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Behind Francisco Partners' stellar Trellis investment

Jun 24, 2022
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Illustration: Annelise Capossela/Axios

Francisco Partners made roughly 24x its money with the recent sale of Trellis Rx to Frazier Healthcare Partners portfolio company CPS Solutions, sources familiar with the matter tell Axios.

Why it matters: Besides marking one of Francisco's best-ever returns, Trellis reflects a new wave of capital pouring into a segment historically underinvested: pharmacy tech.

  • "Many people think it's a bigger impact or cooler to sell software or technology to doctors and hospitals, but if you look at the spend in the system, there’s as much spend going through pharmacies and medicines as there are on surgeries and inpatient hospital care," Francisco Partners' Chris Adams says.
  • And, the tech hasn't kept up with the pharmacy's increasing role in health care delivery: "You have a lot of pharmacy platforms that were written when green screen technology was the new thing, and pharmacists' demands are quite different today."

Behind the scenes: Trellis represents one of just four portfolio companies — out of 124 in its history — that FP started from scratch.

  • Adams says FP was a strong believer in hospital-based specialty pharmacy services, but there was nothing to buy at the time. "It was kind of a strange and sleepy space to be focused on 10 years ago."

How it works: Trellis partners with and embeds physicians within hospitals, delivering specialty pharmacy services to complex, chronic patients.

  • By helping patients stay on their medications, monitoring side effects and managing treatment of diseases like HIV, cancer or hepatitis, it aims to improve cure rates and reduce health care spend.
  • Nonadherence costs the U.S. between $100 billion and $290 billion annually, with 20-30% of prescriptions never filled because patients "can't figure out how to navigate the system and how to stay on those drugs," Adams says. Plus, bottlenecks like prior authorizations.
  • Trellis boasts medication adherence of 93%, versus the 80% industry average.

By the numbers: Six years post-launch, Trellis is partnering with more than 60 hospitals and 200 clinics, and about doubled revenues each of the past couple of years, Adams says.

  • EBITDA is approximately $40 million, per Axios' previous report.

The only other hospital-facing player in town is Shields Health Solutions, backed by Walgreens Boots Alliance and Welsh, Carson, Anderson & Stowe.

  • Walgreen's 2021 investment in Shields was said to be valued at about $2.5 billion — implying an about 25x-plus multiple of QoE EBITDA or around 17x run-rate EBITDA, Axios wrote previously.
  • The Shields-Walgreens transaction "opened up a lot of peoples' eyes," Adams notes.

Elsewhere: Around the same time that CPS bought Trellis, Becton Dickinson made a big pharmacy tech bet with the $1.5 billion buyout of Parata Systems.

  • Tabula Rasa this week unloaded pharmacy tech unit PrescribeWellness to Blackrock's TDS for $140 million, while VCs are increasingly pouring funds into pharmacy-related startups like House Rx, SmithRx, and Waltz Health.
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