Wygod, Martin J.

(1940-)
WebMD Corporation

Overview

Martin J. "Marty" Wygod, chairman of the board of directors and CEO of the WebMD Corporation, is a financier and pharmaceutical executive who has developed a reputation as an incredibly savvy investor. He has often displayed a knack for anticipating investment fads and for turning huge profits on investments in a relatively short time. Throughout his career, Wygod has demonstrated a particular talent for buying small companies, merging them with other companies to form a new company, and then selling the conglomerate for enormous amounts of money.

Personal Life

Martin J. Wygod was born in New York City in 1940. He graduated from New York University, in New York City, in 1961 with a BS degree in business administration. After graduating, he worked as a stockbroker on Wall Street. Later, he formed his own brokerage company, which he sold for $10 million when he was 29 years old. In the early 1970s, he ran his own merchant bank and he eventually entered the health care field in the 1980s, focusing on cost–containment services. In 1992, the Business Journal of New Jersey named Wygod as the most highly paid executive in New Jersey, based on his annual salary of $459,028 plus stock options.

When Wygod was young, he developed a love for horses. As a teenager he walked horses at the racetracks at Belmont and Aqueduct. He is involved in racing, boarding and breeding thoroughbred horses, and is President of River Edge Farm, Inc., in Bedminster, New Jersey.

Career Details

For Marty Wygod, it all started with a $20,000 seed fund given to him by his mother. Through subsequent investments and acquisitions, he turned that relatively modest gift into approximately $50 million by the 1980s.

One of his early and profitable investments involved Computer Sciences Corporation. It was 1964 and computer technology was starting to develop and grow. Thus, Wygod believed that investors would soon be clamoring for computer software stocks. With that in mind, he put $75,000 into Computer Sciences. Wygod's instincts proved correct. By 1970, the investment returned a profit of $5 million. Wygod made himself even richer when he invested in the private stock of Computax, another computer company. When the company went public, the stock value increased from $10 to $100.

The mid–1960s were an especially prosperous time for the young financier. When he was 26 years old, he started his own brokerage firm and, three years later, he sold it for $10 million. Even though he could have chosen not to work for the rest of his life, Wygod remained active. In the 1970s, he ran a merchant bank.

It was during that period that he first became interested in health care investments. In 1977, he bought, along with fellow investors Bernie Marden and Albert Weiss, a controlling interest in Glasrock Medical Services, an Atlanta company that produced medical plastics. Wygod's initial investment of $2 million turned into $125 million when, in 1982, he sold most of his interest in the company, along with interest in another company to a British company. Wygod was only 43 years old, and yet he still entertained no thoughts about early retirement. Instead, he used his profits to start Porex Technologies in January 1983.

By then, Wygod wanted to get into the mail–order prescription drug business. He had heard about National Pharmacies, a small, mail–order drug company that provided funded health benefit plans. National Pharmacies, he learned, had revenues of about $25 million and profits of about $400,000. Wygod also learned that it was part of financier Victor Posner's APL Corp. Wygod paid Posner $30 million in Porex stock and cash for it, and then set out to find business for his new company. He merged Porex with National Pharmacies to form Medco Containment Services Incorporated and, in six months, he had signed up several corporate–funded drug benefit plans, including those offered by Alcoa, General Motors and Georgia–Pacific.

Wygod based Medco in Fair Lawn, New Jersey, setting it up as a pharmacy–benefit management company focused on the sale of prescription medicines. With the help of financiers Michael Milken and Drexel Burnham, Medco's market value shot up to $290 million. (Eventually it would become a $2.6–billion company with a net income of $138 million.)

Wygod became more firmly entrenched in health care after his 1985 acquisition of Paid Prescriptions from Computer Sciences Corporation. The move gave Medco access to a national network of 40,000 drugstores that accepted its health care card.

By 1991, Medco had benefited from the robust growth of funded drug benefit plan coverage in the United States. In 1983, only about 5 percent of the population were covered. By the early 1990s, 40 percent were covered. Medco was mailing maintenance drugs through 900 funded benefit drug plans of corporations, unions, HMOs and state retirement systems. Also, it boasted of its exceptional service and lower prices. According to Forbes's Howard Rudnitsky, Medco "specialized in maintenance medication drugs," including prescriptions for "blood pressure, arthritis, diabetes, gastrointestinal problems and other chronic ailments." Rudnitsky added, "Medco claimed it was saving customers 20 percent or more" over retail pharmacy prices. At the time, "independent retail pharmacists and state pharmacy boards lobbied to restrict mail order drug services." However, they were unsuccessful.

Chronology: Martin J. Wygod

1940: Born.

1961: Graduated from New York University.

1964: Invested in Computer Sciences Corp.

1977: Bought Glasrock Medical Services.

1982: Sold Glasrock for $125–million profit.

1983: Formed Medco Containment Services.

1992: Sold Medco to Merck.

1999: Established CareInsite Incorporated.

2000: Became co–CEO of WebMD.

2001: Named chairman of the board of WebMD.

To make itself even more attractive to customers, Medco created its Prescribers Choice program, which took its service to a higher level. Beyond the maintenance drugs, Medco, with the addition of the new program, was involved in therapeutic drug categories in which drugs were priced at different levels. This is how the program worked: If a prescription for the more expensive brand of drug in those categories was mailed to Medco, while an equivalent drug could be prescribed at a lower price, then a Medco pharmacist notified the prescribing physician. Obviously, some major pharmaceutical companies were uncomfortable with the program. But others felt is was better than cost–containment programs run by HMOs that offered reimbursement for only one or two drugs prescribed for a condition.

