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drkoop braces for big loss
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April 25, 2000: 6:56 p.m. ET
Cash-strapped health information Web site hires advisers to explore options
By Staff Writer Martha Slud
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NEW YORK (CNNfn) - Cash-strapped health information Web site drkoop.com Inc. reported late Tuesday that its first-quarter loss would be far deeper than expected, and that it hired investment bank Bear Stearns & Co. to explore strategic options.
Industry analysts have widely speculated that the financially troubled Web company, which went public only 10 months ago in an $88.4 million offering, will be acquired or forced to shut down if it cannot raise cash soon.
The company's shares closed Tuesday at 2-11/32, a significant drop from their high of $36.80 in July 1999.
The Austin, Texas-based company was named after the popular former U.S. Surgeon General C. Everett Koop who, although he is the company's chairman of the board, a founder and shareholder, is not involved in the day-to-day running of the site.
drkoop.com Inc. (KOOP: Research, Estimates) said it expects to post a loss of 80 cents to 82 cents for the January through March quarter, compared with the First Call consensus estimate of a loss of 52 cents per share.
 Revenue should total only $4.5 million to $4.7 million - below internal estimates - because of lower-than-expected advertising revenue, the company said. First-quarter expenses also were higher than forecast for the firm, which has about 185 employees.
The company was expected to post its results Tuesday, but delayed the release until the second week in May.
drkoop.com President and CEO Donald Hackett said in a conference call the company failed to achieve its first-quarter advertising revenue goals, but noted the site's 63 to 64 million page views were on target.
Five months cash remaining
Last month, drkoop.com disclosed in a Securities and Exchange Commission filing that its auditors raised doubts about whether the company can continue as a "going concern." In its announcement Tuesday, the company said it believes it has in excess of four months of cash remaining.
The projection is based on a cash burn rate of $6 million per month, but in the conference call drkoop.com CFO Sue Georgen-Saad declined to say what revenue projection the cash burn rates was based on. Georgen-Sadd said the issue would be addressed once earnings are reported during the second week of May.
 The company said it is "actively pursuing other sources of new cash financing" and that Bear Stearns & Co., the lead underwriter of its IPO, will explore strategic options for the company.
"We have begun belt-tightening across the company," Hackett said.
The company also said it has restructured deals and reduced its future cash outlay commitments by over $100 million.
drkoop.com restructured and shortened its content partnership deal with America Online Inc. (AOL: Research, Estimates) so that it will pay the Internet service provider with an increased equity stake instead of future cash payments. The deal will now expire April 15, 2001.
Under the revised pact, AOL will own 10 percent of the online health company. (AOL is in a merger pact with Time Warner Inc. (TWX: Research, Estimates), the parent company of CNNfn.)
"We are happy to continue our relationship with AOL," Hackett said in a statement. "The tremendous exposure we received through this agreement was critical in positioning our brand during our launch, helping us grow our traffic during the last year."
drkoop.com raised eyebrows on Wall Street last year when it agreed to pay America Online about $89 million over four years in exchange for providing AOL with health content in the hopes of generating hits to the drkoop site.
Industry analyst Caren Taylor, of E*Offering, said that the original AOL agreement was widely viewed as too pricey for drkoop. But Taylor, who has a "hold" rating on the stock, said that despite drkoop.com's well-publicized woes, it does have some selling points for a possible acquirer.
"They've still a tremendous brand name and valuable partnerships," she said. "There are assets there."
drkoop.com also restructured a deal with GO.com. GO.com will receive an undisclosed sum of cash and warrants for drkoop.com stock, which "significantly reduces" drkoop.com's cash obligations to the portal site.
e-health sector struggles
drkoop.com is not the only online health company to face problems.
Shares in online medical information Web sites have been particularly battered amid the recent downturn in Internet stocks. Industry analysts have questioned the business model of consumer-oriented medical information Web companies, saying that their profitability outlook is murky. drkoop.com and its competitors offer information on an array of diseases, online support groups and interactive health quizzes and other tools.
Shares of industry leader Healtheon/WebMD Corp. (HLTH: Research, Estimates), which operates a consumer health portal as well as administrative services for doctors and payers, is trading at about $19 a share, well off its all-time high of more than $126 last spring.
Another consumer-oriented competitor, OnHealth.com Inc. (ONHN: Research, Estimates) is trading at 3-3/16, compared with a high of 22-3/4. 
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