Cyber-Care runs afoul of shareholders and feds

Cyber-Care runs afoul of shareholders and feds

Telehealth firm still awaits FDA marketing clearance

In the midst of reports of FDA and SEC investigations, Cyber-Care has issued a statement responding to at least six class-action lawsuits filed against the Boynton Beach, FL-based company in federal court. The complaints allege that Cyber-Care issued erroneous press releases misrepresenting orders received for its Electronic HouseCall product in order to inflate its stock price.

The lawsuits add to mounting analyst apprehension about Cyber-Care. TheStreet.com columnist Herb Greenberg has commented extensively over the last several weeks on the fact that the firm has been taking orders for non-FDA-approved products and faces investigations by both the SEC and FDA (Cyber-Care claims to be unaware of an FDA investigation of its promotional practices and at press time had not issued any statement regarding an SEC investigation). Greenberg also notes that the Cyber-Care product tested by the University of Iowa during clinical trials (and thus the model currently awaiting FDA clearance) was not the Internet-based device currently being showcased by the company but a more basic POTS-based version. The Internet-based EHC is capable of transmitting data packets over standard phone lines, ISDN, DSL, ATM, and wireless networks, while the EHC model 200 (the trial version) transmits data only over standard phone lines.

Much of the Cyber-Care controversy centers around the firm’s press releases, which have continuously touted the efficacy of the EHC, a Web-based patient-monitoring system that features interactive audio and video communication to enable providers to work directly with patients in their homes (HNN 5/17/00). The releases have also heralded the number of orders Cyber-Care claims to be receiving for the product. According to the law firm of Wolf Popper, these releases neglect to clarify that in some cases the EHC systems discussed in the releases were not the Web-enabled product and that the alleged product orders were, in most cases, merely expressions of interest by third parties who reportedly do not have the financial backing to pay for EHC systems.

More importantly, because Cyber-Care does not yet have 510(k) clearance to market the EHC in the U.S., any attempts to promote the product here constitute a violation of FDA regulations. However, FDA approval of the product is “imminent,” according to a company spokesperson. In addition, Cyber-Care claims that the lawsuits are baseless and form a transparent attempt to reduce the value of Cyber-Care’s shares.

In the meantime, the firm continues to market the EHC outside the U.S. and has engaged IMRglobal, an information technology company specializing in e-business, to assist in promotion and distribution. Cyber-Care and IMRglobal plan to implement a sales and service infrastructure to support the EHC in several markets worldwide. Cyber-Care also has agreements with SIIC Medical Technology to market the EHC in Asia (excluding Japan and Taiwan) and with Xender to produce and sell 10,000 systems in Taiwan.

Cyber-Care reported revenue of $11 million for the first quarter (end-March), a 47% increase over revenue of $7.5 million for the same quarter a year ago. Net loss for the quarter was $1.7 million, which includes $3.4 million of development and start-up costs associated with the development of the EHC system and its products. The bulk of revenue came from the company’s existing air ambulance, rehabilitation, and pharmacy operations, which management is currently considering divesting in order to focus exclusively on the EHC product line.