Provided by:  Jennifer Kirschenbaum, Esq.

December 20, 2022

Question:

Hi Jen,

I just heard about Medly, the pharmacy startup, filed for bankruptcy. What does this mean for healthcare startups? Do you have any suggestions for someone who is currently involved in a similar healthcare startup? Really appreciate your insight.

Thank you.
 
Answer:

(Assist credit to Richard Pagnotta, Esq.)   

Given the popularity of healthcare startups, I’m sure a lot of people are wondering the same thing you are. We can learn a lot from Medly’s downfall. Medly started as an independent pharmacy in 2017 operating out of a single location in Williamsburg, Brooklyn. Unlike their competitors, Medley implemented technology to their business model by utilizing telemedicine and delivering prescription medications to patients as opposed to in person visits. By October 2019, the company’s revenue was $120 million. By June 2022, Medly’s revenue was nearly $270 million. The company adopted a “no-touch healthcare model” during the pandemic. The public need for access to healthcare and telehealth services opened the door for the company to expand throughout the country. By June 2022, Medly served 32,000 patients in 51 locations throughout the United States.
 
While the company appeared to be doing well, its expansion was unsustainable and became its biggest downfall. The company sought to transform the entire $348 billion pharmaceutical industry. For example, the company sought to provide both their patients and prescribers the ability to avoid dealing with prior authorizations and copayment issues by taking it upon them to address the problems. Traditionally, a prescriber writes a script, sends it to the pharmacy, and the patient comes in to pick it up. If the pharmacy runs into a prior authorization requirement, the request is sent back to the doctor to work with the insurance company, which can take up to a week to receive. Medly decided to revolutionize the way patients receive their medications by directly working with insurance companies and prescribers to make it more time and cost efficient for all parties. By eliminating patient participation in the prior authorization process, providing same day delivery service,  and directly working with insurance companies for copayment reductions, Medly became the obvious option for many. However, like many startups, the company failed to address potential repercussions of growing too quickly without adequate capital.
 
In September 2022, the company stopped answering their patients’ calls, let go of nearly 1,900 employees, and closed half of its 51 locations in anticipation of filing for Chapter 11 Bankruptcy by the end of the year. The company’s downfall can be attributed to a number of factors including its inability to secure enough cash to support its big dreams. In addition, since the company failed to provide notice to its patients, it jeopardized the health of many who relied on the company’s services and may have potentially opened itself up to liability. As an outside observer, it's clear they feel under their own weight after their massive successive capitalizing on the pandemic.  

Could they have shifted earlier?  Avoided the downfall?  Perhaps.  Bankruptcy is a restructure tool for some companies that can survive it.  We'll continue to monitor and see where it goes... 

As related guidance, financing is critical for any operation, regardless of size.  It's a battle we all wage - do we have enough reserve?  Can we afford to hire?  Is it time to fire?  Do I have the capital for an acquisition or new location?  These decisions have created entire industries.   Your accountant may be the best and greatest contact you have to assist you with these decisions, or he or she may not specialize in this type of strategic/critical thinking.  As an attorney and not a banker, financing (other than reviewing your loan documents) is certainly outside of my wheelhouse.  But, we do work with a suite of professionals who can assist with these questions.  If you are looking to tackle capitalization concerns, no matter how large or small the practice, always feel free to reach out and if we cannot directly assist, we can certainly help find the right team. 

If you didn't call when you needed to and it is too late, we also have a very experienced bankruptcy team...