Healthcare Reform Through Entrepreneurship: Phytel CEO Steve Schelhammer (Part 3)

SM: What was your value proposition?

SS: Our value proposition was straightforward. Those diseases cost an enormous amount of money and they were out on the fringe, so nobody was really paying attention to them. We brought education and information to the table, which increased quality and decreased costs. It was a win across the board.

SM: Which health plans embraced your value proposition?

SS: Our biggest customer was Humana, which gave us a nationwide market.

SM: Were you able to provide a nationwide program effectively?

SS: Yes, because our business was really knowledge transfer. We identified deficits in learning and understanding, and then we matched very specific education and learning content to a patient. It enabled patients to self-manage much more of their condition. We supported patients via call centers with upwards of 300 employees, most of whom were nurses. We had a sophisticated patient identification algorithm that we used to find groups of patients who were most in need of our service. We had interactions with the patients on a regular basis, during which time we used assessment tools. Based on the findings from those assessments, we provided relevant content to them.

SM: How did the patients find out about your service?

SS: They were introduced to us via a letter from their health plan. It was a sponsored program. Sometimes our service was co-branded to the patient. Health plans paid for everything, which made for very good participation in our programs.

SM: You said you had 300 nurses. How many patients were you able to serve?

SS: We served hundreds of thousands, which is a large number since we were focused on rare chronic diseases. Populations of patients with any given disease in our portfolio ranged from 500,000 to 1.5 million, so we had good representation.

Like many good startups, we limped along for a couple of years trying to get our first customer and fine-tuning our approach. Then the marketplace met us. We got better at our approach and communicating our capability to potential customers. We were one of the very first companies in the world to take the approach we took, and nobody focused on the diseases we focused on.

SM: You said you limped along for a year. How did you finance that stage of the business?

SS: All through venture capital investment. We did four different rounds of financing. Every one of them was an up round.

SM: Who were the investors financing your type of venture?

SS: Delphi Bioventures and IBP, before they split up, were the co-leads on our very first round. There was Polaris out of Boston, and JP Morgan joined later.

SM: How much money did you raise through that period, and how did that correlate to revenue and exit value?

SS: We raised around $28 million in four different rounds. I sold the company in 2002 for over $100 million. By the time we sold the company, we were dropping around $3.5 million in EBITA to our bottom line. The revenue level when the company was sold was in the range of $25-$30 million.

SM: Who bought the company?

SS: Advance PCS bought it. They were then purchased a few years later by Caremark.

This segment is part 3 in the series : Healthcare Reform Through Entrepreneurship: Phytel CEO Steve Schelhammer
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