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Old 11th January 2012, 09:19 AM
Pharma Newshound Pharma Newshound is offline
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Default Dip in Drug Ad Spending Leads to WebMD Woes

Source: WSJ

WebMD CEO Resigns, Sale Talks Terminated

WebMD Health Corp. said Chief Executive Wayne T. Gattinella resigned, and the health-website operator called off a search for a buyer as it braces for weaker financial results this year.

The New York-based company is feeling pressure as drug makers curb spending on marketing amid generic competition for major products. WebMD had a bumpy ride last year, lowering its financial expectations a couple of times as it dealt with customer-related delays and cancellations.

The challenges are continuing into the new year. On Tuesday, the company said 2012 revenue may be 2% to 8% below last year's revenue. Analysts surveyed by Thomson Reuters had expected, on average, a slight increase. The company also expects "significantly lower" net income this year because of higher expenses.

Tuesday afternoon, shares of WedMD were down $9.99, or 27%, to $26.74 on the Nasdaq.

A key issue, the company said, is pharmaceutical companies holding back on spending as they deal with expiring drug patents. WebMD, in addition to its well-known public site, has private portals that enable employers and health plans to provide members with personalized health and benefit information.

WedMD could get some help over the long haul as drug makers bring new branded products to market. The company anticipates approval and launch of new drugs in the second half of 2012. But marketing commitments from those products aren't likely to have a big impact on sales this year, it said.

Amid these pressures, the company said it terminated talks with potential buyers and a process to review a potential sale. WebMD said it has talked to "several potential acquirers" after starting to review strategic alternatives late last year.

A company spokeswoman declined to give a reason for Mr. Gattinella's resignation, saying WebMD had no comment beyond Tuesday's release. The 59-year-old has been the CEO since WebMD went public in 2005, and he previously served as president of WebMD's former parent company. He also stepped down as president and a member of WebMD's board.

Anthony Vuolo, who serves as chief operating officer and chief financial officer, will take on the role as interim CEO, while the board conducts a search for a permanent successor, the company said. The 54-year-old will be supported by a newly formed management committee, which will assume some of his operating chief duties.

Meanwhile, WedMD said it will continue investing in areas deemed important for long-term growth, such as new content and new advertiser products and services. It expects costs to rise as much as 5% to 8% for 2012 from last year.

The company, however, is under pressure in the near term. It said that fourth-quarter sales activity for advertising and sponsorship products was less than anticipated, reflecting the challenging environment for certain drug companies "and a more competitive landscape in the consumer products markets."

Cowen and Co. analysts said the competitive pressures look like a new issue.

"While we believe WebMD remains the dominant health information brand online, pharma advertisers always have the option to shift advertising to other online properties, such as Google Search, to offline advertising, or to simply reduce advertising expenditures," Cowen said.

WebMD said it expects 2011 revenue and earnings to be between the low end and the midpoint of its guidance range. In November, WebMD projected 2011 revenue between $555 million and $565 million, and income from continuing operations between $60 million and $65 million.

WebMD is scheduled to report fourth-quarter and full-year results on Feb. 23 and plans to provide additional guidance at that time.

Write to Jon Kamp at
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