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Pre-Open alerted stock DSCM had block trading to both sides on a report on insider buying and potential sector leadership.

Thursday September 21, 1:30 am Eastern Time

Stock of the Day: Fill This Prescription

By: Alexander Yakirevich (09/21/00)

For (NASDAQ: DSCM - news), a spate of insider buying is just what the doctor ordered for the stock.

This provider of electronic retailing services and content related to pharmaceutical and personal care products surfaced on our radar screen, as two prominent insiders have been active acquirers of the stock at around $5. Specifically,'s largest shareholder, (NASDAQ: AMZN - news), and company director Howard D. Schultz, bought more than one million shares in early August at an average price of $4.94. The total value of those investments was approximately $5 million. The stock recently closed at $4.50.

While 607,594 shares of acquired by in the beginning of August represent a relatively small investment compared with the company's float of 13 million shares, the fact that the online book retailer purchased shares in an open market transaction is telling.

Investors should take note of director Schultz's track record -- he accounted for more than 405,000 shares -- in correctly timing his investment decisions. Schultz, chairman of Starbucks Corp. (NASDAQ: SBUX - news), also serves on the board of Ebay (NASDAQ: EBAY - news) . In November of last year, he sold more than 167,000 shares of the online auctioneer at an average, post-split-adjusted price of $72.52. By mid July of 2000, shares of Ebay were trading at around $44.

The latest round of insider buying at comes on the heels of a private placement transaction completed in late July, when the company raised as much as $62.7 million from several high-caliber investors. The list included John L. Doerr, a general partner at venture capital firm Kleiner Perkins Caufield & Byers, which has a solid reputation for savvy investments in the high-tech arena.

Taking a macro view of the healthcare sector in general, and the retail pharmacy business in particular, underlying fundamentals of these markets seem to be quite favorable, especially in the U.S. As baby boomers approach retirement age the demand for pharmaceutical as well as personal care and wellness products, like vitamins and natural supplements, is poised to rise sharply.

Online pharmacies such as are well positioned to capture an increasing share of this market. Purchasing healthcare and personal care products often implies the need for discretion and confidentiality, and electronic pharmacies are a better venue for customers seeking privacy than traditional, ``bricks-and-mortar'' stores.

Based on this reasoning, the e-tailing pharmacy market is bound to expand exponentially in coming years. In fact, according to Internet research firm Gomez Advisors, the sector is projected to grow from $50 million in 1999 to approximately $4 billion by 2004, or about 140%.

We believe that has already earned a commanding lead in this sector, thanks to the multitude of strategic alliances established in recent months.

Besides, whose Health & Beauty online shopping channel is powered by's web content and e-shopping capabilities, several other bellwether players threw their support behind Chief among them: large insurance carriers CIGNA (NYSE: CI - news) and WellPoint Health Networks (NYSE: WLP - news) . Interestingly enough, CIGNA settled for a warrant to buy 500,000 shares of at $7.76. These alliances should enable to gain direct access to the pool of millions of potential new customers and to seize a great opportunity to promote its brand.

While continues to operate deep in the red and is expected to do so for the immediate future, the company recently demonstrated accelerating momentum in its operating results. In the second quarter of this year, generated revenues of $24.6 million, or more than 8% sequentially, and grew its subscriber base by 23%, to 1.2 million, over levels achieved in the first quarter. More importantly, repeat orders, which represent perhaps the most vital element in driving future margin expansion, comprised 59% of the total number of orders.

We believe shares of are significantly undervalued at present levels. For example, applying a discounted cash flow methodology, analyst Allyson R. Rodgers of Ragen MacKenzie estimates that the stock could be worth as much as $12 to $15 per share.

Bottom Line:

Recent insider activity and strategic investments represent a strong endorsement for the long-term viability of's business model.