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November 2006 issue
Out Of The Waiting Room, Please - Funding To Reduce Costs, Improve Care
Through Outpatient Facilities Sign up for a trial subscription and get the current issue! Read more about Healthcare Corporate Finance News Read the past headlines.
Companies Mentioned in this issue:
3i Group p7, p8 |
Out Of The Waiting Room, Please - Funding To Reduce Costs, Improve Care Through Outpatient FacilitiesChronicity, Inc. secured $12.5 million in its first round of equity funding, led by Chrysalis Ventures. Operating under the name ADD Health and Wellness Centers, Inc., Chronicity aims to offer an integrated and customized approach to treating attention deficit disorder, or ADD, as well as attention deficit hyperactivity disorder, or ADHD, and related disorders. The proceeds from the financing will be used primarily to support the launch of treatment centers throughout the United States, beginning with the Dallas, Texas and Boston, Massachusetts metropolitan areas. We talked with Koleman Karleski, a managing director at Chrysalis Ventures, about the deal. Chrysalis finds Chronicity appealing "for two reasons. First, the traditional health care system is failing people with chronic, complex medical conditions. And second, as individuals begin paying more for their health care, which the industry is calling consumerism, we believe they will demand a better consumer experience and higher quality outcomes." Chronicity is pioneering a business model, in the area of ADD/ADHD treatment, based on the idea of providing patients with multiple services in one place, as a one-stop alternative to visiting separate offices for medical, testing and counseling services. The company utilizes a proprietary treatment algorithm that includes nutritional counseling, medication management, psychological services, skills coaching and an outcome management system. The goal is to offer more focused and comprehensive care than primary care physicians. In addition, Chronicity is maintaining a database of outcomes that quantitatively monitors and measures the success of the program. The entrepreneur responsible for the idea is the same one who founded Fibromyalgia and Fatigue Centers, Inc. (FFC) and grew that company to 15 centers, Mr. Robert Baurys II. Now he is the Chief Executive Officer of Chronicity, and described by Mr. Karleski as "brilliant, an outstanding entrepreneur." Chrysalis and Mr. Baurys became familiar with each other when FFC was raising a venture capital round about four years ago. Although Chrysalis was outbid in that deal, the firm is glad to invest in Chronicity, which we were told is well-financed for years to come with the $12.5 million round. Mr. Karleski believes that with the proceeds, the company will be able fully cover its efforts in the area of ADD/ADHD, and possibly foray into other clinical indications. "People will be spending more of their own money on health care in the coming years," Mr. Karleski says, therefore demanding better service and higher quality from providers for their care. Chrysalis is very focused on supporting businesses that enhance productivity as well as those that "help enable the growing consumerism movement," he said. FFC has proven the model of utilizing the outcomes database and tailored treatment approach. Chronicity and its investors also know from FFC that with 100% private-paying patients, a treatment center has the potential to turn profitable in as little as a few months. We understand FFC is pulling in tens of millions in revenue already, with no reimbursement accepted but great patient retention. The comprehensive approach to a treatment plan has been well received and the outcomes data very helpful in assessing performance. Chronicity seeks to become a leader in the treatment of chronic disorders, with ADD/ADHD as the first therapeutic area the company is addressing. Chrysalis Ventures is expecting to keep Chronicity in its portfolio for about the next five years and hoping for a return of five to ten times its investment. Mr. Karleski expects that if all goes well, Chronicity will serve as a platform to base other clinical or therapeutic businesses on, or to layer with other complementary business units. Some of the funding from Chronicity’s first round will be used for working capital and may even fund efforts to expand into the treatment of other chronic disorders. Although we hear some ideas are percolating, at this time the company is not disclosing exactly what other treatment areas are under consideration. Overall, the goal is to "create a microcosm of what a good health care system would be—providing a place for an integrated set of services culminating in a treatment plan is the idea," Mr. Karleski told us, "and holding providers accountable for outcomes." In addition, he explained that Chronicity’s model offers patients an improvement over existing treatment options, which at best could result in several visits to several different places and at worst could result in children receiving nothing more than a diagnosis and some drugs. Chronicity is not the only company looking more closely at the market for ADD/ADHD treatment, which recent data indicates is