Drkoop.com Seems Headed for Life Support

SAN FRANCISCO (04/26/2000) - The demise of Drkoop.com Inc. as an independent Internet health company became more likely Tuesday with the disclosure that investment-banking firm Bear Stearns is exploring "strategic alternatives" for the company.

The development came as Drkoop revealed that it has only enough cash on hand to survive about four months. The company expects to lose between 80 and 82 cents a share in the first quarter.

But all is not lost for the company cofounded by the site's namesake, former Surgeon General C. Everett Koop. CEO Donald Hackett said Drkoop has renegotiated its $89 million portal deal with America Online Inc. (AOL) .

Drkoop's cash payments to AOL will be converted into Drkoop stock, giving AOL a 10 percent ownership stake in the company. AOL becomes DrKoop's third-largest shareholder.

Hackett said the company also has renegotiated its $57.9 million portal deal with Disney Enterprises Inc.'s Go network, saving a combined $100 million.

"The impact on cash is tremendous," Hackett says, noting that the company is pursuing additional financing.

The costly portal deals appeared to have resulted in little payoff for Drkoop.

Executives at the company said only 5 percent of visitors to Drkoop came from Go and that traffic from AOL was in "the teens."

"The lesson to be learned is don't overpay for portal deals," says Jupiter Communications (JPTR) health analyst Claudine Singer. "They often don't deliver, and they can bleed you dry. It obviously was a drastic mistake."

Analysts participating in a conference call Tuesday expressed doubt about the company's survival short of a sale. "How do you make it past four months?" one analyst asked Hackett.

Hackett said the company has "entertained talking points" from potential suitors but that Drkoop's board of directors have not voted on any offer.

The disappointing first-quarter projections underscore the difficulty that medical information sites are having subsisting on advertising. DrKoop blamed low ad revenue for its failure to meet earnings projections.

Drkoop's financial woes prompted its auditors to express "substantial doubt" earlier this month about the company's viability. The company's stock price subsequently plunged 60 percent and has been trading in the $2 range since dropping to a record low of $1.93 at one point last week.

"I think that a sale is definitely the outcome here," says E-Offering health analyst Caren Taylor. "Renegotiating the AOL contract was smart, as it lengthens the burn rate. But in the end, I think a sale is the only alternative for these guys."

Taylor and other analysts have speculated that AOL might emerge as a possible purchaser. She said a woman-oriented company like iVillage Inc. (IVIL) also might be a logical buyer, given that the majority of visitors to health information sites are female.

Singer noted that despite all the financial hardship, Drkoop's traffic continues to rise, which could make the company attractive to a buyer that could do a better job of converting clicks to cash.

Join the newsletter!

Error: Please check your email address.

More about America OnlineAOLDrkoop.comiVillageJupiterJupiter CommunicationsLogical

Show Comments