Here's how new technologies are tackling the opioid crisis

Key Points
  • Groups and Pear Therapeutics have both raised millions of dollars from VCs.
  • Start-ups are combining digital technologies with a clinical approach to addiction.
  • Virtual reality is emerging as an alternative to drugs for pain management.
Here's how new technologies are tackling the opioid crisis

New York tech investor Steve Schlafman was recently texting old high school friends about a tragedy that has hit his hometown of Swampscott, Massachusetts, and communities like it across the country: the opioid crisis.

Schlafman, 38, knows over a dozen people from Swampscott who have overdosed and died from these drugs. A few years ago, while working as a principal at venture capital firm RRE Ventures, he visited more than 10 recovery centers and programs in the U.S. as part of an effort to research treatment options for addicts.

In the process, he discovered a company named Groups, which operates opioid treatment clinics in California, Indiana, Maine, New Hampshire and Ohio. Schlafman combined his passion for the subject with his role as a venture capitalist and led a $4 million financing round in 2015. Bessemer Venture Partners is also a backer.

"A lot of these people know that they have a problem, and they want to get off of it," said Schlafman, who has since left RRE and now invests on his own.

Groups is an odd choice for venture investors, who typically bet on companies selling software, technology infrastructure and connected devices with the hope of generating outsized returns when those start-ups eventually get acquired or go public.

'Predictive analytics'

But Schlafman and other venture investors clearly see an opportunity to make money while simultaneously having a positive impact. Since 2000, more than 300,000 Americans have died from overdoses involving opioids, according to the government. President Donald Trump recently declared opioid abuse a national public health emergency.

Headquartered in New York, Groups has 33 clinics and is merging its physical service with digital technology. Patients in rural areas pay $65 a week, which entitles them to resources including group therapy sessions led by licensed addiction counselors. The company keeps in touch with the patients and says it uses "predictive analytics based on clinical information" to determine if someone is relapsing.

"Using demographic information, drug testing and subjective questions — such as 'how was your week?' — we can accurately predict relapse and intervene, helping folks when they most need it," said Groups CEO Jeff De Flavio.

Tech investors are attacking the market and ongoing opioid crisis in multiple ways. While Groups is focused on a new type of clinic, Boston-based Pear Therapeutics is designing mobile apps to help treat addiction.

Pear raised $20 million last year from 5AM Ventures, JAZZ Venture Partners and others to create an app called reSET-O, which is specifically targeting opioid dependence.

Patients receive a prescription and a passcode from their health-care providers. They tell the app the strength of their cravings and use a rating system to monitor their anger, pain and loneliness. That data is shared with the provider, who can then help determine proper treatment and ways to avoid turning to drugs.

Gift cards fueling the opioid crisis

"We have randomized clinical trial data showing that reSET-O improves abstinence and retention," said Yuri Maricich, Pear's chief medical officer. He said digital therapy is designed to be used alongside drugs like buprenorphine, which minimizes withdrawal symptoms.

Pear is now working with federal regulators to approve reSET-O and hopes to launch it on Apple's App Store and Google Play in 2018.

Some technologists are taking a preemptive approach to the problem and aiming to help patients avoid opioids by using virtual reality for pain management. A major cause of opioid abuse is chronic pain that results from cancer treatment and serious injuries.

"In hospitals and clinics, especially in the U.S., we are sowing the seeds of opioid addiction by just starting the opioids when they were never needed in the first place," said Brennan Spiegel, director of Cedars-Sinai Health Services Research in Los Angeles.

Spiegel has conducted multiple clinical trials to test whether VR headsets can reduce pain in a safer way than drugs. In a recent study, he examined 120 hospitalized patients who suffered daily pain.

Half of the patients received an $800 kit with a Samsung headset and Galaxy phone, and three times a day watched VR videos that gave the sensation of swimming in the ocean. The other 60 patients watched calming videos on television.

Those using VR reported a 53 percent reduction in pain, four times the rate of people who watched TV. More importantly, Spiegel said the pain relief persisted for hours or even days after the VR sessions concluded.

VR works by acting as a distraction, shutting down pain-processing pathways in the central nervous system.

"It's almost like the brain is temporarily inoculated against the pain," said Spiegel.

Whether venture investors can play a role in developing solutions for the opioid problem while also satisfying their limited partners is very much an open question. But Bessemer partner Stephen Kraus is banking on it.

That's probably better than some of our cloud companies.
Steve Kraus
partner at Bessemer Venture Partners

Along with Schlafman, Kraus is an investor in Groups. He said he was impressed with the low-cost model, attractive margins and successful patient outcomes. To date, of the 10,000 people who have enrolled with Groups, half completed six months of treatment and 85 percent of that segment was off opiates, the company said. Groups is now assessing how many patients remain drug-free one year later.

Kraus, a Groups board member, said the company could eventually earn his firm a "unicorn-type" return, referring to private companies valued at $1 billion or more. He said that in just 18 months of operations, the company reached annual revenue of $8 million.

"That's probably better than some of our cloud companies," Kraus said. Bessemer's past investments include LinkedIn, Box and SendGrid.

Groups declined to comment on its financials. But being in the health-care space comes with unique risks. Many of Groups' patients have coverage under Medicaid as part of the Affordable Care Act. With ACA under attack by Trump and a Republican-led Congress, there's the ongoing threat that subsidies will go away and patients will lose access to Groups.

Kraus doesn't expect that to happen. He said Medicaid has become a "third rail" that politicians don't want to touch. And he's putting his money behind De Flavio's commitment to taking on the opioid crisis.

"My interest, as an entrepreneur, is to bring private financing to bear on a huge social problem that has destroyed millions of lives," De Flavio said.