Tuesday September 28, 5:55 pm Eastern Time
Medscape shares up in surprise move after IPO
(recasts lead, adds closing price)
NEW YORK, Sept 28 (Reuters) - Shares of physician Web site Medscape Inc.(NasdaqNM:MSCP - news) gained nearly 73 percent on Tuesday following its initial public offering (IPO) in a rally that surprised analysts who had modest expectations for the deal.
The stock gained 5-13/16 to close on the Nasdaq at 13-13/16 on volume of over 29 million shares on a day when the broader market closed slightly lower.
The New York City-based company, which provides information to medical professionals like doctors and nurses, sold 6.6 million shares, or about 15 percent of the company, at $8 a share. Donaldson Lufkin & Jenrette was the lead underwriter.
''They've had more demand than I thought. We expected about a 10 percent premium on this stock,'' said Ben Holmes, founder of ipoPros.com based in Boulder, Colo. Medscape delayed the IPO, and also cut back the scope of it, with analysts saying the delay, like many other delayed IPOs recently, was related to market volatility in August.
The IPO originally was to be an offering of 5.4 million shares at $11 to $13 per share until Medscape unveiled new plans earlier this month to offer 6.6 million shares at the lower range of $7 to $9.
Medscape, which recently signed deals with media giant CBS Corp. (NYSE:CBS - news) and the world's No. 1 Internet service provider America Online (NYSE:AOL - news), has 1.2 million registered users.
''It does have a unique story,'' said Peony Kao, an analyst with Renaissance Capital Corp's IPO Plus Aftermarket Fund. ''The
company offers a unique Web site with its focus on professionals.''
Analysts following Internet health companies say the online health market has become crowded and newly public companies have been losing ground since their IPOs. For example, drkoop.com Inc. (NasdaqNM:KOOP - news) which was trading on Nasdaq Tuesday afternoon at $14-1/4, is down about $31 from its year high.
''The entire healthcare Web site arena is a very questionable arena. All the medical sites can't find the right formula to see what hits the hot button for investors. This may end up prejudicing most of the offerings coming out (in this sector),'' said David Menlow, president of IPO Financial Network in Millburn, N.J. Medscape's top executive, Paul Sheils, told Reuters the company is confident its existing niche among medical professionals bodes well for the company's plans to carve out a solid presence in the consumer market.
Through its deals with CBS and AOL, Medscape will be moving into the consumer healthcare information market by the end of 1999.
''We have a great platform on which to build a valuable healthcare information service to both patients and consumers,'' said Sheils, who is president and chief executive at Medscape. Sheils said the company's revenues will come from advertising, sponsorship from pharmaceutical companies, and e-commerce through its deal with Drugstore.com Inc. (NasdaqNM:DSCM - news). Medscape will also perform online-based market research.
''They are amassing a database of names for marketing to a targeted audience of medical professionals,'' Kao said in reference to the site's total 1.2 million registered users.
Sheils added the site has always been free, and the push to increase its 400,000 consumer users ''will not cloud our position, but provide both physicians and consumers with content they can feel confident about.''
''It's an exciting time for us. My goal is to execute business,'' Sheils said. ''I'll try not to be distracted by the stock market.''
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