Chemdex: The B2B Lab Experiment

The latest buzzword on the Net, of course, is B2B (business-to-business). So, what is a B2B company? Simply put, it allows businesses to transact with each other -- in virtually any industry, such as chemicals, steel, plumbing and so on.

For example, according to a recent report from Goldman Sachs, the B2B industry is expected to generate $115 billion this year. By 2004, this is forecasted to explode to $1.5 trillion.

Unfortunately, there are not many B2B companies to select from. Here is a chart:

What is very interesting about this list is that ICGE -- which is an incubator for B2B companies -- has a higher market capitalization than CMGI. Then again, B2B is expected to far outpace the business-to-consumer online market.

Although, there are traditional companies that are, in a sense, becoming B2B powerhouses, such as Cisco, Oracle and Dell Computer -- all of which are doing tremendous amounts of business through their extranets.

But let's focus on the pure B2B plays.

One that looks promising is Chemdex (CMDX). The company is known as a B2B "market maker," specializing on the life-sciences space.

Basically, this means the company brings buyers and sellers together in a centralized environment to buy such things as biological and chemical reagents, instruments and lab supplies.

The company has two main products: Science360 and LabPoint. These technologies allow for contract pricing, consolidated ordering and reordering, customized supplier lists, automated approval workflow and ERP integration. Also, each product has detailed content and can be easily searched.

Chemdex solution relies on Net standards and is relatively easy to install and maintain. In fact, the technology integrates with top B2B solutions, such as those from Commerce One and Ariba.

Traditionally, it has been scientists who have purchased life sciences equipment. Unfortunately, the process was highly inefficient, relying on paper catalogs and phones.

Such fragmentation was a tremendous opportunity for Chemdex -- with the market for life science research products estimated to be about $9.4 billion in 1998.

And it is a growing market -- driven by new fields such as genomics, combinatorial chemistry and other exotic disciplines.

So far, Chemdex has created a substantial life sciences hub, with a database of over 225,000 products.

On September 22, Chemdex purchased Promedix.com. With the acquisition, Chemdex will have access to 260,000 medical supply items (from 500 suppliers) for such things as catheters and pacemakers. The price of the acquisition was $334 million in stock.

Interestingly enough, the largest biotech trade organization -- the Biotechnology Industry Organization -- has endorsed the Chemdex solution.

Chemdex has also attracted the financial endorsements from major backers, such as Kleiner Perkins and CMG@Ventures.

The life sciences business can be time-consuming and expensive. As for Chemdex, it offers researchers a compelling solution. As for marketers of equipment, they have a targeted market. In other words, Chemdex is a classic win-win. And it should be a win-win for investors, as well.