HealthCentral.com will expand its reach in the online pharmaceutical market by acquiring DrugEmporium.com, an online subsidiary of Drug Emporium Inc., for stock valued at more than $7 million.
The purchase, which was announced on July 25, will include $3 million in inventory, a 60,000-square-feet automated fulfillment center in Louisville, KY, and back-end systems that cost Drug Emporium more than $8 million to develop.
HealthCentral hopes these assets will enable it to reduce its overhead and marketing costs. For example, Drug Emporium’s electronic system for ordering drugs wholesale is expected to lower product acquisition costs by as much as 10%.
The purchase will also facilitate the creation of private label and co-branded products, executives say. The key element in all future growth is the fulfillment center, which has a capacity to handle 18,000 orders daily.
Emeryville, CA-based HealthCentral now ships prescriptions, over-the-counter products and vitamins from three different warehouses. Centralized fulfillment will lower shipping costs both for the firm and its customers.
Second quarter revenue reported by HealthCentral totaled $10.8 million, up from $2.1 million in the second quarter of 1999. However, pro forma net loses for the current second quarter sales totaled $16.9 million. HealthCentral.com doesn’t expect to begin making profits until late 2001, according C. Fred Toney, the company’s executive vice president and CFO.
“Our expectation is that the acquisition of DrugEmporium.com will at the time of closing not only be cash burn neutral, but should actually slightly reduce our monthly and quarterly cash burn,” says Albert L. Greene, president and CEO of HealthCentral.com.
HealthCentral.com received 205,000 customer orders averaging $37 in the second quarter, with 55% of them coming from repeat customer purchases. Its Web site registration list has 650,000 customers.
Powell, OH-based DrugEmporium reported $7.1 million in losses in the first quarter.
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