Shaky prognosis for health dot-coms

A slew of deals can't mask some skeptics' questioning of how long some high-concept, debt-ridden Internet health companies can last.

By Tyler Chin, amednews staff. April 17, 2000.

Internet health care companies are rocking and rolling and getting rocked.

It is becoming difficult to track who's jumping into bed with whom in the race for Internet gold and what the impact will be on physicians who will have to deal with bulked-up companies. Also, doctors will be fielding a barrage of cross-selling sales pitches from many companies whose long-term viability is now doubtful in some skeptics' minds. For Exhibit A, see drkoop.com, which is questioning its own future after seemingly establishing itself as the leading consumer health site.

Internet March madness

Of course, in the faddish world of Net investing, consumer sites like drkoop.com have become as out-of-date as grunge music. So first, we give you a survey of the action in the latest Internet buzz category, business-to-business.

On March 30, Neoforma.com Inc., which runs an online marketplace that brings buyers and sellers of medical supplies and equipment over the Internet, acquired Eclipsys Corp. and HEALTHvision Inc. for about $2.1 billion in stock. Eclipsys, Delray Beach, Fla., sells software to hospitals; HEALTHvision sells Internet connectivity services to providers. Before its sale, the latter was controlled by Eclipsys, VHA Inc., a for-profit cooperative of 1,900 health care organizations, and General Atlantic Partners, a venture capital firm in Greenwich, Conn.

Neoforma's buyout of Eclipsys and HEALTHvision was preceded by its March 27 acquisition of online competitor EquipMD Inc., Atlanta, which gives Neoforma a company with 15,000 physician customers at 4,000 practices, said Anil Singhal, MD, Neoforma's director of medical affairs. EquipMD also is an attractive acquisition because it has a business relationship with PSS World Medical Inc., a supply distributor with 100,000 physician customers, Dr. Singhal said.

In a related development, the newly combined entity is giving an ownership stake to Novation LLC in exchange for a 10-year exclusive medical supply agreement. Novation, jointly owned by VHA and the University HealthSystem Consortium, a group purchasing alliance, is the medical equipment and supplies company for VHA's member hospitals and other organizations.

Following the merger, Eclipsys abandoned its hostile takeover attempt against a much larger rival, Shared Medical Systems, Malvern, Pa.

Streaming strategies

The failed takeover attempt and Eclipsys' takeout demonstrate how Internet health care companies and Internet wannabes are launching and abandoning strategies at the drop of a dime. In the process, trading activity in their stocks has been extremely volatile, regularly soaring and crashing back to earth where their prices now remain.

Doubting the merits of the merger, investors sent the stocks of Neoforma and Eclipsys into a nosedive.

It didn't help that around the time of that merger, five of the largest suppliers and distributors of medical supplies, equipment and pharmaceuticals disclosed they were creating a global online health care exchange for providers. The five -- Johnson & Johnson, GE Medical Systems, Baxter International Inc., Abbott Laboratories and Medtronic Inc. -- are trying to cut out the dot-com companies like Neoforma that once were supposed to help them reach customers through the Internet.

They figure, why share the booty when they can go for it all?

But Neoforma and Eclipsys are not alone in Wall Street's doghouse: Healtheon/WebMD's stock got clocked on March 30 after a brokerage downgraded it.

And the day before, Wall Street spurned another health care merger. IMS Health Inc., a provider of data services to the pharmaceutical industry, and TriZetto Group Inc., which delivers technology and services to physician offices and other providers over the Internet, saw their stocks plunge after they announced a complex merger that investors thought was a poor fit.

Other than those who got in early on the action, the few winners so far seem to be the high-priced executive talent jumping ship from the Old Economy to New Economy companies that have suddenly sprung leaks.

The latest executive to make the jump is Patricia Fili-Krushel, who's supposed to add some Hollywood razzle-dazzle to Healtheon/WebMD. The first woman to run a broadcast television network as president of ABC, Fili-Krushel quit on March 28 to become president and CEO of Healtheon/WebMD's consumer health division.

Her job will be to leverage Healtheon's media assets so the company can become profitable, which company executives have acknowledged is a few years away. Healtheon, which has a close partnership with media giant News Corp., hired her because "they need people who can ... direct the revenue streams toward a positive [profit and loss] statement," she told The New York Times.

No kidding.

The company is bleeding so much red ink that it was identified as one of various dot-coms that would run out of money this year in an article recently published in Barron's.

"They said everyone's running out of money!" a company spokeswoman responded.

In one case, a company is proving Barron's right.

In its annual statement filed March 30 with the Securities and Exchange Commission, drkoop.com said its auditors questioned "our ability to continue" because of high losses and low revenues. The company, already way down from its high of $45, sank to about $3 per share on March 31. Drkoop.com has been a public company for less than a year.

ADDITIONAL INFORMATION:

Internet March madness

March 20 Barron's fires shot across the bow of numerous Internet companies, asserting drkoop.com, Healtheon/WebMD and others will run out of cash in 2000.

March 28 Healtheon/WebMD names Patricia Fili-Krushel, former president of ABC TV Network, as president and CEO of its consumer health division.

March 29 IMS Health Inc. and TriZetto Group Inc. announce merger; their stocks plunge on the news.

March 29 Johnson & Johnson, GE Medical Systems, Baxter International Inc., Abbott Laboratories and Medtronic Inc. announce they are forming an Internet-based global exchange for health care providers.

March 30 Neoforma acquires Eclipsys Corp. and HEALTHvision Inc.; Eclipsys then abandons hostile bid for Shared Medical Systems Corp.

March 30 Healtheon/WebMD's stock gets pounded after a brokerage downgrades it.

March 30 Drkoop.com files annual report with the SEC containing statement from its auditors questioning the company's ability to survive.