This section describes
circumstances or events that could have a negative effect on our financial results or operations or that could change, for the worse, existing trends in some or all of our businesses. The occurrence of one or more of the circumstances or events
described below could have a material adverse effect on our financial condition, results of operations and cash flows or on the trading prices of our Common Stock and Convertible Notes or of securities that we may issue in the future. The risks and
uncertainties described in this Quarterly Report are not the only ones facing us. Additional risks and uncertainties that are not currently known to us, or that we currently believe are immaterial, may also adversely affect our business and
operations.
Risks Related to the Pending Acquisition of WebMD by Internet Brands
We will be subject to business uncertainties while the acquisition of WebMD by Internet Brands is pending
While the acquisition of WebMD by Internet Brands (which we refer to below as the Transaction) is pending, uncertainty about the effect of the
Transaction may impact our ability to attract, retain and motivate key personnel and could cause customers, vendors and other third parties to seek to terminate or modify their business relationships with us. Although we intend to take steps
designed to reduce any business uncertainties from the pending Transaction, those steps may not be effective. If we are unable to attract or retain qualified employees, or if customers, vendors or other third parties terminate or otherwise seek to
terminate or modify their relationships with us, it could adversely affect our business, financial condition and results of operations. In addition, integration planning while the Transaction is pending could place a significant burden on
management, employees and other internal resources, which could otherwise have been devoted to pursuing other business opportunities. We could also be involved in litigation relating to the Transaction, which could be costly and disruptive to our
business.
Failure to complete the Transaction could negatively impact our business and our stock price
The completion of the Transaction is subject to a number of conditions, including: WebMD’s stockholders tendering a sufficient number of
shares; receipt of required regulatory approvals in the United States, Germany and Austria or the expiration or termination of the applicable waiting period with respect thereto; and the absence of a material adverse effect on WebMD. Failure to
satisfy these and other conditions may delay or preclude our ability to complete the Transaction. If the Transaction is not completed, whether due to the failure to satisfy required closing conditions or otherwise, our business and stock price could
be negatively affected. In addition, we will have incurred substantial transaction costs, without our stockholders receiving the benefits of the Transaction.
Risks Related
to Our Operations and the Healthcare Content We Provide
If we are unable to provide content and services that attract users to
The WebMD Health Network, our advertising and sponsorship revenue could be reduced
Users of
The WebMD Health Network
have
numerous other online and offline sources of healthcare information and related services. Our ability to compete for user traffic on
The WebMD Health Network
depends
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upon our ability to make available a variety of health, wellness and medical content, decision-support applications and other services that meet the needs of a variety of types of users,
including consumers, physicians and other healthcare professionals, with a variety of reasons for seeking information. Our ability to do so depends, in turn, on:
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our ability to hire and retain qualified authors, journalists and independent writers and healthcare professionals;
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our ability to license quality content from third parties; and
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our ability to monitor and respond to increases and decreases in user interest in specific topics.
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If consumers and healthcare professionals do not perceive our content, applications and tools to be useful, reliable and trustworthy, we may
not be able to attract or retain users or otherwise maintain or increase the frequency and duration of their engagement with our health information services. We cannot assure you that we will be able to continue to develop or acquire needed content,
applications and tools at a reasonable cost. In addition, since consumers may be attracted to
The WebMD Health Network
as a result of a specific condition or for a specific purpose, it is difficult for us to predict the rate at which they
will return. Because we generate revenue by, among other things, selling sponsorships of specific pages, sections or events on
The WebMD Health Network
, a decline in user traffic levels or a reduction in the number of pages viewed by users
could cause our advertising and sponsorship revenue to decrease and could have a material adverse effect on our results of operations. However, overall traffic to
The WebMD Health Network
does not have a direct correlation to our advertising
and sponsorship revenue. Our ability to generate advertising and sponsorship revenue depends primarily on our ability to create content on specific topics and to program various parts of
The WebMD Health Network
to build and maintain traffic
in areas most important to our advertising and sponsorship clients. If we are unable to do that, our advertising and sponsorship revenue could decrease even if our overall traffic remains the same or increases.
A significant portion of the traffic to The WebMD Health Network is directed to us through algorithmic search results on Internet search
engines and, if we are listed less prominently in search result listings or our traffic from search is otherwise reduced, our business and operating results could be harmed
A significant portion of the traffic to
The WebMD Health Network
is directed to us through the algorithmic search results on Internet
search engines. In addition to providing quality content and tools, we seek to produce and deliver our content and tools in ways that will cause them to rank well in algorithmic search engine results, which makes it more likely that search engine
users will visit our Websites. This is commonly referred to as search engine optimization, or SEO. However, there can be no assurance that our SEO efforts will succeed in improving the ranking of our content or, even if they do result in such
improvement, that the improved ranking will result in increased numbers of users and page views for our Websites. In addition, search engines frequently change the criteria that determine site rankings in their search results or make other changes
and our SEO efforts may not be successful if we do not respond to those changes appropriately and on a timely basis. Search engine providers may also prioritize search results generated by certain types of queries, including health-related queries,
based on criteria they select, which could, in some circumstances, reduce the ranking that would otherwise be provided to our Websites and increase the ranking of other sites. If we are unable to respond effectively to changes made by search engine
providers in their algorithms and other processes or to respond effectively to other factors and challenges that may impair our ability to attract traffic through search, a substantial decrease in traffic to
The WebMD Health Network
could
occur, which could cause our revenue to decrease and could have a material adverse effect on our results of operations. We cannot predict if, or how long, efforts to improve SEO or otherwise increase traffic may take to mitigate any such declines.
Search engine providers also typically display, together with algorithmic search results, content and links that may divert traffic from
the pages referenced in the algorithmic search results, including: advertisements that are presented with the algorithmic search results for which the search engine provider receives compensation (sometimes referred to as paid search results); and
health-related or other content and links that the search engine
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provider selects and displays in response to the specific search queries in a format determined by the search engine provider. Accordingly, even if we rank highly in algorithmic search results,
traffic to our Websites may be reduced as a result of paid search results and other content included on the search results page generated by a search query. We cannot control the amount, quality or presentation of such paid search results and other
content and, accordingly, we cannot predict any reductions in our traffic that may occur from time to time as search engine providers make changes in their policies and procedures regarding paid search results or regarding any other content they
provide. In addition, to the extent that there is a reduction in the total volume of health-related searches on Internet search engines, traffic to
The WebMD Health Network
could also be reduced and we may have little or no ability to take
steps to mitigate the effect on our traffic. In addition, we have experienced in the past, and may experience in the future, declines in traffic to
The WebMD Health Network
from search for reasons that we are unable to identify. Any resulting
reduction in our traffic for any of the reasons described above, if significant, could cause our revenue to decrease and could have a material adverse effect on our results of operations.
If we fail to maintain successful monetization strategies for smartphone traffic, our financial results could be adversely affected
The number of people, including the number of physicians and other healthcare professionals, who access online content and
services through smartphones has increased rapidly and is expected to continue to increase. Accordingly, the portion of our page views from smartphones has increased rapidly and is expected to continue to increase. The monetization of smartphone
page views can be challenging because of the smaller screen size. If we are unable to maintain successful monetization strategies for smartphone traffic, our financial results could be negatively affected.
Our initiative to provide content in online locations outside The WebMD Health Network may not increase our audience and, even if it
does, may not be profitable
We are in the process of working to enable users to more easily discover, share and interact with
content from WebMD not just on our Websites but also in other online locations and, in support of this initiative, we are creating new content offerings tailored for specific social networks and platforms and building our capabilities to create
video content. If we are not successful in creating content offerings that support this initiative, our ability to compete for advertising and sponsorship revenue may be reduced. Even if we are successful in creating such content offerings and users
respond favorably, there can be no assurance that we will be able to adequately monetize audience usage of such content or to drive sufficient traffic to our own Websites to make this initiative profitable.
We face significant competition for our healthcare information products and services
The markets for healthcare information products and services are intensely competitive, continually evolving and, in some cases, subject to
rapid change.
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The WebMD Health Network
faces competition from numerous other companies, both in attracting users and in generating revenue from advertisers and sponsors. We compete for users with Websites and mobile
applications that provide health-related information, including both commercial ones and
not-for-profit
ones. We compete for advertisers and sponsors with:
health-related Websites and mobile applications; general interest consumer Websites that offer specialized health
sub-channels
or functions; other high-traffic Websites that include both healthcare-related and
non-healthcare-related
content and services, including social media Websites; search engines; and advertising networks that aggregate traffic from multiple sites.
