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EXHIBIT 99.10
RISK FACTORS
Please carefully consider the specific factors set forth below as well
as the other information contained in, or incorporated by reference into, this
Registration Statement before making an investment decision to purchase shares
of our common stock. We have a history of losses, and we cannot give you
assurances that we will achieve profitability in the future.
WE HAVE INCURRED AND MAY CONTINUE TO INCUR SUBSTANTIAL LOSSES
We began operations in January 1996 and have incurred net losses from
operations in each fiscal period since our inception. As of June 30, 2000, on a
pro forma basis we had accumulated net losses of approximately $1.5 billion
giving effect to our recently completed mergers with Medical Manager, CareInsite
and OnHealth. In addition, we may invest heavily in infrastructure development,
applications development and sales and marketing in order to deploy our services
to a growing number of potential customers and strategic partners. Moreover, the
purchase price of our recent and any future acquisitions will be amortized over
the useful lives of the tangible and intangible assets. As of June 30, 2000, we
had approximately $5.7 billion of unamortized goodwill and other intangible
assets reflected on our financial statements as a result of previous
acquisitions.
Although we anticipate significant synergies and growth opportunities
resulting from our recent acquisitions and elimination of duplicative costs
currently being incurred by us, we cannot give you assurances that these
synergies, growth opportunities or cost savings will be achieved in the amounts
or time frames currently anticipated. Failure to realize these benefits may
adversely affect our ability to achieve profitability.
OUR BUSINESS MODEL IS UNPROVEN, AND WE MAY NOT ACHIEVE FAVORABLE OPERATING
RESULTS
Our business model is evolving, and our revenue and profit potential
is unproven. We currently derive a significant portion of our revenue from
non-Internet network services, management and consulting services and
management and operation of some of our customers' information technology
infrastructures. Our profitability depends upon our ability to migrate provider
and payer customers to our Internet-based transaction services, building our
online physician subscriber base, increasing traffic to our web site and
generating e-commerce revenue from the sale of healthcare products or services
over the Internet.
The provision of services over the Internet to the healthcare industry
is a developing business that is inherently riskier than businesses in
industries where companies have established operating histories. If our
Internet-based services do not achieve or sustain broad market acceptance among
participants in the healthcare industry, our business, results of operations
and financial condition will be significantly harmed, and we may never achieve
favorable operating results.
OUR QUARTERLY OPERATING RESULTS MAY VARY, WHICH COULD AFFECT THE MARKET PRICE
OF OUR COMMON STOCK
Our operating results have varied on a quarterly basis during our
limited operating history, and we expect to experience significant fluctuations
in future quarterly operating results. These fluctuations have been and may in
the future be caused by numerous factors, many of which are outside of our
control, including, but not limited to:
- market acceptance of and demand for our products and services
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- our ability to attract and retain payer and provider
customers and subscribers
- expenses relating to acquisitions and strategic partnerships
- usage of the Internet and our ability to maintain and
increase traffic on our web site
- our ability to continue to develop and extend our brand
- our ability to effectively integrate the operations and
technologies of acquired businesses with our operations
- introduction and timing of new products and services or
enhancements by us or our competitors
- capacity constraints and dependencies on computer
infrastructure
- economic conditions affecting the Internet or healthcare
industries
- general economic conditions.
Fluctuations in our quarterly results could adversely affect the
market price of our common stock in a manner unrelated to our long-term
operating performance. We will base our expense levels in part upon our
expectations concerning future revenue, and these expense levels will be
relatively fixed in the short term. If we have lower revenue, we may not be
able to reduce spending in the short term in response. Any shortfall in revenue
would have a direct impact on our results of operations. As a result, we
believe that period-to-period comparisons of our results of operations will not
necessarily be meaningful and should not be relied upon as an indicator of
future performance. For these and other reasons, it is likely that in some
future quarter or quarters we may not meet the earnings estimates of securities
analysts or investors, which would materially and adversely affect our stock
price.
OUR STOCK PRICE HAS BEEN VOLATILE IN THE PAST AND MAY CONTINUE TO BE VOLATILE
Changes in the market price of our common stock may result from among
other things:
- quarter-to-quarter variations in operating results
- operating results being less than analysts' estimates
- changes in analysts' earnings estimates
- announcements of new technologies, products and services or
pricing policies by us or our competitors
- announcements of acquisitions or strategic partnerships by us
or our competitors
- developments in existing customer or strategic relationships
- actual or perceived changes in our business strategy
- sales of large amounts of our common stock
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- changes in market conditions in the Internet and healthcare
industries
- changes in prospects for healthcare reform
- changes in general economic conditions
- fluctuations in the securities markets in general.
In addition, the trading price of Internet and healthcare information technology
stocks in general, and our common stock in particular, has experienced extreme
price and volume fluctuations in recent months. These fluctuations often may be
unrelated or disproportionate to the operating performance of these companies.
Any negative change in the public's perception of the prospects of these
companies, as well as other broad market and industry factors, may result in
decreases in the price of our common stock.
OUR BUSINESS WILL SUFFER IF WE FAIL TO SUCCESSFULLY INTEGRATE ACQUIRED
BUSINESSES AND TECHNOLOGIES
We have in the past acquired, and may in the future acquire,
businesses, technologies, services, product lines or content databases. For
example, we completed our mergers with WebMD, Inc., MedE America Corporation and
Greenberg News Networks, Inc., which is referred to as Medcast, in November
1999, our mergers with Kinetra LLC in January 2000 and Envoy Corporation in May
2000 and our mergers with Medical Manager Corporation, CareInsite, Inc. and
OnHealth Network Company in September 2000. In order to achieve the potential
benefits of these transactions, we must operate as a combined organization
utilizing common information and communication systems, operating procedures,
financials controls and human resource practices. We are in the process of
integrating and consolidating the operations, products and services,
technologies and personnel of these companies and, on September 28, 2000,
announced that our board of directors has approved an integration plan that
includes in its first phase a consolidation of offices and data centers and
reduction in marketing and promotional expenses, the result of which we believe
will substantially eliminate redundancies created by our recent mergers. In
connection with this integration plan, we anticipate taking a pre-tax
restructuring charge of between $35 million and $45 million in the quarter
ending September 30, 2000. We also expect to incur additional costs relating to
moving and relocations that will be expensed as incurred in accordance with
applicable accounting guidelines. The successful integration of the acquired
businesses into our operations is critical to our future performance.
