Thanks to Novation, Neoforma has providers as customers. Thanks to Global Healthcare Exchange, Neoforma has even more suppliers as customers. Now it's up to Neoforma to deliver software functionality promised to customers and profitability targets promised to Wall Street.
So far, "we are right on track," says Robert Zollars, Neoforma's chairman and chief executive officer.
Founded in 1996, Neoforma operates online supply-chain marketplaces in the healthcare sector, but the company didn't make much progress until 2000. That's when it inked a 10-year deal to become the exclusive technology provider for [email protected], the online exchange of Novation, the supply company of VHA and the University HealthSystem Consortium.
In essence, Neoforma traded stock in itself for access to 2,300 members of VHA and UHC.
For 2002, Neoforma expects its marketplace volume to be between $3.4 billion and $3.8 billion, compared with $1.3 billion in 2001, Zollars says.
Both hospitals and suppliers are evaluating Web-based purchasing systems as a means to reduce administrative costs in procurement and provide more accurate and timely information for contract-management decisions.
The online marketplaces have fewer technical hurdles for hospitals to manage than earlier forms of electronic data exchange because they need to connect with only one Web site to exchange information with multiple suppliers.
Neoforma improved its prospects even more last year when it forged a strategic partnership with Global Healthcare Exchange (GHX), based in Westminster, Colo., a Marketplace rival dominated by suppliers and distributors, to integrate their respective exchanges.
Neoforma outlasted the dot-com bust-it is one of a handful of online healthcare marketplaces still in operation-but resorted to a 10-to-1 reverse stock split last year to bolster its share price, which had been trading under $1, and maintain its listing on the NASDAQ exchange.
Another survivor is Neoforma's chief rival, Medibuy, Nashville. Medibuy is the exclusive provider of online supply-chain marketplace technology for the Premier health alliance, San Diego, and HealthTrust Purchasing Group, Brentwood, Tenn.
But Neoforma's relationship with GHX gives Neoforma a lead in the battle with Medibuy for two reasons. First, the deal eases the pressure on Neoforma to sign up new suppliers and distributors because it has access to all of GHX's suppliers and distributors. The deal also spares Neoforma the hassle of connecting suppliers to its technology platform on a one-by-one basis.
Although Neoforma had signed contracts with many suppliers in the medical-surgical sector before the deal with GHX, it lacked market penetration in other areas, such as pharmaceuticals. The two exchanges shared only 14 suppliers at the time the deal was struck.
The two exchanges haven't ruled out the possibility of a future merger, Zollars says. "Outside of Novation, we still compete with them," he says. "Over time we will continue to get closer-right now we are in the cooperative/competitive stage-or we will go back to competing. It's probably too soon to tell."
Zollars says Neoforma survived the dot-com bust because it refashioned itself from a public exchange, in which hospitals log on to purchase supplies and suppliers bid on purchase orders, to a private one, in which Neoforma operates exchanges for private group purchasing organizations, such as Novation. Neoforma has a similar relationship with MedBuy Corp., a medical GPO based in Canada.
Neoforma appears to be meeting software functionality targets promised to customers. In January it released [email protected] 4.0, which allows hospital materials managers to view online all their transaction data, including such important pieces of data as what they've purchased from each supplier and what suppliers back-ordered. Version 4.0 also introduces Contract Viewing, Novation's contract portfolio, and Sourcing Catalog, which includes information on suppliers' products and prices.
[email protected] 4.0 builds on earlier versions of the software, which focused on connecting hospitals and suppliers to Marketplace in a secure manner to exchange basic, electronic information. Earlier versions also focused on building a rules database about who can view what.
The new release is a first step in Neoforma's quest to distinguish itself as a software company with staying power, says Eric Brown, research director of healthcare e-commerce at Forrester Research, Cambridge, Mass. "It is the next version of e-procurement that will start to differentiate the leaders from the laggers," Brown says.
Neoforma expects to achieve positive cash flow during the first quarter of 2002 as well as for the full year. The profitability benchmark Neoforma expects to reach is known as EBITDA, a generous measure representing earnings before interest, taxes, depreciation and amortization.
Since 1999, the company has posted total net losses of more than $535 million.