No Corner Drugstore

By Chris Reidy

Globe Staff

''I got the heart of an 18-year-old,'' says the onetime minor-leaguer from Framingham, who in his younger days competed against baseball greats Joe Torre and Gaylord Perry.

But Ryder's 18-year-old heart requires 15 pills a day to run smoothly in his 61-year-old body. The cost to his insurance company? Between $1,000 and $1,500 a month, he estimates.

It is for just such consumers that CVS Corp. launched a new kind of specialized drugstore called CVS ProCare two years ago. In urban markets, plans call for ProCare to augment the 4,100 standard pharmacies that Woonsocket, R.I.-based CVS already operates.

Standard pharmacies may be fine for those who need only a few prescriptions filled, but ProCare is targeted at people with massive medication needs - someone who's had an organ transplant, maybe, or someone infected with HIV.

People with such conditions, as well as many people with cancer and hepatitis, take a category of medications called specialty prescription drugs. With an aging population and new biotech treatments rapidly coming to market, it's a category that CVS expects to grow by 20 percent this year alone.

With the category accounting for nearly 11 percent of total US prescription drug sales, CVS thinks its ProCare format can support more than 100 stores someday. Including two in Boston, 28 ProCare stores are up and running, and there are plans to open 22 more by year's end.

''This is a $14 billion market that will soon grow into a $20 billion market,'' ProCare president Dennis Burton says.

A ProCare doesn't look much like a typical corner drugstore.

A standard pharmacy leases prime real estate at convenient street-corner locations with plenty of parking. When customers come in, the layout forces them to walk through long aisles stocked with candy, magazines, and knickknacks to reach the pharmacy counter at the back of the store.

This floor plan is no accident. With health maintenance organizations fighting to keep drug costs low, pharmacy chains are looking more and more to nondrug items such as potato chips and cosmetics to generate profits.

A different dynamic is at work at the much smaller ProCare stores. Instead of big candy counters and magazine racks, there are soothing color schemes and much deeper inventories of specialty drugs. The emphasis is on offering customers more privacy and more face time with pharmacists specially trained in both chronic maladies and complex HMO reimbursement procedures.

With doctors under cost-cutting pressures to see more patients - and spend less time with each patient as a result - it can often fall to the pharmacist to do much of the explaining to specialty-drug consumers about dosage levels, self-injection techniques, and possible side effects.

Many such customers ''need a lot of emotional support,'' says Alice Chung, a pharmacist at a ProCare near downtown Boston.

''Alice is my liaison,'' says Ryder, who adds that when someone is on a lifelong regimen of medications for a heart transplant, ''it's nice to deal with just one person.''

ProCare has the potential to offer similar high levels of service to people with HIV, says Eric Brus, a treatment specialist for the AIDS Action Committee of Massachusetts.

For someone with AIDS or HIV, a typical drugstore can be a daunting place, he says. At the pharmacy counter, the lines can be long, and during peak periods the pharmacist can be too busy to spend more than a minute or two with each customer. Even worse, there can be little privacy.

''Do you want to get into the specifics of your personal health with 10 people hearing it?'' Brus says.

From a business standpoint, CVS has been ''happy'' with ProCare's early results so far, says David G. Magee, an analyst with Robinson-Humphrey. Within a few years, the ProCare chain has the potential to add $2 billion to CVS's annual sales.

At Merrill Lynch Global Securities, analyst Mark Husson is even more bullish. He thinks ProCare could someday add $5 billion a year to CVS revenues.

In fiscal 1999, CVS reported sales of $18.09 billion. On the New York Stock Exchange, CVS shares have been trading in the $37 range.

By using its buying power and its relationships with HMOs and pharmacy benefits managers, CVS says, ProCare can grab a leadership position in the fragmented specialty-drug market.

Raymond James analyst John Ransom has a ''strong buy'' rating on CVS, but has some minor concerns about ProCare, which he describes as a ''niche business'' with an ''unproven business model.''

Uncertainty may be why no other big drugstore chains have created a separate division of stores to cater to specialty-drug consumers. At this point, much of the competition for the specialty-drug market is coming from wholesalers, mail-order companies, and some smaller pharmacy players.

''You can't really generalize about this business,'' Ransom says of the specialty-drug market. ''Many oncology drugs have low profit margins. But drugs for hepatitis and new biotech drugs can generate big profits. Your success or failure depends on which drugs'' and ailments you choose to specialize in.

Robert Sterling knows about low profit margins. They're one reason he just closed Braddock Pharmacy, the independent drugstore he owned in Boston's South End.

One customer spent $2,700 a month on AIDS medications, but Braddock's share of those transactions was less than $200, hardly enough to eke out much of a profit after paying rent and staff salaries, says Sterling, who adds: ''Even big chains can't live with such a small markup.''

But if margins are low, ProCare's costs can be low, too. Because ProCare is a ''destination store,'' a place to which customers make a special trip, ProCare can operate in smaller spaces and in lower-rent districts than a standard drugstore, analyst Husson says.

And while Ryder, the heart-transplant patient, occasionally visits a ProCare, he often reorders his meds by phone and receives mail-order delivery. That means a big part of ProCare's business can be fulfilled from a distribution center in Ohio.

Add up these factors, and one result is that ProCare has lower ''infrastructure costs'' than a typical CVS, Husson says.

There may be some irony in CVS's launch of ProCare. A few decades ago, mom-and-pop drugstores were an industry mainstay. Then big chains bulked up and stole away customers by using their buying power to offer lower prices.

Some mom-and-pops survived by giving customers more personalized service. Now ProCare is trying to offer a similar level of service to the industry's best-paying customers.

When Sterling closed Braddock Pharmacy, CVS expressed interest in buying his prescription files and customer lists.

''I thought we had a deal,'' Sterling says. ''But they told me I didn't do enough of the high-end business.''

Ryder, meanwhile, can't say enough good things about ProCare and how its meds keep his 18-year-old heart humming.

''Never once, in three years, have I had a problem,'' he says. ''I'd recommend them to anyone.''

Copyright © 2000 Globe Newspaper Company.

This article posted June 23, 2000.