looks to expand online pharmacy business

Lalit Dhadphale thinks his company (OTCBB:HEWA) is well positioned to take advantage of the “generics wave” brought on by expiring patents on troves of branded prescription drugs over the next few years.

Cincinnati-area bills itself as the only online, mail-order retail pharmacy that sells directly to the U.S. consumer in all 50 states. The primary difference between HealthWarehouse and most of its online competitors is the customers they’re targeting: The company sells mainly to the uninsured and underinsured, while other online prescription drug sellers such as pharmacy benefit managers sell only to members.

Dhadphale likens his company to an for prescription drugs.  “We are open to anyone, not just members, and allow you to purchase medications online just as you would books or music,” he said. “The current pharmacy landscape does not have this type of business model selling nationwide. Insurance equals membership, so if you are not a member, you cannot purchase.”

Adding to Dhadphale’s confidence in HealthWarehouse’s business model is the “generics wave.” As much as 75 percent of 2008 global pharmaceutical sales will go off-patent within five years, estimates Roland Berger Strategy Consultants, and that means billions of dollars worth of prescription drugs will become much more affordable to most Americans. When those patents expire, HealthWarehouse aims to be there to capitalize.


“We’re riding this tidal wave of brands to generics and it may be the biggest transformation yet in the pharmacy industry,” Dhadphale said. “If you’re competing in the pharmacy space, the guy who can sell it for $4 will be the only guy left.”

With the low overhead that comes from avoiding bricks-and-mortar locations, Dhadphale plans on being that guy, though HealthWarehouse sells more than just generics. The company received a boost earlier this year recently when Consumer Reports found that it boasted the lowest prices amongst online retailers for four well-known generics — Lipitor, Nexium, Plavix and Singulair.

So HealthWarehouse has low prices, but the company isn’t without challenges. One is the federal health overhaul and its plan to provide health insurance to 32 million additional Americans. Wouldn’t that take a bite out of the company’s customer base, which is mainly the uninsured?

Dhadphale says it’s too early to tell, but HealthWarehouse has signed prescription drug coverage deals with some small insurers, potentially insulating itself from a loss of uninsured customers.

More challenging for the company is overcoming negative perceptions of online pharmacies, fueled in part by scores of illegal pharmacies on the web. Google has been fighting rogue online pharmacies since 2003, The New York Times reported, but apparently hasn’t been doing a good enough job. In August, the search giant paid the federal government $500 million to settle charges that it knowingly showed illegal ads from fraudulent pharmacies.

“The space has been tainted with lots of illegal pharmacies,” Dhadphale acknowledged.

To help distinguish itself from the pack, HealthWarehouse went public in a reverse merger and is traded on the over-the-counter bulletin board. Dhadphale said the move adds to the company’s transparency.

Additionally, HealthWarehouse is one of 29 online pharmacies to receive an accreditation from the National Association of Boards of Pharmacy (NABP) called VIPPS (Verified Internet Pharmacy Practice Sites), which involve a review of the company’s policies and procedures and an on-site inspection.

Dhadphale hopes those moves will help separate HealthWarehouse from the 96 percent of online pharmacies that aren’t in compliance with pharmacy laws and standards, according to the NABP. And that’ll help the company as it looks to aggressively add business and expand market share.

“It’s almost like a land grab at this point,” Dhadphale said. “We’d like to get out in front of everybody and have that first-mover advantage.”

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