Financial troubles at drkoop.com could be the first signs of a spreading ailment, according to several analysts.
"This the first real online health entity that's taken the fall, and it's fallen from on high," says Claudine Singer of Internet research firm Jupiter Communications. "I think the day of reckoning is upon us for the health information content," says Carin Taylor, an analyst at E-Offering in San Francisco.
Drkoop.com, the Austin, Texas-based health information Web site started by former U.S. Surgeon General C. Everett Koop, M.D., has been losing so much money that a letter released by its auditors voiced "substantial doubt" the company can stay in business in the long term. The report sent the already beaten-down shares of the company crashing. Last week the stock was trading at about $2.50 per share, a far cry from its 52-week high of $45.75.
Koop, 83, built a reputation as a strong public health advocate when he served as surgeon general from 1981 to 1989. He founded the site with other investors in 1997. Koop owns 7% of the company that bears his name.
Analysts said that health information sites like drkoop.com face a cash crunch because many rely largely on advertising for revenue. The company raised $88.5 million when it first sold stock to the public last June but had only $35.7 million left at the end of 1999. The company lost $56.1 million last year after taking in just $9.4 million in revenue.
The company also has had to deal with two violations of federal securities laws that bar corporate officers from profiting from a stock sale within six months of purchasing shares. Company director Richard Helppie sold shares of the site's initial public offering three days after purchasing them in June. In August another director, ABC News correspondent Nancy Snyderman, acknowledged she violated rules when her husband sold shares only a month after the IPO.