Another unicorn loses its horn–Outcome Health finally loses the CEO and president

click to enlargeAnother Theranos? Outcome Health is a point of ‘sale’ advertising company that has wrapped itself in ‘behavior change technology’. It’s been a Chicago darling and closed a $500 million Series A led by Goldman Sachs and Alphabet only last May. Its business in ‘transforming healthcare’ is the prosaic but highly lucrative placement of monitors in doctors’ offices that provide relentless health educational content liberally laced with DTC sponsorship messages, free to the doctors but paid for by pharma companies. This also includes tablets, exam room demo wallboards, and Wi-Fi in offices. The Series A pushed up the company’s valuation to $5.5 bn and made its CEO a billionaire.

What it didn’t do, like Theranos, was deliver. Before October last year, advertisers, backed up by former employees’ testimony, realized that the data were inflated in several ways: number of screens in offices, verification of actual runs, match lists that didn’t match to the screens, made-up survey numbers, and puffed up third-party analyses of the ads’ effectiveness, e.g. for prescriptions written. A Wall Street Journal article in October last year exposed the practices. When advertisers are fleeced, they may get mad, but then they get even. There were reported refunds in the millions to Pfizer, plus millions in advertising make-goods to Sanofi SA and Biogen Inc. 250 ad campaigns are now in review across 40,000 doctors’ offices. A search for the guilty ensued, some culpable employees were suspended, the usual layoffs of 33 percent of the staff and belt-tightening ensued, and an outside person was hired to investigate and impose the usual ‘best practices’. Also MedCityNews

The mea culpas didn’t work because it’s real money and there were signs it was moving. In November, investors in that Series A, including Goldman Sachs, Alphabet, and Pritzker Group Venture Capital, attempted to claw back $225 million they gave to CEO Rishi Shah and President Shradha Agarwal held in a special fund. The investors accused them of moving the money. The court documents indicated they received subpoenas from the Justice Department (see Chicago Tribune below). The filing was in New York State Supreme Court, not in Illinois. Outcome’s response was to trumpet their integrity and that “the equity investors led by Goldman Sachs are misusing the court system to advance their own short-term, self-interest of winning an advantage over debt-holders — all to the detriment of the business, its employees and customers.” MedCityNews

Last week, they settled. Both Mr. Shah and Ms. Agarwal announced they are ‘stepping down’ from direct operations to become chairman and vice chair of the now seven-person board of directors, now including three independent directors and two representing investors. The investors, lenders, and founders are funneling $159 million to reduce the company’s debt by $77 million and buttress their operations. The COO is taking on interim CEO duties while the board searches for a new head. The release trumpets ‘reinvestment in the future’. And that HQ move to an ‘Outcome Tower’? Nixed. Illinois also pulled away two tax credit deals. Chicago TribuneMedCityNews

How three major investors didn’t do their ‘due diligence’ before writing big checks is beyond this Editor’s ken. This tale won’t be as drastic or lead to moral questions as Theranos did. There are no malfunctioning tests, misled patients and doctors– after all, it’s just advertising in offices paid by everyone’s favorite pharmas. But as yet another blot on healthcare transformation, like Theranos it’s turned into a corporate saga of posturing–ah, here’s a fig leaf to cover, a shoe to drop, and here’s your large feathered fan.

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