<PAGE>
FILING PURSUANT TO RULE 425
Filer: MedicaLogic, Inc.
Subject Company: MedicaLogic, Inc.
No. 000-28285
No. 333-32390
THIS COMMUNICATION IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULES 165 AND 425 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED AND THE SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS OF
MEDICALOGIC. INVESTORS ARE URGED TO READ THE VARIOUS FILINGS OF MEDICALOGIC
AND MEDSCAPE THAT HAVE BEEN MADE WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING MEDICALOGIC'S REGISTRATION STATEMENT ON FORM S-4, WITH RESPECT TO
THE MERGERS REFERRED TO IN THE FOLLOWING PRESENTATION PRIOR TO THE VOTE OF THE
SHAREHOLDERS OF THE RESPECTIVE COMPANIES AND THE ISSUANCE OF THE COMMON STOCK
OF MEDICALOGIC IN THE MERGERS. THESE FILED DOCUMENTS ARE AVAILABLE TO THE
PUBLIC FROM COMMERCIAL RETRIEVAL SERVICES AND FOR NO CHARGE AT THE WEB SITE
MAINTAINED BY THE SECURITIES AND EXCHANGE COMMISSION AT http://www.sec.gov.
OPENER -
Good afternoon and welcome to MedicaLogic's first quarter earnings announcement.
I am Greg Mann, MedicaLogic Investor Relations. With me today are Dr. Mark
Leavitt, Chairman and CEO, David Moffenbeier, President, and Frank Spina, Senior
Vice President and CFO.
The purpose of today's call is to discuss MedicaLogic's first quarter results.
Dr. Leavitt will begin with an overview of the quarter's accomplishments and
outline MedicaLogic's ongoing strategic initiatives. Frank will then comment on
our financial performance for the quarter. Dave will conclude with an
examination of our commercial programs and an update on the proposed merger with
Medscape and acquisition of Total eMed. Today's prepared remarks will last
approximately 20 minutes, the balance of the call will be devoted to answering
your questions.
If you have not yet seen a copy of our earnings press release, please visit our
website at www.MedicaLogic.com, where you can also link to the live audio
webcast of today's call.
Statements made in the course of this conference call and webcast may contain
forward-looking statements within the meaning of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The forward-looking
statements are based on management's current expectations or beliefs as well as
on a number of assumptions about future events, and are subject to factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. The listener is cautioned not to
put undue reliance on forward-looking statements, which are not a guarantee of
future performance and are subject to a number of uncertainties and other
factors, many outside MedicaLogic's control. More information about potential
factors that could affect MedicaLogic's business and financial results including
information on the pending mergers with Medscape and Total eMed is included in
MedicaLogic's Annual Report on Form 10-K and Registration Statement on Form S-4
that are on file with the Securities and Exchange Commission.
So, with that preamble behind us, let's get started. Dr. Leavitt, I'll pass it
over to you.
<PAGE>
DR. LEAVITT
Good afternoon and thank you for joining us. The first quarter of 2000 has been
one of really notable achievements for MedicaLogic. Following our successful
Initial Public Offering in December 1999, our priorities during this period have
been to deliver product offerings as planned, to drive physician adoption, and
to position the company to be a leader in the eHealthcare industry. I'm very
pleased by our results and would like to highlight some of them for you right
now:
- - First, we experienced continued expansion of our customer base in large
healthcare enterprises, through sales and installations of our Online
Health Record solution for healthcare organizations, Logician Enterprise.
We added several new healthcare systems as well as seeing a healthy
additional rollout to existing customers. Frank and Dave will provide more
details on this later.
- - Second, we launched our consumer site for access to the Online Health
Record, called 98point6.com, delivering on our mission to improve
communications between physicians and patients. We believe this is the
first website of its kind, offering health consumers the ability to access
their own physician-created medical records. I am especially proud of the
fact that it was delivered and launched on time.
