Brick & Mortar stores
 Mothers Nature
 ePills

John Cabot International
Major Drug Companies and the Internet

                                  Current Available Solutions

Advanced Health Technologies
Flagship products are Dr. Chart, a web-enabled physician to clinical lab data routing solution and
@Rx, a integrated solution for providing prescriptions via the Internet.

Tecsys Inc.
Makers of a Business 2 Business e-commerce solution used in several vertical markets. They
offer one web-based system called Elite.eCom. The platform is specifically designed for
distributors not retailers. It uses open standards for maximum acceptance in the marketplace.

Supply Chain Solutions
If there could be a leader in solutions for the Pharmacy industry SCS may bee it. Their focus is in
delivering solutions for everything from back-end replenishment to retail store fulfillment. The
applications are marketed as a series of solutions under the SCORE product name.

Achieve Healthcare Information Systems
Provides a suite of applications that are mostly web-based. They only focus on solution for the
Care facility sector of the drug industry. When using all of the modules, one would be linking
management, financial, clinical and supply-chain.

Front-end system that is used for prescriptions management. The company states that there are
links to back-end processes but does not mention what processes they are.

Digital Market Inc.
In October 1999 released a new Internet-based product to provide a secure Extranet solution for
a full value change management under a single web interface

Markets the Open-EC™ that consists of several modules that connect the back-end processes,
retail end process, and the Internet. This application is used in several other industries as well as
the drug industry.

John Cabot International
Major Drug Companies and the Internet

Summary of Conclusions

This analysis of the distribution channel system used in the Pharmaceutical industry revealed
several facts.

1. Manufacturers are focusing their Internet initiatives on communication with the public in a
   marketing sense. The use of the Internet in the supply chain is increasing but there is no
   evidence that it will become integrated with the front-end processes such as prescription

Surveying the major drug company sites, some of which have no less that 100 available web
sites to provide passive information, easily identifies this fact. There is even an increase in
specialized sites that deliver medical information. Two such examples are and that try to put better information in the hands of consumers. Note that this is
information and not recommendations. There are still some legal implications to not being a
physician, and “recommending” drugs.

Andersen Consulting, in their April 1999 Electronic Commerce for Pharmaceuticals Conference
presented by First Conference, enforced the viability of technology improving the value chain in
the pharmacy industry. This is shown in the following table
Further examples are included in the attached print.

2. Manufacturers and some Distributors are still using traditional EDI solutions as a means of
   managing business. Some are in the process of upgrading too more web-based systems but
   would not disclose partners.

An example is covered in the Logistics Management & Distribution Report 1/31/99 (Northern
Light document ID PN 19990218030000327). Pfizer addressed three issues in particular. 1.
Value creation through better inventory management "We have to identify the infrastructure that
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Major Drug Companies and the Internet
will support unprecedented growth," Nelson says. "It's a network that differs in concept from the
one we had in place several years ago." In 1995, he explains, Pfizer's strategy called for
improving efficiency through consolidation. The company combined its Atlanta, Chicago, and
Dallas operations into a 280,000 square-foot site in Memphis, Tenn., a site efficient enough to
double productivity in less than half the space of the facilities it replaced. Quotes, Richard E.
Nelson, vice president, distribution Pfizer 2. Efficiency through workflow Pfizer uses EDI to
become proactive with customer shipment information. The company's R.C.S. order-
management system receives carriers' shipment-status messages, says Witherspoon. 3. Proactive
salability Nelson also quotes, "Today most products are shipped to wholesalers, but we don't
know where our customer base might come from tomorrow, nor what the marketplace dynamics
may be in terms of service requirements," he says. "Conceivably, we could ship to retailers or
even directly to customers."

3. Web-based commerce on a B2B level will happen when major value chain solutions are
   available and the need to further reduce costs are forced. The current models of EDI
   interfaced with wholesale distributors should be replaced by a more efficient progression to a
   real-time integrated distribution system. An example of how costs are reduced is presented
   by the the American Society of Consultant Pharmacists.

