Addiction treatment startup Halcyon shutters amid pandemic troubles

Halcyon Health, a New York-based provider of virtual addiction treatment, is shutting down as a result of pandemic-era difficulties raising capital, CEO Joshua Nussbaum tells Axios.

Why it matters: With unprecedented levels of venture funding flooding the behavioral health sector, it can seem any mental health startup has a clear path to success. But there are significant social and political challenges linked with keeping a business in the sector afloat, entrepreneurs and academics say.

• Those barriers are particularly high when it comes to treating drug overuse and addiction.
• For example, Halcyon used a harm reduction approach, which is linked with higher survival rates and other positive health outcomes but many state and federal policies prohibit providers from deploying it.
• "Providers don't realize that harm reduction and treatment are not separate," Nzinga Harrison, chief medical officer of addiction treatment startup Eleanor Health, told Axios earlier this month.

Context: Nussbaum and COO Andrew Bryk founded Halcyon in 2019 with a plan to enroll people in their program who had wound up in emergency departments because of addiction or substance overuse, but COVID upended those plans.

• Halcyon raised $2.5 million that year from Version One Ventures, Compound and Notation Capital, putting its post-money valuation at $8.5 million, according to Pitchbook data.
• "A month and a half before the pandemic we'd talked with a lot of investors and those conversations came to a halt," Nussbaum, who is himself in recovery, tells Axios. "We had to go back to the drawing board and rebuild everything," he adds.
• While Nussbaum and Bryk were busy recalibrating their approach, telehealth visits surged when doctors' offices shuttered and emergency departments flooded with COVID patients. "We weren’t able to ride that initial wave of telehealth adoption," says Nussbaum.

Flashback: In a 2020 blog post detailing his reasons for starting the company, Nussbaum wrote: "There was one extremely large opportunity [to treat addiction] that stood out to us like a sore thumb. It wouldn’t be easy but it’s the only path forward."

How it worked: Halcyon provided wraparound treatment that matched individuals to certified peer recovery coaches and offered medication-assisted treatment.

• Patients had access to a care team that included an addiction medicine physician, pharmacist and care navigator.
• The service cost $175 a month, and Halcyon accepted some forms of insurance.

Be smart: While many venture-backed behavioral health companies sell their services to employers, that approach proved a sizable obstacle for Halycon.

• "Working with employers is a tough battle to fight because the belief is, 'We don’t hire those people, we don’t have addicts working here,'" says Nussbaum.

The big picture: Rates of addiction, drug overuse and overdoses have spiked during COVID, particularly among people of color, and companies such as Halcyon have attempted to curb those figures.

What's next: Halcyon spoke with "a number of companies" about a potential acquisition, but "the clock ran out," Nussbaum says.

• Halcyon's executives are still talking to some companies about the potential to sell the company's IP.

The bottom line: As virtual behavioral health continues to see unprecedented investor interest amid the pandemic, it's worth remembering that COVID has not raised all boats.