expanding. According to an analysis of health care claims presented by Shire plc (NASDAQ: SHPGY) in October, many adults with a depressive disorder, bipolar disorder or anxiety disorder may also have undiagnosed ADHD. In just the claims Shire studied, managed care companies reported a total of 900,897 new diagnoses of ADHD and close to 20,000,000 cases of the other disorders. Of the patients initially diagnosed with bipolar disorder, 2.5% were also diagnosed with ADHD, and of those with depressive or anxiety disorder, 1.7% were also diagnosed with ADHD. About 4,400,000 children aged four to 17 years have been diagnosed with ADHD at some point in their lives, according the Centers for Disease Control and Prevention (CDC), meaning about 8% of school-age children. Although there is no cure, there are accepted treatments that specifically target the symptoms of ADD/ADHD, including educational approaches, psychological or behavioral modification, and medication, such as Ritalin, Adderall and Concerta. Drugless treatment is championed by some who say that people suffering from these disorders can learn to embrace their ADD/ADHD traits and turn them into channeled, positive strengths and assets. These drugs are the subject of some controversy, with some suggesting that they are prescribed too widely, particularly to children, and others concerned with the potential for abuse. Novartis (NYSE: NVS), the producer of Ritalin, also offers a sustained-release formulation of the drug, Ritalin SR, which may lessen the potential for abuse of the drug as a stimulant. Concerta, another extended-release form of methylphenidate hydrochloride (the same active ingredient in Ritalin) may be associated with a lower likelihood of abuse than immediate-release methylphenidate hydrochloride, according to a new study announced at the end of October by McNeil Pediatrics. McNeil’s study found that its extended-release formula was less likely to produce subjective effects such as high or euphoric feelings in healthy adults with a history of occasional stimulant use. Strattera, a selective norepinephrine reuptake inhibitor that is the first non-stimulant drug approved by the FDA to treat ADHD, was used in another recent study that links ADHD and learning disabilities, including reading disorders such as dyslexia. Eli Lilly and Company (NYSE: LLY) manufactures Strattera, which had sales of $126.4 million in the third quarter of 2006 and is approved for children, adolescents and adults. At the end of October it was announced that Strattera was studied in children and adolescents, aged 10 to 16, to measure its efficacy in treating the symptoms of ADHD and also a reading disorder. Patients with ADHD alone were compared to patients with ADD and a comorbid (existing simultaneously) reading disorder. After 16 weeks on Strattera, both groups of patients reported improvement in nearly 50% of ADHD symptoms like inattentiveness, hyperactivity and impulsivity, and the group with reading disorders displayed improvement in reading decoding and comprehension. Perhaps unfortunately for some of the older boys and men on the drug, a possible side effect of Strattera could be priapism, a painful or prolonged erection lasting for more than four hours. In an unrelated deal, another company received funding to support its strategy for providing a new point of contact to improve the delivery of health care, but it is focused on a very different therapeutic area. American Access Care (AAC) completed a $130 million recapitalization with TA Associates. Unfortunately, we were unable to ascertain the exact amount of the equity investment, although we know a portion of the deal was equity and the rest debt. AAC is a growing operator of vascular centers serving patients with end-stage renal disease (ESRD), or kidney failure, focused specifically on vascular access. The vascular access point, typically in the forearm, is where a device is surgically implanted in a dialysis patient and is the patient’s lifeline, providing the link between person and dialysis machine. AAC is focused on maintaining the integrity of the access point, which can be degraded by a malfunction or blood clot that is dangerous to the patient and inhibits treatment. According to David Lang, a managing director at TA Associates, AAC’s "focused delivery model provides tremendous savings to the health care system while offering a higher quality patient experience and outcome." At its centers AAC offers interventional services, including angioplasty, to open up a vein in the case of stenosis, thromboectomy, to remove a blood clot at the access point, as well as catheter placement and replacement. Historically, such procedures have been performed in hospitals, with long wait times, overnight stays and subsequently high costs as common results. Among the more than 330,000 ESRD patients receiving dialysis in the United States, approximately 500,000 vascular access procedures are performed each year. Currently AAC, founded in 2001, operates 14 facilities throughout the Mid-Atlantic and Northeast. ESRD patient growth averaged 6% over the past decade and is expected to continue at nearly the same rate through 2010. |
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