The amount and timing of the benefits of the restructuring contemplated
by the integration plan and the success of the contemplated integration and
rationalization of our businesses are subject to significant risks and
uncertainties. These risks and uncertainties include, but are not limited to,
those relating to:
- centralization and consolidation of financial,
operational and administrative functions
- elimination of duplicative costs
- integration of platforms, networks and service centers
- ability to cross-sell products and services to payers and
providers with which we have established relationships and
those with which acquired companies have established
relationships
- integration of healthcare transaction processing services not
currently offered via the Internet with our Internet-based
platform
- the loss of key personnel
- diversion of management's attention from other ongoing
business concerns
- potential conflicts in payer, provider, strategic partner,
sponsor or advertising relationships
- coordination of organizations that are geographically diverse
and have different business cultures
- compliance with regulatory requirements.
We cannot guarantee that any acquired businesses will be successfully
integrated with our operations in a timely manner, or at all. Failure to
successfully integrate acquired businesses or to achieve operating synergies,
revenue enhancements or cost savings could have a material adverse effect on our
business, financial condition and results of operation.
Integrating any additional acquired organizations and technologies in
the future could be expensive, time consuming and may strain our resources.
Integrating any future acquisitions would be subject to the same challenges,
risks and uncertainties as our current integration plan, as described above. In
particular, additional acquisitions could divert management's attention from
other business concerns and expose us to unforeseen liabilities or risks
associated with entering new markets. In addition, we may lose key employees
while integrating these new companies. We may also lose our relationships with
payers, providers and strategic partners if any acquired companies have
relationships with competitors of these payers, providers and strategic
partners. Consequently, we may not be successful in integrating acquired
businesses or technologies and may not achieve anticipated revenue and cost
benefits. We also cannot guarantee that these acquisitions will result in
sufficient revenue or earnings to justify our investment in, or expenses related
to, these acquisitions or that any synergies will develop.
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OUR ALLOCATION OF THE PURCHASE PRICE FOR OUR RECENT MERGERS MAY MATERIALLY
DIFFER FROM THAT IN THE PRO FORMA ACCOUNTING PRESENTATION
We allocated the total estimated purchase price for Medical Manager
and CareInsite on a preliminary basis to assets and liabilities based on our
best estimates of the fair value of these assets and liabilities, with the
excess costs over the net assets acquired allocated to goodwill and other
intangible assets. This allocation is subject to change pending a final
determination and analysis of the total purchase price and the fair value of
the assets acquired and liabilities assumed. The impact of these changes could
be material to our future results of operations.
SALES OF LARGE AMOUNTS OF OUR SHARES AND THE LAPSE OF TRANSFER RESTRICTIONS
COULD ADVERSELY AFFECT PREVAILING STOCK PRICES
The market price of our common stock could fall if stockholders sell large
amounts of stock in the public market following the lapse of contractual and
legal transfer restrictions. These sales, or the possibility that these sales
may occur, could make it more difficult for us to raise capital through the
sale of equity or equity-related securities in the future. A significant amount
of our common stock is subject to restrictions on transfer under federal
securities law and contractual restrictions.
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ACQUISITIONS AND STRATEGIC RELATIONSHIPS COULD RESULT IN THE DILUTION OF OUR
STOCKHOLDERS
We expect to pay for some of our future acquisitions and strategic
relationships, if any, by issuing additional common stock, which could dilute
our stockholders. Future acquisitions could also result in the incurrence of
debt, contingent liabilities or amortization expenses related to goodwill and
other intangible assets, any of which could harm our business. Future
acquisitions may require us to obtain additional equity or debt financing,
which may not be available on favorable terms or at all. Even if available, the
financing may be dilutive. We cannot guarantee that these acquisitions or
strategic relationships will generate or result in sufficient revenue or
earnings to justify the dilution which could occur.
WE EXPECT TO DEVOTE SIGNIFICANT RESOURCES TO INTEGRATING APPLICATIONS THAT ARE
NOT INTERNET-ENABLED
Some of our applications, including Envoy's electronic data
interchange, or EDI, transaction processing services, were acquired by us and
are not Internet-enabled. We intend to integrate many of these applications, as
well as the applications that we recently acquired upon completion of the
Medical Manager, CareInsite and OnHealth mergers, with our Internet-based
platform and WebMD Practice and WebMD Health products and to consolidate our
transaction networks. Integrating these applications and platforms may be
expensive and may divert our attention from other activities.
MANAGING OUR GROWTH MAY STRAIN ADMINISTRATIVE, TECHNICAL AND FINANCIAL RESOURCES
We have rapidly and significantly expanded our operations recently and
expect to continue to do so. Our growth has been accomplished primarily through
acquisitions. We expect that future growth may also be accomplished through
internal expansion. This past and future growth has placed and will continue to
place a significant strain on our managerial, operational, financial and other
resources. If we are unable to respond to and manage this expected growth, then
the quality of our services and our results of operations could be materially
adversely affected.
Our current information systems, procedures and controls may not
continue to support our operations, and may hinder our ability to exploit the
market for healthcare applications and services. We are in the process of
completing the integration of our accounting and management information systems
following our acquisitions. We could experience interruptions to our internal
information systems while we transition to new systems. We cannot guarantee
that our systems, procedures and controls will be adequate to support expansion
of our operations.
OUR ABILITY TO GENERATE REVENUE WILL SUFFER IF WE DO NOT QUICKLY EXPAND OUR
SUITE OF APPLICATIONS AND SERVICE OFFERINGS
We currently offer a limited number of applications on our
Internet-based platform and some of our service offerings are not fully
developed or launched. We must quickly introduce new applications and services
and improve the functionality of our existing services in a timely manner in
order to attract and retain subscribers and consumers and payer and provider
customers. We expect that our advertising revenue will be dependent on the level
of usage of our services by subscribers and consumers, and believe that levels
of usage will not increase unless we improve functionality of our service
offerings and increase payer connectivity.
