WebMD scraps sale talks, warns of weak 2012 as drug makers pull back

NEW YORK ― Popular health information website WebMD Health Corp. took itself off the auction block and warned investors of lower 2012 profits as its advertisers in the drug industry pull back on spending.

Shares of WebMD, in which activist investor Carl Icahn owns a nearly 10 percent stake, tumbled 29 percent on the news.

WebMD, which had a market value of just over $2 billion as of Monday, also said on Tuesday that its chief executive, Wayne Gattinella, had resigned. Anthony Vuolo, currently chief financial officer and chief operating officer, will serve as interim CEO.

WebMD is one of the best-known websites for consumers seeking health information on everything from allergies to cancer to better eating habits.

The company relies on advertising from drugmakers, who are now trying to curb expenses as they face generic competition to many of their top-selling medicines. WebMD said large advertisers are also facing more competition on their portfolios of consumer products.

“They were growing 20 percent. Now they’re going through a rough patch where revenue is actually declining,” Cowen & Co analyst Kevin Kopelman said. “This isn’t a going concern problem. This is a very strong company with an incredible brand in the U.S. and a huge user base, and they’re generating a lot of money.”

To some extent, WebMD’s status as a premium online brand, and the high advertising rates that it can charge, are forcing more cost-conscious advertisers to look twice at their spending on the site, he said.

A more difficult regulatory environment has also made it tougher for drugmakers to launch new ad programs, Kopelman said, compounding the problems for WebMD.

While a number of new medicines have received U.S. Food and Drug Administration approval for sale in the United States, WebMD said it does not expect advertising behind those drugs to pick up significantly this year.

WebMD is also grappling with competition from myriad other websites that offer health tips and information on illnesses.

WebMD Chairman Martin Wygod said he expects drugmakers, who have been among the biggest advertisers on more expensive media like television, will eventually recognize the value of using outlets online.

“I believe that the pressures facing the pharmaceutical industry will ultimately prove to be the strong catalyst for a meaningful shift by them to digital marketing solutions,” Wygod, who holds a nearly 2 percent stake, said in a statement. “WebMD offers a cost-effective, efficient and highly measurable alternative to traditional detailing to physicians and mass media to consumers.”

For 2012, the company expects revenue to fall between 2 percent and 8 percent, and it expects increased competition in its consumer products market.