- - Third, we released significant upgrades to Logician Internet, our online
health record tool for individual physicians. One of the most important new
features, Practice Profiles, helps doctors manage their patient populations
and their practices more effectively. Logician Internet users can now
instantly create reports that profile the conditions they treat, the
medications they prescribe, as well as their own coding and productivity.
The power of this capability was dramatically demonstrated during FDA drug
alerts and recalls that recently occurred. Our physician customers - on
either Logician Enterprise or Logician Internet -- had the ability to
instantly locate all their patients who were affected by the drug safety
notices, delivering demonstrable progress in our mission to provide
products that save time, costs, and even lives.
- - During the quarter, we initiated marketing promotion of Logician Internet
and booked our first subscription sales of this product. These programs
included web links from our partner, Medscape, a test of targeted direct
mailing of CD's, as well as the launch of what we call viral marketing
activities. Dave Moffenbeier will give you more details on these later, but
I can tell you that we're very pleased by the response this has produced:
following the launch of these activities in the middle of the quarter, we
saw the addition of 2,800 new Logician Internet registered users in just 6
weeks.
- - We continue to build our roster of business partners and alliances. The
agreements reached during this past quarter include PlanetRx.com for
electronic prescriptions, and Laboratory Corporation of America (LabCorp)
for delivery of laboratory results, these are both key elements of clinical
eCommerce.
- - Finally, I am pleased to say that we are on schedule for completing the
process of merging with Medscape and acquiring Total eMed. Dave will give
more details on these transactions, but first, I'd like Frank to provide
you a review of our financial performance this quarter. Frank...
<PAGE>
FRANK
Thank you, Mark, and good afternoon. I am pleased to report that MedicaLogic's
financial results this quarter were excellent, as we exceeded expectations in
revenues, kept expenses under target, and saw a significant increase in the use
of our products.
Looking at the top line, revenues for the quarter exceeded consensus
expectations, totaling $5.6 million, representing an 87% increase over the year
ago quarter. Revenues were driven by higher than expected license, service, and
support sales, primarily from the sale of licenses for our enterprise product,
which totaled $3.4 million. During the period, we not only added new customers
such as Oregon Health Sciences University to our growing list of Logician
partners, but had existing customers acquire additional licenses. With these
results, we would expect revenues from licensing in future quarters to continue
at a stronger than anticipated pace, though down somewhat from the fine
performance in the first quarter, as we expect to see growth of enterprise
subscription sales.
Turning to subscription and ecommerce revenues, we achieved over $250,000 in the
quarter. This revenue was derived primarily from our enterprise product, as we
saw the initial sales of enterprise to new customers who chose the
subscription-based pricing alternative. Subscription revenues from our
internet-based product are just now beginning to kick in, as we saw a
significant number of new users, over 2800, launch in the last six weeks of the
quarter. Many of these clinicians are now using the product as part of an
initial free trial. We expect subscription revenues from both of our product
platforms to continue to grow significantly, and this growth should be fueled
further by the expected completion of our mergers.
On another key metric, we reached nearly 12,000 clinicians using our products,
with over 4,000 registered users of our Internet-based product. While we are
excited by the increases in the Internet-based product, we are also encouraged
by the nearly 13% increase of Enterprise clinician users in the period.
Turning to expenses, total operating expenses for the period came in at $22.1
million. While up significantly from the year ago quarter, this represents less
than a 10% growth over the fourth quarter of 1999, and is lower than consensus
expectations. Our primary expense drivers are sales and marketing expenses and
the cost of operations, which represent nearly 60% of all operating expenses. We
expect operating expenses to continue to grow throughout the year to support our
growing business base. Most notably, we will see significant growth in sales and
marketing and in the cost of Operations.
Our net loss per share of $0.45 is an improvement on the $0.48 of a year ago,
and again came in better than consensus expectations. We would expect losses to
continue throughout the balance of the year, and will be impacted by significant
goodwill charges subsequent to the expected completion of the pending mergers.