We rely on a combination of internal development, strategic
relationships, licensing and acquisitions to develop these applications and
services. Each of our applications, regardless of how it was developed, must be
integrated and customized to operate with the existing legacy computer systems
of payer and provider customers and our platform. We are currently in the
process of migrating many of our acquired applications and products and
services to our Internet-based platform. Developing, integrating and
customizing these applications and services will be time consuming, and these
applications and services may never achieve market acceptance, which could also
cause our business to suffer.
WE ARE DEPENDENT ON STRATEGIC RELATIONSHIPS TO GENERATE SOME OF OUR REVENUE
OUR ABILITY TO GENERATE REVENUE WILL SUFFER IF WE CANNOT ESTABLISH AND
MAINTAIN STRATEGIC RELATIONSHIPS
We must establish and maintain successful strategic relationships with
leaders in a number of healthcare and Internet industry segments. We have
entered into strategic relationships with leading online and media distribution
and healthcare partners. Our strategic relationships are critical to our success
because we believe that these relationships will enable us to enhance our brand,
increase the number of transactions processed over our platform, generate
traffic on our web site and capitalize on additional distribution and revenue
opportunities. We expect that we will face intensified competition for strategic
relationships. As announced on September 28, 2000, we are evaluating many of the
business relationships that we currently have in place. It is possible that some
of the relationships may be modified or terminated. We may not be able to
establish commercial acceptance of our platform, applications and services
unless we can establish and maintain successful strategic relationships in the
future.
WE SHARE REVENUE WITH OUR STRATEGIC PARTNERS AND WILL INCUR
SIGNIFICANT EXPENSE IN CONNECTION WITH OUR STRATEGIC RELATIONSHIPS, AND
THIS EXPENSE MAY EXCEED THE NET REVENUE THESE RELATIONSHIPS GENERATE
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We intend to use a significant amount of cash to fund branding and
advertising, including promotional arrangements with our strategic partners. At
June 30, 2000, we estimated that we will make the following aggregate guaranteed
payments under our current relationships with our strategic partners in the
calendar years indicated:
<TABLE>
Year Ended December 31, Amount
---------------------------- ------
<S> <C>
2000............................. $73.8 million
2001............................. 74.7 million
2002............................. 59.8 million
2003............................. 41.4 million
2004............................. 11.2 million
</TABLE>
We have agreed to share some of our transaction processing,
advertising, carriage fee and e-commerce revenues, net of specified costs
applicable to the particular revenue category, with Microsoft Corporation and
E.I. du Pont de Nemours and Company for their sponsorship of physician
subscriptions to WebMD Practice and with several physician practice management
system vendors who have agreed to promote our services to their physician
customers. This revenue sharing applies only to the extent the revenues are
derived from Microsoft- or DuPont-sponsored physicians or from physicians
subscribing to the particular vendor's practice management system. The
percentage of revenue shared varies from contract to contract and based on the
type of revenue generated.
We may enter into additional promotional arrangements with current and
future strategic partners that may require us to pay consideration in amounts
that significantly exceed the amounts we are required to pay under our current
arrangements. These guaranteed payments and promotional and other arrangements
may require us to share revenue or incur significant expenses. We cannot give
you assurances that we will generate sufficient revenue from these arrangements
to offset these expenses, in particular after we share some of our net revenue
with our strategic partners. Failure to do so could have a material adverse
effect on WebMD.
WE INVEST IN SOME OF OUR STRATEGIC PARTNERS, MANY OF WHICH ARE IN EARLY
STAGES OF DEVELOPMENT
We have made equity investments in some of our strategic partners. In
many instances, these investments are in the form of illiquid securities of
private companies engaged in e-Health and are made in conjunction with the
parties entering into a strategic agreement. Typically, these strategic
partners enter into agreements that obligate them to purchase advertising or
other services from us. These companies are typically in an early stage of
development and may be expected to incur substantial losses and may not
generate sufficient revenue to pay the advertising and e-commerce fees due us.
In addition, due to recent market volatility, some of these companies may alter
any plans to go public, and others that have gone public may experience
significant decreases in the trading prices of their common stock adversely
affecting the value of our investments.
WE HAVE GRANTED EXCLUSIVE RIGHTS TO STRATEGIC PARTNERS
We have agreed that some of our strategic partners will be our
exclusive providers of some of our applications and content. For example, we
have entered into strategic agreements with e-commerce companies to be our
exclusive partners supplying online pharmacy services and medical supplies and
to be our exclusive providers of various categories of content and services.
These agreements may limit our access to other applications and content we might
otherwise be able to make available to subscribers and consumers or to payer and
provider customers. Our inability to offer other applications and content could
cause our business to suffer. In addition, we have granted exclusive rights to
strategic partners which restrict our ability to pursue some business
opportunities. For example, in connection with our acquisition of Envoy from
Quintiles Transnational Corp., we granted to Quintiles the exclusive license to
use some of the de-identified data available to us by virtue of our transaction
services and some exclusive rights in the pharmaceutical market.
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RELATIONSHIPS WITH CUSTOMERS AND STRATEGIC PARTNERS MAY CONFLICT
We have developed and rely upon important relationships with payers,
providers, practice management system vendors and strategic partners, some of
which may involve conflicting contractual rights, including conflicts which may
result from our recent acquisitions. For example, in January and February 2000,
we entered into strategic alliances with three practice management system
vendors that compete with Medical Manager. As a result of our acquisition of
Medical Manager, we may lose relationships with some customers and strategic
partners, who may then establish relationships with our competitors. In
addition, we may not be able to maintain or establish relationships with key
participants in the healthcare and Internet industries if any of the companies
we acquired had already established relationships with competitors of these key
participants.
