Medscape entertains suitors as profits slide

Socked in the second quarter, the company talks with interested buyers.

By Tyler Chin, amednews staff. Aug. 27, 2001.

Medscape, which put itself on the auction block last month, is talking to a number of potential buyers and partners, but the company would not elaborate or identify the interested parties.

"We will continue to evaluate these opportunities as they arise and will make appropriate announcements when definitive arrangements are consummated," said Donald A. Bloodworth, Medscape's chief financial officer, in a conference call discussing the company's second-quarter financial results with Wall Street analysts.

The Hillsboro, Ore.-based health care software company, which also operates the Medscape.com consumer health site, reported a net loss of $339 million for the quarter ended June 30, up from $79 million for the comparable period a year ago. Revenue grew to $10.8 million, up from $9.5 million.

The company warned that it won't become profitable at the end of the year as it had expected.

"Modest reported revenue growth this quarter was below the level necessary to achieve cash-flow profitability during 2001 and will remain flat until the financial uncertainty surrounding the company has been resolved," Bloodworth said.

The huge quarterly loss included a $275.6 million charge related to Medscape's pending sale of Total eMed Inc., a medical transcription firm, to a Boston-based private equity firm for $6 million. That price tag was a fraction of the approximately $341 million in stock Medscape paid for Nashville, Tenn.-based Total eMed in May 2000.

The acquisition was one of several Medscape made last year with the goal of producing a product that would integrate electronic medical records, wireless prescribing, Internet-based transcription and online health information services to physicians and other providers at the point of care. It now focuses on selling Internet- and client/server-based electronic medical records software, and operating health sites for physicians and consumers.

Reversing course

But deteriorating finances and the weakened economy led Medscape to jettison Total eMed and hire a financial adviser to explore other funding options, including the sale of all or part of the company.

Medscape also reduced its work force by 22%, making sure that the cuts didn't hit areas such as product development, customer service and implementation that could make it less attractive to potential buyers, Bloodworth said.

The company is working to shore up its finances so that customers will have the confidence to place orders valued at $1 million or more, Bloodworth said. The company also said that its cash on hand will be enough to last into early 2002.

Some customers say they are concerned about the company but are confident that whatever asset sale Medscape makes, its core business will remain the electronic medical record product line.

"I haven't seen any change in service and hope the company will be able to get on its feet, because they have a good, useful product," said Richard F. Gibson, MD, PhD, chief medical information officer at Providence Health System in Portland, Ore.