We’ve heard from so many skeptics and cynics over the past five years that their views have very little impact on us. We spend most of our time focused on what our customers think, not what the naysayer thinks. Our customers are responsible for what we’ve built and delivered, and they continue to give us great insight and support for future development because they trust that we have their needs in mind. Six years ago, there was a lot of hype about e-commerce, but Neoforma is still here today, making a difference in the healthcare supply chain. I can’t say the same thing for many of our past competitors. But don’t take my word for it, ask our customers who are living and breathing our solutions every day, who have told us that they never want to return to the old way of doing things. The results of our extensive value documentation efforts also speak for themselves – more than 280 hospitals documented $100 million in value in 2004 from using our solutions.

We are willing to explore any opportunity that will ultimately drive the best value for our stakeholders. We’re early in the process, so it’s hard to predict what the outcome will be. Possible scenarios include selling Neoforma to a larger company, merging with another company of similar size and/or strategic intent, going private and/or implementing a stock buy back program, among other alternatives. We know there is interest out there in acquiring or merging with Neoforma from a variety of industry segments, but let me reiterate that we’re exploring all strategic alternatives with many kinds of companies in order to maximize stockholder return.

I count at least five drivers to our success:

At the time we did the deal, people thought we were crazy. They said it was too expensive, and that GPOs would eventually fade away. Almost five years later, the relationship has worked out extremely well for both us. For Neoforma it has given a small company the stability of an industry leader and for Novation and their member hospitals, it has allowed them to take millions of dollars of cost out of their supply chain. And frankly, we’re just getting started. I believe the value will grow exponentially in the coming years.

It was both wise and necessary. We’ve certainly been pleased with the results of the partnership. The people, culture and values of VHA, UHC and Novation fit well with what we’re trying to accomplish, which is to make a difference in healthcare. Prior to that decision in the spring of 2000, we were adding hospitals at a relatively slow rate. In the first 90 days after we partnered with Novation, we signed 200 new hospital customers.

We believed all along, you had to have the buyers first and if you could accomplish that, the suppliers would look for a way to work with you. It also allowed us to meet with these customers and develop a very focused product roadmap based on a consistent view of the supply chain. This focus was a laser aimed right at their greatest pain points. That’s allowed rapid deployment of increasing functionality, which in turn brings more adoption.

If we hadn’t done the Novation deal, I wouldn’t be here speaking to you about the company, because we most likely wouldn’t exist today. It is a great partnership, with a view toward the long-term success of making the healthcare supply chain more efficient.

We love the folks at Consorta because they share our provider orientation, and our passion for making the healthcare supply chain more efficient. This is a very important relationship for us because Consorta was able to see past the VHA/UHC ownership issue and really place a value of what we are able to help them accomplish. We called on Consorta for over three years before we got a single piece of business, but throughout that process we have built a trusting relationship that we think will continue to grow in the years ahead. The one remaining question investors have of our company is how fast can we grow outside of Novation and this relationship is a good start to accelerating that growth.

We believe that the combination of technology, information and services – delivered to the customer quickly and with minimal business disruption – is the only way to achieve sustainable returns on dollars invested in ‘software.’ Further, we think that for healthcare, it needs to be a vertical solution, tailored to the unique requirements of this huge industry.

Healthcare is so unique, both in good ways and bad, that many seemingly brilliant technologists just couldn’t build a sustainable business because they didn’t understand these nuances. Most of our employees have spent their careers in healthcare. It’s what we know.

We get asked if we’re ‘only going to stay in healthcare’ or if ‘we’re going to be a software company.’ The answer is that we intend to stay focused on the healthcare supply chain. The reality is that healthcare’s supply chain is very unique, very big, and very ripe for improvement. Our solutions address critical needs in the industry, and while we still have to execute – price correctly, listen to customers, pay attention to quality, etc. – we are very excited about the opportunity in front of us. We have to develop software, yes, but we also have to figure out how to make it usable for our customers, wrap services around it to accelerate adoption of and reliance on our solutions, and infuse data and information into the solutions.

Regarding mergers and acquisitions, some of the best decisions we’ve made have been to avoid doing deals for deals sake. We’ve really been fortunate at dodging some bullets in this regard. On the other hand, when the opportunity presents itself for what I’ll call a ‘tuck-under’ acquisition that fits our mission of healthcare supply chain, we’ll jump on it. HPIS and Revelocity are two examples of this. You should expect to see us continue this, but always with an uncompromising focus on healthcare.

We initiated a partnership agreement with GHX in 2001, and were the first to do so. Our hospital customers felt that getting access to GHX’s key founding suppliers was important so we established the Integrated Solution agreement and licensed some of our technology to GHX to enable those connections. Currently approximately 160 of our hospital customers take advantage of this Integrated Solution.