For example, we have entered into a five-year strategic alliance with
Microsoft pursuant to which we develop, host, maintain on our servers and
provide content for the health channels on MSN, MSNBC and WebTV. Similarly,
CareInsite has entered into a strategic alliance with America Online, Inc.,
pursuant to which CareInsite is AOL's exclusive provider of a comprehensive
suite of services that connect AOL and CompuServe members and visitors to AOL's
web-based brands Netscape, AOL.COM and Digital City, to physicians, health
plans, pharmacy benefit managers, covered pharmacies and labs. As a result of
the recent completion of the Medical Manager and CareInsite mergers, Microsoft
will be able to terminate its strategic alliance with us for a limited period of
time if we and Microsoft are unable to resolve conflicts that may arise as a
result of these mergers. We have agreed with Microsoft that for a 60-day period
ending November 12, 2000, we will work together to identify and resolve any
conflicts that result from these mergers. If these potential conflicts cannot be
resolved, however, Microsoft could terminate the strategic alliance. Similarly,
as a result of these mergers, AOL will be able to terminate its strategic
alliance with CareInsite, as a result of which guaranteed payments of
approximately $20.0 million due to AOL will accelerate. We cannot assure you
that the conflicts arising under either of these strategic alliances as a result
of these mergers will be resolved. If either or both strategic alliances are
terminated, and we are unable to replace the terminated alliance with a
comparable one, we could experience a material decrease in revenue.
If contractual or relationship conflicts cannot be resolved, we could
lose the benefits of some of our relationships with payers, providers or
strategic partners. Losses of any significant relationships could harm our
business or results of operations.
OUR ABILITY TO GENERATE REVENUE WILL SUFFER IF WE CANNOT ATTRACT AND RETAIN
SUBSCRIBERS
We must attract and retain subscribers to WebMD Practice, our
physician portal, in order to generate subscription revenue. In addition, our
ability to generate advertising revenue and transaction revenue will be
dependent on the number of subscribers and level of usage by those subscribers
of our Internet-based services, including our administrative transaction and
clinical information services. We cannot guarantee that we will be able to
attract new or retain existing subscribers. In particular, we cannot guarantee
that we will retain subscribers whose subscriptions are initially paid for by
our strategic partners once those subscribers are required to pay for their
subscriptions themselves or that these subscribers will actually use our
services.
IF WE ARE UNABLE TO GENERATE SIGNIFICANT ADVERTISING REVENUE, OUR FUTURE
RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED
We derive a portion of our revenue from advertising activities.
Advertising revenue is generally derived from short-term advertising contracts
in which we typically guarantee a minimum number of impressions or pages to be
delivered over a specified period of time for a fixed fee. Advertising revenue
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may also include barter transactions, which are exchanges by us of advertising
space on our web site for goods and services from strategic partners and which
might not generate any cash receipts.
The Internet advertising market is new and rapidly evolving, and no
standards have been widely accepted to measure its effectiveness as compared to
traditional media advertising. If no standards develop, existing advertisers
may not continue their current level of Internet advertising, and advertisers
that have traditionally relied on other advertising media may be reluctant to
advertise on the Internet. Moreover, filter software programs that limit or
prevent advertising from being delivered to a web user's computer are
available. Widespread adoption of this software could adversely affect the
commercial viability of Internet advertising. Our business would be adversely
affected if the market for Internet advertising fails to develop or develops
more slowly than expected.
Various pricing models are used to sell advertising on the Internet.
It is difficult to predict which, if any, will emerge as the industry standard,
thereby making it difficult to project our future advertising rates and
revenue. The level of traffic on our web site is likely to be a factor in
determining advertising rates. We cannot predict whether our subscribers whose
subscriptions are paid for by our strategic partners will actually use our
services. In addition, there can be no assurances that we will continue to
generate significant revenue from our advertising activities.
LENGTHY SALES AND IMPLEMENTATION CYCLES FOR OUR APPLICATIONS COULD ADVERSELY
AFFECT OUR ABILITY TO GENERATE REVENUE
A key element of our strategy is to market our solutions directly to
large healthcare organizations. We will be unable to control many of the
factors that will influence the buying decisions of these organizations. We
expect that the sales and implementation process will be lengthy and will
involve a significant technical evaluation and commitment of capital and other
resources by our customers. The sale and implementation of our solutions are
subject to delays due to our payer and provider customers' internal budgets and
procedures for approving large capital expenditures and deploying new
technologies within their networks.
We will need to expend substantial resources to integrate our
applications with the existing legacy and client-server architectures of large
healthcare organizations. We have limited experience in integrating our
applications with large, complex architectures, and we may experience delays in
the integration process. These delays would, in turn, delay our ability to
generate revenue from these applications and could adversely affect our results
of operations.
OUR BUSINESS WILL SUFFER IF HEALTHCARE INDUSTRY PARTICIPANTS DO NOT ACCEPT
INTERNET SOLUTIONS
Our business model depends on the adoption of Internet solutions by
providers, patients, payers and other healthcare industry participants. Our
ability to generate revenue could suffer dramatically if Internet solutions are
not accepted or not perceived to be effective.
The adoption of Internet solutions by healthcare participants will
require the acceptance of a new way of conducting business and exchanging
information. To maximize the benefits of our platform, healthcare participants
must be willing to allow sensitive information to be stored in our databases
and to conduct healthcare transactions over the Internet. There can be no
assurance that healthcare participants will accept Internet solutions in a
timely manner or at all.
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FAILURE TO CONTINUE TO EXPAND AND ADAPT OUR PLATFORM TO ACCOMMODATE INCREASED
USAGE COULD MAKE IT DIFFICULT TO SUCCESSFULLY IMPLEMENT OUR INTERNET-BASED
SERVICES
To successfully implement our Internet-based services, we must
continue to expand and adapt our platform and transaction networks to
accommodate additional users, increased transaction volumes and changing
customer requirements. Our infrastructure may not accommodate increased use
while maintaining acceptable overall performance. To date, we have processed a
limited number and variety of Internet-based transactions. In addition, our
Internet-based products and services have only been used by a limited number of
physicians and healthcare consumers. An unexpectedly large increase in the
volume of traffic on our web site, the number of physicians using WebMD
Practice or transactions processed over our networks may require us to expand
and further upgrade our platform. This expansion could be expensive and could
divert our attention from other activities.
