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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 Erin.

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'd 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."

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.

1 big thing: VC-backed addiction startup shutters

Illustration of a chain and padlock enclosing a pill capsule.

Coronis Health, a tech-enabled physician billing and revenue cycle management company, is exploring a sale, multiple sources tell Sarah. 

Why it's the BFD: A financial sponsor-centric process is well underway, with Guggenheim Securities engaged as sell-side adviser. 

The Baltimore, Maryland-based company is marketing adjusted EBITDA of about $50 million, sources say. 

Zoom in: Coronis, which currently employs more than 900 and processes more than 8 million claims a year, has scaled through an aggressive acquisition playbook. 

Founded in 2015, Coronis plays across pathology, behavioral health, hospital and surgery centers, primary care and specialty physicians, anesthesia, and emergency medicine. 

The company has operations in both the U.S. and India, the latter in which it has a captive-site offshore model, where it employs locals rather than contract employees.

This is unique among RCM players that offshore.

In January 2021, the company received just over $3 million in growth capital from 424 Capital, Plexus Capital and Eagle Private Capital, according to PitchBook. 

State of play: Recent deals involving offshore RCM companies, like GeBBs Healthcare Solutions or AGS Health, have been said to trade in the low-double-digits or low teens. 

India's ChrysCapital in 2018 spent 10 billion rupees (about $142 million) for an 80% stake in GeBBs, the Economic Times wrote. 

Baring Private Equity Partners Asia bought AGS at a reported $320 million, off of $27 of EBITDA, The Times of India reported. 

Coronis did not return requests for comment, while Guggenheim declined to comment.

2. The BFD: Coronis Health seeks buyer

Illustration of stacks of one hundred dollar bills laid in a medical cross shape

Ahead, a Santa Clara, Calif.-based virtual provider of ADHD treatment, is shutting down, Bloomberg reports.

Why it matters: When viewed alongside Halcyon's shuttering, Ahead's closure could be seen as a worrying portent for the venture-backed behavioral health sector.

Yes, but: Ahead and Halcyon had significantly different business models and treatment approaches. So the timing of the shutdowns is striking, but the closures shouldn't be seen as a sign of impending doom within the broader mental health sector, investors and entrepreneurs tell Erin. 

"These are such deep categories," says Ambar Bhattacharyya, managing director of Maverick Ventures. "Generally you see only one to three companies per category, but not in behavioral health."

Context: Ahead is among a crop of Silicon Valley startups providing access to ADHD medications online — many of which have come under scrutiny for potentially lax prescribing practices.

Two examples are Done, backed by Craft Ventures and Offline Ventures, and Cerebral, which was backed by ARTIS Ventures and SoftBank, among other firms, and valued at $4.8 billion.

Flashback: Founded in 2019, Ahead raised $9 million from digital pharmacy enabler Truepill. 

Details: Ahead will no longer accept new patients, but will continue serving current users until June 24, Truepill CEO Sid Viswanathan told Bloomberg.

What they're saying: The pandemic-era waiver of the Ryan Haight Act, which blocked companies from prescribing controlled substances online, has fueled a concerning rise in prescriptions for amphetamine medications, sources tell Erin.

"They’ve all become Adderall mills because of the waiver," one source, who previously worked for Cerebral, tells Erin. "Everything kind of fell apart from there."

3. Mental health startup Ahead got behind

Illustration of an exit sign with a red cross replacing the "t"

Javara, an integrated research organization enabling clinical trial access at the point of care, raised $40m-plus in Series B funding (inclusive of primary and secondary) led by General Atlantic, a source tells Sarah. The strategic investment was originally announced on Tuesday. https://javararesearch.com/

Sika, a New York-based health and fintech startup focused on FSA/HSA payments, raised $6.2m in initial funding that includes a $5m seed round led by Forerunner Ventures and joined by Shine Capital, Ulu Ventures, PrimeSet, Atacama and the co-founders of Plaid. Previously unannounced pre-seed backers include One Planet VC and Pacific Health Ventures. https://www.sikahealth.com

Boston-based Transformation Capital launched its third digital health fund on $800m, a 60% increase over fund 2 ($500m). 

4. Deals o' the day

Amazon named Prakash Bulusu head of health care storefront and shared tech. He was previously VP of customer behavior analytics.

The company also named Vin Gupta chief medical officer of new products. He was previously senior principal of health.

Firsthand named Sandy Varatharajah and Sadia Dhorat co-directors of operations. Varatharajah was previously director of population health at Oak Street Health; Dhorat was previously head of market strategy and development at Stellar Health.

Sempre Health named Elliot Krigel director of customer success for life sciences from Omada Health, where he was an alliance delivery manager.

Legacy named Anmol Ejaz head of talent from Elevate Brands, where she held the same title.

The Clinton Health Access Initiative named Neil Buddy Shah CEO from GiveWell, where he was managing director.

5. It's Personnel

🧠 Situational awareness: Despite a funding boom for behavioral health, two companies in the space announced plans to shut down this week. Read on to learn why.

🍝 🍷 Sarah is continuing to eat her way through the week, heading to Rosemary's rooftop garden tonight for handmade pasta. And wine, of course. 

❤️ Thanks for reading Axios Pro Health Tech! Please ask your friends and colleagues to sign up.

April 15, 2022

1 big thing: VC-backed addiction startup shutters