Drugstore.com worth $2.1 billion? Are they on drugs?

Drugstore.com went public on Friday via the template after only six months in money-bleeding existence. The drug peddler has lost more than $30 million so far this year, and had only $3.6 million in sales in the second quarter. But its shares gained 179% on the first day.

The template for Netco IPO success is becoming clearer each day. It's a five-step plan: 1) Set up a company to dominate a niche, like selling doggy-poop cleanup supplies at Petdroppings.com; 2) Get big-name backing from the likes of VC kingpin Kleiner Perkins and underwriting from Goldman Sachs or Morgan Stanley; 3) Have Forrester or Jupiter calculate your niche as being worth US$68 billion in 2003; 4) Lose as much money as possible in the shortest time; 5) Calculate your IPO paper wealth.

While Petdroppings.com is only in the seedy, er, seeding stages, Drugstore.com went public on Friday via the template after only six months in money-bleeding existence. Shares priced at $18, opened at $65, jumped to $69 and closed at $50.25, for a 179 percent first-day gain and $2.1 billion market cap. Drugstore.com has been staked by an all-star lineup including Kleiner Perkins, Amazon, Rite Aid, GNC and Paul Allen's Vulcan Ventures -- with Morgan Stanley handling the offering. The drug peddler has lost more than $30 million so far this year, and had only $3.6 million in sales in the second quarter.

Crystal-ball gazers have pegged online drugstores as a jackpot, worth four times the online book and music businesses combined, according to the Wall Street Journal. But sales have been hampered by the stores' difficulty in lining up contracts with pharmacy-benefits managers, many of whom are launching e-apothecaries of their own, wrote the Journal's Robert Berner. Analysts were quick to slam the company's offering as too much, too soon. "It opened up entirely too high," Vincent Slavin, a trader with Cantor Fitzgerald told Wired News. "To put these ludicrous prices on this, I think, is quite immature."

MSNBC's Aaron Knopf said Drugstore.com should be the company with the "Image is everything" slogan, with the "next big thing" perception driving its stock price. IPO Financial Network's David Menlow harped to Knopf: "Drugstore.com certainly represents the epitome of a company that should never have come public, yet did." One other downside? CBS MarketWatch's Bambi Francisco said Drugstore.com is prohibited from selling ads, or linking or promoting its site to any Amazon competitor (they're becoming more plentiful as Amazon expands).

Meanwhile, an IPO of a different stripe hit a "friends and family" rough spot. Wired News' Polly Sprenger reported that Linux company Red Hat offered early shares in its stock debut to open-source coders through E-Trade. The problem was that 20 percent of the Linux folks were rejected by E-Trade because of their novice trading abilities. Sprenger says the community's propaganda machine, a.k.a. the "Slashdot Effect," kicked in and Red Hat was soon contacting E-Trade about the problem.

Nothing a few white lies couldn't cure. One coder, Kyle Sparger, told Wired he was offered a chance to "retake" the questionnaire from an E-Trade rep: "In no uncertain terms, he proceeded to tell me that E-Trade did not do background checks, would not attempt to discover if I lied, and implied that if I thought about it, and was willing to lie, I could fill out the form in such a way that it would accept me."

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