WebMD rises despite loss, probe

WebMD’s recent sizzling IPO suggests investors are willing to overlook issues ranging from the company losing money to an ongoing investigation by federal authorities.

What’s hanging over health information company WebMD? An investigation by the U.S. Attorney’s Office. The fact that WebMD’s one profitable year, 2004, would have been wiped out had options accounting rules now in place been in effect then. Disclosures by the man who chairs both WebMD and its parent that corporate governance experts say are unusual.

WebMD Corp. went public in 1999. On Sept. 30, the parent spun off WebMD Health Corp. WebMD Health, the offspring company, runs a group of Web sites explaining health issues to regular people. It went public on Sept. 29 at $17.50. It closed that day at $24.40 and has traded near $25 a share since.

A close reading of the company’s prospectus, though, shows the U.S. Attorney’s Office “has been investigating all levels of WebMD’s parent company’s management.” A company the parent bought, Medical Manager Corp., has been investigated for accounting improprieties, including artificially inflating revenues and earnings.

The prospectus said the company does not believe “any member of its senior management … not primarily related to the operations of Medical Manager engaged in the alleged improprieties.”