12-09-2000

HEALTH: Online Pharmacies: Will Congress Act?

Supporters of regulating pharmaceutical sales on the Internet made
important headway in Congress this fall as key lawmakers lined up behind a
proposal to crack down on illicit sales on the Web. But it's uncertain
whether the momentum will carry over to the new Congress. Although
opposition from cyberpharmacies has softened, some of the leading
proponents of the legislation are leaving Congress, and a shakeout in the
Internet drugstore industry could also have an effect.


Rep. Ron Klink, D-Pa., has been working for more than a year to draw
attention to the problem of illegal online prescription drug sales.
Initially, he faced opposition from reputable cyberpharmacies, who warned
that such efforts could end up hurting legitimate operations.


At first, Rep. Tom Bliley, R-Va., chairman of the House Commerce
Committee, made it clear that he did not want to regulate e-commerce and
jeopardize the growth of the budding industry. But, after holding hearings
on the matter, Bliley introduced a bill at the end of October, with Klink
and Sens. James M. Jeffords, R-Vt., and Edward Kennedy, D-Mass., to
require interstate Internet sellers of prescription drugs to disclose
important information on their Web sites and to state licensing
boards.


The bill would make it easier for state attorneys general to seek
injunctions against cyberpharmacies that violate disclosure requirements
or provisions of the federal Food, Drug, and Cosmetic Act. In addition,
the bill would allow the federal government to seize assets that are held
in the United States.


The leading Internet drugstore, Bellevue, Wash.-based Drugstore.com, is
backing the legislation, even though it would have preferred an
industry-based solution. "If, in fact, our legislators are going to
go ahead with a bill, it's in our best conscience to do right by the
consumer," said Judith McGarry, vice president of strategic
partnership for Drugstore.com.


Other factors, though, may make it difficult to sustain this year's
advances. Klink relinquished his House seat for an unsuccessful Senate
run, and Bliley is retiring.


Jeffords and Kennedy are still in a good position to pursue a bill in the
Senate: The two are set to remain as chairman and ranking member of the
Health, Education, Labor, and Pensions Committee, which has jurisdiction
over the matter. But there's no obvious new champion of the legislation in
the House.


A shakeout in the Internet drugstore industry could also have an
as-yet-uncertain impact on the bill. Sales are up, but stock prices are
down-way down. If cyberpharmacies turn out to be a fad rather than a
trend, interest in the legislation could rapidly diminish.


The stock price for Drugstore.com, for example, peaked in September 1999,
at $53.88 per share. During the past month it dropped to as low as $2. The
company laid off 10 percent of its 600 employees in October.


Some market analysts are questioning whether cyberpharmacies will recover.
InsightExpress, an online market research company, concluded from its
October survey that cyberpharmacies are "not gaining traction in the
online marketplace, mainly because people desire the personal interaction
they receive with the local pharmacist."


Ninety-three percent of online consumers surveyed had never made a
purchase from an online drugstore, and 76 percent had never visited an
online drugstore site.


Why? About 60 percent of respondents were more comfortable using local
pharmacists, 23 percent were concerned about privacy issues, 8 percent
couldn't get insurance to pay for online orders, 5 percent said their
doctor could not fill their order online, and 4 percent said online orders
were more expensive.


InsightExpress President Charles Hamlin said he wasn't hopeful that
consumer sentiment would change. Nearly 60 percent of InsightExpress'
respondents said they probably would not purchase prescription drugs
online, while 31 percent were undecided. Only 12 percent said they would
be likely to purchase prescriptions online in the future.


Still, not everyone agrees that the future is bleak for online
prescription drug sales. A spokesperson for Drugstore.com said that its
sales are up, and some analysts predict increased sales in the industry
for the next few years.


Frank Palumbo, director of the Center on Drugs and Public Policy at the
University of Maryland (Baltimore), says that the industry needs some time
to shake out. "Interest is not gone. Ultimately [the online
companies] will capture a certain percentage of the marketplace, and be
stable. Folks are looking now to see whether there's an advantage to this
or not. In many cases it's easier to run out to the local pharmacy to pick
up [drug purchases]," he said. "The ones who survive will do
pretty well."


Drugstore.com's McGarry predicted that the legitimate Web sellers that are
connected to brick-and-mortar pharmacies will prevail as the shakeout
continues. Drugstore.com is part of Rite Aid, a national pharmacy.


If the larger cyberpharmacies continue to hang on, companies such as
Drugstore.com are expected to continue to support the Bliley-Klink bill,
even though they believe industry self-policing would be preferable. But
McGarry said she believed that rogue operators are already leaving the
market on their own-even without congressional legislation.


Marilyn Werber Serafini

National Journal