Medical supplies supply the next B2B wave.
Published:
20 October 1999 y., Wednesday
Neoforma.com filed Friday for an IPO, and privately held Medibuy.com plans to close a $40 million round of funding within a week. Both companies want to be Web middlemen handling some of the $140 billion spent worldwide by hospitals and medical centers on everything from tongue depressors to multi-million-dollar imaging devices. Those who calculate the total budgets of medical procurement people-which can include such unrelated items as office furniture and rock salt used in parking lots-say worldwide expenditures are $300 billion. Medibuy.com, Neoforma.com, and others like them plan to make money by taking a 3 to 6 percent commission of each transaction they broker in the fragmented medical market. In the U.S. alone, 6,000 hospitals and 175,000 doctors_ offices purchase products from 20,000 manufacturers and distributors. In its filing with the U.S. Securities and Exchange Commission for a $75 million IPO, Neoforma.com disclosed that it received a final $70 million round of private funding this month worth $5.68 a share. Dell Computer kicked in $25 million of the total, acquiring a 9 percent stake in the company. The recent funding round raises the value of Neoforma.com to $275 million. Back-of-the-envelopearithmetic shows that if Neoforma.com prices the IPO at a conservative $10 a share, the company will be worth $550 million even before its stock begins trading. That_s a high price for a company that lost $8.1 million on $7,000 revenues for six months ended June 30. It looks especially steep for a company that_s not likely to make a penny for a few years. Yet the company appears to be a bargain compared with the many Internet IPOs with dubious business models that have climbed to $1 billion in market capitalization or more in trading. Both Neoforma.com and Medibuy.com have been building their sites for the past three years. At the end of June they still weren_t officially up and running. Medibuy.com, backed by Kleiner Perkins Caufield & Byers, has raised $50 million so far in venture funding. CEO Dennis Murphy said in August that he expected to receive $40 million more that month from "strategic partners in related businesses." Now he says that money has not yet arrived, but he expects it within the next week. Mr. Murphy is still mum on his IPO plans. Medibuy.com may be the leader in established relationships, a key factor for distribution networks.
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