Sermo Cutting 30 Workers, Source Says

12/8/09

Sermo, the company that created the country’s largest online community of doctors, informed about 30 workers this morning that they will be laid off, according to a source familiar with the matter. The source says that the company employed 60 to 80 people prior to the cutbacks. We reported that layoffs were coming in our story yesterday about Cambridge, MA-based Sermo’s struggles to make money in the financial services sector.

In a voice mail message today left in response to my query about the layoffs, company CEO Daniel Palestrant declined to confirm or deny that the firm is making cuts. But when I spoke to Palestrant yesterday, he said the company had experienced a tough year, and that after reviewing its strategy, Sermo has decided to focus more narrowly on the pharmaceutical market, with less emphasis on financial services. That meant the company had different needs for people on staff, he said.

“We have to look at ourselves less as a startup company and more as an operating company,” the CEO said yesterday. “That has all sorts of ramifications in the kinds of people you leverage.”

Sermo, which has raised more than $39 million in venture capital since forming in 2005, has been one of the fastest growing of the new breed of Web-based companies focused on healthcare, or so-called Health 2.0 startups. More than 110,000 doctors have joined its online community, where they can pose questions about how to diagnose certain diseases and get feedback from their peers. But the big drug companies and financial institutions that pay Sermo to gain insights into how physicians use new medical technologies have had major layoffs and other financial struggles of their own, making it more difficult for Sermo to get them to adopt a new research tool, Palestrant told me yesterday. He added that drug companies are the startup’s largest source of revenue.

Despite its troubles, Sermo has attracted offers from venture investors that want to invest in the company, Palestrant said, but he declined to provide any details about the startup’s financing plans. At least one of the firm’s previous investors, Paul Margolis, a partner at Longworth Venture Partners, and a director of Sermo, said that his firm would continue to back the company.

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