Boasting that it is refocused and renewed, Neoforma.com closed out a roller-coaster year by showering stock options on its newest cash investors, VHA and University HealthSystem Consortium.
Flush with cash from a second round of financing, the San Jose, Calif.-based e-commerce company last month gave board positions to Robert Baker, president and chief executive officer of UHC, and C. Thomas Smith, president and CEO of VHA. The appointments, effective immediately, came wrapped with the same stock options granted to all of Neoforma's board members, who now number nine: an initial option to buy 100,000 shares and options for another 25,000 shares each year thereafter. Each grant vests over a four-year period.
It was a reward to the two hospital alliances, which along with another partner, Dallas-based i2 Technologies, served up $30.5 million in capital in January to see the company through what is expected to be another unprofitable year. For VHA and UHC at least, the investment solidifies a 10-year exclusive contract for Neoforma to build and maintain an electronic marketplace for Novation, the alliances' joint supply company.
Officials at both VHA and UHC said neither Baker nor Smith would personally profit from the compensation plan. Rather, policy dictates that any proceeds from exercising their stock options will go back to the alliances. Because board members cannot exercise any options until a year after their appointment anyway, neither VHA nor UHC could yet say whether Baker or Smith would opt to buy those shares or not.
The so-called "strike price" for which Baker and Smith can purchase the initial 100,000 shares will be approximately $1.50, the same price shares were trading at in late January when the appointments were announced. Depending on how Neoforma performs in the coming months and years, exercising options at that price could be either a windfall or a boondoggle.
"That is the good news and the bad news," said Steve Kane, Neoforma's chief administrative officer. "These compensation plans for directors are designed to align the interests of directors with shareholders' interests."
Soon after January 2000 when Neoforma was initially priced at $13 per share, the stock price quickly soared to more than $78 per share. But by the end of last year, the stock traded at an alarm-sounding low of 63 cents per share. It has bounced back into the safe-from-delisting zone since the start of the year, trading for about $1.50 per share during much of the last month.
Officials at Neoforma said they relish their pioneer position as a publicly traded electronic marketplace for hospitals.
"We are the first mover in an industry we are defining every day," Bob Zollars, chairman and CEO, said at a Feb. 14 analyst presentation.
By this time next year, Zollars vowed, Neoforma will turn profitable. And much sooner than that, officials said, the company will break through a higher tier in the supply chain by signing on a major distributor-even though four of the largest distributors are jointly incubating their own Web-based marketplace, the New Health Exchange.
Meanwhile, as expected, Neoforma has run through a heap of cash, reporting a total year-end loss of $208.8 million, or $2.41 per share, on $6.9 million in total net revenue. But the volume of transactions is ballooning: in the fourth quarter Neoforma reported a record high of $33.9 million in transactions-nearly half of the $68.3 million total for the year.