Analysts and investors favor healthcare’s new Internet bias

May 17, 2000

Venture capital going to healthy HIT, PACS firmsDespite the financial woes of Healtheon/WebMD, drKoop.com, and many other online healthcare ventures, the investment community appears to have a favorable opinion of healthcare information technology

Venture capital going to healthy HIT, PACS firms

Despite the financial woes of Healtheon/WebMD, drKoop.com, and many other online healthcare ventures, the investment community appears to have a favorable opinion of healthcare information technology companies these days. The result is an increased flow of venture capital to certain sectors of the industry, particularly those embracing the Internet.

Corporate loans totaling nearly $18 billion were made to the healthcare industry during the first half of 1999, compared to $19 billion in all of 1998, according to Loan Pricing Corporation of New York, a company that analyzes loan data. U.S. Bancorp Piper Jaffray Ventures, which established a healthcare fund in 1996, says that of the more than 300 proposals it has considered in this sector in the past year, one-third were in e-health, compared to one-fifth of all proposals received between 1996 and 1998. More important, of the 11 healthcare-related ventures Piper Jaffray chose to invest in last year, six were in e-health. Similarly, Pricewaterhouse Coopers Securities/Shattuck Hammond Partners reports that venture capital awarded to healthcare companies grew 28% between the first and second quarters of 1999, with the bulk of this money going to vendors—e-health and otherwise—that demonstrate true revenue-generating capabilities.

Amicas, for example, a provider of Internet-based medical image management solutions, claims an installed base of 67 health institutions in the U.S. and is currently managing more than two million radiology studies per year. This track record helped the company secure $4.5 million in a recent round of funding from a group of investors that includes Radius Ventures, Portage Ventures, and Garrett Capital/First Chicago.

“We’ve had a very successful first round of financing, and we expect follow-up funding in excess of $25 million within the next six to nine months,” said Barry Gutwillig, vice president of business development for Amicas.

The growing appeal of e-health isn’t limited to venture capital firms. Many “traditional” medical technology and information companies are also choosing to invest in the e-health business, either through the adoption of new application service provider models or through investments in companies that offer them a foothold in the online world. Examples of such partnerships abound (see related story, page 2). McKesson/HBOC has invested $6.5 million to purchase 2.6 million shares of Mediconsult.com, which claims more than 200,000 physician members on its service. The investment forms the basis of a relationship through which the two firms will develop new Web-based applications and services for physicians, including applications for handheld devices and online practice management tools.

Likewise, Internet HealthCare Group recently acquired a significant stake in seven emerging business-to-business Internet healthcare companies as part of a new strategy to create a Web-centric e-healthcare system. IHCG is the healthcare arm of Internet Capital Group, a business-to-business e-commerce company; the seven e-health companies it has invested in include an electronic insurance broker, a provider of wireless data entry and retrieval technology, and a developer of clinical data capture and analysis systems.

This upswing in corporate funding was echoed at a conference sponsored by the New York Society of Securities Analysts in March on investing in Internet healthcare and medical services. Foremost among the presenters at the conference was Intel, which is making a major push into online healthcare through strategic investments, partnerships with Internet healthcare technology companies, and internal development of new technologies. The Intel 64 consortium and other investment initiatives within the company are always looking for IT developers to invest in, according to Gregg Adkin, director of strategic marketing and business development for Intel’s Internet Health Initiatives. Potential partners must meet certain key criteria, however, such as furthering the goal of moving healthcare online and having an expectation of growth and profits.

“If you look at the big e-health companies, we’ve probably invested in most of them,” Adkin said. “Fundamentally, Intel believes that moving all businesses onto the Internet will benefit the economy.”

Another presenter at the NYSSA conference was e-MedSoft.com, which is using Java’s open-platform capabilities to make a variety of healthcare services available online and recently completed a private financing deal for $60 million. Offering a subscription service that enables browser-based access to healthcare data, e-MedSoft is creating secure Internet portals that link doctors, hospitals, clinics, HMOs, insurance companies, and government agencies to improve workflow efficiencies.

“We operate in a Web-native environment, leveraging the public Internet to transfer medical data in a secure way,” said John Andrews, president and CEO of e-MedSoft. The company is also investing in wireless technologies and recently embedded wireless capabilities into its core server products (HNN 4/5/00).

Also at the NYSSA conference was CyberCare, which is using the Internet to provide remote monitoring services for chronically ill patients. The company recently raised $31 million in equity financing to help roll out its Electronic Housecall System, a portable patient-monitoring unit with interactive voice and video and the ability to automatically collect vital signs data and a wide variety of other test results. The system operates by a second phone line or other Internet connection to dial directly to a healthcare provider, offering automatic routing to the most appropriate caregiver.

CyberCare has been marketing its Electronic Housecall system for six months and has already taken orders for more than 120,000 units, according to John Haynes, senior vice president. The company is initially marketing the system, which sells for about $5000, to insurance companies.