Drkoop seeks cure in cash infusion, new CEO
The ailing online health site says it has nabbed $20 million in equity financing and has appointed a new chief executive officer to assist it with its sinking business.
The company named former Excite@Home executive Richard Rosenblatt as its new chief executive officer, along with Edward Cespedes as its new president and Stephen Plutsky as chief financial officer.
The financing, which comes one day after the company said it needed new funding to remain afloat, is led by a group of investors including Prime Ventures, JF Shea Ventures, Cramer Rosenthal McGlynn and RMC Capital.
In a filing with the Securities and Exchange Commission made late yesterday, the Austin, Texas-based company said it was out of cash and hoped to close a round of private funding totaling up to $27.5 million to stay in business. "We will not be able to continue to operate our business unless such a financing is completed," the company said.
The company also said the SEC is currently investigating allegations made in several lawsuits that claim Drkoop misled its shareholders. Drkoop is one of several troubled Internet companies that recently have either run out of cash, filed for bankruptcy, laid off employees or been rescued by a wealthier brick-and-mortar counterpart.
In recent months, Drkoop has seen its stock plunge, trading in the $1- to $2-per-share range, far from its 52-week high of $24.50. The company has traded as low as 65 cents a share. Competitors Healtheon/WebMD and Drugstore.com have also experienced falling stock prices. Both are trading near their 52-week lows of $11.18 and $4.68, respectively.
As of June 30, Drkoop had $2 million in cash but said the funds had been "largely expended" by the date of the SEC filing.
Earlier this month, Boston-based law firm Berman DeValerio & Pease filed a lawsuit on behalf of investors who bought stock in Drkoop this spring. The suit charges that Drkoop misled shareholders by delaying the release of a report questioning the company's viability. Two similar suits were filed against the company last month.
In its SEC filing, Drkoop said "the claims asserted in the lawsuits...are without merit, and (we) intend to defend these litigations vigorously."
For the six months ended June 30, Drkoop's general and administrative expenses jumped to $8.8 million from $2.8 million in its year-ago period. During the first half of this year, the company faced expenses of $1.2 million related to severance pay for several employees and $1.2 million in debt expenses, compared with none in 1999, according to the filing.
Today's financing round was offered solely to accredited investors in a private placement of convertible preferred stock, which is convertible into shares of Drkoop's common stock at 35 cents per share. The newly issued shares will be restricted securities and therefore not freely tradable.
The company also said investors have the right to designate up to four new board directors. Of the current members of the board, former U.S. Surgeon General Dr. C. Everett Koop will continue to serve as chairman, and former chief executive Donald Hackett will remain a board director. In conjunction with his appointment as CEO, Rosenblatt has also been named to the company's board.