McKesson Restructures Struggling Internet Unit
McKesson HBOC Inc. on Monday named co-chief executive John Hammergren as sole president and CEO and said it was restructuring its money-losing Internet unit, led by co-CEO David Mahoney, who will leave the company.
The largest U.S. drug wholesaler said it will take a fiscal fourth-quarter charge of an undetermined amount for restructuring. The changes are effective April 1.
The IMcKesson business became a separate enterprise in June, selling health-care management software and providing services that let doctors order lab tests and prescriptions online and verify patients’ insurance eligibility. Doctors didn’t sign up for the services as fast as the company expected, and investor enthusiasm for Internet health companies has waned.
The IMcKesson unit “has been a source of growing losses for the company and clearly it needed some reorganization,” said Lehman Bros. analyst Lawrence Marsh. “IMcKesson was a creation of the Internet world of last year and this is a statement that the overall company had lost patience about funding losses.”
The IMcKesson unit lost $29 million in the first three quarters of its fiscal year, Marsh said. He said he expects it to lose an additional $14 million in the fiscal fourth quarter, which ends in March.
Shares of San Francisco-based McKesson rose $1.08 to close at $32.54 on the New York Stock Exchange.
Hammergren told investors the company would eliminate jobs as the businesses are combined. He didn’t say how many jobs would be cut.
Analysts said doctors weren’t quick to sign up for the online services and the company decided not to invest more money in the Internet business until there was a better market.
“There is no longer the value premium that once existed in the public markets for e-health companies,” Hammergren told investors on a conference call.
McKesson named Hammergren and Mahoney co-chief executives in 1999 after it ousted previous managers over accounting irregularities at the company’s newly acquired software business, HBO & Co.
Before becoming co-CEO in charge of IMcKesson, Mahoney, who has been with McKesson for 10 years, led the company’s pharmaceuticals services business.
Now that IMcKesson will no longer be a separate company, it makes sense to have just one CEO and let Hammergren continue with those duties, Banc of America Securities analyst Leonard Yaffe said.
Yaffe said he expects Mahoney will become a “significant part of a management team in a health-care related high-tech company.”
IMcKesson’s medical management business, which runs call centers for health maintenance organizations and other health-care providers, will remain a stand-alone unit.
