The year was 2000 and Wall Street analysts couldn't understand what HealthExtras Inc. was up to. Why would the Rockville company, which went public in 1999 selling supplemental insurance policies on the Web, suddenly leap into the business of managing prescription drug benefits?

HealthExtras raised $61 million from its initial public offering. Investors believed in the business model. The company snagged actor Christopher Reeve as a spokesman. The supplemental insurance business had a high profit margin and little competition. Pharmacy-benefit management had neither.

"I got blasted," chief executive David T. Blair said of the company's decision to add the business.

But HealthExtras had to change. The Internet, it turned out, was a poor place to sell insurance to provide benefits after debilitating injuries or illnesses. The company spent about $100 in marketing costs, such as direct mail and Web advertising, for each customer it signed up. It charged roughly that amount for an annual policy.

Even with 600,000 policyholders, HealthExtras was nowhere near earning a profit. So the company, a former unit of insurance giant United Payors & United Providers Inc., went shopping for a pharmacy benefits management firm.

Over the next four years, HealthExtras bought five companies that administer prescription drug benefits for employers. But in an industry dominated by three major names -- Medco Health Solutions Inc., Caremark Inc. and Express Scripts Inc. -- it needed a narrow marketing focus.

It chose to court mid-size employers, promising strong customer service, flexible prescription plans and big savings. Compared with its larger competitors, Blair said, HealthExtras relies less on payments from major pharmaceutical companies promoting their drugs. "It allows us to be objective," said Michael Donovan, the company's chief financial officer.

HealthExtras now manages pharmacy benefits for 2 million people. Its clients include the states of Louisiana and Nevada. The company, which had 46 employees at the time of its IPO, now has 190.

The business plan that puzzled Wall Street four years ago now accounts for 90 percent of HealthExtras' revenue, which reached $385 million in 2003. The company, which still sells supplemental health insurance, became profitable in 2002.

-- Michael Barbaro