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Drkoop.com's grim prognosis may signal trouble for health care sites
(IDG) -- Is Drkoop.com kaput?
The Internet health care company's auditors have expressed "substantial doubt" about its survival, given continuing losses and negative cash flow. The auditors' prognosis, contained in Drkoop.com's annual report, filed March 30 with the Securities and Exchange Commission, sent the company's stock price down 60 percent by April 4 to the $2 range.
Cofounded by former Surgeon General C. Everett Koop, the Austin, Texas, company is one of the most-visited health information sites on the Web. That it faces such grim prospects underscores the turmoil afflicting advertising-dependent health sites as the online health industry shifts toward e-commerce and the delivery of medical services.
"This is the first raindrop in a storm of shakeout and consolidation," says Claudine Singer, a health analyst at market research firm Jupiter Communications. "It's ironic that they could be the first to fall, given that theirs is such a venerable brand."
Drkoop.com issued a statement last week stressing that the auditors report focused on the company's "burn rate" and lack of cash reserves. "It is not a prediction that a company is about to fold," management stated. "We continue to explore a host of strategic financing options."
E-Offering health analyst Caren Taylor doubts Drkoop will attract many new investors. "We believe the only exit strategy for the company -- aside from bankruptcy -- is a merger," Taylor wrote last week in cutting her rating on the stock from "buy" to "hold."
Like other Net companies, Drkoop has spent heavily to drive traffic to its site. The company has $147 million in portal deals, including a four-year, $89 million agreement with America Online. Such obligations help explain why Drkoop lost $56.1 million on $9.4 million in revenues in 1999.
Meanwhile, competitors Medscape and HealthCentral have added e-commerce and medical services. Medscape agreed in February to merge with online medical-records company MedicaLogic, and offers some transaction services for doctor's offices. HealthCentral operates an online pharmacy, and builds Web sites for hospitals and other health care institutions.
Drkoop.com has also tried to expand its services. The heart of that strategy was to be online medical records-keeping. But in January, the company quietly put the project on hold, citing privacy and confidentiality concerns raised by a group of Florida patients testing it. Drkoop's annual report, however, makes clear that there were other problems with the product, which was developed by HealthMagic, an online medical-records firm. "The relationship never produced satisfactory results, and Drkoop.com is currently involved in settlement discussions with HealthMagic regarding possible legal claims," the company states in the report.
Drkoop.com also signed a deal last year with pharmaceutical services company Quintiles Transnational, allowing Drkoop members to sign up for clinical drug trials. Drkoop gets a fee from Quintiles for each patient it steers into a trial. But then Quintiles struck a deal with Healtheon/WebMD to develop online clinical-trial recruitment and other services for the drug industry, and said it would let the Drkoop deal lapse.
However, the company's alliance with medical technology company Shared Medical Systems to connect Drkoop subscribers to their physicians remains on track, an SMS spokeswoman said last week.
Some of Drkoop.com's troubles have been self-inflicted. The site came under attack last fall for failing to notify visitors that a group of hospitals had paid to be included in a section on community resources, and that Koop himself was receiving a commission for products sold on the site.
But Jupiter analyst Singer says if Drkoop.com fails it will be because it didn't diversify. "There's not enough advertising to blacken bottom lines of all the content sites out there."
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