PlanetRx Chairman Departs for VC Firm

Ailing online pharmacy, Inc. (Nasdaq: PLRX) took another hit Thursday when William J. Razzouk resigned to become a venture partner at Paradigm Capital Partners LLC of Memphis, Tennessee.

Razzouk guided the San Francisco-based PlanetRx through its site launch and its initial public offering last October. He also helped oversee the expansion of the company’s Memphis operations, which included a distribution center.

In April, Razzouk surrendered his role as chief executive officer to Michael Beindorff. The company did not say who will succeed him as chairman.

Shares on a Slide

PlanetRx shares have been on a steady slide of late and are now trading near an all-time low, well below their high of 36 1/2 set last October. Early Friday, the stock was down 1/64 at 59/64.

The company’s financial advisor, Goldman, Sachs & Co., is looking for new ways to help raise cash. The company received some good news late last month when Alpha Venture Capital Inc. signed a definitive agreement to provide up to $50 million (US$) in equity financing on terms PlanetRx called “favorable.”

The company can use the line of credit based on a formula related to the price and trading volume of its shares.

Industry Set for Consolidation

PlanetRx is experiencing trouble in an environment that can be hostile for smaller e-commerce companies that lack brick-and-mortar partners. Analysts expect consolidation in the sector as shareholders look for solid evidence that companies’ business plans are working.

PlanetRx is up against such rivals as (Nasdaq: DSCM), which has a relationship with e-tail giant Inc., as well as against click-and-mortar pharmacies CVS and RiteAid.

Those companies that survive the ongoing dot-com shakeout will find themselves with access to a growing market, analysts say. Online sales of health and pharmacy-related items totaled $1.9 billion last year, according to research firm ActivMedia, which projects the market to grow to $4.5 billion this year.

Also, Forrester Research expects prescription drugs to account for $15 billion of an expected $22 billion in online healthcare product sales by 2004.

Dollars and Sense

PlanetRx reported a second-quarter pro forma loss of $26.4 million, or 55 cents per share, before items, on revenue of $9.4 million. After charges, the company lost $43.9 million, or 92 cents per share. These figures come despite company reports that it increased membership by 35 percent over the first quarter to 1.2 million. PlanetRx also added about 135,000 new customers for a total of about 535,000.

At Paradigm, meanwhile, Razzouk will provide business development counsel and management for the firm’s early-stage companies. “I never thought I’d have an opportunity like this in Memphis,” Razzouk said in a statement issued by Paradigm. “There is a tremendous amount of talent and innovation in the Southeast [U.S.] right now.”

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