The WebMD Health Network
also faces
competition from: traditional media and offline publications and information services; and manufacturers and distributors of activity trackers, heart rate monitors, blood pressure monitors and similar devices relating to health and wellness that can
download data to a PC, tablet or smartphone, as well as numerous other companies developing applications and tools for use with those devices.
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Our
WebMD Health Services
platform and related services, including health coaching and condition management services compete with: providers of online health management applications, including personal health
records; wellness and disease management vendors; and competing services provided by health insurance companies, employee benefits services companies, and their affiliates. Employers may also decide to develop similar solutions for their own
populations rather than obtaining solutions from
WebMD Health Services
or its competitors.
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Many of our competitors
have greater financial, technical, product development, marketing and other resources than we do. These organizations may be better known than we are and may have more customers or users than we do. We cannot provide assurance that we will be able
to compete successfully against these organizations. In addition, we expect that competitors will continue to enter these markets. The competition we face for our services may result in fewer or smaller customer commitments or pressure to reduce
prices, which could reduce our profit margins.
Developing and implementing new and updated services may be more difficult than
expected and may not result in sufficient increases in revenue to justify the costs
In order to attract and retain users of our
Websites and mobile applications and clients for our
WebMD Health Services
platform and related services, we must continue to improve the technology underlying our services and continue to develop new and updated offerings. If we are unable
to do so on a timely basis or if we are unable to implement new offerings without disruption to our existing ones, we may lose potential users and clients.
We rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop our Websites, mobile
applications and related features and services. Our development and/or implementation of new technologies, features and services may cost more than expected, may take longer than originally expected, may require more testing than originally
anticipated and may require the acquisition of additional personnel and other resources. There can be no assurance that the revenue opportunities from any new or updated technologies, applications, features or services will justify the amounts
spent.
Failure to effectively identify, assess and pursue new business initiatives could adversely affect our company and its
prospects
We are working to broaden our portfolio of services and taking steps to diversify our client base and revenue streams.
The development of new products and services in response to evolving trends in healthcare and evolving technologies for Internet-based and mobile services, as well as the identification of new business opportunities in this dynamic environment,
requires significant time and resources. We may not be able to respond quickly enough or in a cost-effective manner, appropriately time the introduction of new products and services to the market or identify new business opportunities in a timely
manner. In addition, while evolving technologies may offer new opportunities, they may also present additional challenges, including challenges relating to security and privacy.
Some of the business initiatives we are working on have challenges that are different from those associated with our existing products and
services and could strain our financial, operational and management resources. Furthermore, there can be no assurance that the potential revenue streams from any investments that we may make in pursuing new business opportunities will justify the
amounts spent. Failure to effectively identify, assess and pursue new business initiatives may adversely affect our company and its prospects.
Failure to continue to enhance the analytic capabilities we use to demonstrate the value of our services to advertisers and sponsors
could adversely affect our ability to market our services
We continue to work to enhance the analytic capabilities we use to
demonstrate to advertisers and sponsors how promotional strategies implemented through
The WebMD Health Network
impact physician and consumer
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behaviors and preferences. Our ability to demonstrate the value of advertising and sponsorship on
The WebMD Health Network
depends, in part, on our ability to provide accurate and reliable
analytics and measurement capabilities and to continue to improve such capabilities. If we are unable to demonstrate such analytic capabilities, it could adversely affect our ability to market our services or to satisfy client expectations and
commitments that rely on analytics to measure performance and, as a result, we may lose business to competitors even if our advertising and sponsorship services are superior to theirs.
Restrictions on our ability to access or use various forms and sources of data could adversely impact our business
We are increasingly using data analytics based on information that we collect regarding usage of
The WebMD Health Network
, as well as
other third-party sources of data. Our use of data regarding users of
The WebMD Health Network
is governed by the privacy policies posted on those sites and is designed to comply with applicable laws and regulations as is our use of any
third-party data. In addition, we sell certain information products and services on a stand-alone basis using
de-identified
data that we license from a small number of third-party data sources, of which the
principal source is a license from Change Healthcare to HLTH Corporation (HLTH). As the successor to HLTH, this license provides us the rights to certain
de-identified
data from Change Healthcare through early
February 2018 for use in the development and commercialization of various information products and services as to which we pay Change Healthcare a royalty. To date, these stand-alone information products and services do not include any data derived
from the operation of our Websites. We are seeking to acquire additional third-party data sources and to develop data generated from our Website operations in order to diversify our data product offerings.
Our revenue from the stand-alone products and services that utilize data under the current Change Healthcare license is highly profitable and
is reported net of the royalties and commissions that we pay to Change Healthcare or others. Our license agreement with Change Healthcare will expire in early February 2018, and we expect that if such agreement is replaced with new third-party data
sources, the terms of any such replacement license would not be as favorable to us as those in the current agreement. In addition, as described in Note 6 to the consolidated financial statements included in this Quarterly Report, Change Healthcare
filed a lawsuit in April 2017 challenging WebMD’s rights under the license agreement to continue to use the data delivered to WebMD during the term of the agreement after the agreement’s expiration in early February 2018. We are exploring
other sources of third-party data and uses of our first party data to generate additional revenue streams, but we are early in that process. Accordingly, we expect that the sales of, and the profits generated by, our information services business
will be materially adversely affected by the expiration, in early February 2018, of our license agreement with Change Healthcare.
Changes
to our ability to access or use data could adversely affect our ability to implement improved analytics or to offer information products on a stand-alone basis. Accordingly, our business could be adversely impacted if, for any reason (including, but
not limited to, changes in applicable laws and regulations) the data we use becomes unavailable or the conditions on its availability are not commercially reasonable or are inconsistent with our planned usage. In addition, the quality of our data
analytics depends on the reliability of the information that we are able to obtain. If the information we use contains errors or is otherwise unreliable, analyses we create and actions we take based on those analyses could be wrong, which could hurt
our reputation and business.
Failure to maintain and enhance the “WebMD” and “Medscape” brands and our other
brands could have a material adverse effect on our business
We believe that the “WebMD” and “Medscape” brand
identities that we have developed have contributed to the success of our business and have helped us achieve recognition as a trusted source of health and wellness information and tools for consumers and of online content for physicians and other
healthcare professionals. We also believe that maintaining and enhancing those brands, as well as our other brands, is important to expanding the user base for
The WebMD Health Network
and to our relationships with sponsors and advertisers.
The “WebMD” brand is also important to our ability to gain additional employer and healthcare payer clients for our
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WebMD Health Services
platform and related services. We have expended considerable resources on establishing and enhancing the “WebMD” and “Medscape” brands and our
other brands, and we have developed policies and procedures designed to preserve and enhance our brands, including editorial procedures designed to provide quality control of the information we publish. We expect to continue to devote resources and
efforts to maintain and enhance our brands. However, we may not be able to successfully maintain or enhance our brands, and events outside of our control may have a negative effect on our brands. If we are unable to maintain or enhance our brands,
and do so in a cost-effective manner, our business could be adversely affected.
The markets we participate in are relatively new
and continue to change
We participate in relatively new markets. These markets, and our business, have undergone significant
changes during their short history and can be expected to continue to change. Many companies with business plans based on providing healthcare information and related services online and through mobile platforms have failed to be profitable and some
have filed for bankruptcy or ceased operations. Even if demand from users exists, we cannot assure you that our business will be profitable.
The standards that our advertising and sponsorship clients apply to our services continue to evolve, including standards for ad delivery,
placement and frequency and for measuring the effectiveness of our services as compared to other alternatives available to our clients. Our ability to meet such standards as they change in the future will be important to our ability to compete for
business, and we cannot provide assurance that we will be able to do so or estimate what the costs for doing so may be. For example, standards are continuing to evolve in the online advertising marketplace regarding the viewability of online
advertising, or the length of time an advertisement is visible to a user as determined by a third-party verification source. We cannot predict how the requirements of advertisers will continue to evolve. If we fail to meet the standards that our
advertisers require, our advertising revenues could be reduced.
Our failure to attract and retain qualified executives and
employees may have a material adverse effect on our business
Our business depends largely on the skills, experience and
performance of key members of our management team and other key employees. We also depend, in part, on our ability to attract and retain qualified writers and editors, software developers and other technical personnel, healthcare professionals, and
sales and marketing personnel. Competition for qualified personnel in the healthcare information services and Internet industries is intense. We cannot assure you that we will be able to hire or retain a sufficient number of qualified personnel to
meet our requirements, or that we will be able to do so at costs that are acceptable to us. Failure to do so may have an adverse effect on our business.
Our advertising and sponsorship revenue may vary significantly from quarter to quarter and its amount and timing may be subject to
factors beyond our control, including regulatory changes
Our advertising and sponsorship revenue may vary significantly from
quarter to quarter due to a number of factors, many of which are not within our control, and some of which may be difficult to forecast accurately, including potential effects on demand for our services as a result of regulatory changes affecting
advertising and promotion of drugs and medical devices and general economic conditions. The majority of our advertising and sponsorship programs are for terms of approximately four to twelve months. We have relatively few longer term advertising and
sponsorship programs. We cannot assure you that our current advertisers and sponsors will continue to use our services beyond the terms of their existing commitments or that they will enter into any additional commitments.
The time between the date of initial contact with a potential advertiser or sponsor regarding a specific program and the execution of a
commitment with the advertiser or sponsor for that program, as well as the additional time period before our services are delivered, may be longer than expected, especially for
medium-sized
and larger
contracts, and may be subject to delays over which we have little or no control,
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including as a result of budgetary constraints of the advertiser or sponsor or their need for internal approvals, including internal approvals relating to compliance with the laws and regulations
applicable to the marketing of healthcare products. We have experienced, from time to time, a lengthening of this internal review process by pharmaceutical and biotechnology companies, which has resulted in delays in contracting as well as delays in
recognizing expected revenue under executed commitments. Other factors that could affect the timing of contracting for specific programs with advertisers and sponsors, or receipt of revenue under such contracts, include the timing of:
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U.S. Food and Drug Administration (FDA) approval for new products or for new indications or uses for approved products;
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any adverse determinations by the FDA affecting products previously approved or expected to be approved or the permitted uses of such products or their marketing;
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FDA approval of generic products that compete with existing brand name products and any increase in the number or significance of such approvals;
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recalls, withdrawals or shortages of products from the market;
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consolidation of companies in the pharmaceutical and biotechnology industries;
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rollouts of new or enhanced services on
The WebMD Health Network
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seasonal factors relating to the prevalence of specific health conditions and other seasonal factors that may affect the timing of promotional campaigns for specific products; and
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the scheduling of conferences for physicians and other healthcare professionals.
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Some of our
pharmaceutical company customers have experienced patent expirations for certain of their products in the past several years and some are expected to experience patent expirations over the next several years. In the pharmaceutical industry, patent
expirations allow for competition from lower-priced generic versions of the patented drugs and generally result in the termination of marketing efforts for the drug (unless the FDA awards regulatory exclusivities beyond the patent term). In
addition, expirations of patents that result in a significant reduction in revenue for a pharmaceutical company can lead to reductions in their advertising and sponsorship expenditures for other drugs in their product portfolios or for their entire
product portfolio.
Applications and other software that can block advertisements could reduce demand for our advertising and
sponsorship products and decrease our revenue
We derive a significant portion of our revenue from advertising and sponsorship on
The WebMD Health Network
. Applications and software are available that can block or obscure the display of advertisements or block the cookies used to deliver such advertisements, or shift the location in which advertising appears on pages.
While the use of
ad-blocking
programs by visitors to
The WebMD Health Network
has been limited to date and our audience consists primarily of individuals who have not typically adopted
ad-blocking
programs so far, if these programs gain acceptance among our users in the future, they could reduce our ability to deliver advertisements to our audience which, in turn, could reduce demand for our
advertising and sponsorship products and cause our revenue from those products to decrease.
Mergers and acquisitions among our
clients may reduce the volume of our services purchased by the consolidated company following such a transaction, which could harm our operating results
Mergers and acquisitions among our pharmaceutical, biotechnology and medical device company clients have in the past and could in the future
reduce the number of our clients and potential clients. Similarly, mergers and acquisitions among health insurance company clients of our
WebMD Health Services
platform could reduce the number of those clients. In addition, when companies
consolidate, the number of vendors used for services, or the amount spent, by the separate companies may be reduced by the consolidated entity and some vendors and services may no longer be used at all. Any such event could have a negative effect on
our revenue and profitability and we cannot provide assurance that we would be able to mitigate any such negative effect.
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We may be unsuccessful in our efforts to generate advertising and sponsorship revenue from
consumer products companies
Much of our advertising and sponsorship revenue has, in the past, come from pharmaceutical,
biotechnology and medical device companies. We also seek to generate advertising and sponsorship revenue from consumer products companies that are interested in communicating health-related or safety-related information about their products to our
audience. However, while many consumer products companies are increasing the portion of their promotional spending used on the Internet, we cannot assure you that these advertisers and sponsors will find our consumer Websites to be as effective for
promoting their products and services as competing channels, which include traditional media, Internet search engines, social media Internet sites, general interest consumer sites, and numerous other alternatives. Competition for this business may
also result in smaller customer commitments or pressure to reduce prices, both of which could reduce our profit margins even if we are able to generate revenue. In addition, revenues from consumer products companies are more likely to reflect
general economic conditions, and to be reduced to a greater extent during economic downturns, than revenues from pharmaceutical, biotechnology and medical device companies. Accordingly, revenues from this portion of our business may be subject to
significant
quarter-to-quarter
variations and we may be unsuccessful in our efforts to develop it further.
Lengthy sales and implementation cycles for our WebMD Health Services platform and certain contractual rights of our clients make it
difficult to forecast our revenues and may have an adverse impact on our results of operations
The period from our initial contact
with a potential client for our
WebMD Health Services
platform and entry into a contract for a subscription to our solution by the client is difficult to predict. In the past, this period has generally ranged from six to twelve months, but in
some cases has been longer. Potential contracts may be subject to delays or cancellations due to a client’s internal procedures for approving large expenditures and other factors beyond our control, including the effect of general economic
conditions on the willingness of potential clients to subscribe to our
WebMD Health Services
solution. The time it takes to implement our
WebMD Health Services
platform is also difficult to predict and has lasted as long as six months
from contract execution to the commencement of live operation. Implementation may be subject to delays based on the availability of the internal resources of the client that are needed and other factors outside of our control. As a result, we have
limited ability to forecast the timing of revenue from clients. This, in turn, makes it more difficult to forecast our financial performance for future periods and may have an adverse impact on our results of operations.
During the contracting cycle and the implementation period, we may expend substantial time, effort and money preparing contract proposals,
negotiating contracts and implementing our
WebMD Health Services
platform without receiving any related revenue. In addition, many of the expenses related to providing our platform are relatively fixed in the short term, including personnel
costs and technology and infrastructure costs. If our health services revenue is lower than expected, we may not be able to reduce related short-term spending in response. Any shortfall in such revenue would have a direct impact on our results of
operations.
In addition, some of our client contracts permit termination, by the client, prior to the end of the stated contract term for
some or all of the services to be provided, which can make it more difficult to forecast our future financial performance and may have an adverse impact on our results of operations.
Our ability to renew existing agreements with employers and health plans will depend, in part, on our ability to continue to develop and
update our offerings and to increase usage of our services by their employees and plan members
In a healthcare market where a
greater share of the responsibility for healthcare costs and decision-making has been shifting to consumers, use of information technology (including personal health records) to assist consumers in making informed decisions about healthcare has also
increased. We believe that through our
WebMD Health Services
platform as well as our health coaching programs and our targeted condition management programs, we are well positioned to play a role in this environment. However, our strategy
depends,
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in part, on increasing usage of our services by our employer and health plan clients’ employees and plan participants and being able to demonstrate a sufficient return on investment and
other benefits for our clients from those services. Increasing usage of our platform and related services requires us to continue to develop new and updated applications, features and services. In addition, there are numerous competitors for the
services we provide, many of which have greater financial, technical, product development, marketing and other resources than we do, and may be better known than we are. We cannot provide assurance that we will be able to meet our development and
implementation goals or that we will be able to compete successfully against other vendors offering competitive services and, if we are unable to do so, we may experience static or diminished usage of our platform and related services, possible
non-renewals
of our customer agreements and, since some customers have the right to terminate or modify existing agreements before the end of the full contract term, possible terminations for some or all of the
services to be provided.
The condition management programs that we provide to clients of our WebMD Health Services platform involve
risk and challenges with which we have limited experience and may not be profitable
We provide condition management services to
clients of our
WebMD Health Services
platform and plan to continue to expand that portion of our business. Our current offerings include programs targeting individuals struggling with coronary artery disease, congestive heart failure,
diabetes, chronic obstructive pulmonary disease and asthma. Our condition management programs include ongoing, intensive
one-on-one
coaching by condition specialists,
along with targeted online resources and progress tracking tools. Providing condition management services involves new risks and challenges for us, including: potential requirements to obtain and retain licenses, permits and regulatory clearances
and approvals related to these services; difficulty in quantifying the costs savings and other benefits for our clients from these services; and difficulty in differentiating our condition management services from those of competitors, some of whom
may be able to provide such services at a lower cost. We cannot predict the demand among our existing
WebMD Health Services
clients and other potential clients for our condition management services and cannot provide assurance that the
revenue opportunities from providing our current offerings or ones for additional conditions will justify the costs involved in maintaining or developing the required capabilities and delivering the services to clients.
Contractual relationships with governmental customers may impose special burdens on us and provide special benefits to those customers,
including the right to change or terminate the contract in response to budgetary constraints or policy changes
A portion of our
revenues comes from customers that are governmental agencies or vendors to such agencies. Government contracts and subcontracts may be subject to some or all of the following:
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termination when appropriated funding for the current fiscal year is exhausted or becomes unavailable;
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termination for the governmental customer’s convenience, subject to a negotiated settlement for costs incurred and profit on work completed, along with the right to place contracts out for bid before the full
contract term, as well as the right to make unilateral changes in contract requirements, subject to negotiated price adjustments;
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“most-favored” pricing disclosure requirements that are designed to ensure that the government can negotiate and receive pricing akin to that offered commercially and requirements to submit proprietary cost or
pricing data to ensure that government contract pricing is fair and reasonable;
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commercial customer price tracking requirements that require contractors to monitor pricing offered to a specified class of customers and to extend price reductions offered to that class of customers to the government;
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reporting and compliance requirements related to, among other things: equal employment opportunity, affirmative action for veterans and for workers with disabilities, and accessibility for the disabled;
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broader audit rights than we would usually grant to
non-governmental
customers; and
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specialized remedies for breach and default or failure to meet service level commitments, including setoff rights, retroactive price adjustments, and civil or criminal fraud penalties, as well as mandatory
administrative dispute resolution procedures instead of state contract law remedies.
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In addition, certain violations of federal law may
subject government contractors to having their contracts terminated and, under certain circumstances, suspension and/or debarment from future government contracts.
Expansion to markets outside the United States subjects us to additional risks
One element of our growth strategy is to seek to expand our online services to markets outside the United States. In certain markets
outside the United States, we expect to accomplish this through partnerships or joint ventures with other companies having expertise in the specific country or region, while in other such markets we expect to rely primarily on our own internal
resources. In certain markets outside of the United States, we are providing some of our online services in the local language directly to healthcare professionals. We also provide our online services in English to healthcare professionals outside
the United States. Our participation in international markets is subject to certain risks beyond those applicable to our operations in the United States, such as:
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challenges caused by cultural differences;
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difficulties in staffing and managing operations from a distance;
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uncertainty regarding liability for services and content;
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potential burdens of complying with a wide variety of legal, regulatory and market requirements, as well as uncertainty as to the applicability of
non-U.S.
laws to operations
based in the United States and regarding the interpretation of such laws by local authorities;
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potential regulation or interpretation of existing regulation that could limit or eliminate our ability to distribute one or more of our products in one or more countries;
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variability of economic and political conditions, including the extent of the impact of adverse economic conditions in markets outside the United States;
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exposure to applicable anti-corruption laws, including but not limited to the U.S. Foreign Corrupt Practices Act;
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tariffs or other trade barriers;
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fluctuations in currency exchange rates;
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potentially adverse tax consequences, including restrictions on repatriation of earnings; and
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difficulties in protecting intellectual property.
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In addition, outside the United States, we face competition
from locally based companies that have experience doing business in their home countries or regions and familiarity with local business practices, customs and laws and, as a result, generally do not face, or are better positioned to face, the risks
described above.
Risks Related to the Internet and Our Technological Infrastructure
Any service interruption or failure in the systems that we use to provide online services could harm our business
Our online services are designed to operate 24 hours a day, seven days a week, without interruption. However, we have experienced and expect
that we will in the future experience interruptions and delays in services and availability from time to time. We rely on internal systems as well as third-party vendors, including
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data center providers, bandwidth providers and mobile carriers, to provide our online services. We may not maintain redundant systems or facilities for some of these services. In the event of a
catastrophic event with respect to one or more of these systems or facilities, we may experience an extended period of system unavailability, which could negatively impact our relationship with users. In addition, system failures may result in loss
of data, including user registration data, business intelligence data, content, and other data critical to the operation of our online services, which could cause significant harm to our business and our reputation.
To operate without interruption or loss of data, both we and our service providers must guard against:
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damage from fire, power loss and other natural disasters;
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communications failures;
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software and hardware errors, failures and crashes;
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security breaches, computer viruses, distributed
denial-of-service
attacks and similar disruptive problems; and
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other potential service interruptions.
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Any disruption in the network access or
co-location
services provided by third-party providers to us or any failure by these third-party providers or our own systems to handle current or higher volume of use could significantly harm our business. We
exercise little control over these third-party vendors, which increases our vulnerability to problems with services they provide. Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and
information services or our own systems could negatively impact our relationships with users and adversely affect our brand and our business and could expose us to liabilities to third parties. Although we maintain insurance for our business, the
coverage under our policies may not be adequate to compensate us for all losses that may occur. In addition, we cannot provide assurance that we will continue to be able to obtain adequate insurance coverage at an acceptable cost.
Failure to update our technology infrastructure could adversely affect our business
Evolving technologies could require us to modify our technology infrastructure and any failure to do so on a timely basis may limit the types
of services we can provide or the quality of those services, and may put us in a weaker position relative to our competitors. Competitors with newer technology infrastructure may also have greater flexibility and be in a position to respond more
quickly than us to new opportunities, which may impact our competitive position in certain markets and adversely affect our business.
Implementation of updates to our technology infrastructure may result in performance problems and may not provide the additional
functionality that was expected
From time to time, we implement additions to or changes in the hardware and software platforms we
use for providing our online services. During and after the implementation of additions or changes, a platform may not perform as expected, which could result in interruptions in operations, an increase in response time or an inability to track
performance metrics. In addition, in connection with integrating acquired businesses, we may move their operations to our hardware and software platforms or make other changes, any of which could result in interruptions in those operations. Any
significant interruption in our ability to operate any of our online services could have an adverse effect on our relationships with users and clients and, as a result, on our financial results. We rely on a combination of purchasing, licensing,
internal development, and acquisitions to develop our hardware and software platforms. Our implementation of additions to or changes in these platforms may cost more than originally expected, may take longer than originally expected, and may require
more testing than originally anticipated. In addition, we cannot provide assurance that additions to or changes in these platforms will provide the additional functionality and other benefits that were originally expected.
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If the systems we use to provide our online services experience security breaches or are
otherwise perceived to be insecure, our business could suffer
We retain and transmit confidential information, including personal
health records, in the processing centers and other facilities we use to provide our online services. It is critical that these facilities and infrastructure remain secure and be perceived by the marketplace as secure. A security breach could damage
our reputation or result in liability. We may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by breaches. Despite the implementation of security
measures, this infrastructure or other systems that we interface with, including the Internet and related systems, may be vulnerable to physical
break-ins,
hackers, improper employee or contractor access,
computer viruses, programming errors,
denial-of-service
attacks or other attacks by third parties or similar disruptive problems. Because the techniques used by hackers
to sabotage or to obtain unauthorized access to computer systems change frequently, we may be unable to anticipate specific types of attacks or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the
market perception of the effectiveness of our security measures could be harmed and we could lose users, customers, advertisers or publishers. Any compromise of our security, whether as a result of breaches or failures of our own systems or the
systems with which they interface, could reduce demand for our services and could subject us to legal claims from our clients and users, including for breach of contract or breach of warranty.
Our online services are dependent on the development and maintenance of the Internet infrastructure
Our ability to deliver our online services is dependent on the development and maintenance of the infrastructure of the Internet by third
parties. 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. The Internet has also 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 usage, the Internet infrastructure may be unable to support the demands placed on it. In addition, the reliability and
performance of the Internet may be harmed by increased usage or by
denial-of-service
attacks. Any resulting interruptions in our services or increases in response time
could, if significant, result in a loss of potential or existing users of and advertisers and sponsors on our Websites and, if sustained or repeated, could reduce the attractiveness of our services.
Customers who utilize our online services depend on Internet service providers and other Website operators for access to our Websites. Many of
these providers have experienced significant outages in the past and they could experience outages, delays and other difficulties in the future due to system failures unrelated to our systems. Any such outages or other failures on their part could
reduce traffic to our Websites.
Third parties may challenge the enforceability of our online agreements
The law governing the validity and enforceability of online agreements and other electronic transactions is evolving. We could be subject to
claims by third parties that the online terms and conditions for use of our Websites, including disclaimers or limitations of liability, are unenforceable. A finding by a court that these terms and conditions or other online agreements are invalid
could harm our business.
We could be subject to breach of warranty or other claims by clients of our online services if the
software and systems we use to provide them contain errors or experience failures
Errors in the software and systems we use could
cause serious problems for clients of our online services. We may fail to meet contractual performance standards or client expectations. Clients of our online services may seek compensation from us or may seek to terminate their agreements with us,
withhold payments due to us, seek refunds from us of part or all of the fees charged under those agreements or initiate litigation or other dispute resolution procedures. In addition, we could face breach of warranty or other claims by clients, or
additional development costs. Our software and systems are inherently complex and, despite testing and quality control, we cannot be certain that they will perform as planned.
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We attempt to limit, by contract, our liability to our clients for damages arising from our
negligence, errors or mistakes. However, contractual limitations on liability may not be enforceable in certain circumstances or may otherwise not provide sufficient protection to us from liability for damages. We maintain liability insurance
coverage, including coverage for errors and omissions. However, it is possible that claims could exceed the amount of our applicable insurance coverage, if any, or that this coverage may not continue to be available on acceptable terms or in
sufficient amounts. Even if these claims do not result in liability to us, investigating and defending against them would be expensive and time consuming and could divert management’s attention away from our operations. In addition, negative
publicity caused by these events may delay or hinder market acceptance of our services, including unrelated services.
Risks Related
to the Healthcare Industry, Healthcare Regulation and Internet Regulation
Developments in the healthcare industry that reduce
spending by healthcare industry participants generally could adversely affect our business
Our business could be adversely
impacted by changes in the structure of the healthcare industry and other changes that reduce healthcare spending. We are particularly dependent on pharmaceutical, biotechnology and medical device companies for our advertising and sponsorship
revenue. General reductions in expenditures by healthcare industry participants could result from, among other things:
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changes in government regulation or private initiatives that affect the manner in which healthcare industry participants interact with patients, payers (including governmental payers) or other healthcare industry
participants, including any such regulations or initiatives that seek to control the pricing or means of delivery of healthcare products and services or that create restrictions on the advertising or promotion of healthcare products and services;
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consolidation of healthcare industry participants;
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reductions in governmental funding for healthcare; and
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adverse changes in business or economic conditions affecting healthcare payers or providers, pharmaceutical, biotechnology or medical device companies or other healthcare industry participants.
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Developments in the healthcare industry that reduce spending in the specific market segments that we participate in could adversely
affect our business
Even if overall expenditures by industry participants remain the same or increase, developments in the
healthcare industry may result in reduced spending in some or all of the specific market segments that we serve or are planning to serve. For example, use of our products and services could be affected by:
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changes in the design of health insurance plans or governmental programs that pay for healthcare products and services;
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the timing of FDA (or European or other national regulatory authority) approvals for new products or for new approved indications or uses for existing products and any decrease in the number or significance of new
drugs, biological products or medical devices coming to market or new approved uses for existing products;
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the timing of FDA (or European or other national regulatory authority) approvals of generic products that compete with existing brand name products and any increase in the number or significance of such approvals or of
withdrawals of brand name products from the market;
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the timing of FDA (or European or other national regulatory authority) approvals of biosimilars to approved biological products and any increase in the number or significance of such approvals or of withdrawals of
biological products from the market; and
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decreases in marketing expenditures by pharmaceutical or medical device companies, including as a result of governmental regulation or private initiatives that discourage, restrict or prohibit advertising, sponsorship
or educational activities by pharmaceutical or medical device companies or that discourage, restrict or prohibit their use of online services for some or all such activities.
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In addition, our customers’ expectations regarding pending or potential industry developments may also affect their budgeting processes
and spending plans with respect to products and services of the types we provide. Federal and state governments have increased scrutiny of pricing practices for prescription drugs and biological products in recent years. The heightened scrutiny
could potentially lead to additional pricing regulations or other changes in how those products are distributed and the roles played by various industry participants in that distribution. We cannot predict the effect that such scrutiny or any
resulting changes may have on the marketing plans of our customers in future periods or their future use of our services.
The healthcare
industry has changed significantly in recent years, and we expect that significant changes will continue to occur. However, the timing and impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the
markets for our products and services will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets.
Changes to the Affordable Care Act and other healthcare reform efforts could affect some of our healthcare industry customers and
clients
Political, economic, regulatory and enforcement influences are subjecting the healthcare industry in the U.S. to
fundamental changes. There have been, and we expect there will continue to be, legislative and regulatory proposals to change the healthcare system in ways that could impact the various healthcare entities with which we contract. In particular, we
anticipate that the U.S. Executive Branch, U.S. Congress, state legislatures and the private sector will continue to consider and may adopt healthcare policies intended to curb rising healthcare costs, particularly given the ongoing scrutiny
regarding healthcare pricing in the U.S. generally, and prescription drug pricing specifically. Such policies could limit the prices our advertisers and sponsors charge for their healthcare-related products or services, limit the commercial
opportunities of our advertisers and sponsors and/or negatively impact revenues collected by our advertisers and sponsors. We are particularly dependent on our healthcare clients, which primarily include pharmaceutical, biotechnology, and medical
device companies, for our advertising and sponsorship revenue. Our advertisers and sponsors may face cost reduction measures and, in response, reduce their expenditures or postpone expenditure decisions, including expenditures for our services,
which could have material adverse effects on our business.
One law in particular with a significant impact on the healthcare industry is
the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (which we refer to as the Affordable Care Act), which was signed into law in March 2010. The Affordable Care Act made extensive
changes to the system of healthcare insurance and benefits in the U.S. There may be additional legislative and regulatory changes, including the potential repeal and replacement of key portions of the Affordable Care Act. However, the nature and
scope of any such changes remains unclear. While we do not currently anticipate any significant adverse effects on WebMD as a direct result of the application of the Affordable Care Act, as currently enacted or as it may be amended, to our business
or on our company in its capacity as an employer, we are unable to predict what the indirect impacts will be on WebMD’s business through its effects on other healthcare industry participants, including pharmaceutical and medical device
companies that are advertisers and sponsors of
The WebMD Health Network
and employers and health plans that license our
WebMD Health Services
platform. Healthcare industry participants may respond to the Affordable Care Act or to
uncertainties created by the potential statutory and regulatory changes by reducing their expenditures or postponing expenditure decisions, including expenditures for our services, which could have a material adverse effect on our business.
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Government regulation of healthcare creates risks and challenges with respect to our
compliance efforts and our business strategies
The healthcare industry is highly regulated and is subject to changing political,
legislative, regulatory and other influences. Existing and new laws and regulations affecting the healthcare industry could create unexpected liabilities for us, could cause us to incur additional costs and could restrict our operations. Many
healthcare laws are complex, and their application to specific products, services, and business arrangements may not be clear. In particular, many existing healthcare laws and regulations, when enacted, did not anticipate the healthcare information
services that we provide. However, these laws and regulations may nonetheless be applied to our products, services, and business arrangements. Our failure to accurately anticipate the application of these laws and regulations, or other failure to
comply, could create liability for us, result in adverse publicity and negatively affect our business. Even in areas where we are not subject to healthcare regulation directly, we may become involved in governmental actions or investigations through
our relationships with customers that are regulated, and participation in such actions or investigations, even if we are not a party and not the subject of an investigation, may cause us to incur significant expenses. Some of the risks we face from
healthcare regulation are as follows:
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U.S. Regulation of Drug and Medical Device Advertising and Promotion. The WebMD Health Network
provides services involving advertising and promotion of prescription and
over-the-counter
drugs and medical devices and claims of nutritional supplements. If the FDA or the Federal Trade Commission (FTC) finds that any of our products and services or any information on
The
WebMD Health Network
, in our mobile applications, or in
WebMD Magazine
violates applicable laws, regulations or guidance documents, they may take administrative or judicial action against us and/or the advertiser or sponsor of that
information. State attorneys general may take similar action based on their respective states’ consumer protection statutes. Any increase or change in regulation of drug or medical device advertising and promotion, especially if it relates to
promotional activities involving the Internet or social media, could make it more difficult for us to contract for sponsorships and advertising and could have a material adverse effect on our revenues and results of operations. We cannot predict how
our customers or others in the industry might implement regulations or guidance in the future or how its implementation might affect our business. Private industry initiatives have resulted in voluntary restrictions, which advertisers and sponsors
have agreed to follow. In December 2016, Congress passed the 21st Century Cures Act (the Cures Act) which contained a number of provisions designed to speed development of innovative therapies, to provide public science funding, and to adjust how
the FDA evaluates new medical products and new indications for existing prescription drugs and devices. The FDA is developing plans for implementing the Cures Act. Accordingly, it is difficult to predict what effect, if any, the Cures Act might have
on our business.