PERFORMANCE PROBLEMS WITH OUR SYSTEMS COULD DAMAGE OUR BUSINESS
Our payer and provider customer satisfaction and our business could be
harmed if we or our customers experience system delays, failures or loss of
data. We currently process our payer and provider transactions and data at our
facilities and rely on a data center operated by a third party to perform
transaction processing for Envoy's EDI business, other than real-time EDI
transaction processing. This data center is located in Tampa, Florida and is
operated by Verizon Data Services, with whom Envoy has contracted for these
processing services. We assumed this contract upon our acquisition of Envoy.
Envoy relies primarily on this facility to process batch claims and other
medical EDI transaction sets. Envoy's contract with Verizon requires Verizon to
maintain continuous processing capability and a "hot site" disaster recovery
system. We have a contingency plan for emergencies with our systems; however, we
have limited backup facilities to process information if these facilities are
not functioning. The occurrence of a major catastrophic event or other system
failure at any of our facilities or at the Verizon facility could interrupt data
processing or result in the loss of stored data, which could have an adverse
impact on our business. While we have general liability insurance that we
believe is adequate, including coverage for errors and omissions, we may not be
able to maintain this insurance on reasonable terms in the future. In addition,
our insurance may not be sufficient to cover large claims and our insurer could
deny coverage on claims. If we are liable for an uninsured or underinsured claim
or if our premiums increase significantly, our financial condition could be
materially harmed.
PERFORMANCE PROBLEMS WITH THE SYSTEMS OF OUR SERVICE AND CONTENT PROVIDERS
COULD HARM OUR BUSINESS
We depend on service and content providers to provide information and
data feeds on a timely basis. Our web site could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of this information. In addition, our customers who utilize our
web-based services depend on Internet service providers, online service
providers and other web site operators for access to our web site. All of these
providers have experienced significant outages in the past and could experience
outages, delays and other difficulties in the future due to system failures
unrelated to our systems. Any significant interruptions in our services or
increases in response time could result in a loss of potential or existing
users of and advertisers and sponsors on our web site and, if sustained or
repeated, could reduce the attractiveness of our services.
IF OUR SYSTEMS EXPERIENCE SECURITY BREACHES OR ARE OTHERWISE PERCEIVED TO BE
INSECURE, OUR REPUTATION WILL SUFFER
A material security breach could damage our reputation or result in
liability. We retain confidential information, including patient health
information in our processing centers. We may be required to expend significant
capital and other resources to protect against security breaches or to
alleviate problems caused by breaches. Any well-publicized compromise of
Internet security could deter people from using the Internet or from conducting
transactions that involve transmitting confidential
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information, including confidential healthcare information. Therefore, it is
critical that these facilities and infrastructure remain secure and are
perceived by the marketplace to be secure. Despite the implementation of
security measures, this infrastructure may be vulnerable to physical break-ins,
computer viruses, programming errors, attacks by third parties or similar
disruptive problems.
OUR BUSINESS IS DEPENDENT ON THE DEVELOPMENT AND MAINTENANCE OF THE INTERNET
INFRASTRUCTURE
Our ability to deliver our Internet-based services is dependent on the
development and maintenance of the infrastructure of the Internet by third
parties. This includes maintenance of a reliable network backbone with the
necessary speed, data capacity and security, as well as timely development of
complimentary products such as high-speed modems, for providing reliable
Internet access and services. The Internet has experienced, and is likely to
continue to experience, significant growth in the number of users and the
amount of traffic. If the Internet continues to experience increased numbers of
users, increased frequency of use, or more complex requirements, the Internet
infrastructure may be unable to support the demands placed on it. In addition,
the performance of the Internet may be harmed by increased users or more
complex requirements.
The Internet has experienced a variety of outages and other delays as
a result of damages to portions of its infrastructure, and it could face
outages and delays in the future. These outages and delays could reduce the
level of Internet usage as well as the availability of the Internet to us for
delivery of our Internet-based services. In addition, the Internet could lose
its viability due to delays in the development or adoption of new standards and
protocols to handle increased levels of activity or due to increased
governmental regulation. The infrastructure and complimentary products or
services necessary to make the Internet a viable commercial marketplace for the
long-term may not be developed successfully or in a timely manner. Our
financial condition could be materially harmed if the Internet is not available
to us for the delivery of our services and products.
OUR BUSINESS WILL BE HARMED IF WE ARE UNSUCCESSFUL IN RESPONDING TO RAPID
TECHNOLOGY CHANGES IN OUR MARKETS
Healthcare information exchange and transaction processing is a
relatively new and evolving market. The pace of change in our markets is rapid
and there are frequent new product introductions and evolving industry
standards. We may be unsuccessful in responding to technological developments
and changing customer needs. In addition, our applications and services
offerings may become obsolete due to the adoption of new technologies or
standards.
OUR PLATFORM INFRASTRUCTURE AND SCALABILITY ARE NOT PROVEN, AND WE MAY NOT BE
ABLE TO ADEQUATELY ACCOMMODATE INCREASED FUNCTIONALITY OR USAGE
To date, we have processed a limited number and variety of
transactions over our platforms. Similarly, a limited number of healthcare
participants use these platforms. Our systems may not accommodate increased use
while maintaining acceptable overall performance. We must continue to expand
and adapt our network infrastructure to accommodate additional users, increased
transaction volumes and changing payer and provider customer requirements. This
expansion and adaptation may be expensive and may divert our attention from
other activities.
WE FACE SIGNIFICANT COMPETITION FOR OUR PRODUCTS AND SERVICES
HEALTHCARE TRANSACTION AND INFORMATION SERVICES
The market for healthcare transaction and information services is
intensely competitive, rapidly
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evolving and subject to rapid technological change. Many of our competitors
have greater financial, technical, product development, marketing and other
resources than us. These organizations may be better known and have more
customers than us. Many of our competitors have also announced or introduced
Internet strategies that will compete with our applications and services. We
may be unable to compete successfully against these organizations.
