Can Any Medicine Cure PlanetRx? - Company Business and Marketing

Industry Standard, The, Sept 18, 2000 by Karl Schoenberger

As part of the sponsorship, PlanetRx was the online vendor for Parke-Davis' "Rezulin Express" program, which made the drug available at discounted prices to diabetics without health insurance coverage -- a good source of hard cash without the hassles of PBM authorization. Following disease state management protocol, customers were given free testing of their liver function and their blood sugar trends. But health care information on the site apparently did not mention the controversy over the drug's side effects beyond what Parke-Davis disclosed under FDA guidance. Diabetes.com did run a story mentioning the controversy -- but did not mention the 58 deaths attributed to Rezulin -- shortly before the drug was taken off the market in March. Matthew Naythons, vice president in charge of editorial operations at PlanetRx, insists that in-depth stories were posted on the site last year, but a search of the archives revealed no trace of them.

It was Naythons, a former emergency room physician and freelance photojournalist, who brought the basket of disease-specific domain names with him when he joined PlanetRx at the beginning of last year. Naythons says he's tried to instill integrity in the editorial content, and rejects the possibility that the Parke-Davis sponsorship might have affected coverage on the site. "It's key to our credibility. We feel sponsorship is important -- it's a revenue source. But that's a pharmacy promotion that has nothing to do with editorial."

The Parke-Davis sponsorship, however, did not go unnoticed by PlanetRx's competitors. "PlanetRx's content strategy was to try to be both church and state," says Drugstore.com's McGarry. "I think the consumer in that sort of situation feels compromised."

How long can PlanetRx, or any of its competitors, stay alive? The popular site boasts a customer base of more than one million shoppers and it sold $16 million in goods during the first half of this year, with more than half of that from prescription drug sales. Drugstore.com reported net sales of $47 million during the same period, but a straight comparison is difficult to make because Drugstore.com can claim the sales volume of orders it processes but does not fulfill or ship orders for its brick-and-mortar partner Rite Aid.

PlanetRx's financing is burning up at an accelerating pace; its $78 million in net losses during the second half of 1999 has deteriorated by 20 percent to $94 million for the first six months of this year on $18 million in sales and sponsorships for the period -- a miserable performance even if it isn't entirely out of proportion with other imploding Internet retailers. In contrast, Drugstore.com's burn rate appears to be relatively tame. Its net losses of $104 million for the first half of the year were only slightly more than twice the revenues it claimed.

PlanetRx is now up for sale, and in the absence of a buyer its near-term prognosis of survival, security analysts say, is fair -- but only because it got an emergency cash infusion at the end of July. This $50 million line of credit put together by Alpha Venture Capital is tied, they note, to the precarious performance of the company's stock, which peaked in value following its IPO last October at $36.50, but was trading as low as 50 cents a share in early August. (The share price rose to 72 cents on news of the company's plans to consolidate operations in Memphis). The new line of credit is "an encouraging first step, which buys them more time," says Caren Taylor, a health care analyst at online investment bank E-Offering. "At their current burn rate, it gets them through the third quarter of next year if they watch their expenses."