Drkoop Prescribes Big Layoff

SAN FRANCISCO (05/21/2000) - Struggling to survive as its cash runs out, troubled Internet health company Drkoop.com laid off staff on Thursday and has reduced its workforce by 35 percent since April.

Company spokeswoman Stephanie Fulton said 30 people were laid off Thursday. She could not immediately confirm Drkoop's total number of employees, but the company's annual report tallied 185 full-time employees as of Feb. 29. "We needed to streamline our business and focus on core competencies," Fulton said Thursday evening. "The layoffs were across the board."

She said the company eliminated a unit developing health services for employers and shrank its international division. The layoffs are the latest setback for the once-high flying health information company cofounded by former U.S.

Surgeon General C. Everett Koop. The company continues to operate one of the most popular health sites but has been financially drained by low advertising revenues and a series of expensive portal deals.

In March, Drkoop's auditors expressed "substantial doubt" about the company's viability, and last month, company executives disclosed that they had enough cash to last only four months. The news comes as investors are still steaming about company insiders who dumped their stock for handsome profits before the auditor's report sent the Internet health company's share price plummeting.

Drkoop's stock closed at $2.34 Thursday.

But in late February, Koop, the company's chairman, cashed in 91,000 shares for between $9.38 and $10.95 apiece, netting around $914,600, according to Securities and Exchange Commission records. That same week, company director Nancy Snyderman, the celebrity television doctor, did even better; she sold 250,000 shares that she acquired at between 12 cents and 16 cents a share for $9.73 to $11.75 each - netting a cool $2.6 million. Drkoop Vice Chairman John Zaccaro unloaded 75,000 shares at $10.23 to $12 a share to take home $790,017.

Several weeks later Drkoop executives disclosed the auditor's report.

Individual investors who bought Drkoop stock during its salad days last year, when shares traded between $18 and $45, have been venting their rage on online message boards. "Looks like [it's] dead and the boys from Austin are counting their money!" is a typical comment posted to CNBC.com.

"They must have known the financial situation of the company and the letter from the auditors," wrote a disgruntled investor on Motley Fool. "So they are rich, and who suffers - the investors." Koop was out of the country this week and unavailable for comment. Snyderman also could not be reached for comment.

Zaccaro referred questions to Drkoop. Richard Helppie, chairman of Superior Consultant Holdings, a health care consulting company in Southfield, Mich., was unavailable for comment on Thursday. Earlier this week then-Drkoop spokeswoman Adrienne Lallo insisted that there was nothing nefarious about the timing of the stock sales.

She said the sell-off happened during a one-week window between earning report quiet periods when insiders were permitted to sell their stock. "They had a very brief period in which to balance and diversify their portfolios," said Lallo, who was among those laid off Thursday. "We have a very strict insider-trading policy." That may be. But the fact that key insiders - CEO Donald Hackett, two other directors, and Drkoop's other officers excepted - cashed in some of their shares while investors were left with nearly worthless stock has not bolstered confidence in the company as it searches for a white knight. Last week the Wall Street Journal reported that troubled online drugstore DrugEmporium.com was in merger discussions with Drkoop.

Lallo declined to comment on the report. In SEC documents filed last week, Drkoop stated that as of March 31 it had $23.9 million in cash and no bank credit available. Ironically, it also acknowledged that it expects to have difficulty retaining and attracting employees. "These challenges have been amplified by our recent financial performance and low stock price," the document stated. A potential obstacle to finding a partner is Koop's veto power over the sale of the company. His contract allows him to end an agreement for use of his name if there's a change in company control. But Lallo saw that provision as a plus: "We feel that the 'right of approval' Dr. Koop has relative to his brand in the context of any future corporate development activity is a tremendous asset for our shareholders," she wrote in an e-mail Wednesday.

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