Three months after Outcome Health investors filed a lawsuit alleging that the cofounders had misled them with false data and financial reports, they have agreed to settle and cofounders CEO Rishi Shah and President Shradha Agarwal are stepping down.
COO Nandini Ramani, who served as vice president of engineering at Twitter before joining Outcome Health last year, will lead the company during the interim period as the company searches for a new CEO, according to a statement from Shah on Outcome Health’s website.
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Outcome Health’s business model revolved around advertising from pharma companies and others on flatscreen TVs installed in physicians’ offices that run educational content interspersed with ads.
Investors Goldman Sachs, Google parent Alphabet, and Pritzger Venture Capital Group, who took part in a $500 million Series A round last year, filed the complaint following a Wall Street Journal article. The paper, citing former employees, reported that some staff had misled customers by charging them for ads on more screens than the startup had installed. Pharma companies pulled out of deals with Outcome Health amidst the turmoil. Medical societies such as American Medical Association, American Epilepsy Society and CancerCare, a national organization that supports individuals diagnosed with cancer, ended agreements last year to provide content.
As part of the settlement, investors, lenders and the founders are allocating $159 million to Outcome to reduce debt and reinvest in its operations, according to the statement.
Shah and Agarwal had maintained that they had been “completely transparent with employees, customers and investors, and always operated with complete integrity.” They had claimed at the time the lawsuit was filed that equity investors were misusing the court system to advance their own short-term, self-interest of winning an advantage over debt-holders. Still, Outcome Health hired law firm Winston & Strawn to investigate the claims by former employees. The company also put a few staff on paid leave.
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The business commented on the settlement in a press release:
The resolution is based on our conviction in the company’s mission and path to growth that will be beneficial for all stakeholders in the healthcare community — patients, physicians, and life sciences companies — by enhancing delivery of effective and informed health information, services, and treatment options.
Shah explained in the statement posted on Friday, January 26, that the company is changing its strategy by shifting to technological solutions that demonstrate the efficacy of its program platform and by adding transparency with transparent and measurable campaign delivery.
All new campaigns that run on the Outcome Health network will be verified by an independent third-party. We received the point-of-care industry’s first independent certification of our platform in accordance with BPA Worldwide rules for audience qualification and the Interactive Advertising Bureau (IAB) guidelines from BPA’s iCompli division.
The Outcome Health lawsuit and subsequent settlement are a timely reminder of the need for due diligence. The lack of an independent board put off some investors from backing the business, a Wall Street Journal article noted. Now the company is addressing that issue by expanding the board from three to seven with independent directors. Shah and Agarwal will service as chair and vice chair of the board, respectively.
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