Healtheon/WebMD Gets Funding Vote of Confidence
KNIGHT-RIDDER / TRIBUNE BUSINESS NEWS - April 10, 2000 14:06
Apr. 8 (San Jose Mercury News/KRTBN)--Healtheon/WebMD got a public vote of confidence Friday when Jim Clark, the company's co-founder, and John Doerr, a director and early funder of the company, announced they would use their own funds to buy up to $220 million of the Internet health care company's flagging stock.
"They saw the stock price drop over last several weeks and it represented a compelling value," said John Runningen, vice president of investor relations for Healtheon/WebMD.
Clark and his family already own about 11.7 million shares, or about 6.5 percent of the company. Doerr's venture capital firm, Kleiner Perkins Caufield & Byers, owns about 8.1 million shares, or 4.5 percent.
The announcement of the intent to purchase shares is not binding. Still, investors took the news as a good sign, sending shares of Healtheon up $7.50 to $29.19 in Nasdaq trading Friday, a 35 percent gain. But the price is a far cry from the stock's all-time high of $126.19.
Analysts said the purchase might also boost employee morale, which has slumped along with the stock price. At Internet firms, where most people hold stock and stock options, a depressed stock price can lead to mass defections and higher recruiting hurdles.
"It could be viewed as a way to retain people who may be somewhat disillusioned with the fortune they thought they had," said Bruce Hochstadt, an analyst at Thomas Weisel Partners in San Francisco.
Healtheon -- the leading Web site linking doctors, insurers and patients -- has lost more than half its market value in the last month, partly in reaction to the announcement of a rival Web venture formed last week by six of the country's largest health insurers. Their plan turns some of Healtheon's biggest potential customers into competitors.
Despite that threat, Healtheon said it expected to report revenue of $62 million for the first quarter. The company also expects to report a quarterly loss of less than $90 million before non-cash charges.
That would mean a loss of about 50 cents a share, based on the 180 million shares outstanding as of March 1. According to First Call/Thomson Financial, analysts had expected the company to lose 47 cents.
Healtheon signed more than 100 partnerships and acquisitions in 18 months to build its online network, aiming to profit from patient and doctor subscriptions and from fees for processing health insurance transactions.
"The stock has been getting hit as investors thought the company was doing too much too fast, in terms of acquisitions and strategic deals," said Daren Marhula, an analyst with U.S. Bancorp Piper Jaffray.
Within a span of three days in February, the firm bought its biggest challenger in providing Web-based health care services, Medical Manager Corp., for $5.4 billion in stock. It also bought a leading consumer health care Web site, OnHealth Network Corp., for $312 million. Healtheon/WebMD itself is the product of a merger last year between Clark's Santa Clara-based Healtheon and Atlanta-based WebMD.
Clark, who started Silicon Graphics Inc. and Netscape Communications Corp., joined with Doerr, a partner at Kleiner Perkins, to help form Healtheon in 1996. The start-up set out to revolutionize the communication inefficiencies in the health care system.
But the company has faced significant inertia and privacy concerns from doctors, patients and insurers.
Their joint announcement Friday amounted to a public endorsement of the company's strategy and potential. "I am more confident than ever in Healtheon/WebMD's vision of connecting physicians, payers and consumers via the Internet," Clark said in a statement.
People who bought shares Friday might be inferring that Clark and Doerr have access to good information about Healtheon's prospects, said Hochstadt.
"These are two wildly successful, legendary investors -- two people who have a proven track record -- and this adds to the cachet and allure of the story," Hochstadt said.
Bloomberg News contributed to this report.
By Joshua L. Kwan
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