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It might be time for health care to profit on Net

By ASSOCIATED PRESS
Published May 28, 2006

NEW YORK - During the technology boom, venture capitalists pushed Internet-related ventures as the answer to health care's woes, promising to deliver great efficiencies, create better-informed patients and indirectly help provide better health care.

Except for a few high-profile winners like WebMD Corp., those efforts largely failed. The Internet wasn't ready as a commercial medium to capitalize on the American public's insatiable desire for health care information, and it couldn't deliver any cost benefits to the country's health care system.

But a growing number of technology investors say the Internet is ready to accept patients. Pointing to the outstanding financial successes of Google Inc. and Yahoo Inc., venture firms like Battery Ventures, Bessemer Venture Partners, Trinity Ventures, VantagePoint Venture Partners and others are backing Internet companies with designs on the health care industry.

"This is the hottest space in the Internet," said West Shell, chairman and chief executive of Healthline Networks Inc., operator of several Internet sites aimed toward specific diseases. The San Francisco company raised $14-million this year from VantagePoint and JHK Investment LLC.

Internet venture capitalists have been starting or supporting companies like Healthline and Healthia Inc., a "comparison shopping" company for health care. The commitments have been modest: Roughly $37-million has been spread over four companies in the past year. But technology investors see health care as a huge opportunity for Internet businesses.

Larry Orr, general partner at Trinity, which led a $7-million Series B in Healthia, said the health care industry is merely the latest vertical that may be tamed by the Internet. The model has worked in real estate, automotive sales and financial services industries.

Indeed, there is evidence suggesting health care-oriented Web sites can make it. Take public Health Grades Inc., which operates a Web site, healthgrades.com, that ranks hospitals and physicians. The company, which had reported a $7.4-million loss in 2001, began making money in 2004. Last year, it reported income of $4.1-million. It produced huge returns for Essex Woodlands Health Ventures, which invested in Health Grades as a public company in 2000.

Similarly, WebMD, one of the highest profile "e-health" companies in the late 1990s, is reporting similar success after a long history. Founded in 1996, WebMD merged with the other venture-backed poster child for the e-health age, Healtheon Corp., in 1999. The combined entity went public that year, building a business around consumer content and processing transactions for physicians. The company bought Tampa-based Medical Manager Corp. in 2000.

Last year, in a nod toward the potential of consumer Web sites, the company spun off WebMD Health Corp. as a separate, public entity to operate its consumer-oriented Web sites. The remaining transaction business was renamed Emdeon Corp.

In addition to the financial success, health care remains one of the more searched topics on the Internet. People may begin their search with general interest sites like Google and Yahoo. Where the opportunity lies is in providing depth.

In August, Battery Ventures supplied $6.2-million in Series A funding to LifeMed Media Inc., which offers several multimedia products aimed at diabetics including a Web site, a TV show and regular radio segments.

The company earns revenue through advertising and expects to break even this year, according to chief executive Howard Steinberg, who projected revenue to be $8-million.

Steinberg, at the time of the financing, said the company counts Sanofi-Aventis and Abbott Laboratories among its advertisers. Steinberg said the company is investigating gaining a second revenue stream by marketing products and services to its 60,000 "members."

Healthline similarly is counting on advertising to generate revenue. The company, which was founded in 1999 as yourdoctor.com, generates revenue through Google's Adsense program. Healthline runs ads "sponsored by Google" along the top of its search results. The ads are relevant to the search. For example, a search for "ear infection" produces eight advertisements with links, including Web sites for information about ear infection and a spa in New Jersey that provides ear cleaning.

[Last modified May 28, 2006, 07:24:51]