Mobile addiction treatment draws investor flurry

The ongoing emergence of telemedical care, further spurred by the COVID-19 pandemic, has worked to the benefit of an Ann Arbor, Michigan-based venture capital-backed company that seeks to disrupt the "rigid" addiction recovery model.

Executives at Workit Health Inc. last week announced a Series C fundraising effort that totaled $118 million from a variety of investors, including the VC arms of a major health insurer and a national pharmacy chain. The investment gives Workit a valuation of $500 million, among the largest publicly known valuations for a startup in Michigan, and a meteoric rise from the company's value of $48 million at this time last year.

A high-growth, venture-backed company may seem out of place in the world of addiction recovery, but Workit Health co-CEOs Lisa McLaughlin and Robin McIntosh saw that as necessary to get the type of scale needed.

McLaughlin, in an interview with Crain's Detroit Business last week, pointed to her background working in nonprofits. A venture like what they're building needed to outlive the uncertainty associated with whether they can obtain a new grant every year or two, she said.

"So it was really important to build this in a way where it was going to never go away," McLaughlin said. "Like the vision was to become like Weight Watchers, just on the tip of everyone's tongue, but a steady force in everyone's lives."

The company is certified as a B Corporation, a form of socially responsible companies described as "businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose."

Workit Health focuses on treating addiction for a variety of substances and behaviors using a largely virtual format.

The company offers licensed clinical support in 10 states: Michigan, Alaska, California, Florida, Minnesota, New Jersey, Ohio, Oregon, Washington and Texas, and seeks to expand to other states, with plans for a national presence by 2023.

In the statement announcing the funding last week, company executives touted that 84 percent of its members stay in the Workit Health program for longer than 30 days. That compares to what they say is an industry average of 33 percent of patients staying in more traditional forms of treatment for the first month. Additionally, the company says 41 percent of members receive treatment for longer than one year.

Its virtual-focused model could be hugely in demand if the rapid uptake in telehealth is any indication.

Less than 1 percent of Medicare primary doctor visits were telehealth in February 2020 but spiked to 43 percent of visits in April of last year, driven by the COVID-19 pandemic, according to the American Hospital Association. Between August 2019 and August 2020, insurance claims for telehealth services in the U.S. rose 3,552 percent, according to FAIR Health's Telehealth Regional Tracker.

For Workit, McLaughlin said the company sees about $4,200 in revenue from the "average" membership. With about 6,000 active members, that comes out to a little more than $25 million in annual revenue. About 90 percent of that comes from insurance billings, with about 70 percent of those billings coming from either Medicare or Medicaid.

Josh Flume, chief strategy and business development officer for CVS Health, the second largest pharmacy chain in the country and now an investor in Workit Health, noted that the company "is transforming how substance use and mental healthcare is delivered for those suffering from many forms of addiction."

The investment "further demonstrates CVS Health's commitment to make healthcare more affordable, accessible and simpler," Flume said in a statement.

The most recent investment was led by Insight Partners, a $30 billion venture capital and private equity firm based in New York City.

To that end, ID Ventures makes for little more than a "baby investor" in Workit at this point, Patti Glaza, executive vice president and managing partner of the the VC arm of Invest Detroit, said with a laugh. Still, the fund was an early stage investor in Workit dating back to 2016 and continues to participate in its fundraising rounds, having now put in about $700,000 total, according to Glaza.

Workit's founders' ability to iterate a vision of a different kind of treatment stood out to Glaza, she said, adding that the fact that the company plays into the growing trend of telehealth is somewhat secondary.

"It goes back to (how) they were disrupting an industry that was very traditional," Glaza told Crain's in an interview, referring to the substance abuse treatment market. "There's AA meetings and you go to treatment centers for 30 days or 60 days. There are clinics that you visit. But what they recognized was that not everyone follows the AA plan."

A 2016 report from the U.S. Surgeon General offered a similar critique, noting that the yearly economic impact of substance abuse totaled nearly $450 billion between alcohol and drug misuse.

"Despite the social and economic costs, this is a time of great opportunity," the Surgeon General report stated. "Ongoing healthcare and criminal justice reform efforts, as well as advances in clinical, research, and information technologies are creating new opportunities for increased access to effective prevention and treatment services."

To Glaza's point, McLaughlin told Crain's that having been spurred on by her own experiences getting sober, there is opportunity to use other methods than the typical routes well known throughout society, and that's where Workit comes into play.

"And so I think the brokenness (of recovery models) stemmed from there only being really, really rigid forms of recovery that were most prominent in the area," McLaughlin said. "So it was kind of an all-or-nothing model."

— Crain's Senior Reporter Dustin P. Walsh contributed to this report.