fascinating forbes article. Chemdex eyes acquisitions, new markets
September 20, 1999
By Om Malik
NEW YORK. 10:45 AM EDT?In this era of
hyperinflated Internet stocks, Palo Alto, Calif.-based
Chemdex Corp. (nasdaq: CMDX) is an anomaly: The
stock, at $21 a share, is trading more than $12
below its first day closing price.
While money-losing but fashionable stocks like
Amazon.com (nasdaq: AMZN) get all the attention
from investors, Chemdex goes unnoticed. This suits
Robin Abrams, the chief operating officer of the
company, which operates a vertical market for
biochemicals used in research, such as proteins and
antibodies.
Founded in 1997, Chemdex is like the Nasdaq of the
specialty chemical industry. Specialty chemical
suppliers and makers are like companies selling
stock, and buyers such as scientists and academic
and government institutions are investors who
purchase the stocks of the listed companies. The
company went public on July 26 and sold 7.5 million
shares to the public at $15 a share.
"It is time for us to scale up, for we know the
company that is first to market is going to gain
market share," says Abrams, who recently shocked
the world when she decided to quit as president of
3Com's (nasdaq: COMS) Palm Computing just six
months after jumping ship from Hewlett-Packard
(nyse: HWP). "We have to enter other related
vertical markets."
Before her stint at 3Com, Abrams served as
president and CEO of VeriFone, a subsidiary of
Hewlett-Packard. At VeriFone she led the traditional
point-of-sale business and the growth of electronic
commerce markets for smart cards and Internet
solutions. So she knows a thing or two about
e-commerce.
Abrams and Chemdex founder and Chief Executive
David Perry are at present plotting the company's
growth strategy, and that includes acquisitions to
grow rapidly. This means profits have to be put on
hold up until 2003, even though the annual sales of
specialty chemicals in North America are pegged at
about $10 billion.
"We are building co-branded sites for big suppliers,
the name-brand companies," says Abrams. This
service is called Labpoint, and Chemdex runs one for
VWR Scientific Products, a market leader in the
chemical reagent space. According to company
officials, Chemdex is looking to enter new markets
like equipment and devices, hospital supplies,
laboratory supplies and other related businesses.
"We also plan to sell books and related published
materials on the web site as well," says Abrams.
However, all this pales in comparison with
Chemdex?s plans to expand internationally. First
stop: Europe and then Japan, says Abrams. Europe
and Japan buy biochemicals worth $6.6 billion and
$5 billion every year, respectively.
These moves could add some pink to Chemdex?s
financials, which frankly at this time are quite
anemic. According to BancBoston Robertson
Stephens, a San Francisco-brokerage and an
underwriter for the Chemdex public offering,
Chemdex will have sales of $130 million in fiscal
2000, versus $21 million in fiscal 1999, and rise to
$270 million in 2001. The income column, however,
is likely to remain in the red--a $2 a share loss in
1999, a $2.15 a share loss in 2000 and a $2 a share
loss in the fiscal 2001.
Keith Benjamin, who tracks the company for
BancBoston, is of the opinion that Chemdex saves
nearly 40% of order processing costs for small
suppliers and about 8% for large suppliers--a key
reason why more and more suppliers are likely to
adopt the Chemdex model.
Abrams says that you have to look beyond the
income statement since the company is fast
becoming a preferred means of buying these
chemicals. The numbers back her up. The number of
suppliers in the past 12 months has shot up to
2,000, and Chemdex users have increased to over
15,000.
The average order size has doubled from little over
$200, and the number of items listed on the "virtual
chemical exchange" now tops 635,000 versus
200,000 items last year. And average daily sales
were up four times to $20,000 at the end of the
second quarter ending July 31, 1999.
"We have to work on convincing every [specialty
chemical] buyer that Chemdex is a much better way
of buying his or her chemicals than ordering through
a catalog or over the phone," she says.
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