Can This Man Cure DrKoop.com

When Everett Koop, the former US Surgeon General, first met Richard

Rosenblatt, the new CEO of struggling Drkoop.com, he took one look at him and

asked: "Does your mother know you’re out this late?" It was a joke,

but the question wasn’t totally off-base. Boyish and busting with energy, the

32-year-old Rosenblatt doesn’t appear to be a day over 21. During this first

meeting with Koop, in an Austin (Texas) hotel lobby in September, 2000, he

seemed awfully cheerful for a guy trying to turn around a company that was on

track to lose $146 million that year on a paltry $11 million in sales.

In fact, Koop’s question wasn’t the one Rosenblatt had become accustomed

to hearing. "Most people asked me if I’d lost my mind," Rosenblatt

says. No wonder. At that time, DrKoop.com was a Web-content business, selling

ads and licensing health articles to hospitals. But the Web ad business was

slowing, and hospitals were not interested in paying for content. What’s more,

the company had overspent wildly on everything from an in-house masseuse to

$15,000 worth of fridge goodies each month. Still, Rosenblatt’s investment

firm, Prime Ventures, ponied up $6 million of the $27.5 million raised to save

DrKoop from bankruptcy last summer, and he agreed to be CEO.

The next Martha?

Why does Rosenblatt think he has the elixir to save DrKoop? He believes the

branding power of one of the most recognizable names in health care can sell

products. "Dr Koop is one of our most trusted medical figures,"

Rosenblatt says. "I think I can turn him into something similar to Martha

Stewart or Walt Disney–but for health."

His turnaround plan is as bold as it is unorthodox. While thousands of

bricks-and-mortar companies are moving on-line, Rosenblatt is heading in the

opposite direction. After laying off most of the website staff and moving the

company from Austin to Santa Monica, he has set out to transform the company

into an offline provider of home health care and nutrition products. In August,

he bought IVonyx Group Services, a small provider of in-home intravenous

therapy.

Late this year, he’ll launch a line of nutritional supplements to be sold

primarily in drugstores. The website will still offer health information, but

its key role is to provides sales and marketing for the offline businesses. That’s

why he changed the company’s name to DrKoop LifeCare in August.

Even with the most famous doctor in America on his side, Rosenblatt will

struggle to get his company off the critical list. He faces fierce competition

from larger players, including Apria Healthcare Group in home infusion and

Pharmavite in supplements. And Rosenblatt has no money to promote DrKoop’s new

products. He’s hoping he can whip the company into shape and persuade a health

or consumer-products company to acquire it before his one-year supply of cash

runs out.

Born deal-maker

With these odds against him, it’s a good thing Rosenblatt is a quick study.

As a grade-schooler in Woodland Hills, California, he became so skilled at

cerebral board games like chess that his college professor mother and nuclear

physicist father were afraid to play with him. A natural-born dealmaker,

Rosenblatt spent hours trading baseball cards with his classmates. He carried

his collection to school in a locked blue case.

After graduating from the University of Southern California Law School in

1994, he lasted only six months at a prominent Los Angeles law firm.

"Sitting at a desk isn’t for me," he says. The Web was in its

infancy then, but Rosenblatt immediately recognized its potential in commerce

and launched iMall, which originally sold training seminars to small businesses

that were going on-line. The strategy didn’t work. So in 1997–with the stock

trading at $.40 and iMall three weeks from running out of cash–Rosenblatt

raised $20 million and quickly transformed the company into a supplier of Web

software tools to help small businesses put up their sites. That clicked, and in

1999 he sold iMall to Excite for $565 million in stock.

Immediately after selling out, he launched Prime Ventures, a $17 million fund

for ailing dot-coms, and scored some impressive wins. One example: He sold

GreatDomains, a reseller of domain names, to VeriSign for $100 million–10

times Prime’s original investment.

In today’s hostile market, keeping DrKoop afloat may be his toughest job

yet. IVonyx posted revenues of $28.5 million last year, but it barely managed to

turn a profit of $1.1 million. To increase IVonyx’ 1% stake of the $4 billion

market, Rosenblatt hopes to bulk up its salesforce and use the Koop name to grab

attention from bigger players. But analysts bet he’ll come up short.

Supplementing business

The Koop brand has better prospects in the supplements business. The $16.8

billion industry has been rocked by safety concerns, resulting from widely

publicized deaths related to ephedra and other herbs. Dr Koop’s name on the

four supplements, including DrKoop Women’s Menopause Health Formula, could

carry weight on pharmacy shelves.

Yet, even there, skeptics say the Koop name won’t be enough. The name will

get their foot in the door, but they need to continue to generate awareness to

get repeat purchases. And the website won’t be much help for selling the

products. Its traffic, now 500,000 a month, has fallen 70% in the last year,

says Jupiter Media Metrix.

Koop himself is confident Rosenblatt is up for the challenge.

"I know he’s committed to keeping this company on the highest road, and

he’s on his way to making us a brick-and-mortar health-care leader," Koop

says.

With cash running low and doubters all around, the good

doctor’s encouragement is about all Rosenblatt can count on.

By Arlene Weintraub in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc