$1.1B sale may spur local tech startups
The purchase of a young Columbus health-care technology company for $1.1 billion is being seen by central Ohio’s tech community as the kind of pivotal event that can take local startup efforts to a higher level.
CoverMyMeds, which produces software used by doctors and pharmacists to obtain quick drug approval for patients, was bought by
San Francisco-based wholesale drug distributor McKesson in a deal announced this week.
“The CoverMyMeds (purchase) is a seminal moment for the Columbus startup community,” said Chris Olsen, a partner at Columbus venture-capital firm Drive Capital. “It proves you can start up a company in Columbus, outmaneuver all the competition and build a massive business.”
Second, based on experiences in other cities, such deals often lead senior management to new ventures in the region.
“Matt (Scantland, co-founder of CoverMyMeds) is a young guy,” Olsen said. “He’s not done. He’s going to keep doing stuff.”
Another observer agrees.
“This is an exciting day for the region,” said Tom Walker, president and CEO of Rev1 Ventures, the technology-business incubator formerly known as Tech Columbus. “Even though CoverMyMeds has been around for a while, it’s still very much a startup. This is big for our region.”
McKesson, ranked No. 5 on the Fortune 500 list with $181 billion in revenue, told analysts during a conference call Wednesday that the acquisition was made to help the company reduce health-care costs and improve patient health.
“CoverMyMeds takes administrative costs out of the system,” said John Hammergren, McKesson chairman, president and CEO.
McKesson is one of three giant companies that dominate U.S. pharmaceutical distribution. The others are Dublinbased Cardinal Health and AmeriSourceBergen, based in Pennsylvania. Cardinal declined to comment on the acquisition in its backyard by a key competitor.
Adam J. Fein, president of Pembroke Consulting and publisher of industry blog Drug Channels, said that while Cardinal has experienced much growth through acquisitions in recent years, it “still lags behind its peers in both specialty distribution and specialty pharmacy services.”
Fein called McKesson’s acquisition surprising, but a good move.
“CoverMyMeds is a great strategic fit with McKesson’s specialty pharmacy services portfolio,” Fein said.
CoverMyMeds’ senior leadership was meeting with staff and customers Thursday, and the company said no one was available to talk about the deal.
In a blog post on the company’s website, CoverMyMeds said it will operate as an independent business unit with its existing leadership team, Scantland and co-founder Sam Rajan.
“Our plan with McKesson is one of the most important steps we’ve taken to maximize the impact we have on our mission and to be the best place to work in Ohio,” the post said.
The deal will allow the combined companies to “bring even more innovative solutions to pharmacies, providers, payers, manufacturers and patients,” the company said.
Before CoverMyMeds created its software, patients and doctors relied on a complex system based on paper, faxes and phones to get insurance approvals for new prescriptions. It was so slow and cumbersome that it sometimes caused patients to abandon their prescriptions.
“Prior authorization is a pretty esoteric thing to those outside of health care, but if you are in the doctor’s office, it is probably your leastfavorite part of the job,” Scantland said in a 2014 interview with Columbus CEO magazine. “And if you’re a patient, getting through this process can be the difference between managing your illness and getting a whole lot sicker.”
Today, eight years after its start, the company works with 47,000 pharmacies, 700,000 prescribers and the nation’s largest pharmacy benefit managers and payers. It has 500 employees at operations in Columbus and in Highland Hills, near Cleveland.
“It may be not so evident in certain parts of our economy, but having been in communities where we’ve seen startups bought from $500 million to $1 billion, it ends up being a transformational event,” Rev1’s Walker said.
The first effect will be felt by the investment community, he said.
“This will create some more angel investors — which is good for the startup ecosystem — and will allow investors to follow their passions in the region, Walker said.
“After big buyouts in other regions, we’ve seen new neighborhoods, new restaurants, much more activity in the community. These buyouts tend to be growth multipliers.”
McKesson bought another local company in 2008 — HTP, a company that created computer software for the healthcare industry and one of the first companies to successfully launch after an Ohio TechAngel Fund investment.
Ray Shealy, who led HTP, said that the employees at CoverMyMeds can expect to be treated well during and after the acquisition.
“When McKesson acquired HTP, they were professional and honorable. Things went exceedingly well,” Shealy said. “It was a big win for everyone. They kept the company in Columbus, added more jobs. McKesson is such a juggernaut in the health-care world. They can penetrate all the markets around the country quickly.”
Shealy put money he made from that buyout into other efforts.
The sale of CoverMyMeds is “a life-changing moment in a very positive way,” Shealy said. “Knowing how professional Matt and all the people are at CoverMyMeds, they’ll do a lot of good things with the money.
“We’ve had a lot of good press about Columbus and the things going on here,” he said. “It takes time and work, but this is a good indication of the trajectory we’re on. I think there are more to come.”