<PAGE>
Looking at the balance sheet, we see clear strength. With an asset base of over
$154 million, consisting primarily of cash and investments totaling nearly $118
million, and essentially no debt, the company is positioned to execute on its
strategies. In the period, cash was consumed almost equally by operations and
certain investing activities, both approximating $10 million. We purchased over
$6 million in capital assets, and consumed over $3 million in cash in connection
with the pending merger and acquisition transactions. While we expect to
effectively manage the cash use in both operations and capital asset purchases,
we will have significant additional cash expenditures relating to completion of
merger and acquisition activities in the second quarter.
Our strong financial performance this quarter establishes a solid foundation as
we continue down the path toward profitability and the execution of our business
plan. We've demonstrated our commitment to careful management of cash resources
as we execute our marketing and product development programs. I can assure you
that expense management will remain a top priority in the next quarters as we
leverage the efficiencies created by our pending mergers.
I will now turn the call over to Dave Moffenbeier.
<PAGE>
DAVE
Thank you, Frank.
My remarks will cover two issues. First, I want to provide you with a picture of
our current marketing programs and expand on what Mark and Frank have said about
the development of our Logician Enterprise and Logician Internet products. I'll
then finish with comments on the Medscape and Total eMed deals and discuss the
synergies of the combinations.
As Frank noted, first quarter financial performance was marked by the strength
of Logician Enterprise. With over $3 million in new license sales, solid
performance by our service and support organizations, and the initial
subscription sales of Logician Enterprise, this product continues to demonstrate
market strength. During the quarter, we announced the addition of several major
institutions to our growing roster of customers. They include the Oregon Health
Sciences University here in Portland and the largest integrated healthcare
delivery network in New York, which includes Columbia Presbyterian and the
Cornell Medical College.
The growth of our EXISTING Logician Enterprise customer base has boosted our
confidence that we can continue to grow this revenue stream moving forward. We
view this as important indicator of our product's competitiveness, and believe
that our experience and expertise in clinical information management and
implementation lead the industry. With our high quality product, we've been
extremely successful in retaining and expanding our customer relationships over
time.
Mark and Frank both referred to the impressive response we had this quarter to
the initial marketing campaigns for our Internet-based product. We launched this
product late in 1999, and began our initial viral marketing efforts in the
middle of the first quarter. Since then, we have seen significant acceleration
in the clinician use of the product, so let me lay out the programs for you
here.
Our target customer is the clinician in the ambulatory environment.
Logician Internet offers the clinician many important benefits, including
improved care for patients, reduced risks of medical error, and enhanced
documentation, and financial returns for the practice. To get this story
out, we rely principally on word-of-mouth recommendations. We've designed a
viral marketing program with incentives to facilitate this process.
We encourage peer referrals. For every clinician referred, the referring
clinician receives click rewards which, like credit card points or frequent
flyer miles, can be redeemed for a variety of gifts and services. This has
proved to be a highly cost-effective marketing tool for us. In fact we know
of one example, where one physician has referred over 150 of his
colleagues.
<PAGE>
We sponsor a "Champion" group of enthusiastic, experienced and successful
Logician users. These champions are available to share their impressions of
Logician Internet with friends and colleagues. In exchange for a standard
honorarium, they demonstrate the product in professional settings like
Grand Rounds and local medical society meetings.
We have established a Web-based training program. Using WebEx software,
clinicians can go online and, from the convenience of their office or home,
receive product training from a MedicaLogic instructor.
Following the announcement of our proposed merger with Medscape, we placed
a button on their home page and linked it to our Logician Internet download
site. Our ability to distribute Logician Internet through Medscape has been
a major positive. Pending the successful merger with Medscape, we plan to
explore similar means to target the 280,000 physicians registered for
Medscape's Internet-based services reported as of last quarter.
In late February we also launched our first direct mail campaign,
distributing the Logician Internet software on CD-Roms to clinicians of
various specialties. The response has been very strong.
We also began programs where we donate the Internet product. Although these
initiatives will not immediately contribute to our revenues, we believe the
value of adding users, records and potential future customers more than
offsets the relatively minor cost.
