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HealthCentral Takes Aim at Dr. Koop


by Hal Plotkin
Silicon Valley Correspondent



“HealthCentral’s biggest asset is Dr. Dean Edell. If he can succeed in driving traffic to the. . .site, they’ll have a very good business model.”

–Dr. Wally S. Buch, a physician and general partner at Atherton Ventures
The success of HealthCentral.com {HCEN} depends largely on whether investors think TV and radio’s Dr. Dean Edell can give Dr. C. Everett Koop a run for his money.

Shares of the stock opened modestly higher Tuesday at 12, after the 7.5 million share offering priced late Monday at $11 a share, at the top end of its stated range between $9 and $11.

“HealthCentral’s biggest asset is Dr. Dean Edell,” says Dr. Wally S. Buch, a physician and general partner at Atherton Ventures, a venture investing firm based in Menlo Park, Calif. “He’s one of the top-rated medical broadcasters in the country. If he can succeed in driving traffic to the Web site, they’ll have a very good business model.”

Established in 1997, Emeryville, Calif.-based HealthCentral.com provides personalized health-care information and sells health-related products online. Like DrKoop.com Inc. {KOOP}, the company is built around a popular medical personality, Dr. Dean Edell, whose daily syndicated radio program is broadcast on more than 300 stations and whose syndicated television report reaches an estimated 20 million viewers a week in 50 television markets.

Eric Brown, research director at Forrester Research based in Cambridge, Mass., agrees that HealthCentral.com benefits from its association with Dr. Edell. “It’s very important when patients imprint on a trusted source,” he says. “That keeps them coming back. It’s much easier for someone to switch from, say, Amazon.com to BarnesandNoble.com than it is for them to switch from one doctor to another doctor.”

Buch, says Dr. Edell has one key advantage over rival online health-care content provider Dr. Koop: age.

“Let’s face it,” Buch says. “Dr. Koop is in his 80s. He’s a healthy man, but he’s not going to be around forever.” Buch says Edell, who is in his 50s, is a more reliable and dependable long-term draw for his company.

It was precisely those kinds of worries, along with others, that led to the recent slump in DrKoop.com’s stock price after the initial euphoria surrounding that company’s IPO subsided. DrKoop.com went public on June 7 at an initial price of $9 a share and quickly climbed to over $40 before giving most of those gains back.


KOOP post-IPO stock performance chart

In addition to concerns about the founder’s age, DrKoop.com’s stock price is also being held in check by fears over whether online health-related Web sites can draw enough traffic to attract the advertising revenue needed to survive.

“Even the most trafficked health-content site is not in Media Metrix’s top 200, and it is still early to predict whether any e-Health site can generate enough users to be considered a true vertical portal,” wrote Richard D. Lee, an analyst at Wit Capital, based in San Francisco, in a research report published in mid-August, about the time DrKoop.com’s stock started heading south.

Lee declined comment on HealthCentral.com’s prospects noting that his firm is restricted from making public comments, because of its role as an underwriter of the pending IPO.

Other analysts, however, say Healthcentral.com could have a tough time competing with DrKoop.com, at least over the short run.

“They really have their work cut out for them,” says Peter Boland, an industry analyst and founder of Berkeley, Calif.-based Boland Healthcare. “When you look at the number of deals and cross-marketing partnerships that DrKoop.com has established it’s really staggering.”

Although HealthCentral.com has made progress lining up promotional deals with search engines and Internet portals such as Altavista.com, Looksmart, and Yahoo!, DrKoop.com, as Boland suggests, has a much longer list of such partnerships.

In addition to having a deal with Yahoo! similar to HealthCentral.com’s, DrKoop.com also has marketing arrangements with ABCNews.com, America Online {AOL} , Excite@Home {ATHM}, Go Network, Infoseek {SEEK}, theglobe.com {TGLO}, among others.

“Dr. Edell’s reputation does give HealthCentral market differentiation from the 50 or so other major health-care content sites out there,” Boland says. “But whether or not that can be leveraged through a competitive number of cross media partnerships remains to be seen.”

Analysts say HealthCentral.com and DrKoop.com both face another problem that could make profitability difficult to achieve. Although consumer research conducted by New York-based Cyber Dialogue Inc. estimates that nearly 30 million adults will search the Internet for health information in 2000, a sizable chunk of those Web surfers are expected to bypass general health-information sites.

“In the long run, specialty health-care Web sites focused on individual diseases are going to have an advantage,” Brown says. “Whether it’s asthma, diabetes, cancer or other illnesses many patients, particularly those who use the Internet to look for health information most often, are going to want to go to the site that has the most relevant information for them.”

As many as half of all Web surfers looking for health-related information will eventually go to disease-specific sites, according to an estimate contained in a report recently published by Darren Marhula, an analyst at US Bancorp Piper Jaffray, based in Minneapolis.

“Advertising alone will not carry general purpose health-care sites on the Internet,” Brown says. “Those sites are going to have to bushwhack their way back to servicing [health-care] providers to raise their value.” Brown adds that transactional income from selling drugs and other health supplies can also be a crucial part of successful consumer-oriented health Web sites’ business strategy.

Toward that end, HeathCentral.com recently announced the acquisition of Fort Lauderdale, Fla.-based ePills Inc. The acquisition allows HealthCentral.com to sell 23,000 different medications and health-care products to consumers who visit the company’s Web site.

Nonetheless, industry experts emphasize that the most important thing HealthCentral.com has going for it is Dr. Edell.

“He’s an interesting character,” Buch says. “He’s a very caring personality who puts himself on the side of patients, helping them overcome some of the obstacles they face when it comes to the health-care establishment. He’s very trustworthy and reliable and that’s likely to mean success for Healthcentral.”

HealthCentral.com posted a loss of $1.9 million on revenue of $126,546 for the six months ended June 30, as compared with a loss of slightly more than $2,000 on zero revenue for the first half of 1998.

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