We have many competitors, including:
- healthcare information software vendors
- healthcare EDI companies
- large information technology consulting service providers
- online services or web sites targeted to the healthcare
industry, physicians and healthcare consumers generally
- publishers and distributors of traditional offline media,
including those targeted to healthcare professionals, many of
which have established or may establish web sites
- general purpose consumer online services and portals and
other high-traffic web sites which provide access to
healthcare-related content and services
- public sector and non-profit web sites that provide
healthcare information without advertising or commercial
sponsorships
- vendors of healthcare information, products and services
distributed through other means, including direct sales, mail
and fax messaging.
We expect that major software information systems companies and others
specializing in the healthcare industry will offer competitive applications or
services. In addition, some of our existing and potential payer and provider
customers and strategic partners may also compete with us. For example, in
April 2000, it was reported that a consortium of six health insurance companies
may join together to develop an online project which links insurers, doctors
and patients. If this consortium decides to proceed with its plans to allow
patients to enroll in health plans and choose doctors online while also taking
care of administrative tasks such as processing payment claims, it could
compete with us.
In addition, some payers currently offer electronic data transmission
services to healthcare providers that establish a direct link between the
provider and the payer, bypassing third-party EDI service providers such as us.
Any significant increase in the utilization of direct links between healthcare
providers and payers could have a material adverse effect on our business and
results of operations.
PRACTICE MANAGEMENT INFORMATION SYSTEMS BUSINESS
As a result of our recent merger with Medical Manager, we now own and
operate Medical Manager Health Systems. The market for practice management
systems such as The Medical Manager practice management system is highly
competitive. Medical Manger Health Systems' competitors vary in size and in the
scope and breadth of the products and services that they offer. Medical Manager
Health Systems competes with different companies in each of its target markets.
Many of Medical Manager Health Systems' competitors have greater financial,
development, technical, marketing and sales resources than Medical Manager
Health Systems. In addition, other entities not currently offering products and
services similar to those offered by Medical Manager Health Systems, including
claims processing organizations, hospitals, third-party administrators,
insurers, healthcare organizations and others, may enter markets in which
Medical Manager Health Systems competes. We cannot assure you that future
competition will not have a material adverse effect on Medical Manager Health
Systems', and thus, our results of operations, financial condition or business.
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PLASTICS AND FILTRATION TECHNOLOGIES BUSINESS
Competition in the business of Porex Corporation and our other plastics
and filtration technology subsidiaries, which we refer to together herein as
Porex, is characterized by the introduction of competitive products at lower
prices. We believe that Porex's principal competitive strengths are its
manufacturing processes, quality control, relationships with its customers and
distribution of its proprietary healthcare products.
In the porous plastics area, Porex's competitors include other
producers of porous plastic materials as well as companies that manufacture and
sell products made from materials other than porous plastics which can be used
for the same purposes as Porex's products. In this area, Porex has several
direct competitors in the U.S., Europe and Asia. Porex's porous plastic pen nibs
compete with felt and fiber tips manufactured by a variety of suppliers
worldwide. Other Porex industrial products made of porous plastic compete,
depending on the industrial application, with porous metals, metal screens,
fiberglass tubes, pleated paper, resin-impregnated felt, ceramics and other
substances and devices.
The market for Porex's injection molded solid plastic components and
products, including its medical products, is highly competitive and highly
fragmented. Porex's pipette tips and racks also compete with similar products
manufactured by domestic and foreign manufacturers. Porex's injection molding
and mold making services compete with services offered by several foreign and
domestic companies. The MEDPOR(R) Biomaterial products compete for surgical use
against autogenous and allograph materials and alloplastic biomaterials. Porex's
surgical drains and markers compete against a variety of products from several
manufacturers.
HEALTHCARE REGULATION COULD ADVERSELY AFFECT OUR BUSINESS
The healthcare industry is highly regulated and is subject to changing
political, regulatory and other influences. These factors affect the purchasing
practices and operation of healthcare organizations. Federal and state
legislatures have periodically considered programs to reform or amend the U.S.
healthcare system at both the federal and state level. These programs may
contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which healthcare
industry participants operate. Healthcare industry participants may respond by
reducing their investments or postponing investment decisions, including
investments in our applications
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and services. We do not know what effect any proposals would have on our
business.
REGULATION REGARDING PATIENT CONFIDENTIALITY
Numerous state and federal laws govern the collection, dissemination,
use, access to and confidentiality of patient health information. Many states
have laws and regulations that protect the confidentiality of medical records
or medical information. In addition, the federal Department of Health and Human
Services has proposed regulations implementing the Health Insurance Portability
and Accountability Act of 1996, or HIPAA, concerning standards for electronic
transactions, security and electronic signatures and privacy of individually
identifiable health information. The proposed regulations, among other things,
would require companies to develop security standards for all health
information that is used electronically. The proposed regulations would impose
significant obligations on companies that send or receive electronic health
information. The application of these laws to the personal information we
collect could create potential liability under these laws. We have designed our
services to comply with these proposed regulations. However, we cannot predict
when these proposed regulations will be finalized and whether they will be
changed before they are finalized. Any changes could cause us to use additional
resources to revise our platform and services.
Additional legislation governing the distribution of medical records
exists and has been proposed at both the state and federal levels. We will be
subject to extensive regulation relating to the confidentiality and release of
patient records, and it may be expensive to implement security or other
measures to comply with new legislation and final regulations. Further, we may
be restricted or prevented from maintaining or delivering patient records
electronically, which would have an adverse effect on our business.
For additional information, see "-- Regulation of the Internet could
adversely affect our business" below.
