May 6, 2010, 4:50 PM

Drugstore.com to exit the pharmacy business

Drugstore.com is selling its pharmacy business in favor of growing its beauty segment.

Drugstore.com is selling its pharmacy business in favor of growing its beauty segment.

At the same time it released first quarter earnings, Drugstore.com announced a new agreement with BioScrip Inc. and its BioScrip Pharmacy Services unit whereby BioScrip will purchase the assets of Drugstore.com’s pharmacy business in a deal valued at $10.9 million.

Under the agreement, BioScrip will pay Drugstore.com $5.9 million for its pharmacy business and put another $5 million into an escrow account. At the end of 12 months, the final amount paid to BioScrip from the escrow account will be based upon adjustments for changes in inventory and profitability, says Drugstore.com.

With the new relationship, BioScrip also will manage Drugstore.com’s pharmacy orders. All transactions will be placed by customers on Drugstore.com, but fulfilled by BioScrip, says 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," says Drugstore.com CEO Dawn Lepore. "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. We now believe we're at a point where we need to focus on our strategic growth markets."

When the deal is complete by June or July, Drugstore.com and BioScrip will enter into a five-year marketing relationship. “Drugstore.com pharmacy customers will continue to order as they always have through the Drugstore.com web store,” the company says. “BioScrip will pay a fee to continue to market the pharmacy.” The fees were not disclosed.

Drugstore.com posted healthy top-line growth in the first quarter, but also reported a loss.

For the quarter ended April 4, Drugstore.com, No. 46 in the Internet Retailer Top 500 Guide, recorded:

  • An increase in e-commerce revenue of 20.3% to $118.3 million from $98.3 million in the first quarter of 2009.
  • Over-the-counter sales grew year over year 28.8% to $92.9 million from $72.1 million.
  • Net loss was $2.6 million compared with net income of $854,000 in the first quarter of 2009.

“Consistent demand for everyday health and beauty products, contributions from our partnerships and a strong performance by our overall beauty business helped drive strong growth in our over-the-counter segment," says Lepore. “Additionally, Skinstore.com, which we acquired in mid-February, is performing well, contributing $5.5 million in revenues to the quarter.”

Drugstore.com expects sales in the second quarter to range from $113.0 million to $117.0 million and net income to range from $3.5 million to $4.5 million.

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