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Non-U.S.
Regulation of Drug and Medical Device Advertising and Promotion.
To the extent that
The WebMD Health Network
reaches users outside of the United States, our
Websites may be required to comply with the national laws of the respective countries whose users they address. In many countries, the advertising of prescription drugs to the general public is not allowed and, accordingly, these countries generally
require access restrictions for Websites that contain such advertisements, which are only allowed to be addressed to healthcare professionals. In addition, there are laws and regulations regarding the use of indirect or disguised marketing, and
regarding the offering and providing of gifts or benefits with promotional purpose that are not of minor value.
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Anti-Kickback Laws.
There are federal and state laws that govern patient referrals, physician financial
relationships and inducements to healthcare providers and patients. The federal anti-kickback law prohibits any person or entity from offering, paying, soliciting or receiving anything of value, directly or indirectly, in exchange for the referral
of patients for items or services reimbursed by Medicare, Medicaid and other federal healthcare programs, or to induce or reward the leasing, purchasing, ordering or arranging for or recommending the lease, purchase or order of any item, good,
facility or service reimbursed by these programs. Many states and European countries also have similar anti-kickback laws that are not necessarily limited to items or services for which payment is made by a government
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healthcare program. These laws are applicable to any person or entity, including manufacturers and distributors and, therefore, may restrict how we and some of our customers market products to
healthcare providers. We carefully review our practices with regulatory experts in an effort 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. Penalties for violating the federal anti-kickback law include imprisonment, fines and exclusion from participating, directly or indirectly, in Medicare, Medicaid and
other federal healthcare programs. Any determination by a state, federal, or foreign 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 some
portions of our business and could have an adverse effect on our business. Even an unsuccessful challenge by regulatory authorities of our practices could cause us to incur significant costs or cause adverse publicity. In addition, enforcement or
the potential for enforcement of these laws against some of our customers may influence the services we are able to offer and/or our customers’ willingness to continue to use our services.
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False Claims Laws.
The Federal False Claims Act imposes liability on any person or entity who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a
Federal healthcare program. The whistleblower (or “
qui tam
”) provisions of the Federal False Claims Act allow a private individual to bring actions on behalf of the Federal government alleging that the defendant has submitted a
false claim to the federal government and to share in any monetary recovery. After the filing of a
qui tam
suit, the Federal government may intervene and control the case; if it does not, the private individual may pursue the claim on his or
her own. In addition, various states and European countries have enacted false claim laws analogous to the Federal False Claims Act, and many of these laws apply where a claim is submitted to any third-party payor and not merely a federal healthcare
program. When an entity is determined to have violated the Federal False Claims Act, it may be required to pay up to three times the actual damages sustained by the government plus civil penalties. In recent years, an increasing number of Federal
False Claims Act cases have been brought against drug manufacturers and resulted in significant monetary settlements and imposition of federally supervised corporate integrity agreements in circumstances that include allegations that
company-sponsored continuing medical education (or CME) was unlawful
off-label
promotion. It is not clear whether there is a basis for the application of the Federal False Claims Act to the types of services
that WebMD provides. However, plaintiffs have in the past, and may in the future, seek to name us as defendants in these types of cases. Any action against us for violation of these laws could cause us to incur significant legal expenses and may
adversely affect our ability to operate our business. Similarly, False Claims Act actions and resulting corporate integrity agreements involving our customers may reduce the use of our services by our advertising and sponsorship clients.
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Medical 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. If a state determines that some portion of our business violates these laws, it may seek to have us discontinue those portions or subject us to penalties or licensure requirements.
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Regulation of Mobile Medical Applications and Other Mobile Health Technology.
The FDA has issued guidance
regarding mobile medical applications and other mobile health technology, clarifying the agency’s intent to regulate only those applications that meet the agency’s definition of “device” and could pose a risk to patients’
safety if they fail to work as intended. The FDA is exercising enforcement discretion with respect to certain lower risk mobile applications that meet the device definition, such as those that maintain or encourage a general state of health or a
healthy activity. Mobile applications that do not meet the device definition are beyond the FDA’s jurisdiction and, accordingly, are not subject to the agency’s oversight. In February 2015, the FDA issued guidance stating it would refrain
from exercising enforcement over certain products that promote health or healthy lifestyles that reduce the risk or impact of certain diseases or conditions. The Cures Act identifies specific categories of medical software that will not be regulated
as medical devices. The FDA is developing guidance to further clarify its position
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on the scope of regulation for mobile health technologies. Based on the new legislation and the FDA’s current policies, we believe that none of our existing online services and mobile
applications are subject to regulation as a medical device under applicable FDA regulations. We are required to determine whether FDA regulations would apply to any of our applications and the FDA could disagree with our determination. It is also
possible that products or services that we may offer in the future could subject us to such regulation or that current rules could change or be interpreted to apply to some of our existing online services or mobile applications. We cannot predict
what effect, if any, the new legislation or policies might have on our business but we will closely monitor the changes. In addition, it is possible that our mobile health offerings could fall under the scope of the FTC Act, the Health Insurance
Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009, or state consumer protection statutes. In April 2016, the FTC released a
web-based
tool in conjunction with the U.S. Department of Health and Human Services (HHS), Office of National Coordinator for Health Information Technology (ONC) and Office for Civil Rights (OCR), and the FDA, to
help mobile application developers determine which federal privacy laws might apply to their applications. State attorneys general recently have enforced state consumer protection statutes against mobile health developers. At the same time, the FTC
released guidance aimed at mobile health developer compliance with the FTC Act. In February 2016, OCR posted guidance on its mHealth Developer Portal regarding scenarios in which HIPAA might apply to mobile health applications. Complying with such
rules and regulations could be burdensome and expensive and could delay our introduction of new services or applications.
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We may be subject to claims brought against us as a result of content we provide
Consumers access health-related information through our online services, including information regarding particular medical conditions and
possible adverse reactions or side effects from medications. Physicians and other healthcare professionals use our services to access clinical reference sources, commentary from leading medical experts, medical news, and coverage of professional
meetings and conferences. If our content, or content we obtain from third parties, contains inaccuracies, it is possible that physicians, consumers, employees, health plan members or others may sue us for various causes of action. Although our
Websites and mobile applications contain terms and conditions, including disclaimers of liability, that are intended to reduce or eliminate our liability, the law governing the validity and enforceability of online agreements and other electronic
transactions is evolving. We could be subject to claims by third parties that our online agreements with consumers and physicians that provide the terms and conditions for use of our Websites and mobile applications are unenforceable. A finding by a
court that these agreements are invalid and that we are subject to liability could harm our business and require costly changes to our business.
We have editorial procedures in place to provide quality control of the information that we publish or provide. However, we cannot assure you
that our editorial and other quality control procedures will be sufficient to ensure that there are no errors or omissions in particular content. Even if potential 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 our operations. In addition, our business is based on establishing the reputation of our Websites as trustworthy and dependable sources of healthcare
information. Allegations of impropriety or inaccuracy, even if unfounded, could harm our reputation and business.
Government
regulation of the Internet could adversely affect our business
The Internet and its associated technologies are subject to various
laws and government regulation. Our failure, or the failure of our business partners or third-party service providers, to accurately anticipate the application of these laws and regulations to our products and services and the manner in which we
deliver them, or any other failure to comply with such laws and regulations, could create liability for us, result in adverse publicity and negatively affect our business. In addition, new laws and regulations, or new interpretations of existing
laws and regulations, may be adopted with respect to online services, including in areas such as user privacy, confidentiality, consumer protection, marketing, pricing, content, copyrights and patents, and characteristics and quality of products and
services.