REGULATION OF HEALTHCARE RELATIONSHIPS
There are federal and state laws that govern patient referrals,
physician financial relationships and inducements to beneficiaries of federal
healthcare programs. The federal anti-kickback law prohibits any person or
entity from offering, paying, soliciting or receiving anything of value,
directly or indirectly, for the referral of patients covered by Medicare,
Medicaid and other federal healthcare programs or the leasing, purchasing,
ordering or arranging for or recommending the lease, purchase or order of any
item, good, facility or service covered by these programs. The anti-kickback
law is broad and may apply to some of our activities. Penalties for violating
the anti-kickback law include imprisonment, fines and exclusion from
participating, directly or indirectly, in Medicare, Medicaid and other federal
healthcare programs. Many states also have similar anti-kickback laws that are
not necessarily limited to items or services for which payment is made by a
federal healthcare program. We carefully review our practices with regulatory
experts to ensure that we comply with all applicable laws. However, the laws in
this area are both broad and vague and it is often difficult or impossible to
determine precisely how the laws will be applied, particularly to new services
similar to ours. Any determination by a state or federal regulatory agency that
any of our practices violate any of these laws could subject us to civil or
criminal penalties and require us to change or terminate certain portions of
our business.
We currently provide billing services and intend to provide repricing
services to providers and, therefore, may be subject to state and federal laws
that govern the submission of claims for medical expense reimbursement. These
laws generally prohibit an individual or entity from knowingly presenting or
causing to be presented a claim for payment from Medicare, Medicaid or other
third party payers that is false or fraudulent, or is for an item or service
that was not provided as claimed. These laws also
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provide civil and criminal penalties for noncompliance. We have designed our
current transaction services and will design any future services to place the
responsibility for compliance with these laws on provider customers. However,
we cannot guarantee that state and federal agencies will regard billing errors
processed by us as inadvertent and not in violation of these laws. In addition,
changes in current healthcare financing and reimbursement systems could cause
us to make unplanned modifications of applications or services, or result in
delays or cancellations of orders or in the revocation of endorsement of our
applications and services by healthcare participants.
REGULATION BY THE U.S. FOOD AND DRUG ADMINISTRATION
The Food and Drug Administration, or the FDA, has jurisdiction under
the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act,
or the FDA Act, to regulate computer products and software as medical devices if
they are intended for use in the diagnosis, cure, mitigation, treatment or
prevention of disease in humans. The FDA has issued a final rule under which
manufacturers of medical image storage devices and related software are required
to submit to the FDA premarket notification applications, which are each
referred to in this document as a 510(k) application, and otherwise comply with
the requirements of the FDA Act applicable to medical devices. We have attempted
to design our services so that our computer applications and software are not
considered to be medical devices. However, the FDA may take the position that
our services are subject to FDA regulation. In addition, we may expand our
services in the future to areas that subject us to FDA regulation. For example,
Medical Manager Health Systems is distributing in the U.S. a medical image
management device, which is referred to in this document as the "image module,"
which was cleared by the FDA on April 4, 1997 and is manufactured by a third
party in accordance with specifications set forth in the cleared 510(k)
application. Medical Manager Health Systems has created an interface between The
Medical Manager practice management system and the image module and is marketing
the interface and the image module as the Document Image Module System. We
believe that the addition of our practice management system to the image module
does not change the image module's intended use or significantly change the
safety or efficacy of the product to the extent that a new 510(k) application is
required. The FDA is currently reviewing its policy for the regulation of
computer software, and there is a risk that The Medical Manager software could
in the future become subject to some or all of the above requirements. Except
with respect to Porex, we have no experience in complying with FDA regulations.
We believe that complying with FDA regulations may be time consuming, burdensome
and expensive and could delay our introduction of new applications or services.
REGULATION OF TRANSACTION SERVICES
State and federal statutes and regulations governing transmission of
claims may affect our operations. For example, Medicaid rules require some
processing services and eligibility verification to be maintained as separate
and distinct operations. We believe that our practices are in compliance with
applicable state and federal laws.
These laws, though, are complex and changing, and the government may
take positions that are inconsistent with our practices.
PROFESSIONAL REGULATION
The practice of most healthcare professions requires licensing under
applicable state law. In addition, the laws in some states prohibit business
entities from practicing medicine, which is referred to as the prohibition
against the corporate practice of medicine. We have attempted to structure our
web site, strategic relationships and other operations to avoid violating these
state licensing and professional practice laws. A state, however, may determine
that some portion of our business violates these laws and may seek to have us
discontinue those portions or subject us to penalties or licensure
requirements. We employ and contract with physicians who provide only medical
information to consumers, and we have no intention to provide medical care or
advice. We do not maintain professional liability insurance because we believe
we are not a healthcare provider. Any determination that we are a healthcare
provider and acted improperly as a healthcare provider may result in liability
for which we are not insured.
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PLASTICS AND FILTRATION TECHNOLOGIES BUSINESS
Porex manufactures and distributes medical/surgical devices, such as
plastic and reconstructive surgical implants and tissue expanders, which are
subject to government regulations, under the FDA Act and additional regulations
promulgated by the FDA. Future healthcare products may also be subject to these
regulations and approval processes. Compliance with these regulations and the
process of obtaining approvals can be costly, complicated and time-consuming,
and we cannot assure you that these approvals will be granted on a timely basis,
if ever.
REGULATION OF THE INTERNET COULD ADVERSELY AFFECT OUR BUSINESS
Laws and regulations may be adopted with respect to the Internet or
other online services covering user privacy, patient confidentiality and other
issues, including:
- pricing
- content
- copyrights and patents
- distribution
- characteristics and quality of products and services.
We cannot predict whether these laws will be adopted and how they will affect
our business.
Internet user privacy has become an issue both in the U.S. and abroad.
Whether and how existing privacy or consumer protection laws in various
jurisdictions apply to the Internet is uncertain and may take years to resolve.
Any legislation or regulations of this nature could affect the way we conduct
our business, particularly in our collection or use of personal information,
and could harm our business. Further, activities on or using the Internet have
come under increased scrutiny, including increased investigation in the
healthcare arena by the Federal Trade Commission, or FTC, and heightened media
attention.
Similar to many other Internet healthcare companies, we have recently
received a request for information from the FTC concerning our web site privacy
policies and practices. While we believe we are in compliance with all
applicable laws, all third party contractual commitments and our published
privacy commitments, government inquiries like this inquiry can divert
management's attention from other matters and create unfavorable publicity.
