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Executive Summary In June 1999, CVS the second largest drugstore chain in the US, in terms of sales ($ 15.3 billion), has acquired healthcare focused web start-up Soma.com for $30 million in stock. Helena Foulkes, VP of Marketing at CVS was working with Somas founder Pigott, now President and CEO of CVS.com to make CVSs online drugstore a success. They have a few questions ahead of them like what merchandise products to offer through online store and what Pricing Model would make this channel an attractive to customers yet profitable to CVS. Above all, they faced a threat from Merck-Medco Managed Care the second largest PBM, in terms of coverage (51 million lives). Merck-Medco was ready to only pay for 30day prescriptions being picked up from store and refused to pay for all prescriptions delivered by mail. For this purpose, they wanted CVS.com to be hosted within their online dispensary. Players in Prescription Drug Business Patients are the consumers in this business. They can be divided into two kinds of segments, one on the basis of age group and other on the kind of treatment (acute or chronic). It is mentioned clearly that usage of both chronic and acute prescription drugs was concentrated among older Americans. Employers bore the medical expenses for most population of the United States, to a large extent. Managed Care Organizations (MCOs) were contracted by Employers to manage the health expenses. Pharmacy Benefit Managers (PBMs) were involved by MCOs to help manage aggregate health costs. PBMs managed drug prescribing and dispensing by establishing Formularies, which were lists of approved drugs for which they had negotiated favorably with manufacturers. By 2000, PBMs were likely to handle 89% of all prescriptions in the United States. If a patient or a physician wanted to use a drug not prescribed by PBMs, the cost would not be reimbursed. Owing to PBMs efforts to rationalize the prescription drug supply chain, they were a potent force in the pharmaceutical industry. As a result several manufacturers acquired PBMs for the sake of favorable rationalization. While only Merck-Medco was successful amongst manufacturer-PBM mergers, large drug chain companies managed to own PBMs. However, most PBMs were owned by MCOs or health insurance companies. While PBMs acted as influencers in the industry and hence wielded significant control, retail chains established their significance by providing convenience to the consumer by means of nearer outlets and easy reach. Thus it is a tug of war between the two most powerful players - PBMs and drug retail chains: a case of regulatory control versus consumer convenience. Internet was the newest channel in the prescription drug industry. With the advent of pure-play drugstore web sites like drugstore.com, Soma.com and PlanetRx, the retail chain biggies were not going to lag behind. With an eye on getting a hold on online drugstore market, each one of them had an acquisition of a pure-play company or build of their own launching the coming months (Walgreens www.walgreens.com and Eckerds www.e-pharmacy.com). PBMs also entered the fray with MerckMedco and ExpressScripts accepting prescriptions online. While CVS bought Soma.com, RiteAid acquired 21% stake in drugstore.com diluting Amazons stake to 27%. Even though the sales from these ventures were not even comparable to that of a single drug store in early days, Investor enthusiasm kept this channel alive. This is quite understandable given the benefits the end consumer stands to gain. As is the case with most technology enabled services convenience to consumer was an important factor as the market was touted to become more driven by consumer demand. Thus the tug of war between PBMs and drugstore chain biggies had a new stage in the form of Internet. The control of this new channel was going to be a fight of reimbursement muscle versus consumer brand awareness.