While a merger or acquisition hasn’t occurred, it is a fascinating intellectual conversation that the vast majority of their revenue comes from suppliers and most of ours comes from the buyers. So as an industry, we’re seeing relatively equal funding from the buyer and seller sides of the supply chain. I think that’s good and it makes sense as we believe the value accrues to both sides almost equally. It would probably be good for the industry to have the two come together as it would help set standards and it would eliminate duplicative investments we’re both making in infrastructure. But the reality is we both come to the party with different priorities and interests.

There’s no doubt that this is a challenging time to be a public company, but as we’ve all seen, things change, often very quickly.

We feel very good about our competitive position. We like the transparency and visibility that being public affords, even when it is difficult. And, we like the clarity we get from being accountable to our customers and stockholders for results. It has driven us to a significant lead in volume and customers, and we believe it will continue to be on balance a significant asset going forward.

While GHX is a private company that touts itself as a not-for-profit, it’s crystal clear that their 16 equity-owning suppliers are very much public and definitely for profit, generating a little over $1.5 billion in gross profit per year! Several of their supplier owners individually make more money than all of VHA and UHC hospitals do combined.

As it relates to how we will compete, we will focus on our customers, on what they want. We’ll sell the way our customers want to buy. We will operate in a highly focused fashion. We’ll deliver on our promises. You may believe it’s more difficult to run a business that’s public. But, since you brought up GHX, how does even Mike Mahoney, who is a very talented guy, run a business with 15 board members (only four of which are independent) and seven observers? Whose product idea gets built first? With that many parties around the table it would remind me of an industry trade association. Frankly, being public has got to be a lot easier than that!

Until we know what is going to happen, I can’t really answer that question. I think it depends on if we get acquired and if we do, by whom. Right now, we are now focused on selecting the right strategic option that is in the best interests of our stockholders, customers and employees. We want to position Neoforma to achieve our original goal of changing the healthcare supply chain for the better.

I prefer to think of this as just the sunrise of a new day, but regardless of the metaphor, there is a very clear answer in my mind. And it was reinforced for me recently at an all-employee meeting we held. Neoforma’s greatest accomplishment is the culture our people have created – a culture built upon a passion and commitment to improve healthcare and serve our customers. The people in this company are exceptional, and I am humbled by the work they do everyday and am proud to be working with them.

Neoforma will always be known as the trusted provider of supply chain management solutions for healthcare. We’ve demonstrated the unique value that a vertically focused supply chain management solutions provider can deliver. Our customers – both hospitals and their suppliers – will point to Neoforma’s solutions as being core in driving operational efficiencies. Our portfolio of solutions will cover the full healthcare supply chain spectrum, from sourcing to use.

While our product mix looks different than it did at the outset, our goal has always been to make healthcare more efficient. That hasn’t changed. The level of talent we’ve been able to attract has gone beyond our expectations, as well as our employees’ passion for and commitment to improving healthcare and delivering for our customers. I couldn’t be more proud of our people.

The rapid consolidation of the industry – leaving only us and GHX as the two ‘pure play’ technology companies in the segment – was more rapid and unforgiving than we expected. A lot has changed, but the market need is still great.

The misconception that Neoforma is essentially a part of Novation is the most common. When we sit down with CEOs and supply chain managers to help them understand how our solutions work, how the customer’s data are protected, and the impact our solutions can have on their operations, this misconception is quickly cleared up.

We’re working to improve the market’s understanding of Neoforma. We launched an initiative in March 2003 aimed at clearly articulating who we are, what we do and how what we do benefits our customers, and have built upon these activities since in all of our market outreach.

We’ve invested in driving the industry dialogue about the opportunities for improvement that exist in the healthcare supply chain. This started with our sponsorship of the now widely cited (by customers and competitors alike) ‘Value of eCommerce in Healthcare’ study, and continues with a number of educational, value documentation and case studies designed to answer the two most common questions we get: What’s it worth? And how does it work? In fact, we helped 280 VHA and UHC customers document $100 million in value from using our solutions in 2004.

We made the decisions to divest of these businesses, including the one that our company was founded around, in order to drive an intense focus on our core supply chain management solutions business. Focus has been a very important contributor to our success, and has been essential in delivering value to our customers. We’ll continue to evaluate opportunities, through in-house development, strategic partnerships and even acquisitions, to solve business problems that our customers ask us to solve, and are willing to pay us to fix.

We have successfully contracted with more than 15% of the hospitals in the U.S. and we supported more than $10 billion in healthcare purchasing last year.

The vast majority of that loss involves non-cash charges that have little to do with our operating results, which have been cash-flow positive since last year. Due to accounting treatment, we are amortizing the stock that was awarded to VHA and UHC at a price of $51/share. This is a non-cash charge that runs through our income statement each quarter, contributing to our losses. The big net loss number is something the press likes to tout, but is not important to our business and our customers. The majority of these non-cash amortization charges go away in mid 2005.