THE CUTTING EDGE : CALIFORNIA DEALIN’ : Take Internet Health Firms’ IPOs With Healthy Dose of Skepticism

Two fledgling health-care services companies in California hope to follow their rivals and get financial booster shots with initial stock offerings. But the firms themselves indicate that the shares aren’t for the queasy.

TriZetto Group Inc., a Newport Beach-based provider of data processing and Internet-related services to the health-care industry, is hoping to raise about $57.5 million with its initial public offering.

The other is PlanetRx.com Inc., a South San Francisco-based seller of drugs, vitamins and other health-care items over its Internet site. It’s hoping to fetch about $69 million--even though its Web site has been operating for only five months--in the aftermath of Drugstore.com Inc.’s successful IPO in July, which raised $90 million.

Drugstore.com went public at $18 a share and now trades in the high 60s.

But the sector is highly volatile. Drkoop.com Inc., the Internet health-care site led by former Surgeon General C. Everett Koop, went public in June at $9 a share and soared as high as $45.75. But it’s now trading for less than half that price.

The exact number of shares each is offering and their anticipated per-share price range haven’t yet been announced. The IPOs are expected to reach the market within the next month or so, though no firm dates have been set.

It’s nothing new that Internet companies are racing for the public trough despite losing gobs of cash, or that investors still are willing to bid many of the stocks sharply higher despite the companies’ lack of operating history.

But PlanetRx’s offering is still raising a few eyebrows, because it filed to sell public stock before it had generated even $1 million of revenue.

“What a difference in today’s IPO market versus just a year ago,” said Stephen Lacey, managing editor of IPO Reporter, a trade publication in New York. Citing PlanetRx, he said: “The compression between [a company’s] venture capital financing and its initial public offering is tighter than ever.”

As the public increasingly takes on the role of venture capitalist, it means “there’s more risk for the investor today than there was in the past,” Lacey said.

PlanetRx, whose lead underwriter is Goldman, Sachs & Co., offers prescription and nonprescription drugs and other health-care items 24 hours a day from its Web site. Orders are sent to its pharmacy and distribution center in Memphis, Tenn., and shipped directly to the customer.

But because PlanetRx is just getting started and spending heavily to develop its site, the company lost $20 million on revenue of only $817,000 in the first six months of this year, according to its registration statement. And PlanetRx conceded that it expects “losses will increase significantly from current levels” because it still has to spend heavily to expand and promote its brand name to spur more business.

Plus, PlanetRx faces intense competition not only from conventional drugstores and pharmacies but from the attention already given its big rival on the Internet, Drugstore.com.

Yet Drugstore.com isn’t exactly dominant. In the six months ended July 4, Drugstore.com showed sales of only $4.2 million and a loss of $30.4 million, because it, too, just began selling products in February.

PlanetRx hopes to grab its fair share of the market by offering consumers easy ordering, the ability to search its site for products and information, and by reminding customers by e-mail that their prescriptions are due for refills.

The company is led by Chief Executive William Razzouk, whose background is a blend of distribution and new technology. He spent nearly 13 years at Federal Express, a unit of FDX Corp., then briefly was president of America Online Inc. And before joining PlanetRx a year ago, he was president of Storage USA Inc., a real estate investment trust that owns self-storage facilities.

Razzouk owns 5% of PlanetRx’s stock, and a 6% stake is held by one of its founders, Michael Bruner, who now oversees new-product development. Another 5% holder is Rupert Murdoch’s News Corp.

TriZetto, meanwhile, is tracking the path taken by competitors whose IPOs earlier this year were warmly received by investors--at least for a while.

For instance, Healtheon Corp. went public in February at $8 a share, and the stock then skyrocketed to $126.19 on May 20. But it’s been on a steady decline ever since--it now trades in the low 30s--even though Healtheon has announced plans to buy WebMD Inc. to bolster its online information and services effort for the health-care industry.

But the stock of another TriZetto competitor, CareInsite Inc., has fared somewhat better. The company went public in June at $18 a share, got as high as $62.25 in July and now trades in the high 40s.

TriZetto manages the data processing needs of doctor groups and managed-care companies such as health-maintenance organizations. It also provides consulting services and has created a portal called HealthWeb, where customers can exchange information and conduct business with TriZetto.

The company’s name stems from the musical term “terzetto,” or a three-part arrangement, and is a play on TriZetto’s belief that the company must provide customers three services: desktop and networking services, core operating systems for their data processing and the ability to manipulate their data in a variety of ways.

TriZetto is a small operation, but it’s growing quickly. In 1998, the company earned $60,000 on revenue of $11.4 million. But revenue jumped to $12.7 million in just the first six months of this year, though the firm posted a $1-million loss.

The company said it had 72 customers as of June 30. But only two--MedPartners Inc. and CCN Managed Care--accounted for more than 60% of its revenue, according to its registration filing.

In any case, Lacey of the IPO Reporter said that despite the stiff competition from the likes of Healtheon, “there continues to be room in the market” for operators such as TriZetto because most of the industry’s players focus on specific regions of the country.

“It’s not like they’re tackling the entire health-care system all at once” across the nation, he said.

PlanetRx plans to use the ticker symbol PLRX, TriZetto plans to use TZIX, and both plan to trade on Nasdaq.

In other IPO news, the market remains quiet, with no deals expected this week, but shares of Palo Alto-based real estate Web site Bamboo.com Inc. zoomed in their debut Thursday and ended the week up more than 200%.

Times staff writer James F. Peltz can be reached at james.peltz@latimes.com.