News that WebMD was taking itself private surprised many industry observers. Sure, business was soft, and the online healthcare behemoth had been treading water through the second half of 2011, but should that be enough to send the portal into the arms of a private equity firm? And what are the implications for other companies dependent on pharma advertising, if it’s that bad for WebMD?

In reporting dismal third-quarter revenues, the portal cited disappointing advertising from biopharma, which typically ramps up spend as the end of the year approaches to burn off unspent ad budgets. Not gonna happen this year, said WebMD, whose Q3 results advised: “revenue contribution of third quarter sales to fourth quarter revenue is expected to be less than anticipated and significantly less than historical experience,” “primarily as a result of a more cautious business outlook” by large customers.” Still, the firm projected full-year revenues up somewhere in the 3-5% range, though the second half dive in advertising holds ugly portends for 2012.

“With the pharmaceutical industry spend on digital marketing stuck at 5%, we understand our mission and will intensify our effort to roll out new products as well as demonstrate to our customers the unique WebMD capabilities that we believe will provide superior return on their marketing investment,” said WebMD chairman Martin Wygod at the time.

Privately-held WebMD competitor Everyday Health does not release performance figures, so it’s impossible to say for certain that it’s a sector-wide effect, but with so many big mass-market brands losing patent protection, a parallel plunge in ad spend shouldn’t come as a surprise. And as there’s no reason to expect an improvement in conditions anytime soon, WebMD may be looking to make some big changes to its business model – changes that could rattle investors, says Tom O’Connor, managing director of media banker Berkery Noyes.

“It’s tough to grow in this space and they may need to go private to do some heavy lifting that wouldn’t look good for a public company as they look to grow beyond MedScape and their consumer portal,” said O’Connor.

That could mean reducing their exposure to advertising-supported media by moving to a more “Software as a service”-centric hosted or recurring revenue model or making big acquisitions, said O’Connor.

“Everyday Health has taken a lot of money on and they’re acquiring and doing a lot of things WebMD needs to do to grow,” noted O’Connor. “They could do things as a private company that, long term, they couldn’t do as a public company.”

Going private would remove the short-term, quarter-to-quarter pressure, allowing the principals to focus on the firm’s core business, weather a few tough years and emerge on the other side with a profitable sale. It would also protect them from nettlesome investors like the notorious Carl Icahn, who has ramped up his holdings in WebMD in recent weeks. In November, management pushed through a “poison pill” stock purchase rights plan “designed to deter coercive takeover tactics” by limiting stock ownership.

The company may be reconsidering the sale, though. The New York Post reported earlier this week that private-equity firms courting the portal have been denied a look at WebMD’s books, and that bids were non-binding.

WebMD did not return calls – the Post’s or ours – on the story.