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Drugstore.com reports profitable 2007 EBITDA for first time

BY Michael Johnsen

NEW YORK Over-the-counter medicines, prestige beauty, contact lenses and a partnership with Rite Aid—which accounts for 24 percent of revenue—drove drugstore.com’s business EBITDA profitable for the first time last year, drugstore.com’s president, chairman and chief executive officer Dawn Lepore told analysts at the Jefferies fourth Annual Internet Conference held here Wednesday.

“We have an accelerating finanical model with expanding adjusted EBITDA and gross margins,” Lepore said. “And we are significantly growing our advertising and services revenue, which of course is important because that is 100-percent-margin revenue.”

Although the Rite Aid partnership, whereby drugstore.com serves as the No. 3 brick-and-mortar drug chain’s online entity, makes up almost a quarter of drugstore.com’s business, the Rite Aid business is only growing between 4 percent and 5 percent, Lepore reported. “It’s completely dependent on Rite Aid to grow it. They do the marketing. They actually fill the prescriptions in their stores,” she said, and split the contribution margin with Rite Aid in those instances that a Rite Aid pharmacy customer refills a prescription online but designates a store for pick up. “It’s not a particularly strategic business, given that it’s not growing and it’s not something necessarily as high margin as something like OTC or beauty, but it is a good business,” Lepore said. The drugstore.com-Rite-Aid online pact comes up for renewal in the middle of 2009, she said, “and we and Rite Aid will decide where to take that business going forward.”

The company began engineering its turnaround to a profit-generating online retailer in 2006, Lepore said. “Prior to 2006, our topline was growing significantly, but our adjusted EBITDA was declining and we had to go through a fairly significant strategic shift,” she said. The OTC business, which makes up 53 percent of revenues for the click-and-order retailer, was identified as the chief driver for future growth, “but there were a percentage of the OTC orders that were going out the door unprofitable,” Lepore said, prompting the company to make internal changes within its supply chain to ensure that every order generated profit.

The company’s mail order business, Rx Mail, which accounts for 11 percent of drugstore.com’s business, was also re-engineered for profitability. “Although it has been declining, it will grow starting in 2008, much more profitable,” Lepore noted. Part of the challenges in making its Internet pharmacy profitable is two-fold. Medco Health, which commands approximately 40 percent of the market Lepore said, considers drugstore.com a competitor ( and therefore drugstore.com is not included in the Medco plan) and a significant number of cash prescriptions have migrated north of the border. “There are probably about $1 billion of scripts that are filled in Canada,” she said. In addition, drugstore.com opted out of Medicare Part D participation. “Those are older customers who don’t tend to buy other products online, so that didn’t make sense for us.”

All of these factors have contributed to steep revenue decline for Rx Mail, Lepore said, “[but] we have now bottomed that out; that will be growing starting in 2008. [And] we’ve significantly expanded the contribution margin, so that’s now a much more profitable business,” Lepore said, noting that drugstore.com has strong margin share among cash-paying prescription customers and customers for “lifestyle drugs,” drugs indicated for erectile dysfunction like Cialis or Viagra that aren’t typically covered by health insurance plans.

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Meijer launches inkjet refill service in stores

BY Doug Desjardins

COMMERCE, Mich. Meijer is teaming with IQcartridge to offer an inkjet cartridge refill service in hundreds of stores.

Meijer has installed refill stations in the photo and electronics departments of stores where customers can leave their empty cartridges and pick them up the next day.

“Consumers can see a savings of 50 percent with a recycled ink cartridge,” said IQcartridge president Kristen Kavanagh. “And we can remove the false walls and hidden chambers that many manufacturers currently build into ink and printer cartridges, which can give consumers a higher cartridge yield of up to 300 percent or more.”

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NanoMask final test shows better than 99 percent effectiveness

BY DSN STAFF

LAS VEGAS Emergency Filtration Products on Wednesday announced the results of the final report for the assessment of virucidal effectiveness of treated masks (the NanoMask filter media) using avian influenza virus from the independent testing laboratory which conducted the test.

According to the final report, the test resulted in a 99.96 percent reduction of the avian influenza virus.

The final report was based on filter media samples coated with a silver nanoparticle formulation which underwent one year of simulated aging. The sample was challenged with the avian influenza strain H9N2.

This result compares favorably with a previously disclosed result which indicated a 99.75 percent reduction obtained from a preliminary report by the same independent testing laboratory.

EFP plans to complete a series of tests necessary to the information required to support its 510(k) submission to the FDA for the NanoMask, the company announced in November, including tests of accelerated aging, with follow-on efficacy testing, which ascertains the product’s ability to kill pathogens after a prolonged period of time. This will help determine the NanoMask’s accurate shelf life for inventory purposes.

Other testing expected to be completed prior to completion of the accelerated aging test are leaching tests, which ensure that the silver nanoparticle formulation does not separate from the filter media.

Sales of the NanoMask have been held pending FDA approval, at least according to the handful of web sites advertising the NanoMask. The mask, however, appears to have been designed for the consumer market—there are presently five adult masks (yellow, green, red, blue and purple) and three child masks (yellow, green and purple), all advertised for $12.99 on birdfluprotection.com. Similarly, a 10-pack of replacement filters also retails for $12.99 on the site. 

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