Sickly Internet health sector awaits shakeout
By Angela Moore
NEW YORK, April 25 (Reuters) - Shares of Internet health companies are getting some of their colour back, but no common prognosis exists as to who will be left standing after the shakeout in the sector.
``The initial euphoria is lost, everyone is waiting for a leader to emerge,'' said Daren Marhula, an analyst with U.S. Bancorp Piper Jaffray. ``The leader used to be Healtheon but they made too many deals too fast, and its fall has brought the sector down.''
Earnings reports will help enlighten investors, one analyst said.
``It'll be interesting to see...a lot will be told in upcoming earnings calls,'' said Claudine Singer, an analyst with Jupiter Communications. ``You'll hear some death knells, and there might be some scraps for the picking.''
Beleaguered drkoop.com Inc. (NasdaqNM:KOOP - news) said Tuesday afternoon it expected to report substantial first-quarter losses. The online health company named for the former U.S. Surgeon General, also said it was down to about $24 million in cash, or enough to continue for about four months.
Koop's Chief Executive Don Hackett had been slated to give a keynote address at Internet Healthcare 2000, an industry conference, on Tuesday morning, but withdrew ahead of the company's earnings announcement. The company's shares closed up 1/16 at 2-11/32, far off a 52-week high of 45-3/4.
Upcoming merger deals may also be in jeopardy. Many proposed deals were stock transactions and have been compromised by the steady drop in share prices.
``Some of the deals that are in the hopper may never come to fruition, and that is a concern for the acceleration of growth moving forward,'' Jupiter's Singer said.
Last month, healthcare market researcher IMS Health Inc. (NYSE:RX - news) and Internet healthcare firm TriZetto Group Inc. (NasdaqNM:TZIX - news) announced a stock deal that met with market disapproval so strong, it lowered the value of the transaction to $2.45 billion from $8.4 billion in less than four weeks.
The companies said last week they would consider restructuring the highly unpopular merger proposal.
One closely watched deal is Healtheon/WebMD Corp.'s (NasdaqNM:HLTH - news) acquisition of its main rival CareInsite Inc. (NasdaqNM:CARI - news) and its parent Medical Manager Corp. (NasdaqNM:MMGR - news)
Since the deal was announced in February, Medical Manager nosedived about 56 to 30-19/64; CareInsite plunged about 47 to 24-1/2; and Healtheon slid 37 to 19-7/16 - although all stocks were up at Tuesday's close. Healtheon is expected to report its first quarter earnings next week.
The vitality of the Healtheon-Medical Manager deal has been frequently questioned.
``There are two schools of thought on that deal,'' said U.S. Bancorp's Marhula. ``One school says the deal will go through and (CareInsite chairman) Wygod will take a very active role, possibly as CEO. The other school says that the deal will break apart and CareInsite could emerge as the e-health leader that market is looking for.''
Marhula said he thinks there is a small chance the deal will break apart.
With their market values sliding and their futures unsteady, many of these firms face the challenge of wooing quality workers from more traditional companies without tempting stock options to complement cash compensation.
One of the things that will help separate the winners from the losers in the e-health shakeout, will be competent and experienced managerial talent.
Within the last month, Healtheon named Patricia Fili-Krushel, former president of Walt Disney Co.'s ABC Television Network, as the chief executive of Healtheon's consumer division and appointed an executive from American Express Co. as chief operating officer. The company's ability to continue recruiting makes it stand out, one analyst said.
``Healtheon is a good long-term bet,'' said Jupiter's Singer. ``That's why it has been able to attract the senior management talent it has.''
``Market conditions will force the winners out from the losers, and the winners - or the potential winners - will have an easier time attracting top talent. It's been hard to choose because everyone's been so flush with funds,'' Singer said. |
