Amazon.com Boosts Stake in Drug Site

Amazon.com Inc. said Monday that it will invest an additional $30 million in Drugstore.com as part of a three-year marketing agreement with the online pharmacy company, sending shares of both companies surging.

Under the agreement, the Internet retailing pioneer will receive $105 million from Drugstore.com for tighter links between the two Web sites, including a permanent Drugstore.com “tab” at Amazon.com’s home page. The deal will raise Amazon.com’s stake in Bellevue, Wash.-based Drugstore.com to 28%.

In Nasdaq trading, Amazon.com shares rose $8.06 to close at $70.13, while Drugstore.com rose $5.88 to close at $35.

Touted as the prototype in the embryonic but explosive electronic commerce industry, Amazon.com’s shares have soared up to 75 times its split-adjusted 1997 initial public offering price of $1.50, but it has steadily lost money, as have most Internet companies.

The investment in Drugstore.com gives Amazon.com a foothold in the potentially multibillion-dollar online prescription business without the risk of starting its own venture from scratch, analysts said.

Amazon.com has partnerships with several other e-commerce start-ups, including Homegrocer.com Inc. and Pets.com., each of which filed for initial public offerings last month, and luxury goods retailer Ashford.com Inc.

For Drugstore.com, the latest link to Amazon.com is a costly one, but one that could bring millions of shoppers to its Web site, analysts said.

“They spent $105 million. The average customer acquisition cost is $30, so they need 3.5 million new customers to make it worthwhile,” said Jeetil Patel, an analyst at Deutsche Banc Alex. Brown.

“Amazon has 16 million customers, so this probably makes a whole lot of sense for Drugstore.com,” Patel said.