DRKOOP.COM: Investors Offer $20M ‘Band-Aid’ to Cure Ills
Nearing a potential shutdown, financially troubled drkoop.com Inc. yesterday received a much-needed $20 million cash infusion from an investor group that includes four venture capital firms -- Prime Ventures LLC, JF Shea Ventures, Cramer Rosenthal McGlynn LLC and RMC Capital LLC -- the Wall Street Journal reports. The bailout will allow the investor group to convert a newly established series of shares to common stock at about one-third the current price. Based on company estimates, the $20 million could sustain operations until next March. In addition to the funds, drkoop.com will fall under new management (Brooks, 8/23). Prime Ventures' Richard Rosenblatt, Edward Cespedes and Stephen Plutsky will serve as the company's new CEO, president and CFO, respectively, but drkoop.com's co-founder C. Everett Koop will remain its chair (Reuters/Baltimore Sun, 8/23). Hoping to "stop losses from ballooning faster than revenue," the new management team will likely cut staff and contractors, although it has not announced a "plan to shift the primary business away from providing health information content." According to Robert Priddy, chair of RMC Capital, "We've financed the company with enough money to give it a shot (at) gaining traction with its business plan. ... There is a fabulous upside in drkoop.com."
Industry Experts Scoff
Despite the rescue effort, experts in the Internet health industry expressed doubts about drkoop.com's ability to compete against larger rivals, such as Healtheon/WebMD Corp. Thaddeus Grimes-Gruczka, vice president of the health practice at Cyber Dialogue Inc., said, "Drkoop.com as a brand is dead. Drkoop.com has had some missteps, and that greatly impacts their credibility with consumers" (Wall Street Journal, 8/23). According to Forrester analyst Eric Brown, "The company lost $40 million in the last quarter, so this [$20 million] should last them about six weeks. I don't see a need for a stand-alone health information Web site of this kind. ... If they think this money gives them another run at the same business model ... they're in fantasy land." Citing drkoop.com's legal woes, including class action lawsuits and a pending SEC probe, Jupiter Communications analyst Rachel Terrance also expressed doubts about the company's future (Gallivan, New York Post, 8/23). "I can't imagine anyone in their right mind would want to invest in this company. This is a Band-Aid for now," she said. Shares of drkoop.com closed yesterday at $1.0781, down 26.57 cents (Reuters/Baltimore Sun, 8/23).