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Failure to comply with laws relating to privacy and security of personal information,
including personal health information, could result in liability to us, and concerns about privacy-related issues could damage our reputation and our business
Privacy and security of personal information stored or transmitted electronically, including personal health information, is a major issue in
the United States and abroad. While we strive to comply with all applicable privacy and security laws and regulations, as well as our own posted privacy policies, legal standards for privacy (including, but not limited to, “unfairness” and
“deception” as enforced by the FTC and state attorneys general) continue to evolve, and any failure or perceived failure to comply may result in private party litigation against us or proceedings or actions against us by government
entities, or could cause us to lose users and customers, which could have a material adverse effect on our business. There has recently been an increase in the number of privacy-related lawsuits filed against companies. In addition, we are unable to
predict what additional legislation or regulation in the area of privacy of personal information, including personal health information, could be enacted and what effect that could have on our operations and business. Concerns about our practices
with regard to the collection, use, disclosure, or security of personal information or other privacy-related matters, even if unfounded and even if we are in compliance with applicable laws, could damage our reputation and harm our business.
The Privacy Standards and Security Standards under HIPAA establish a set of national privacy and security standards for the handling of
protected health information by health plans, healthcare clearinghouses and healthcare providers (referred to as “covered entities”) and their “business associates,” which are persons or entities that perform certain services
for, or functions or activities on behalf of, a covered entity (or another business associate) that involve the creation, receipt, maintenance, or transmission of protected health information. Certain portions of our business, such as those managing
employee or plan member health information for employers or health plans, are subject to HIPAA as business associates of covered entities. In addition to imposing privacy and security requirements, HIPAA also creates obligations for us to report any
unauthorized acquisition, access, use or disclosure of protected health information, known as a breach, to our covered entity customers. The 2013 final HITECH rule modified the breach reporting standard in a manner that made more data security
incidents qualify as reportable breaches. In addition, HITECH and its implementing regulations imposed similar data breach notification requirements on vendors of personal health records that require us to notify affected individuals, the FTC, and,
in some cases, the media in the event of a data breach involving the unsecured personal information of users of
The WebMD Health Network
. Violations of HIPAA may result in civil and criminal penalties and could damage our reputation and harm
our business. HITECH increased civil penalty amounts for violations of HIPAA and significantly strengthened enforcement by requiring HHS to conduct periodic audits to confirm compliance and authorizing state attorneys general to bring civil actions
seeking either injunctions or damages in response to violations of HIPAA Privacy Standards and Security Standards that threaten the privacy of state residents. In July 2016, OCR announced a new phase of the HIPAA Audit Program, which for the first
time targets business associates. Audits may, in certain circumstances, lead to full compliance reviews, with the potential for civil or criminal penalties. We cannot assure you that we will adequately address the risks created by these amended
HIPAA Privacy Standards and Security Standards. In addition, we are unable to predict what changes to these Standards might be made in the future or how those changes, or other changes in applicable laws and regulations, could affect our business.
In Europe, transfers of EU individuals’ personal data from EU member states to countries not recognized as having adequate
protections for personal data, which includes the U.S., are now regulated by the Directive 95/46/EC and its national implementations. The
U.S.-EU
Safe Harbor Framework, previously used widely to legitimize
transfers of personal data from the EU to the U.S, was declared invalid in 2015. On July 12, 2016, the European Commission adopted the
EU-U.S.
Privacy Shield to replace the
U.S.-EU
Safe Harbor Framework. The Privacy Shield is intended to protect the fundamental rights of anyone in the EU whose personal data are transferred to the U.S. to a Privacy-Shield certified organization.
U.S. companies that self-certify to meeting the requirements of the new framework are required to among other things post a privacy policy on their Websites, and are required to reply promptly to any complaints. We are continuing to assess the need
for, and form of any
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transfer mechanism we may use. Criminal sanctions in Europe for violations of national implementations of the data protection Directive 95/46/EC and of the
e-Privacy
Directive 2002/58/EC are rarely imposed, though national implementations provide for both criminal and administrative sanctions. For example, France provides for administrative fines of up to
3,000,000 Euros in case of illegal collection or processing of personally identifiable information. Under the General Data Protection Regulation (GDPR), a European-side privacy regulation that will be fully enforceable by May 25, 2018 and which,
among other things (as described below), contains similar regulation of cross-border personal data transfers, there will be fines of up to 10,000,000 Euros or up to 2% of the global sales (whichever is higher) for certain comparatively minor
offenses, or up to 20,000,000 Euros or up to 4% of the global sales (whichever is higher) for more serious offenses.
Changes in the
regulatory environment or in industry practices relating to user privacy could limit our ability to serve advertisements to consumers based on online behavior, which could adversely affect our revenue
Internet and mobile user privacy, personal data security and the use of consumer information to track online activities are major issues both
in the United States and abroad. The FTC and state attorneys general continue to pay close attention to Internet privacy issues and, under their current unfair or deceptive trade practices authority, have been active in investigating and entering
into consent decrees with companies because of the online privacy and data security practices of those companies. The FTC’s evolving privacy enforcement activities, as reflected in its workshops, reports and enforcement actions, may be relevant
to services we offer. In the U.S., there is a possibility of new legislation and regulation and increased enforcement activities relating to privacy and behavioral advertising. In addition, changes in industry practice (whether on their own or when
combined with regulatory changes) could adversely impact our ability to deliver advertisements based on online behavior. For example, it is possible that at some point in the future, it will be a common Internet practice for Websites to honor
“Do Not Track” settings in Internet browsers that are turned on by default. Whether through industry practice or in combination with government regulation, such a development could limit our ability to serve advertisements to consumers
based on online behavior on third-party sites or on our sites, which could adversely affect our revenue.
In Europe, Directive 2009/136/EC
of the European Parliament and of the Council requires the user’s full information and consent prior to the installation and use of any
so-called
“cookie” on a user’s computer. This
Directive has been implemented differently, if at all, in member states of the European Union and national requirements to remain compliant with the respective laws may vary. Nevertheless, the provisions of this directive, whether or not effectively
implemented in national laws, are now applicable in all the member states of the European Union and enforcement actions are now being considered by local data protection authorities. In January 2017, the European Commission proposed a new
EU-wide
regulation to replace Directive 2009/136/EC, which if enacted, may impose new privacy requirements for electronic communications, including the use of “cookies” and similar technologies on a
user’s computer or mobile device. Separately, under the GDPR, various new requirements relating to Internet privacy will apply, including for users’ consent for offline and online marketing. European privacy regulators will likely continue
to publish guidance on GDPR requirements throughout 2017. In addition, the GDPR and recent case law in some European countries will increase the likelihood of the applicability of European law to entities established outside the European Union but
processing data of European data subjects.
We have privacy policies posted on our Websites that we believe comply with existing
applicable laws requiring notice to users about our information collection, use and disclosure practices. We also notify users about our information collection, use and disclosure practices relating to data we receive through offline means such as
paper health risk assessments. Moreover, we take steps to reasonably protect certain sensitive personal information we hold. We cannot assure you that the privacy policies and other statements we provide to users of our products and services, or our
practices, will sufficiently protect us from liability or adverse publicity in this area. A determination by a state or federal agency or court, or European data protection authority or competent court, that any of our practices do not meet
applicable standards, or the implementation of new standards or
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requirements, including, but not limited to the GDPR or a new “cookie” regulation in the EU, could adversely affect our business.
Failure to maintain CME accreditation could adversely affect Medscape, LLC’s ability to provide online CME offerings
Medscape, LLC’s continuing education activities for physicians and other healthcare professionals are planned and implemented in
accordance with the current Essential Areas and Elements and the Policies of the Accreditation Council for Continuing Medical Education (or ACCME), which oversees providers of CME credit, and other applicable accreditation standards. The
ACCME’s standards for commercial support of CME are intended to assure, among other things, that CME activities of ACCME-accredited providers, such as Medscape, LLC, are independent of “commercial interests,” which are defined as
entities that produce, market,
re-sell
or distribute healthcare goods and services, excluding certain organizations. Commercial interests and entities owned or controlled by commercial interests are ineligible
for accreditation by the ACCME. Medscape, LLC’s accreditation is a Joint Accreditation from the ACCME, the Accreditation Council for Pharmacy Education (as a provider of continuing education for pharmacy) and the American Nurses Credentialing
Center (as a provider of continuing education for nurses).
Medscape, LLC’s current ACCME accreditation expires in August 2022. If
Medscape, LLC
fails to maintain its status as an accredited ACCME provider (whether at the time of such renewal or at an earlier time as a result of a failure to comply with existing or additional ACCME standards), it will not be permitted to
certify CME activities for physicians and other healthcare professionals. Instead, Medscape, LLC would be required to use third parties to provide such
CME-related
services. That, in turn, could discourage
potential supporters from engaging Medscape, LLC to develop CME activities, which could have a material adverse effect on our business.
