Troubled Drkoop.com Is Barely Breathing

Drkoop.com Inc. came back from the brink of death this week, but analysts said its prognosis is bleak.

Prime Ventures LLC, J. F. Shea Co., Cramer Rosenthal McGlynn LLC and other investors injected $20 million in equity last Tuesday, only hours after the troubled Internet health company said it had run ran out of cash.

Drkoop.com had stayed afloat until then through a $3 million credit line from Commonwealth Associates, a New York-based venture capital and merchant banking firm.

Some of these investors, led by Prime Ventures executive and former Excite@Home executive Richard Rosenblatt, took over Drkoop's management last week.

Analysts said this week's rescue won't sustain Drkoop's operations for long.

"They've been looking for a buyer for months, and [$20 million] will salvage them for a little while," said Rachel Terrace, an analyst at Jupiter Communications Inc. in New York.

The Austin, Texas-based company lost $40.6 million for the second quarter ended June 30, while posting $2.5 million in advertising, licensing and sponsorship sales.

Analysts attributed Drkoop's woes to its business model. The site offers only information about health content, and "content is no longer ‘in,' " said Catherine Monaghan, an analyst at Gomez Advisors Inc. in Lincoln, Mass.

Drkoop didn't diversify its model into partnerships, counting instead on advertising and sponsorship from pharmaceutical companies, which didn't materialize, Monaghan said.

The company, which was founded by former Surgeon General C. Everett Koop, spent $45.5 million on sales and marketing last year and has pumped in another $44 million so far this year.

On top of its financial woes, Drkoop disclosed last week that the Securities and Exchange Commission is investigating the company for alleged insider trading by Koop and other company executives.

The investigation stems from shareholder suits charging that Koop and others withheld a poor auditors report until they sold their shares in February.

Survival Strategy

Elizabeth Boehm, an analyst at Forrester Research Inc. in Cambridge, Mass., said Drkoop may survive by revamping its strategy quickly. Help could come from the new management team led by Rosenblatt. Koop remains as a board member and chairman.

But Monaghan and Terrace said the new management will prepare Drkoop for a buyout. Likely suitors are health insurance or managed-care organizations that want to bolster their site content, they said.

Drkoop said it's pursuing additional funding and declined further comment.

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