Shares of Healtheon/WebMD, which have fallen more than 34 percent during the past two weeks in the face of increased competition, got a strong shot in the arm today when Silicon Valley pioneer Jim Clark and venture capitalist John Doerr invested $220 million in the Internet-based health services network.
The stock soared $7.50, or more than 34 percent, to $29.19 at the 1 p.m. PT close of regular trading today.
Clark and Doerr, members of Healtheon/WebMD's board of directors, had to get special permission for the investment, asking the company to make an exception to trading restrictions that don't allow members of the board to buy stock in the open market. Both investors said they wanted to take advantage of the company's depressed stock prices to increase their holdings in the firm.
Clark said he expects to invest as much as $200 million in the company--adding to the 11.7 million shares already owned by himself and his family. Clark co-founded Healtheon in 1995, Netscape Communications in 1994 and Silicon Graphics in 1981.
Doerr, a general partner at blue chip venture capital firm Kleiner Perkins Caufield & Byers, plans to invest about $20 million in Healtheon/WebMD. The firm owns about 8.1 million shares of the company.
Although Healtheon/WebMD is the clear leader in connecting insurance companies, doctors and patients to allow them to streamline costs and paperwork, investors were spooked this week after a consortium of insurance companies prepared to challenge the Internet start-up. Members of the rival online health network will include Aetna Healthcare, Cigna, WellPoint Health Networks, Oxford Health Plans, Foundation Health Systems and Pacificare Health Systems.
Healtheon/WebMD has traded as high as $126.19 and as low as $15.63 in the past 52 weeks.
Investors feared that the bold move by the insurance companies--tentatively named MedUnite--will sharply cut into Healtheon/WebMD's market share. The news also sent rival health networks falling, including CareInsite, which Healtheon/WebMD is acquiring, and Neoforma.com.
The company was downgraded by two investment firms: US Bancorp Piper Jaffray dropped its rating to "buy" from "strong buy," while Dain Rauscher Wessels cut it to "neutral" from "strong buy."
The declines in the online health sector were compounded by the news that consumer health site Drkoop.com had filed regulatory documents that raised "substantial doubt" about its future as a business. In its annual report, the company said it has "sustained losses and negative cash flows from operations since its inception."
"The recent flurry of activity in the e-health space makes it clear to me that the health care industry is embracing the Internet," Clark said in a statement. "In these market conditions, I expect to increase my investment in Healtheon/WebMD by up to $200 million."
Clark and Doerr were able to buy the stock after 9 a.m. PT today and can stop their purchases at any time.
Healtheon/WebMD also said today that it expects to post revenue of more than $62 million for the first quarter, compared with $33 million in the previous quarter. The company added that it expects to report a loss before noncash charges, primarily depreciation and amortization, of less than $90 million for the first quarter of 2000.
The company says it will report first-quarter earnings in late April or early May.