Such admissions are the stuff that shareholder lawsuits are made of, and attorneys have been pouring over the Agrawal case. Even more damning was Hackett's testimony that he signed an employment contract with Agrawal and promised him stock options without the consent of the board of directors.
The board, however, was unlikely to act as much of a watchdog over Drkoop's executives. Three of the eight board members - Koop, Hackett and Zaccaro - were company insiders. Two other board members - Superior's CEO and Adventist Health's president - were officers of companies with significant investments in Drkoop. That left just three independent board members - a retired Ziff-Davis executive, a Dell Computer VP and celebrity doctor Nancy Snyderman. The outside directors received stock options worth, in some cases, millions of dollars. (Superior's CEO and Adventist Health's president have since resigned, as have the ex-Ziff-Davis and Dell directors.)
By the end of 1999 it was becoming apparent that the company's business model wasn't working, despite that Drkoop.com had become one of the most popular health sites on the Web. The company took in $9.4 million in 1999. But Drkoop faced some big bills in 2000 - $38 million in payments to AOL and Go combined. Meanwhile, executives couldn't make up their mind about the company's direction as it drifted from an online medical record provider to a media outfit. At the time, the online medical industry was moving in the opposite direction, from providing medical information to consumers to connecting them to their doctors, hospitals, health plans and pharmacies.
"I think [Drkoop] management got enamored with the media play; they didn't stay focused on the medical record," says one former high-ranking Drkoop associate.
Hackett recognized that Drkoop was increasingly out of step with its industry. In January he told investment bankers at a closed-door meeting that the company was evolving into a disease-management company that would offer services like medical monitoring through its personal medical record. "We've been very quiet about our plans in this area," Hackett said at the meeting.
For good reason. The personal medical record project, already months late, was foundering. Patients testing the record at a Florida hospital were reluctant to put their medical information online. There also were problems with the technology being developed for the company by HealthMagic. "The relationship never produced satisfactory results," Drkoop subsequently reported in an SEC filing. Under the terms of a settlement, Drkoop retained the technology it contributed to the project, but is barred from developing a similar product until next year.
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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. |
