Chemdex shines on market debut
The online seller of laboratory chemicals and equipment, with sales of $29,000 last year, rose almost 60 percent in its first day of public trading.
The Palo Alto, California-based company rose 8.87 to 23.87. About 2.7 million shares traded on the Nasdaq. The company closed with a market value of $758.65 million.
Chemdex sells chemicals, enzymes, and equipment from about 110 suppliers on its Web site. Buyers of its 225,000 products range from universities to biotechnology and pharmaceutical companies.
David Menlow, president of IPO Financial Network, called Chemdex "a trailblazer" because it's the first online company focused on the purchase of life sciences products to go public. Still, the limited sales of the 22-month-old company are a concern, he said.
While Chemdex competes in a large market--it estimates sales of life sciences research products totaled $9.4 billion last year--it has only a tiny share of that business. The company lost $6.8 million on revenue of $165,000 in the three months ended March 31, after a 1998 loss of $8.5 million.
Sales to Genentech, the world's No. 2 biotechnology company, accounted for 82 percent of Chemdex's revenue in the first quarter of this year. Another client is the University of Illinois.
The company said its gross margin--the ratio of gross profits to sales--was 5.8 percent at March 31 "and was trending downward." It said that if it fails to increase the price discounts it receives from its suppliers, substantially increase its revenue, and make its business more productive, it may never become profitable.
Chemdex's investors include Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers and CMG@Ventures, the venture capital arm of CMGI, a well-known investor in Internet firms.
Chemdex's suppliers include Kirkegaard & Perry Laboratories and New England BioLabs.
Chemdex said it faces competition from other online companies focused on Internet purchasing solutions for the life sciences industry such as SciQuest.com and Anderson Unicom Group, as well as traditional suppliers and distributors such as Sigma Aldrich and Fisher Scientific International.
David Perry, 31, the company's chief executive, holds about 5 percent of the shares following the sale. The company made headlines earlier this month when high-profile executive Robin Abrams quit as president of Palm Computing to become Chemdex's chief operating officer.
Yesterday, Chemdex sold 7.5 million shares at 15 each, raising $112.5 million. The shares were sold above the $12 to $14 range set by Morgan Stanley Dean Witter, which handled the transaction. Initially, the range was $9 to $11 each. BancBoston Robertson Stephens and Volpe Brown Whelan assisted in the sale.
The company will use $30 million of the net proceeds to fund anticipated operating losses in the second half of this year, it said. It will use the rest of the proceeds for expenses associated with its advertising campaigns, brand-name promotions, and other marketing efforts, and possibly to acquire complementary businesses, it said.
News.com's Tim Clark contributed to this report.