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Chemdex, Drugstore.com Hit Street
IPO Watch
July 26, 1999
by Phil Harvey
Tech companies are going public at a steady, strong pace, and investor interest has yet to wane. For the week of July 26, several of the expected initial public offerings have hype on their side to boot.
Chemdex Corp.
Palo Alto, Calif.-based Chemdex is one of the most highly anticipated public offerings this week because the company has been a textbook example of a so-called business-to-business infomediary. That means it uses the Net to make buying and selling between businesses easier and less expensive.
Chemdex's niche is in helping life sciences companies, researchers and suppliers to buy and sell products through its Web site, dubbed the Chemdex Marketplace. Forrester Research expects the business-to-business e-commerce space to grow from $43 billion in 1998 to $1.3 trillion in 2003.
More telling, though, are Chemdex's numbers. In 1998, the company brought in only $29,000 in revenues, but for the three-month period ending in March, the company generated more than five times that amount: $165,000. It still has hefty debts, though. As of the first quarter of 1999, the company's total deficit had hit about $15.7 million.
Business-to-business e-commerce sites stand to make great gains by being the first such company in their area of expertise. But the opportunity is only as big as one's niche market--some of which are very narrow. In Chemdex's case, life sciences stands to be a very small portion of the $1.3 trillion market Forrester estimates business-to-business e-commerce will grow to.
As of March, Chemdex's first customer, Genentech Inc., was responsible for over 80 percent of the company's business. Chemdex's investors include Kleiner Perkins Caufield & Byers, CMG @Ventures and E.M. Warburg, Pincus Ventures LLC. The company's first day of trading is expect to be July 27. It is offering 7.5 million shares in the $9 to $11 price range and will trade under the symbol CMDX.
Drugstore.com
After Drugstore.com spent weeks arrogantly touting the benefits of buying health and beauty aids online instead of in a brick-and-mortar store, it sold over one-fourth of its stock to Rite Aid Corp. Why? The company finally realized that without the help of Rite Aid's pharmacy benefits management (PBM) division, the Web retailer would not be able to help the millions of folks who use corporate health plans to help them pay for prescription drugs. Nice going, chumps. One has to wonder what else CEO Peter Neupert and company haven't figured out about the drug business that will come back to haunt them later.
Still, one misstep shouldn't dampen Drugstore.com's public offering. The company is offering 5 million shares priced between $9 and $11 each under the symbol DSCM.
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Chemdex, Drugstore.com Hit Street
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Web Gets Scientific
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