iSoft falls on hard times

By Eric Wicklund
10:27 AM

A little more than a year ago, iSOFT Chairman and CEO Gary Cohen was looking to transfer the Australian health information technology company’s booming international business to American healthcare providers looking for an economical way to adopt electronic medical records.

Now Cohen, who co-founded the company with his brother Brian, is out of a job, and the company has seen its revenues decline 20 percent and its stock value drop 81 percent in the past year – and 74 percent in just the last six months.

Industry leaders say the company’s struggles and the departure of its co-founder and a top shareholder (he holds about 9 million shares of stock) may make the company ripe for a takeover.

Cohen, who helped iSOFT spin off from its parent company IBA Health in early 2009, was replaced as chairman of the company in June, then resigned as CEO following the Aug. 31 posting of 2010 fiscal year results, which ended June 30. He will be replaced on a temporary basis by Chief Operating Officer Andrea Fiumicelli, and company officials say he will assist the board in evaluating its strategic options as the company undertakes a review of its business operations.

“His experience and knowledge of the specialized sector internationally will be invaluable as we begin the search for a new chief executive who will drive the company forward in this next phase of its evolution,” said Robert Moran, who replaced Cohen as chairman.

Moran pointed out the company had seen a profit of $35 million Australian in fiscal year 2009, compared to a $34.7 million profit the previous year, before reporting a statutory loss of $382.9 million Australian this past year, with total revenue down 20 percent to $431 million Australian. He called the results “disappointing,” and blamed a number of factors, including the sour global economy, currency translation problems associated with the value of the Australian dollar and delays in implementing the company’s Lorenzo integration engine for the UK National Health Service’s National Programme for IT.

“This financial result is a disappointing one that does not reflect the underlying strength and technical sophistication of iSOFT's products, the company's global footprint or the quality and dedication of its staff,” Moran said in a statement accompanying the company’s financial posting. “A difficult economic environment (particularly in the public sector in a number of the company's markets), adverse currency impact, delays to the implementation of the National Programme for IT (NPfIT) in the UK and an increased cost structure all contributed to this result.”

The company derives almost half of its revenue from Britain and another 24 percent from the rest of Europe. In Britain, iSOFT reported a loss of $31.9 million Australian during the past year as a result of delays in the nation’s national e-health project, and said the nation’s investment in the company’s products had dropped by 33 percent. Company officials blamed “political uncertainty” for its problems in the UK.

Cohen had traveled to the United States in April 2009 to market iSOFT’s Lorenzo product to American investors at the HIMSS09 conference and exhibition in Chicago. At the time, he said, the company’s integration software is “a transformational product that is different than that which exists in the U.S. today.”

In August, the company acquired Boston-based BridgeForward, Inc., a developer of application integration software that would help the company market Lorenzo and Health Studio in North America.

iSOFT officials have reportedly confirmed ongoing support from the company’s largest shareholder, Oceania Capital Partners, which owns 24 percent of the company and includes Moran as a managing director.

The company is looking to save $50 million over the coming year and plans to lay off 800 employees, or 17 percent of its total workforce of approximately 4,500 – the third round of layoffs dating back to July 2009.
Australian newspapers are reporting that company officials say their core business remains healthy. In addition, the Australian Financial Review has reported that Oracle, IBM and Microsoft have been named as potential acquirers of the company should it go on the market.

According to Moran, a review of the company will include “a focus on key geographies with the best growth prospects,” as well as a streamlining of the company’s product portfolio, the promotion of new products to raise revenue and a “reorientation of business development.”

Cohen, who became chairman in 1999 after spending two years as chief executive, has seen his own stake in the company fallen significantly as well. According to published reports, the value of his stake has dropped $51 million to $8.3 million in the past year, and he was forced to sell $2.3 million worth of shares to meet a margin call.

“Gary's leadership, vision and drive have transformed the company into a multinational organization and a very significant participant in the healthcare IT segment globally,” Moran said in a press release announcing Cohen’s departure. “I would personally like to thank him for his extraordinary dedication and achievements over the past 10 years as chairman and more recently as chief executive.”