In 1992, Wygod made a deal with Merck and Company, a major pharmaceutical manufacturer, to buy Medco for $6.6 billion. As part of the deal, Wygod became a member of Merck's board of directors, and he continued running Medco. It turned out to be another sweet deal. When Wygod eventually left Merck toward the end of the decade, he took with him more than $250 million in stock and fees from the merger. The profit bought him a 100–acre ranch in Rancho Santa Fe, California.

By 1994, nearly 33 million Americans were covered by Medco–administered drug benefit plans, and Medco had become more than just a mail–order company. The major retail pharmacy chains and most independent pharmacies were accepting Medco's benefit card. The card enabled the user to get his or her prescription filled for little or nothing. Medco reimbursed the retailer and charged the benefit plan at its discount rates.

When Wygod left Merck, he became chairman of Synetic, an online medical company that subsequently merged with Medical Manager Corp. In May 1989, Wygod became chairman of the board of Medical Manager, a position he held until September 2000.

In 1999, Wygod, together with a group of former Medco colleagues, helped establish CareInsite Inc., an Internet–based health care corporation. The aim of the web site was to provide physicians, pharmacists, and payers with an Internet–efficient method of accessing and exchanging medical information, as well as claims processing and information retrieval services. CareInsite automated and put online the rules that govern managed care and dictate treatments and drugs that doctors can provide to their patients. Essentially, it was an online Medco. He served as chairman of the board of CareInsite from 1999 until September 2000.

Wygod scheduled an IPO for June 1999, with the system set to debut in strategic locations including New York City in September. Before that happened, however, Merck went to court in February 1999 to stop the site's implementation. Wygod and his partners, Merck claimed, had signed non–competition agreements with Merck's Medco pharmacy benefit manager. Wygod countered that the agreement expired in May 1999 and filed his own suit in July 1999. It was Wygod's contention that Merck was out to eliminate competition.

Despite Merck's lawsuit and the complexity of Wygod's business model, as well as the deeply troubled health care industry, CareInsite made it to the market. In February 2000, it was acquired by WebMD. As a result of other acquisitions and mergers, WebMD became the largest processor of electronic transactions in the health care industry. It was also the top consumer health care web portal as well as a leading provider of software services to physician offices.

Wygod, who entered WebMD via CareInsite, served as co–chief executive officer of WebMD from September 2000 until October 2000, sharing the CEO reins with Jeffrey Arnold. Wygod became sole chief executive of the Atlanta–based WebMD when Arnold resigned. At the time, WebMD, like many dot.com companies formed in the late 1990s, began experiencing significant financial trouble. In May 1999, its stocks had reached a high of $105 a share. Soon after, though, the value plummeted. Wygod took over at a time when WebMD required massive restructuring because of substantial overlap created when WebMD acquired several companies. Besides CareInsite, these companies included Envoy, Medical Manager, and OnHealth Network. The overhaul resulted in the company laying off more than 1,000 employees and eliminating many of its costly strategic alliances. The company said the restructuring could help it save about $250 million by the fourth quarter of 2001.

The restructuring plan included two phases. The first phase involved WebMD consolidating its offices and data centers, reducing marketing and promotional expenses, and eliminating redundant positions. The second phase involved consolidating sales forces and focusing on customer service, generating revenue, and eliminating non–strategic and non–profitable products and contracts.

In April 2001, Wygod was appointed chairman of the board of WebMD. He remained the company's CEO. He was confident the he and WebMD would finally be able to pull off what others couldn't: a profitable e–health enterprise. Wygod's goals, according to BusinessWeek Online, included "constructing tight digital links between insurers, doctors, and patients. Analysts said the measures could possibly save WebMD at least $50 billion in processing and other back–office costs."

One of the ways Wygod and WebMD hoped to get out of the red was to offer a new piece of technology: a hand–held device for doctors. The company would charge between $250 and $400 per month for a service that doctors can use to perform tasks that would include writing prescriptions, conducting lab inquiries, and monitoring billing.

Social and Economic Impact

Whenever anyone goes to the pharmacy to fill a prescription, and they present a card that provides them with a substantial discount, they are benefiting, in part, by Martin Wygod's involvement in the health care industry and cost–containment practices. Wygod helped revolutionize medical billing when he got into the mail order prescription business in the 1980s. As chairman and CEO of Medco, Wygod turned the company into a major player in the mail–order prescription drug industry.

Besides making a great deal of money with his investment strategies, Wygod, in the process, essentially transformed the drug distribution business when he created Medco Containment Services, which was an intermediary between health plans and pharmacies. Medco administered the health plan's rules for prescribing medication. As a result, it saved the payers' money by monitoring doctor's prescriptions and indicated when less expensive drugs were available and appropriate.

Sources of Information

Contact at: WebMD Corporation
669 River Dr., Ctr. 2
Elmwood Park , NJ 07407
Business Phone: (201) 703–3400
URL: http://www.webmd.com

Bibliography

Barrett, Amy, "Marty Wygod Stuns Health–Care Industry—Again," BusinessWeek Online. 15 February 2000. Available at http://www.businessweek.com/bwdaily.

Burroughs, Don L., "Merck's Medicine Man." U.S. News and World Report. 21 February 1994.

Businessweek.com, "Marty Wygod," Business Week Online. 14 May 2001. Available at http://www.businessweek.com/magazine/content.

Rudnitsky, Howard, "Drugs by Mail." Forbes. 15 April 1991.

Rudnitsky, Howard "There's Plenty for Everyone." Forbes. 11 February 1985.