I recognize that there are many questions out there about the status of our
proposed merger with Medscape and acquisition of Total eMed. So I'd like to
begin with an update, talk a bit about the value and synergies that we see in
the new company.
MedicaLogic remains committed to completing its agreements with Medscape and
Total eMed, and we are on track to close the deals as planned. MedicaLogic
shareholders will complete the voting process by May 15. Pending shareholder
approval and the customary government and regulatory reviews, the deals would be
completed by June.
In preparation, the three companies have formed an integration management team
structure. The various teams meet on a regular basis, and have been charged with
identifying the range of synergies resulting from the new organization. In
addition, we have a senior management meeting each week to review the progress
and address integration issues that may arise.
We're taking every possible step to maximize our new efficiencies and accelerate
the execution of the business plan. Integration issues are being addressed at
all levels, including products, web presence, management, technology, marketing,
branding, planning and budgeting. The integration will be optimized to focus the
new organization
<PAGE>
on executing the core of our strategy, with a careful eye to the proper
management of cost. We are proactively investing the time and energy necessary
to do this right. Once the deals are closed, we expect to hit the ground running
fast. It is our objective to move to profitability sooner than the consensus
estimates out there today. We see opportunities to leverage the new business and
grow the top line much faster, and be diligent in expense management, while
doing the things necessary to succeed in our long term plan.
The rationale for the merger and acquisition are strong and sound. Regarding
Medscape, the primary driver is simple: MedicaLogic has depth with its customer
base. Medscape has reach. Take the two together and the fit is remarkable. Our
users spend 8 hours a day, 5 days a week generating the notes and healthcare
records their practice demands. Medscape, on the other hand, touches a huge
NUMBER of medical professionals on a regular recurring basis. As of the fourth
quarter, more than1.7 million users. Included in this number are 280,000
physicians who regularly use their computer and the Internet to access
Medscape's authoritative and up to the minute medical information. Depth and
reach - a winning combination.
As to Total eMed, we see this as a core element of our strategy to remove
barriers to product adoption. As you know, a large percentage of physicians
dictate. As such, we needed a partner, focused on the ambulatory markets, with
web-based voice capture and storage capability. Total eMed meets these
requirements. With this, we can speed up both adoption of our internet product
and capture and maintain structured data. In addition, we believe it can speed
up the roll out of our Enterprise product. In discussing this potential with a
number of our existing customers, I am seeing strong initial interest, as we can
start converting more information to on line records. This is just an additional
affirmation to the synergy that can be brought about by this combination.
I will now turn the call back to Mark for his closing comments.
<PAGE>
MARK - CLOSING
Thank you, Dave and Frank. In closing, I'd like to make a few remarks on the
market environment. As a management team, we focus on running our company and
executing our strategy, and we try not to be distracted by day-to-day variations
in stock prices, especially with the volatility of the eHealthcare stock
universe. However, it's clear that investor sentiment has shifted in this sector
and we believe the message is that investors are now waiting for eHealthcare
companies to demonstrate a durable, defensible, and profitable business model,
and they aren't willing to wait as long for those profits as they were before.
We have received that message loudly and clearly and are responding decisively.
I'd like to point out the following fundamentals though that the following
fundamentals HAVE NOT CHANGED:
- - Healthcare remains the largest market segment in the U.S. economy, and the
most inefficient.
- - Awareness of the consequences of medical errors is spreading
- - Cost pressures continue to weigh heavily on patients, payors and providers
- - Consumer expectations of healthcare continue to grow and collide with those
limits on reimbursement.
- - The absolute requirement that for every physician-patient encounter, the
clinical information must be locate and reviewed, and a new note created,
has not and will not change. It is at the core of medical practice.
- - The Online Health Record is the hub of eHealthcare
We will continue to pursue our mission, using our resources even more prudently.
Thank you for listening, and I would now like to open the conference call for
questions.
Operator, if you would please review the instructions for Q&A.
