Major Medical Products and Services Companies Establish Global Healthcare Exchange
Johnson & Johnson, GE Medical Systems, Baxter International Inc., Abbott Laboratories and Medtronic, Inc. announced today that they are creating a global healthcare exchange that will be an independent Internet-based company . . .
Business Wire, March 29, 2000
Five of the Major Healthcare Products Distributors Are the Latest Members of the Healthcare Industry Creating Their Own Web Sites to Challenge Online Companies.
Facing competition from companies such as Healtheon/WebMD Corp. and Neoforma.com Inc., as well as a similar company being formed by a handful of medical device manufacturers, the drug and medical product distributors, such as Cardinal Health Inc. (CAH), are turning to the Internet to preserve and perhaps enhance their traditional role in the supply chain for healthcare products, an analyst said . . .
Dow Jones News Service, April 18, 2000
It was nothing personal. Business is business.
Okay, so we had a bit of a setback with the Eclipsys merger. So what. We had fought back many times before. This would be no different, right?...
Okay, so we had a bit of a setback with the Eclipsys merger. So what. We had fought back many times before. This would be no different, right?...
We were still fairly confident that we would come out of the merger mess with a strong relationship with Novation. Their membership included more than a third of the hospitals in the country. That was no small thing.
However, the gap between confidence and certainty was spanned by a precarious tapestry of hope and despair. The stock market was looking more dreadful each day.
Everything that had made sense yesterday was foolish today. Nearly everyone seemed to be cowering under the weight of uncertainty. Dreamers were redefined as fools. Investors were redefined as dreamers. Gamblers were redefined as investors.
Deflated hopes turned into over inflated anger. We had no way to be certain that our strong partnership with Novation could weather such a powerful tempest of emotions. But there was one good thing about the market downturn. There was no way that any new competitors would be able to host an IPO. We hoped that this would solidify our position as the best choice in the industry. In fact, we thought we might become the only choice.
It turned out that we weren’t the only ones who saw the new market condition as an opportunity.
The huge manufacturers of healthcare equipment and supplies had been very nervous about the possibility that their dominance might be unsettled by the wealth of well-funded dotcoms. They had been so concerned about the scope of our potential financial capitalization that they had gone through the motions of trying to work with us prior to the IPO. True, GE had even invested in us, but they had turned their back on us immediately thereafter.
Now that we were weakened by a controversial merger and deflated stock value, they saw an opportunity to crush us.
We had known that J&J and GE had formed an uncomfortably tight camaraderie while they were both planning to invest in Neoforma. What we hadn’t realized was that they had maintained their communication at the highest levels long after J&J had backed out on the investment. They were discussing ways to keep Neoforma and its competitors from gaining a foothold in the industry they controlled.
Several coalitions of industry players had been formed in the last year or so to fight off the wave of upstart intermediaries. In many instances, they had been able to stop the new players in their tracks. We knew that this threat existed in healthcare too, but we believed that several factors made this unlikely.
First, the healthcare industry is riddled with very complex processes that control the pricing and distribution of medical products to an extraordinary degree. It would be difficult for manufacturers to band together on anything without triggering the wrath of insurers and government regulators.
Second, the competition between the big manufacturers is fierce. Jeff and I had seen first-hand how difficult it could be to manage the interests of a few competing manufacturers, let alone a coalition of them. We had originally formed Neoforma with the idea that manufacturers should band together to eliminate redundant processes and improve customer support. For the most part, they had reacted with extreme resistance to the idea that they should share anything with each other.
And third, the GPOs represented a powerful force in the industry. If suppliers were to band together, they would risk raising the ire of a majority of their customers.
So we had been a bit skeptical when we first heard rumors that the manufacturers were about to announce their own Internet coalition. As these rumors came to us with increasing clarity, we became very concerned.
We knew that anything they might announce would only be smoke and mirrors for years to come, no matter how much money they threw at it. But, in this shaky environment, that would be enough to do substantial damage.
Bloodlust was driving investors and the press to turn against us with the same frenzy that had initially driven them toward us.
By the time the manufacturers announced their coalition, we had already prepared our official comments: “It is a good thing for the industry that the manufacturers can establish standard practices. That will make it much easier for us to do business with them.”
The manufacturers, led by J&J and GE, were equally and ludicrously dismissive of the idea that they were competing with us. “We will be happy to work with all manufacturers, distributors, healthcare providers, GPOs and Internet companies.”
Regardless of the friendly rhetoric, most observers saw right through this veil. The manufacturers were making a run not only at us, but at the GPOs. The big GPOs had all formed some kind of partnership with Internet companies. Now that the Novation/Neoforma partnership was vulnerable and none of the other GPO/Internet partners would be able to go public, the manufacturers were struggling to loosen the binds that the GPOs had on them.
Feeling left out of this huge power play, the major distributors scrambled to form their own coalition. They made no clear statements about what they were going to build, but, within ten days, they had assembled a hundred million dollars and a press release.
Articles appeared in industry media, eagerly reporting the demise of Neoforma and the rest of the dotcom upstarts. Some analysts pointed out that these coalitions themselves were little more than press releases and that the GPOs might have some substantial influence on the success or failure of these ventures. After all, competing against one’s customers is not usually in one’s own interest. And that is exactly what these coalitions were doing, however much they tried to position themselves differently.
