January 19, 2001, 12:00 AM

Shot In The Arm For Online Health & Beauty

The U.S. online market for pharmaceutical, health and beauty products will "explode" from less than $250 million in 1999 to more than $18 billion in 2004, reports online research firm IDC, Framingham, Mass. The online market for prescription drugs will account for more than 80% of these revenues, or $14.8 billion, it adds.

"Consumers are increasingly accepting the Internet as a way to access health-related information and content," says Jim Williamson, senior research analyst with IDC's Consumer eCommerce: Consumer Goods program. ``In addition, powerful drug industry players, including managed care organizations and prescription benefit managers, are developing e-commerce strategies. As a result, the growth of this market will accelerate substantially over the next five years."

IDC believes payer organizations, typically prescription benefit managers and managed care organizations, will play a significant role in the online pharmaceutical market. Because payer organizations foot most of the bill for prescriptions, they are highly motivated to reduce costs, it says. The firm estimates that one-third of the cost of prescriptions comes from pharmacy fulfillment. To reduce fulfillment costs today, many payer organizations use mail-order prescriptions. IDC believes that they will look to further reduce fulfillment costs by investing in online fulfillment. By 2004, payer organizations will account for $14.2 billion, or 96% of the online prescription market, it says.

Other factors that IDC believes will contribute to the increase in online prescription sales include the overall increase in prescription medicine spending and the aging of the U.S. population. For online pharmacies looking to capitalize on this boom, IDC recommends partnering with payer organizations and selling related products such as beauty and "nutraceuticals."

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