Data Critical Revamps Biz Model To Tempt Skittish Traders

January 10, 2001

After last year's roller-coaster ride of high-flying IPOs and much anticipated crashes, e-health dot-coms are not the only companies working to restore confidence to investors and customers. Healthcare technology firms large and small are

After last year's roller-coaster ride of high-flying IPOs and much anticipated crashes, e-health dot-coms are not the only companies working to restore confidence to investors and customers. Healthcare technology firms large and small are trumpeting new strategic initiatives designed to pilot their ships into the seas of profitability.

Many of these initiatives involve multiple partnerships and mergers that mirror the growing emphasis on network integration. After going public in November 1999, wireless healthcare firm Data Critical has aggressively pursued both acquisitions (Physix, Elixis, and Paceart) and alliances (including Agilent, Mallinckrodt, Medtronic Physio-Control, and Nextel) with the goal of becoming "the" healthcare wireless connectivity provider.

Even so, 2000 was a rocky year for Data Critical, at least as far as Wall Street was concerned. After reaching a 52-week high of $50.75/share in early March, the company's stock price fell steadily throughout the year, ending up in the $1 to $2 range by December. But as the New Year begins, the Bothell, WA-based firm is leveraging its partnerships in an effort to change its business model and increase product marketing opportunities. Data Critical anticipates positive earnings and cash flow by the fourth quarter of 2001.

"We have seriously increased our growth potential," said Jeff Brown, president and CEO. "Our partnership model is based on minimums, but we intend to move a great deal of product out. Data Critical can penetrate the hospital market without increasing its sales force because we have established new sales channels through partnerships with companies like Tyco (Mallinckrodt), Medtronic, and Agilent."

The company's core business is connectivity and communication of information, according to Brown. Data Critical sees wireless as the future of connectivity because of the anytime-anywhere functionality inherent in wireless devices. The company has chosen to concentrate on three healthcare segments-hospital/wireless (StatView, AlarmView, FlexView), cardiology (Paceart's product suite), and physician/handheld (PocketChart, unwiredDr)-with StatView considered its bread-and-butter product. Like many e-health contenders, however, Data Critical sees great potential in its physician-oriented applications.

"Our goal is to have revenue in the $20 to $21 million range for StatView in 2001," said Michael Singer, vice president and CFO. "We anticipate revenue of $4 million for cardiology and $3 to $3.5 million for the physician/handheld products for 2001."

The key to Data Critical's physician/handheld product line, unwiredDr, is not yet commercially available, however. Beta testing is ongoing and the product should be available early in the year, according to Brown.

"We are putting pieces of unwiredDr through extensive beta testing-of transcription services through our Speech Machines partnership and of the ability to do dictation over Web-enabled cell phones using WAP (wireless application protocol)," he said.

Data Critical's partnership with Nextel to comarket unwiredDr is a solid first step in reaching out to the physician market. The firms will sell the product on a subscription basis at $20 per month per module. Brown considers the two-way radio provided by Nextel to be particularly suited to the healthcare mobile environment. But Data Critical remains open to seeking other potential partners in catering to the mobile clinician market.

"We are network-agnostic," Brown said. "UHF, wireless LANs, RF, PCS, cellular-we are also very interested in Bluetooth. We have some applications on Richochet. What I've mostly seen in use as wide area products are cell phones and pagers. What a nurse will carry and what a doctor will carry are two distinctly different things."

Despite its fiscal and product development connections with companies such as Aether Systems and Agilent, which have huge installed bases outside of the healthcare industry, Data Critical has no plans to move its products to extra-medical applications. Being as partnership-friendly as it is, however, the firm is open to licensing its technology or even to entering a joint venture if the right opportunity presents itself, according to Brown.

For fourth quarter 2000, Data Critical anticipates revenue in the $4 million range with 50% to 53% gross margin. The company's stock was trading at $2.75 per share at press time.