So there we were. The market was crashing. Our merger was threatening to fall apart. Company morale was low. The major industry players—with a combined market valuation of nearly a trillion dollars—had created two coalitions with the sole purpose of defeating us. The press was happily writing our epitaph.
All Jeff and I had wanted to do was fix a few things.
Really. I still remembered those early days, when a growing num- ber of visitors thanked us, desperately grateful for the information we were providing them. I remembered the time that a doctor in a Third World country, after exhausting all conventional means, had found and purchased a previously inaccessible device on the Neoforma website. We had worked with the manufacturer to rush the device to the doctor, who had immediately implanted it in a patient. Had the patient received the treatment a day later, the patient would have died.
That’s the kind of thing we thought we had started a company to do. But we had started something else.
However, the gap between confidence and certainty was spanned by a precarious tapestry of hope and despair. The stock market was looking more dreadful each day.
Everything that had made sense yesterday was foolish today. Nearly everyone seemed to be cowering under the weight of uncertainty. Dreamers were redefined as fools. Investors were redefined as dreamers. Gamblers were redefined as investors.
Deflated hopes turned into over inflated anger. We had no way to be certain that our strong partnership with Novation could weather such a powerful tempest of emotions. But there was one good thing about the market downturn. There was no way that any new competitors would be able to host an IPO. We hoped that this would solidify our position as the best choice in the industry. In fact, we thought we might become the only choice.
It turned out that we weren’t the only ones who saw the new market condition as an opportunity.
The huge manufacturers of healthcare equipment and supplies had been very nervous about the possibility that their dominance might be unsettled by the wealth of well-funded dotcoms. They had been so concerned about the scope of our potential financial capitalization that they had gone through the motions of trying to work with us prior to the IPO. True, GE had even invested in us, but they had turned their back on us immediately thereafter.
Now that we were weakened by a controversial merger and deflated stock value, they saw an opportunity to crush us.
We had known that J&J and GE had formed an uncomfortably tight camaraderie while they were both planning to invest in Neoforma. What we hadn’t realized was that they had maintained their communication at the highest levels long after J&J had backed out on the investment. They were discussing ways to keep Neoforma and its competitors from gaining a foothold in the industry they controlled.
Several coalitions of industry players had been formed in the last year or so to fight off the wave of upstart intermediaries. In many instances, they had been able to stop the new players in their tracks. We knew that this threat existed in healthcare too, but we believed that several factors made this unlikely.
First, the healthcare industry is riddled with very complex processes that control the pricing and distribution of medical products to an extraordinary degree. It would be difficult for manufacturers to band together on anything without triggering the wrath of insurers and government regulators.
Second, the competition between the big manufacturers is fierce. Jeff and I had seen first-hand how difficult it could be to manage the interests of a few competing manufacturers, let alone a coalition of them. We had originally formed Neoforma with the idea that manufacturers should band together to eliminate redundant processes and improve customer support. For the most part, they had reacted with extreme resistance to the idea that they should share anything with each other.
And third, the GPOs represented a powerful force in the industry. If suppliers were to band together, they would risk raising the ire of a majority of their customers.
So we had been a bit skeptical when we first heard rumors that the manufacturers were about to announce their own Internet coalition. As these rumors came to us with increasing clarity, we became very concerned.
We knew that anything they might announce would only be smoke and mirrors for years to come, no matter how much money they threw at it. But, in this shaky environment, that would be enough to do substantial damage.
Bloodlust was driving investors and the press to turn against us with the same frenzy that had initially driven them toward us.
By the time the manufacturers announced their coalition, we had already prepared our official comments: “It is a good thing for the industry that the manufacturers can establish standard practices. That will make it much easier for us to do business with them.”
The manufacturers, led by J&J and GE, were equally and ludicrously dismissive of the idea that they were competing with us. “We will be happy to work with all manufacturers, distributors, healthcare providers, GPOs and Internet companies.”
Regardless of the friendly rhetoric, most observers saw right through this veil. The manufacturers were making a run not only at us, but at the GPOs. The big GPOs had all formed some kind of partnership with Internet companies. Now that the Novation/Neoforma partnership was vulnerable and none of the other GPO/Internet partners would be able to go public, the manufacturers were struggling to loosen the binds that the GPOs had on them.
Feeling left out of this huge power play, the major distributors scrambled to form their own coalition. They made no clear statements about what they were going to build, but, within ten days, they had assembled a hundred million dollars and a press release.
Articles appeared in industry media, eagerly reporting the demise of Neoforma and the rest of the dotcom upstarts. Some analysts pointed out that these coalitions themselves were little more than press releases and that the GPOs might have some substantial influence on the success or failure of these ventures. After all, competing against one’s customers is not usually in one’s own interest. And that is exactly what these coalitions were doing, however much they tried to position themselves differently.
So there we were. The market was crashing. Our merger was threatening to fall apart. Company morale was low. The major industry players—with a combined market valuation of nearly a trillion dollars—had created two coalitions with the sole purpose of defeating us. The press was happily writing our epitaph.
All Jeff and I had wanted to do was fix a few things.
Really. I still remembered those early days, when a growing num- ber of visitors thanked us, desperately grateful for the information we were providing them. I remembered the time that a doctor in a Third World country, after exhausting all conventional means, had found and purchased a previously inaccessible device on the Neoforma website. We had worked with the manufacturer to rush the device to the doctor, who had immediately implanted it in a patient. Had the patient received the treatment a day later, the patient would have died.
That’s the kind of thing we thought we had started a company to do. But we had started something else.
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