Tech Talk—Ailing Wellness Site is Seeking a Cure in Partnerships

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The battered health and wellness Web site Drkoop.com has been one of the busiest dot-coms in the last few weeks, as its new management from Prime Ventures LLC struggles to boost revenues and raise investor confidence.

Last week, Drkoop said it acquired StayFitUSA.com, a provider of wellness programs for large employer groups. A week earlier, the site partnered with I-trax Inc., a developer of clinical solutions.

The Santa Monica company, co-founded by former U.S. Surgeon General C. Everett Koop, made the moves in the face of its potential delisting by Nasdaq for failing to make the market’s minimum $1-a-share bid requirement. Drkoop executives will appear before a Nasdaq panel on March 30 to discuss the potential delisting.

The company’s shares, which were hovering around 20 cents a share last week, have fallen hard from their July 1999 peak of $45.75, a 99.5 percent drop.

Richard Rosenblatt’s Prime Ventures took the helm of Drkoop last summer after infusing the site with much-needed cash.

“We intend to continue to aggressively take steps to increase shareholder value,” Rosenblatt said in a statement. “Since completion of our August 2000 financing, we have implemented a number of cost-cutting measures, including closing our Austin, Texas facility.”

Drkoop moved its headquarters from Austin to Santa Monica, where Prime Ventures is based, in January and laid off 45 staffers.

Rosenblatt said he expects the measures would lower total cash expenses to less than $1 million per month by the second quarter of 2001, a reduction from a high of $8 million per month in early 2000.

Despite Drkoop’s popularity the site has more than 2 million registered users revenue from advertising is drying up, forcing management to look to other revenue streams.

Since it was founded in 1998, Drkoop has racked up an accumulated deficit of $171.4 million as of the third quarter ended Sept. 30.

Drkoop said it expects to continue to lose money for the foreseeable future as it funds expansion of its network, advertising, brand promotion, content development, sales and marketing and operating infrastructure.

The site reported a net loss of $57.9 million ($1.60 per share) for the third quarter ended Sept. 30, compared to a net loss of $20.6 million (68 cents per share) in the like year-earlier quarter. Third-quarter revenues were $2.1 million vs. $2.9 million in the third quarter of 1999.

The company had $17.4 million in cash on hand as of Sept. 30.

Making matters potentially worse on the financial side, Drkoop has been notified about several lawsuits filed against the company, according to filings with the Securities and Exchange Commission. The company declined to comment on the lawsuits but confirmed that the SEC is investigating.

“We feel OK about (the lawsuits),” said Ed Cespedes, a partner with Prime Ventures and president of Drkoop.

So why did Prime Ventures invest in Drkoop in the first place?

“We see Drkoop as a billion-dollar brand,” Cespedes said. “It stands for empowerment of the consumer, for honesty and for integrity. These are things you want your consumers to associate with your brand.”

There were also opportunities to cut the monthly burn rate, which was as much as $10 million, according to Cespedes.

But the biggest opportunity that Prime Ventures saw in Drkoop was its approach to “wellness,” a multibillion-dollar market that encompasses preventative health like fitness, vitamin supplements and massage.

“It has enormous cash flow, but it is enormously fragmented,” Cespedes said. “Drkoop is about empowering the consumer to understand these things and helping them discern what is medicine based in fact vs. medicine based in theory.”


Plans for Ending Fraud

Consumer advocate and Green Party presidential candidate Ralph Nader was in town last week for the first time since the election to campaign against Internet fraud and privacy abuses.

Nader sat on a panel at the Fairmont Hotel in Santa Monica with Orange County Sheriff Mike Carona and Piyush Gupta, CEO of online auction site Liquidprice.com.

What the panelists seemed to agree on is that eureka! there’s a problem with Internet fraud and privacy violations, but nobody has any good solutions.

According to a recent FBI report, California is the dominant source of Internet fraud perpetrated by companies and individuals. Overall, some 6 million Americans said they were defrauded online last year, according to a recent Harris poll.

Nader did proffer an idea for an electronic small-claims court for Internet fraud victims, who are typically involved in very small losses.

Gupta’s answer for the fraud and privacy complaints: “People shouldn’t take leave of their common sense when they go onto the Web.”

Nader also said he supports new top-level domain names like “dot-union,” “dot-isnotfair” and “dot-sucks,” which would be free of corporate deception and targeted specifically at labor and consumer unions.

However, “the Internet has not proven very good for mobilizing people,” Nader said.

It mobilized enough people to vote Green, at least according to Michael Radlovic, CEO of L.A.-based Apollo Industries, who attended the Nader event.

During a brief Q & A; with the audience, Radlovic grabbed the mic to thank Nader “on behalf of Republicans” for the election.

Staff reporter Hans Ibold can be reached by phone at (323) 549-5225 ext. 230 or at [email protected].

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