Cost reductions in manpower are supported in a white paper by the American Society of
Consultant Pharmacists. Page three of this report quotes, “With more than 190,000 licensed
practitioners, pharmacists stand behind nurses (2,033,032) and physicians (601,060) as the third
largest health professions workforce. A number of forces are causing a shift in pharmacist
activities away from dispensing or technical functions and toward cognitive services and
activities; the greatest is the increased use of pharmacy technicians and automation. In a 1994
article on pharmacy manpower, Knapp estimated that by the year 2000, as many as 60,000
pharmacist positions devoted to drug distribution and dispensing can be freed up for
pharmaceutical care activities by automation and technicians. Knapp observed that trends
favorable to the employment of those pharmacists freed by automation include the recent
emphasis on primary care” ASCP web site October 1999

Drug wholesalers reduce the overall number of transactions required to service the
pharmaceutical distribution system. If all pharmacy sites, approximately 130,000, purchased
goods from the 900 manufacturers on a monthly basis, total annual transactions would be:
130,000 x 900 x 12 = 1,404 million
If, on the other hand, 237 wholesale drug distribution centers purchased weekly from the same
900 manufacturers, the total annual transactions would be:
237 x 900 x 52 = 11.1 million
If each pharmacy then ordered five times per week and each wholesale distribution center
serviced 500 pharmacies, the total annual transactions would be:
237x 500 x 260 (5x52) = 30.8 million
The total number of annual transactions using wholesalers is 41.9 million vs. 1,404 million with
direct distribution to pharmacies. When wholesalers are used, the total annual number of
transactions is reduced by nearly 98 percent.
To assign a more recognizable value to this service, the average pharmacy order or transaction
contains about 13.5 invoice lines. Even with drug wholesalers' extreme efficiency, each invoice
line costs an average of $2.54 to handle.

John Cabot International
Major Drug Companies and the Internet
Thus, 1,382 million additional transactions would equate to more than $47billion in costs to
the healthcare system even at drug wholesalers' level of efficiency. This number would be
greatly increased with direct distribution.
Statistics form the NWDA web site October 1999

4. Legal and social factors will slow the growth of the Internet Pharmacy industry. Also all of
   these companies are in a predicament of compliance.

Chain Drug Review reported on 8/16/99 that “…pharmacies on the Internet will have to
reconcile the on-line lack of their greatest strength – namely face-to-face patient counseling by a
pharmacist, he [Ted Bohnen VP Cormark-Bates] contends. “It’s an issue. The most trusted
professional in the country today is the pharmacist, even more than the physician”.”

The National Association of Boards of Pharmacy has established the Verified Internet Pharmacy
Practice certification. This entails a 17 point criteria including a site visit by the board. The first
recipients are, Merck-Medco, and The NABP also discovered
over 400 sites not conducting legitimate practice.

One conclusion of an ASCP study states, “State pharmacy practice acts must be revised to allow
the appropriate and efficient use of automated pharmacy systems. Legislation must be enabling
rather than restrictive, and regulations must focus on outcomes rather than process.”

5. The next wave in the evolution of distribution will be through the Internet storefronts. These
   companies are directly going after accounts held by the wholesale distributors. They are
   either making alliances with Managed Care systems or they are going directly to end users
   such as hospitals and retail pharmacy. Examples are:

Reported in Red Herring Oct. 1999
“The country's second-largest drugstore chain, signed a deal with Merck-Medco, the pharmacy
benefits management (PBM) division of drug giant Merck (NYSE: MRK), to collaborate in
selling drugstore products and prescription drugs over the Web”

Reported in Business 2.0 March 1999
"We're changing health care into a consumer-centric market-driven industry as opposed to a
bureaucratic, Bill Clinton, managed-care mentality," says Donald Hackett, president and CEO of, an Austin-based health care portal launched in July 1998 by Dr. C. Everett Koop,
former U.S. surgeon general”

Reported in Chain Drug Review October 1999
“Nearly two in five drug chains with web sites have online pharmacies, according to a survey
conducted last month by the National Association of Chain Drug Stores.”

