In a filing with the Securities and Exchange Commission yesterday, Drugstore.com said it will offer 4.5 million shares of common stock. Rite Aid, the brick-and-mortar drug store chain and one of Drugstore.com's first investors, will offer 1.5 million shares of Drugstore.com's common stock. The Web pharmacist said it will not receive any proceeds from the sale of shares held by Rite Aid.
Shares of Drugstore.com slipped $1, or more than 3.5 percent, to $26.75 in morning trading.
An increasing number of Internet firms are returning to the market either with follow-up offerings of common stock or issuing bonds to finance further expansion and the huge marketing costs needed to fuel that growth. In the past month alone, online brokerage E*Trade and Amazon have announced plans to issues bonds. Clarus, Covad and Nextel also announced plans for follow-up offerings during the past few months.
Generally, the market has balked when companies announce plans to tap the public capital markets a second time around. Shares of E*Trade slipped about 4 percent the day it said it planned to offer bonds to raise cash. Last year, TheGlobe.com fell almost 10 percent on plans for a follow-up offering.
Drugstore.com said it plans to use the proceeds to finance its anticipated operating losses and to purchase inventory for its new distribution center in New Jersey, as well as for general corporate purposes.
Rite Aid will continue to own about 15.5 percent of Drugstore.com's outstanding common stock and Amazon.com, which recently increased its stake in the online pharmacist, will hold 24.5 percent. These stakes will allow Amazon and Rite Aid to "significantly influence all matters requiring approval" by the company's stockholders.
Keeping its ties to Rite Aid is a strategic must for Drugstore.com. The online pharmacist said it relies on Rite Aid's relationship with insurance companies and pharmacy benefits managers to get reimbursed on behalf of its customers for the prescription products purchased on Drugstore.com's site.
Research firm International Data Corp. estimates that worldwide business-to-consumer sales over the Internet will increase to about $93 billion by 2002 from about $11 billion in 1998. According to a recent Forrester Research report, 32 percent of online consumers shop for healthcare products online.
Still, the online pharmacy sector is highly competitive with rivals, including PlanetRx, DrugEmporium.com and CVS's Soma.com, nipping at one another's heels.
Drugstore.com went public last July priced at $18 per share and has traded between $27 and $70 since that time.
The company's underwriters, led by Morgan Stanley Dean Witter, have an option to buy as much as almost a million shares to cover over-allotments, leaving about 50.5 million shares outstanding.