Prime Ventures LLC of Santa Monica significantly upped the ante in its bid to turn its ailing Internet health care company Drkoop.com Inc. into a sustainable operation with the April 16 announcement that it would acquire IVonyx Inc. and bring it under the Drkoop umbrella.
The acquisition of Michigan-based IVonyx, which generated $30 million in revenues last year, is expected to be complete within 90 days. With the deal, Drkoop would get a dose of revenue nearly three times the $10.6 million it reported for 2000.
It also will get a new president, IVonyx President and CEO Peter Molloy, who is to be the highest-ranking executive from outside Prime Ventures to come aboard Drkoop since the Santa Monica venture capital company took over Drkoop in August 2000.
Drkoop’s current president, Prime Ventures’ Ed Cespedes, is to become vice chairman of the newly expanded Drkoop.
“This shows we intend to grow the business,” said Richard Rosenblatt, CEO and co-chairman of both Drkoop and Prime Ventures. “We’re confident we can turn Drkoop into a successful and profitable business. We need an increasing number of senior management to grow to the next level.”
The acquisition goes a long way toward putting Drkoop back on track to reach last year’s staffing peak of 250, before cost-cutting measures prompted it to reduce its employment to 35. With IVonyx, Drkoop adds about a dozen offices and 218 employees, all of whom are to become Drkoop employees. IVonyx co-founder and chairman Albert Henry, also chairman of health care venture firm Henry Venture II Ltd., will join Drkoop’s board of directors, along with another IVonyx executive to be named at the time the acquisition closes.
Molloy plans to stay at the Michigan office, but Drkoop which is Prime Ventures’ primary investment has no plans to move its headquarters to Michigan, Rosenblatt said.
Offline applications
IVonyx, founded 14 years ago, provides intravenous medicine to homebound patients, primarily those who need lifelong care. The company employs nurses and pharmacists who fill doctors’ prescriptions.
As part of Drkoop, it would add Web expertise and relationships with 300 hospitals.
The deal, if it closes as expected, would greatly expand Drkoop’s reach.
“We have been focused on the spectrum of health, from the healthy to the gravely ill,” Rosenblatt said. “We have a variety of services that help people stay fit, but when they get very, very sick, we didn’t have those services. This lets you manage your own health care from home.”
Drkoop may be a little “late to this party,” however, said Elizabeth Boehm, an analyst at Forrester Research Inc.
Particularly in the health space, Internet firms have long since given up on generating revenue through content or advertising online, she said. And while diversifying its revenue base is viewed as a viable strategy, Drkoop may be casting its net too far and wide.
“They’re trying to bring together revenue opportunities to get closer to offline care in health care, leveraging whatever brand synergies they can,” Boehm said. “Overall, that’s the right approach. What I’m not certain about is whether Koop took the right avenues. Their strategies are kind of everything on the spectrum. They’re going to extremes.”
IVonyx is the third acquisition that Drkoop has made since last August. Early last fall, the company acquired DrDrew.com, an online health care content provider targeting parents of teenagers, for about $1 million in stock. Later last year, it acquired StayFit-USA, a corporate wellness benefit program, for an undisclosed amount.
Neither acquisition comes close to the $3 million in cash and $4.1 million in stock that Drkoop has agreed to pay for IVonyx.
With these acquisitions, Rosenblatt is projecting that, by 2002, Drkoop’s revenues from Internet advertising and content deals would be trimmed to about 10 to 15 percent of overall revenues. Other sources of revenue would be branded Drkoop products, its corporate benefits and wellness program and sales generated by IVonyx. To reflect that reduced online reliance, company is considering dropping the dot-com component of its name.
The shift in focus may seem logical considering Drkoop bled a $146 million net loss in 2000, compared to a net loss of $82.5 million in 1999. IVonyx, by comparison, posted net earnings of $2.5 million in 2000. Meanwhile, Drkoop’s stock was delisted from the Nasdaq National Market April 30 and started trading over the counter.
It was trading last week at 20 cents a share, up from a 52-week low of 9 cents in April but way down from its 52-week high of $3.56 a share. Last year, Drkoop’s stock hovered at just under $1.50 a share until October, at which time it sank below $1, where it has stayed ever since.
Since Prime Ventures took over the 4-year-old company, Drkoop has reduced its expenses and slowed its cash “burn rate,” however. During the fourth quarter of 2000, the net cash used in operating activities was $5.9 million, dramatically less than the $10.2 million burned through in the like quarter of 1999. Rosenblatt said he hopes the company will be cash-flow positive by mid-2002.
“If you looked at it from the beginning, Drkoop was just another online company,” Rosenblatt said. “But we’re not online or offline. We’re just a company. The Web content is important, but it’s not going to drive our strategy. We’ll focus on leveraging the Drkoop brand to help consumers help themselves. You’ll see announcements in the future that fill that offering.”