Reported by the National Association of Chain Drug Stores Peter O'Neil Oct. 1999
Internet-based EDI advantages include:
     reduced costs;
     adds new capabilities for interactive communication;
John Cabot International
Major Drug Companies and the Internet
    gives even the smallest of companies the ability to be a "player" in e-commerce; and
    great strides are being made towards better security of transmissions.
Recent NACDS Study on Membership Trends
To better understand current and future trends, NACDS recently conducted a study of chain
member IT and EDI executives. Among the findings:
    Over one-third of companies responding are not currently EDI capable;
    within the next several years 64% of chain members intend to widen implementation of
       EDI in terms of training partners; 36% plan to migrate into greater use of Web-based
       commerce; and 33% plan to implement EDI with newer protocols, equipment or
    the single greatest barriers to EDI implementation were lack of staffing/skills to
       implement and trading partner limitations, cited far more often than cost, legacy systems,
       or lack of internal support or understanding of the benefits;
    companies most commonly use EDI for purchase orders, invoices, functional
       acknowledgments, and purchase order acknowledgments; and
    Less-frequently used transaction sets include advance ship notices, purchase order
       changes, price sales catalogs, and electronic funds transfer.

John Cabot International
Major Drug Companies and the Internet
Sources of Information:

Industry Analysts
Don Spindel                                        Kent Blair
A.G. Edwards                                       Donaldson, Lufkin & Jenrette
One North Jefferson                                277 Park Avenue
St. Louis, MO 63103                                12th Floor New York, NY 10172
314/955-3366                                       212/892-4239
fax: 314/955-4707
John Ford                                          Dick Vietor
Bear Stearns & Co. Inc.                            Merril Lynch
245 Park Avenue New York, NY 10167                 World Financial Center Tower
212/272-2000                                       19th Floor
                                                   New York, NY 10281-1319
Victor Mandel                                      Kristi Thiese
Goldman Sachs                                      Raymond James
One New York Plaza                                 880 Carillon Parkway
46th Floor                                         St. Petersburg, FL 33716
New York, NY 10004                                 813/573-3800
fax: 212/902-4731
Chris McFadden                                     Christopher Sorrow
Wheat First Union                                  Glassman-Oliver Economic
901 East Byrd Street                               1828 L Street, Suite 405
Richmond, VA 23219                                 Washington, DC 20036
804/782-3401                                       202/331-1946
fax: 804/782-3636
Lawrence C. Marsh                                  Barbara A. Ryan
Salomon Brothers, Inc.                             Managing Director
Seven World Trade Center                           BT Alex Brown Research
New York, NY 10048                                 787 7th Avenue, 2nd floor
212/783-6753                                       New York, NY 10019
fax: 212/783-2052 or 212/783-4644                  212/237-2340
                                                   fax: 212/237-2483

National Wholesale Drug Association (NWDA)
National Retail Federation (NRF)
National Association of Chain Drug Stores (NACDS)
National Association of Convenience Stores (NACS)
National Association of Retail Druggists (NARD)
National Association of Boards of Pharmacy (NABP)
National Council for Prescription Drug Programs (NCPDP)
American Society of Health-System Pharmacists (ASHP)
American Society for Automation in Pharmacy

John Cabot International
Major Drug Companies and the Internet
Periodicals & Online
Logistics Management & Distribution Report
Business 2.0
Red Herring
Chain Drug Review
Investext Reports
Electronic Commerce World

John Cabot International
Major Drug Companies and the Internet

List of Attachments

 Andersen Consulting Presentation from The Electronic Commerce for Pharmaceuticals April
  26, 1999
   Achieving Real Value Through eCommerce – Fred Halperin

 NBPD Presentation from The Electronic Commerce for Pharmaceuticals April 26, 1999
   Case Study of Boehringer Ingelheim

 American Society of Consultant Pharmacists White Paper
   Automation in Pharmacy March 1988