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Subject: AMZN buys into drugstore.com Date: 2/24/1999 3:05 PM
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Amazon.com Buys 46% of Closely Held Drugstore.com


Seattle, Feb. 24 (Bloomberg) -- Amazon.com, the top online book seller, said it will enter the rapidly growing market of selling drugs and other health-care products over the Internet by buying 46 percent of closely held Drugstore.com.

Drugstore.com is an Internet start-up headed by former Microsoft Corp. executive Peter Neupert. The Redmond, Washington- based company plans to distribute over-the-counter and prescription drugs, and beauty products directly to the home. The companies declined to say how much Amazon paid for the stake.

Drugstore.com is among a group of new Internet companies that hope to change the way medicine is practiced by linking patients, physicians, drug retailers and hospitals through the Internet. Amazon.com raised $1.25 billion through the sale of convertible notes last month. It plans to use the proceeds to build its business and expand into new product areas.

``This makes a lot of sense for Amazon,' said Morton Cohen, who manages about $70 million for Clarion Capital Corp. ``Pharmaceuticals look like a natural for the Internet. Who wants to run to the drugstore?'

Health-care has emerged as one of the hottest new areas among Internet companies in recent months. Drugstore.com estimates that the online market for drugs, vitamins and health and beauty products is worth $150 billion annually.

It plans to begin selling merchandise online this quarter and will offer everything found in a typical drugstore, as well as health information. It faces competition from other Internet retailers, as well as traditional drugstore chains that are investing in their own Web sites.

Last month, General Nutrition Cos., the No. 1 U.S. specialty vitamin retailer, formed an alliance with No. 3 U.S. drugstore chain Rite Aid Corp., which includes the formation of a Web site to sell the same range of products as drugstore.com.

Amazon shares rose 3 5/16 to 118 1/2 in midafternoon trading.

Amazon Chief Executive Jeffrey Bezos announced the investment at the Menlo Park, California, offices of venture capital firm Kleiner Perkins Caufield & Byers. Drugstore.com was founded last year with the backing of Kleiner Perkins, which has a stake in Amazon.com.

Kleiner Perkins

Kleiner Perkins has invested in several Internet companies, and has promoted cross-pollination among the companies it invests in. The San Francisco-based venture capital firm has big stakes in Internet directory Excite Inc. and high-speed Internet access provider At Home Corp., which agreed to merge in January.

Kleiner Perkins also has partners who are directors of No. 1 access provider America Online Inc., and Internet software company Netscape Communications Corp. AOL is buying Netscape.

Healtheon Corp., a company that processes health-care transactions over the Internet, almost quadrupled on Feb. 11, its first day of trading following an initial stock sale.

Amazon said it will have a link to Drugstore.com on its home page starting tomorrow. The partnership with Amazon.com is a huge boost for closely held Drugstore.com, which has yet to start selling products over the Internet.

Other Investors

Last month, Starbucks Corp. Chairman and Chief Executive Howard Schultz bought a stake in drugstore.com. Schultz declined to disclose the size of his purchase, which he described as ``significant' and will give him a seat on the company's board.

Seattle-based Starbucks is North America's largest coffee retailer. Schultz bought the stake through his private investment company, Maveron LLC. Maveron's other purchase was a stake in Internet auctioneer Ebay Inc., whose shares have jumped about 16- fold since their initial offering in September.

Schultz, who has extended the Starbucks brand beyond the company's more than 2,000 restaurants into supermarkets and wholesale distribution, said he will lend marketing expertise to the board, whose other directors haven't been disclosed.

Kleiner Perkins, Drugstore.com and Amazon.com were sued by No. 1 discount retailer Wal-Mart Stores Inc., which claims the companies hired away some employees with knowledge of Wal-Mart's computerized retailing systems.

14:17:34 02/24/1999

For more stories from Bloomberg News, click here.
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