PlanetRx Flees Silicon Valley Orbit

Ailing online pharmacy PlanetRx.com Inc. (Nasdaq: PLRX) said Monday it will relocate its corporate headquarters from South San Francisco, California to Memphis, Tennessee as part of a plan to cut expenses and reduce cash burn.

PlanetRx, which has been looking for ways to raise cash, opened a 175,000-square-foot distribution center in Memphis in May. The site also houses a customer service center pharmacy.

Moving the corporate headquarters to the same location will allow the company to cut its cash burn rate by about 50 percent, said Chairman and Chief Executive Officer Michael Beindorff.

“Relocating to Memphis is a natural next step for PlanetRx.com, as we continue to maximize efficiencies and work to improve our customers’ shopping experience,” Beindorff said. “The bulk of our operations and nearly 75 percent of our employees are already located there.”

Shares Up, Jobs Down

Shares of PlanetRx rose on the news, trading up 13/64 at 49/64. Still, the shares remain near an all-time low, down from a high of 36 1/2 last October.

PlanetRx, which laid off 70 people in June, reportedly will cut 40 to 50 of the 80-some jobs currently in South San Francisco when it makes the move. The move will be completed by the end of the year, the company said.

“By consolidating our operations and people under one roof, we will eliminate redundancies, substantially lower our operating costs and improve customer satisfaction, helping us to focus on healthy growth,” Beindorff said. “We also expect customer acquisition costs to continue to decline.”

CFO Quits

The company also said its chief financial officer, Steve Valenzuela, resigned. Todd Steele, who is currently comptroller, will take over as CFO until a Memphis replacement is found. John McAlpin, who has been head of the Memphis facility, will become president and chief operating officer.

Earlier this month, PlanetRx lost its chairman, William J. Razzouk, to a Memphis-based venture capital firm. Razzouk, who guided PlanetRx through its site launch and initial public offering, had turned over his role as chief executive to Beindorff in April.

Field Narrows as Market Grows

As it struggles to cut costs, PlanetRx is competing against well-financed rivals like Drugstore.com (Nasdaq: DSCM), which has a relationship with e-tail giant Amazon.com, as well as click-and-mortar pharmacies like CVS and RiteAid.

While analysts expect the number of e-tailers to shrink, they predict a rise in online purchases of health and pharmacy products. Internet sales of health and pharmacy-related items totaled $1.9 billion (US$) last year, according to research firm ActivMedia, which projects the market to grow to $4.5 billion this year.

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

Q2 Loss

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.

Even as the losses continued, membership increased by 35 percent in the second quarter from the first, to 1.2 million. The company also added about 135,000 new customers, for a total of about 535,000.

Also, last month, Alpha Venture Capital, Inc. agreed to provide PlanetRx with up to $50 million in equity financing.