PlanetRx, which recently laid off 70 workers as part of a cost-cutting measure, said it has signed an agreement with Alpha Venture Capital that gives the Net drugstore $50 million in equity financing. The equity line's availability hinges on PlanetRx's stock price and trading volume.
The funding gave the company's stock a healthy boost. The stock hit a high of $2.75 today, before settling down to close at $1.75 on a volume of 7.9 million shares. Still, the closing price was up 84 cents, or 93 percent, from yesterday.
In the last 52 weeks, PlanetRx shares have traded as low as 78 cents.
The infusion could be a key to PlanetRX's survival. The Net drugstore has struggled with slumping stock prices and no wealthy brick-and-mortar partner to answer its financial prayers. It also faces several well-heeled competitors, including Drugstore.com and CVS.com, all within a market that analysts say is due for a shakeout.
Jupiter analyst Claudine Singer said the deal gives the troubled dot-com retailer an opportunity to seek out a strong strategic partner that might help pull it out of its slump.
"This really gives them breathing room and enables them to get their house in order," Singer said. "It buys them an extra lifeline."
Still, she added, PlanetRx needs to act fast and focus on getting a strategic partner, most likely a brick-and-mortar partner, that can help get the company's business model back on track
"It's a medium-term Band-Aid...It doesn't obviate the long-term issue of the significant challenges they face to the road of profitability," Singer said. "This gives them breathing room, but it's breathing room to make a move."
The South San Francisco, Calif.-based company said it expects to use the proceeds, along with its existing cash, to fund working capital and other general corporate purposes.
Under the agreement, PlanetRx will issue its common shares to Alpha at a discount of 9 percent or less, off the average closing price, and will offer common stock warrants priced at 120 percent of the market price of the common stock. The equity line funding is a one-year contract with the option of a one-year extension, the company said.
The deal is subject to completion of certain terms and conditions, including a registration process with the Securities and Exchange Commission, as well as stockholder approval.