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WebMD races to gain edge
February 1, 2000: 5:06 p.m. ET

Online health company aggressively expands with alliances, cash infusion
By Staff Writer Martha Slud
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NEW YORK (CNNfn) - In an industry already known for its frenetic speed as companies rush to gain an edge over their rivals, Internet company Healtheon/WebMD Corp. is operating at an especially dizzying pace.
    Just last week, the online health care company agreed to pay $2.5 billion for Quintiles Transnational Corp.'s (QTRN: Research, Estimates) claims-processing business; struck a strategic alliance for electronic transactions with rival IDX Systems Corp. (IDXC: Research, Estimates) and its subsidiary ChannelHealth; inked a $100 million Web development deal with medical device maker Medtronic Inc. (MDT: Research, Estimates); launched a sports and fitness Web site with rehabilitation services provider HealthSouth Corp. (HRC: Research, Estimates); and announced a nearly $1 billion private placement by Janus Capital Corp.'s mutual funds.
    Healtheon/WebMD (HLTH: Research, Estimates), formed through the merger last year of online medical billing and administration network Healtheon and doctor- and consumer-oriented content site WebMD, is rapidly trying to establish itself as the jack-of-all-trades in online health by forging alliances with companies ranging from health maintenance organizations looking to streamline their operations to traditional media companies seeking to capitalize on consumers' interest in researching health topics online.
    Other recent pacts include a wide-ranging alliance in December with News Corp. (NWS: Research, Estimates), which will give the media company a 10.8 percent stake in the online firm, and a five-year pact with No. 2 U.S. drugstore chain CVS Corp. (CVS: Research, Estimates) that will make the company's exclusive online pharmacy. ( has a content arrangement with Healtheon/WebMD and a small equity stake in the company.)
    The company's strategy is "to execute all of these deals and to keep partnering," CEO Jeff Arnold said in an interview Tuesday at the U.S. Bancorp Piper Jaffray health care conference in New York.

    Arnold, who previously headed the privately held startup WebMD, said the company wants to sew up deals with all of the major health care players - pacts that its competitors will not be able to duplicate - so that the company can fill out what it calls the "medical mall."
    "We don't really have a choice," he said. "We're the people that they (deal partners) are calling first."
    Wall Street clearly likes the company's latest moves, sending Healtheon shares soaring about 70 percent in January.
    All of these recent deals "validate Healtheon as the premier Internet play in healthcare," said Christopher Russ, an Internet health care analyst at First Union Securities, who has a "buy" rating on the company's stock. "Healtheon's strategy is multifaceted. I'd say first and foremost they are trying to build a business-to-business transaction processing network ... they are also trying to create the No. 1 consumer site for healthcare."
A burgeoning sector

    Health is one of the most rapidly growing categories on the Internet, and already there are scores of Web sites that offer health information, online bill payment, electronic medical records and disease management, as well as virtual pharmacies that sell prescription drugs.
    Healtheon, created by Netscape and Silicon Graphics founder Jim Clark, was one of the first companies to carve out a place in this burgeoning "e-health" arena and the first major company in the sector to go public, raising $40 million in a February 1999 initial public offering. The merged Healtheon/WebMD has high-profile backers including Microsoft Corp., (MSFT: Research, Estimates), which is underwriting 200,000 physician subscriptions to the online service.
    Healtheon/WebMD raised eyebrows on Wall Street last week after announcing its deal with Janus. Under the pact, Janus funds will buy $930 million in newly issued Healtheon stock, raising its stake in the online firm to 12 percent, from 3 percent. The companies completed the deal without the aid of investment bankers, giving Healtheon a quick injection of cash and allowing Janus to get a modest discount on its purchase without having to compete with other institutional investors.
    "Our biggest concern is our time," Arnold said. "Janus eliminated us from having to go on a road show" to sell institutional investors shares in a follow-on offering.
    The cash will help Healtheon/WebMD pay for its acquisition of Quintiles' Envoy electronic claims unit. Under the deal, Quintiles will get a 16 percent stake in Healtheon, plus $400 million cash.
    The acquisition will give the company control over about 2 billion electronic transactions annually, out of a total of about 3 billion in the health care industry as a whole. Arnold said the potential for this aspect of the business is huge, because the total number of U.S. health claims - both paper-based and electronic - totals about 30 billion each year.
    Healtheon/WebMD has corporate headquarters in Atlanta. Its technology center is Santa Clara, Calif.
    One of the company's biggest potential rivals on the business-to-business side is CareInsite (CARI Research, Estimates) of New Jersey. On the consumer side, competitors include Web networks (KOOP: Research, Estimates) and (MSCP: Research, Estimates).
Earnings expected to be in line

    Also on Tuesday, Arnold also said he was comfortable with Wall Street's earnings estimates for the fourth quarter and fiscal year 1999. Analysts anticipate the company lost 52 cents per share in the fourth quarter, compared with a loss of 34 cents a year earlier, and a loss of $1.30 per share for the full year, from $1.54 per share in 1998, on a fully diluted basis.
    The company is expected to post its results Feb. 10.
    Healtheon/WebMD traded up 2-7/16, or nearly 4 percent, to 67-7/16 Tuesday on the Nasdaq. Back to top


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