Government regulation and industry initiatives could adversely affect the volume of CME programming available on Medscape Education
CME activities may be subject to government oversight or regulation by Congress, the FDA, HHS, and local regulatory authorities,
both in the United States and abroad. Medscape, LLC, WebMD Global LLC and the financial supporters of their medical education activities may be subject to enforcement actions if any of these activities are deemed improperly promotional, potentially
leading to the termination of financial support. Additionally, Supporters of CME activities could be affected by industry initiatives regarding funding for CME which may cause them to decrease funding for CME activities.
Government authorities continue to examine pharmaceutical companies’ financial support of CME including public reporting requirements as
they relate to payments and transfers of value made to physician speakers and faculty involved in CME activities. These authorities’ interpretation of these reporting requirements, which has been evolving and may continue to change, could
affect pharmaceutical companies’ views of their reporting obligations with respect to payments in support of physician speakers and faculty for CME activities. In implementing internal controls and procedures that promote adherence to
applicable regulations and requirements, supporters of CME may interpret the regulations and requirements differently and may implement varying procedures or requirements. These regulations and requirements are subject to change, and the related
internal controls and procedures:
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may discourage pharmaceutical and medical device companies from providing grants for independent educational activities;
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may slow their internal approval for such grants;
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may reduce the volume of third-party supported educational programming on
Medscape Education
to levels that are lower than in the past, thereby reducing revenue; and
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may require Medscape, LLC and WebMD Global LLC to make changes to how they offer or provide educational programming.
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If we are not able to comply with applicable regulations and requirements, then our ability to
provide medical education programming will be limited, which could have an adverse effect on our business.
Failure to comply with
applicable anti-corruption laws could subject us to penalties and other adverse consequences
The United States and other countries
have adopted anti-corruption laws that generally prohibit directly or indirectly giving, offering or promising inducements to public officials to elicit an improper commercial advantage. Under applicable U.S., U.K., German, and most European laws,
this prohibition has been interpreted to apply to doctors and other medical professionals who work in
state-run
hospitals and
state-run
healthcare systems. Some of these
laws broadly prohibit bribery in both the private and public sectors, even to self-employed HCPs. In recent years, several global anti-corruption enforcement actions led to significant monetary penalties against several companies operating in the
global healthcare industry for providing illegal inducements to medical professionals.
As our business expands globally, we (and others
acting on our behalf) increasingly interact with public officials, including with doctors and other medical professionals, at least some of whom work in
state-run
hospitals or healthcare systems. Such
interactions inherently increase the risk of violating applicable anti-corruption laws. While we have implemented compliance policies and procedures to mitigate such risk, our personnel and others acting on our behalf could engage in conduct that
violates such laws, for which we could be held responsible. Under such circumstances, we could be subject to civil and/or criminal penalties and other consequences that could have a material adverse effect on our business, reputation, brand,
financial condition and results of operations.
Other Risks
Applicable to Our Company and to Ownership of Our Securities
Provisions in our organizational documents and Delaware law may
inhibit a takeover, which could adversely affect the value of our Common Stock
Our Restated Certificate of Incorporation and
By-laws,
as well as Delaware corporate law, contain provisions that could delay or prevent a change of control or changes in our management and board of directors that holders of our common stock might consider
favorable and may prevent them from receiving a takeover premium for their shares. These provisions include, for example, our classified board structure and the authorization of our board of directors to issue up to 50 million shares of
preferred stock without a stockholder vote. In addition, our Restated Certificate of Incorporation provides that stockholders may not act by written consent and may not call special meetings. These provisions apply even if an offer to purchase our
company may be considered beneficial by some of our stockholders. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.
If certain transactions occur with respect to our capital stock, limitations may be imposed on our ability to utilize net operating loss
carryforwards and tax credits to reduce our income taxes
WebMD has substantial accumulated net operating loss (NOL) carryforwards
and tax credits available to offset taxable income in future tax periods. If certain transactions occur with respect to WebMD’s capital stock (including issuances, redemptions, recapitalizations, exercises of options, conversions of convertible
debt, purchases or sales by
5%-or-greater
shareholders and similar transactions) that result in a cumulative change of more than 50% of the ownership of capital stock
over a three-year period (as determined under rules prescribed by Section 382 of the U.S. Internal Revenue Code and applicable Treasury regulations), an annual limitation would be imposed with respect to the ability to utilize WebMD’s NOL
carryforwards and federal tax credits that existed at the time of the ownership change.
In November 2008, HLTH repurchased shares of its
common stock in a self-tender offer. The self-tender offer resulted in a cumulative change of more than 50% of the ownership of HLTH’s capital, as determined under
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rules prescribed by Section 382 of the Code and applicable Treasury regulations. As a result of this ownership change, there is an annual limitation imposed on the amount of the NOL
carryforwards and federal tax credits existing at the time of the ownership change that we may use to offset income in each tax year following the ownership change.
In December 2016, WebMD repurchased shares of its common stock in a self-tender offer (the “2016 Self-Tender Offer”). Completion of
the 2016 Self-Tender Offer may increase the possibility of another ownership change, which could decrease the existing annual limitation and would apply to all NOL carryforwards and tax credits generated prior to this potential new ownership change.
We may not be successful in protecting our intellectual property and proprietary rights
Our intellectual property and proprietary rights are important to our businesses. The steps that we take to protect our intellectual property,
proprietary information and trade secrets may prove to be inadequate and, whether or not adequate, may be expensive. We rely on a combination of trade secret, patent and other intellectual property laws and confidentiality procedures and
non-disclosure
contractual provisions to protect our intellectual property. We cannot assure you that we will be able to detect potential or actual misappropriation or infringement of our intellectual property,
proprietary information or trade secrets. Even if we detect misappropriation or infringement by a third party, we cannot assure you that we will be able to enforce our rights at a reasonable cost, or at all. In addition, our rights to intellectual
property, proprietary information and trade secrets may not prevent independent third-party development and commercialization of competing products or services.
Third parties may claim that we are infringing their intellectual property, and we could suffer significant litigation or licensing
expenses or be prevented from providing certain services
We have been, and may continue to be, subject to claims that we are
misappropriating or infringing intellectual property or other proprietary rights of others. These claims, even if not meritorious, may be expensive to defend and divert management’s attention from our operations. If we become liable to third
parties for infringing these rights, we could be required to pay a substantial damage award and to develop
non-infringing
technology, obtain a license or cease selling the products or services that use or
contain the infringing intellectual property. We may be unable to develop
non-infringing
products or services or obtain a license on commercially reasonable terms, or at all. We may also be required to
indemnify our customers if they become subject to third-party claims relating to intellectual property that we license or otherwise provide to them, which could be costly.
Our business will suffer if we fail to successfully integrate acquired businesses and technologies or to assess the risks in particular
transactions
We have in the past acquired, and may in the future acquire, businesses, technologies, services, product lines and
other assets. The successful integration of the acquired businesses and assets into our operations, on a cost-effective basis, can be critical to our future performance. The amount and timing of the expected benefits of any acquisition, including
potential synergies between our company and the acquired business, are subject to significant risks and uncertainties. These risks and uncertainties include, but are not limited to, those relating to:
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our ability to maintain relationships with the customers of the acquired business;
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our ability to retain or replace key personnel of the acquired business;
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potential conflicts in sponsor or advertising relationships or in relationships with strategic partners;
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our ability to coordinate organizations that are geographically diverse and may have different business cultures; and
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compliance with regulatory requirements.
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We cannot guarantee that any acquired businesses
will be successfully integrated with our operations in a timely or cost-effective manner, or at all. Failure to successfully integrate acquired businesses or to achieve
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anticipated operating synergies, revenue enhancements or cost savings could have a material adverse effect on our business, financial condition and results of operations.
Although our management attempts to evaluate the risks inherent in each transaction and to value acquisition candidates appropriately, we
cannot assure you that we will properly ascertain all such risks or that acquired businesses and assets will perform as we expect or enhance the value of our company as a whole. In addition, acquired companies or businesses may have larger than
expected liabilities that are not covered by the indemnification, if any, that we are able to obtain from the sellers.
We may not
be able to raise additional funds when needed for our business or to exploit opportunities
Our future liquidity and capital
requirements will depend upon numerous factors, including the success of our service offerings, market developments, and repurchases of our common stock. We may need to raise additional funds to support expansion, develop new or enhanced
applications and services, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated opportunities. If required, we may raise such additional funds through public or private debt or equity
financing, strategic relationships or other arrangements. There can be no assurance that such financing will be available on acceptable terms, if at all, or that such financing will not be dilutive to our stockholders.
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