THIRD PARTIES MAY BRING CLAIMS AGAINST US AS A RESULT OF CONTENT PROVIDED ON
OUR WEB SITE, WHICH MAY BE EXPENSIVE AND TIME CONSUMING TO DEFEND
We could be subject to third party claims based on the nature and
content of information supplied on our web site by us or third parties,
including content providers, medical advisors or users. We could also be
subject to liability for content that may be accessible through our web site or
third party web sites linked from our web site or through content and
information that may be posted by users in chat rooms or bulletin boards. Even
if these claims do not result in liability to us, investigating and defending
against these claims could be expensive and time consuming and could divert
management's attention away from operating the business.
OUR INTELLECTUAL PROPERTY MAY BE SUBJECT TO INFRINGEMENT CLAIMS OR MAY BE
INFRINGED UPON
Our intellectual property is important to our business. We could be
subject to intellectual property infringement claims as the number of our
competitors grows and the functionality of our applications overlaps with
competitive offerings. These claims, even if not meritorious, could be expensive
and divert management's attention from our operations. If we become liable to
third parties for infringing their intellectual property rights, we could be
required to pay a substantial damage award and to develop noninfringing
technology, obtain a license or cease selling the applications that contain the
infringing intellectual property. We may be unable to develop noninfringing
technology or obtain a license on commercially reasonable terms, or at all. In
addition, we may not be able to protect against misappropriation of our
intellectual property. Third parties may infringe upon our intellectual property
rights. If we do not detect any unauthorized use, we may be unable to enforce
our rights.
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OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE CANNOT ATTRACT AND RETAIN KEY
PERSONNEL
Our future operating results will substantially depend on the ability
of our officers and key employees to manage changing business conditions and to
implement and improve our technical, administrative, financial control and
reporting systems. We need to attract, integrate, motivate and retain highly
skilled technical people. In particular, we need to attract and retain
experienced computer, engineering, marketing, management and other professionals
capable of developing, selling and installing complex healthcare information
systems. We face intense competition for these people.
OUR BUSINESS COULD BE ADVERSELY AFFECTED AS A RESULT OF OUR INTERNATIONAL
EXPANSION
One element of our strategic alliance with The News Corporation Limited
is the formation of WebMD International as a joint venture with News Corporation
to launch our services worldwide, other than in the U.S. and Japan. In addition,
we have formed an international joint venture in Japan with one of our strategic
partners. We have extremely limited experience in developing localized versions
of our products and services. WebMD International and any future international
ventures may not be successful in launching our services into foreign markets.
A MATERIAL PORTION OF OUR PRACTICE MANAGEMENT SYSTEMS BUSINESS IS DEPENDENT ON
MEDICAL MANAGER HEALTH SYSTEMS' PRINCIPAL PRODUCTS, AND WE ARE EXPOSED TO RISKS
RELATED TO PROBLEMS WITH ANY OF THESE PRODUCTS
Medical Manager Health Systems currently derives a significant
percentage of its revenue from sales of The Medical Manager core physician
practice management system. As a result, any event adversely affecting this core
product could have a material adverse effect on our results of operations,
financial condition or business. Although Medical Manager Health Systems has
experienced increasing annual sales, on a pro forma basis, revenue associated
with existing products could decline as a result of several factors, including
price competition. Beginning in calendar year 2000, the physician practice
management system industry began to experience a slowdown in demand. This trend
impacted Medical Manager Health Systems' operating results for the three
months ended March 31, 2000, and we expect the trend towards lower operating
results to continue for the near term resulting, in part, from lower margin
service revenues replacing higher margin software upgrades, and from the
previous acquisition of Physician Computer Network, which business historically
has experienced lower margins. Medical Manager Health Systems intends to
introduce new software products at the end of calendar year 2000, and we
anticipate that demand for software products will increase. We cannot assure you
that Medical Manager Health Systems will continue to be successful in marketing
its current products or any new or enhanced products.
THE NATURE OF POREX'S PRODUCTS EXPOSE IT TO PRODUCT LIABILITY CLAIMS AND MAY
MAKE IT DIFFICULT TO GET ADEQUATE INSURANCE COVERAGE
The products sold by Porex expose it to potential risk for product
liability claims, particularly with respect to Porex's life sciences, clinical,
surgical and medical products. We believe that Porex carries adequate insurance
coverage against product liability claims and other risks. We cannot assure you,
however, that claims in excess of Porex's insurance coverage will not arise. In
addition, Porex's insurance policies must be renewed annually. Although Porex
has been able to obtain adequate insurance coverage at an acceptable cost in the
past and believes that it is adequately indemnified for products manufactured by
others and distributed by it, we cannot
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assure you that in the future Porex will be able to obtain this insurance at an
acceptable cost or be adequately protected by this indemnification.
PROVISIONS OF OUR CHARTER, BYLAWS OR DELAWARE LAW MAY HAVE AN ANTI-TAKEOVER
EFFECT
Certain provisions of our certificate of incorporation and bylaws may
discourage an attempt to acquire control of WebMD. These provisions may render
the removal of one or all directors more difficult or deter or delay corporate
changes of control that our board of directors did not approve. The provisions
of our certificate of incorporation or bylaws that may have an anti-takeover
effect include the following:
- the board of directors is divided into three classes, as nearly
equal in size as possible, with staggered terms of office and with
one class elected annually
- the board is entitled to issue preferred stock in one or more series
and to fix the designations, preferences, powers and rights of the
shares to be included in each series
- directors may be removed only for cause by a majority of the shares
entitled to vote in the election of directors
- any vacancy on the board of directors may be filled only by a
majority of the directors remaining in office
- our bylaws require advance written notice by any stockholder who
wishes to make a board nomination or recommend other stockholder
business
- only the board of directors, president or stockholders holding at
least 10% of the outstanding shares are entitled to call a special
meeting of the stockholders
- no stockholder action can be taken by written consent.
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