Chemdex Calls It Quits

Ventro shutters its flagship marketplace

Mountain View, Calif.  December 6, 2000  Net markets pioneer Ventro announced Wednesday that it was immediately shuttering its flagship Chemdex life sciences marketplace and its Promedix specialty medical products marketplace. Ventro said it would reposition itself as a B2B marketplace services provider.

Chemdex, which opened in 1998 but had yet to turn a profit, offered 1.7 million products from 2,200 suppliers and had 37,000 registered users from major pharmaceutical and biotechnology companies, as well as academic institutions.

Ventro had previously announced its intention to "seek alternatives" for Chemdex and Promedix. In a statement Wednesday, Ventro announced: "The company's board of directors, after assessing the proposals received, has determined that it is in the best interest of shareholders to shut down both Chemdex and Promedix in an orderly manner."

Both marketplaces will begin making "significant layoffs" on December 31, to be completed no later than March 31, 2001, according to the Ventro statement. The company announced restructuring charges to cover staff reductions of 235 personnel at Chemdex, Promedix and Ventro.

The aggregate restructuring charges of approximately $380 to $410 million for the fiscal year-end results will also include amounts for write downs of certain operating and intangible assets, including goodwill associated with various acquisitions, costs of canceling certain contracts and charges for certain other restructuring liabilities. The ultimate amount of restructuring charges will be finalized in connection with the company's year-end close. Ventro estimates that future cash outlays for operating activities will be reduced by 50 percent after the restructuring is completed.

Shares of Ventro rose 34 cents on the news, to $2.22, far below the company's 52-week high of $243.50 at the end of February.

Speaking at the Ground Zero 4 conference sponsored by technology consultancy Jupiter Research in Los Angeles, Martha Greer, vice president of marketing for Ventro, said the company will focus on the joint venture marketplaces that it has set up with industry partners. The joint ventures include MarketMile (a marketplace for everyday business products and services, in collaboration with American Express), Broadlane (healthcare materials, with Tenet Healthcare), Industria (process plant equipment, with DuPont) and Amphire (food industry, with ConAgra, General Mills and Heinz, among others).

Explaining the move, Greer said, "We realized that Chemdex was growing more slowly than we anticipated," making the marketplace's "path to profitability" too long a haul for Ventro to sustain. Chemdex was never able to generate enough sales to make its revenue model, based primarily on transaction fees, viable.

In the company's press statement, David Perry, Ventro president and CEO, said: "The decisions related to the restructuring...have been difficult ones to make, particularly as they impact many of our employees and the efforts they have made to build groundbreaking B2B marketplaces. But we must respond to and anticipate the rapidly changing landscape of B2B e-commerce, and it is clear we can be most successful focusing on the marketplace service provider model in partnership with brick-and-mortar companies."

Ventro said in its statement on the restructuring that it expects its industry partners will make arrangements to meet the e-commerce needs of the participants in the discontinued marketplaces.

Meanwhile, SciQuest, which competed with Chemdex in the e-commerce marketplace for scientific products and equipment, said in an announcement Wednesday that it would seek to capitalize on its competitor's exit from the market to improve its own market position.

Putting a brave face on the news, Scott Andrews, SciQuest CEO and co-founder said in a statement, "We see Ventro's announcement that it will close its Chemdex subsidiary as a validation of SciQuest's business strategy and as a strong signal to our customers, suppliers, employees and shareholders that SciQuest will prosper as the industry's only neutral and well-funded provider of e-commerce and supply chain solutions."

"e-Commerce is still in its very early stages, and industry changes are inevitable," Andrews said. "With $90 million in cash reserves at the end of the last quarter, a strong business model, industry partnerships with 15 leading industry buyers and suppliers, and a rapidly growing customer base, SciQuest is well positioned to gain an ever-increasing share of the $36 billion plus worldwide market for scientific and research supplies, services and equipment."

Ironically, Jupiter Research had included Chemdex on its list of top 25 Net marketplaces based on third quarter revenues for 2000. Chemdex, listed at number four on the list, was reported to have taken in $28.7 million in revenues in the third quarter. SciQuest, at number seven, was reported to have taken in $19.7 million in the same period. Jupiter released the list Tuesday at the Ground Zero 4 conference in Los Angeles.