Not surprisingly, Drkoop was facing a cash crisis at the end of 1998. Only five months after the site's launch, the company counted a grand total of $303 in cash on hand.
Relief came in January from Adventist Health Systems, a Florida company that operates the Seventh-Day Adventist Church's hospitals in the U.S. The company invested $3.5 million in Drkoop in exchange for 1 million shares of stock. Adventist also gave Drkoop 10 percent ownership of HealthMagic, its medical software subsidiary.
As part of the deal, Drkoop turned over its electronic medical record technology to HealthMagic, which then assumed the task of developing the personal medical record. Yet only three weeks after Hackett closed the HealthMagic deal, and with a technology that was still a long way from being ready, the company trotted out Koop to make a big promise that would not be kept: Koop vowed to provide a free personal medical record "for all Americans" by the summer.
The next month the company filed for what became a $88.5 million initial public offering and changed its name from Empower Health to Drkoop.com, binding Koop even closer to the company. Never mind that the company sold only $15,470 worth of advertising the previous year and had accumulated a deficit of $15.2 million in 18 months. Never mind that such a cash flow prompted Drkoop's auditors to warn that there was "substantial doubt" about the company's viability. Net IPO fever was upon the land. Even the company's lengthy disclosure about the risky nature of investing in Drkoop was not about to deter Wall Street.
So confident of success were Drkoop executives that before one share was sold, they signed a three-year, $57.5 million portal deal with Disney to become the featured provider of health information on Disney's Go site. Portal deals were all the rage in the spring of 1999. After all, analysts applauded when equally unprofitable competitor WebMD signed a series of high-profile deals with the likes of CNN, creating a buzz that helped propel the startup into a multibillion-dollar merger with Healtheon.
And so no one paid much attention when three days after the Go deal hit the headlines, Agrawal filed his multimillion-dollar fraud suit against Drkoop, Hackett and Zaccaro. The company's former consultant claimed he had been cheated out of stock options, and his suit would open a window into the internal machinations at Drkoop.
On June 8, 1999, the former surgeon general saw his name literally transformed into a symbol of the new economy when KOOP appeared on Nasdaq trading screens. Drkoop ended its first day on the market 83 percent over its opening price of $9 a share. The company now had $88.5 million in the bank. Three weeks later it essentially turned over its IPO proceeds to America Online (dossier) when it agreed to pay the online giant $89 million over four years to be its premier - but not exclusive - provider of health information. The agreements had been principally negotiated by Bagnall, a 27-year-old community college dropout and tech company veteran originally hired to oversee the Drkoop Web site. Three weeks after the AOL alliance was announced, Hackett promoted Bagnall to chief strategist.
Analysts and journalists would later fall over themselves in slamming the AOL and Go deals as reckless. But at the time Wall Street was not exactly punishing Drkoop for trashing the capitalist rulebook. On the contrary, news of the AOL deal pushed the company's stock to an all-time high of $45.75 on July 6.
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Correction: In a previous version of this story, the related articles box mistakenly identified Adventist Health Systems as Adventist Health. The two companies are unrelated. |
