Talyst, With $8M in New Funding, Sets Sights on Its Next Healthcare-IT Business

6/12/09Follow @gthuang

It might be too early to call Bellevue, WA-based Talyst a success, but its story certainly makes for a compelling case study. The company closed $8 million last month from existing investors OVP Venture Partners, Ignition Partners, and AIG Global Investment Group, but didn’t make an announcement. Why? Things have been too busy.

“We raised money to grow new markets,” says Talyst CEO Carla Corkern, who has just been named chairman of the board. “That’s what VCs like to invest in.”

Talyst is known for making software that helps pharmacies manage the flow of medications in hospitals and clinics. The idea is to automate the process of tracking drug inventory and filling prescriptions using smart management software and a touch-screen kiosk interface—sort of like going to a vending machine—and to do it in a safe, secure, and efficient way. The new markets Corkern wants to expand into are nursing homes and assisted living facilities, as well as prisons and other correctional facilities. Those facilities have many people who need medications, but may not have a pharmacist on-site, so they need an efficient way for a nurse or caretaker to package and dispense meds to patients.

“The long-term care market is a $2 billion market for facility-based automation which has a strong return on investment—needed for these times,” says Corkern.

To appreciate the significance of this new market strategy, you need to know the history—much of which occurred before Corkern joined the company. Talyst was founded in 2002 as Integrated Healthcare Systems, and raised some $29 million in venture funding in 2005 and 2006 (a total of $37.5 million prior to the latest round). By 2007, it had become a market leader in managing medications for hospital pharmacies.

But there was trouble brewing. Talyst had grown to more than 170 employees and wasn’t bringing in enough revenues. As Corkern explains, the company had 45 percent market share in hospital pharmacies, but that market was maturing (it is now more than 50 percent captured by existing players). So in 2007, Corkern was brought on board to focus on business development, and she was soon promoted to chief operating officer. She had previously served as chief operations officer for Vykor, an aerospace supply-chain company in Renton, WA. Having lived in Texas, she was also familiar with regulations involved in long-term care—particularly around the process of dispensing medications remotely, in which Texas was the national leader. “I came in to focus on diversifying the business and take it into new markets,” Corkern says.

As is often the case, the company had to take a step back before it could move forward. In 2008, Talyst laid off a large number of employees—it is now down to 102—and replaced outgoing CEO and co-founder Jim Torina with Corkern. “The future of the company was in new markets, which were only 20 percent of our business,” Corkern says. “Jim saw that and positioned me as the new market champion.”

Asked about some of the company’s missteps, Corkern points to a couple of specific areas. In hospitals, she says, “we didn’t worry about customers’ upgrade path. We didn’t do a lot of backward compatibility.” That means some of the equipment around Talyst’s technology, like printers and scanners, would wear out after a few years and drag down the system, defeating the whole point of simplifying the dispensing of meds. “[Customers] weren’t complaining about aging infrastructure, but it was creating heartache and problems,” she says. So Talyst spent almost $1 million on updating the equipment. Customer satisfaction has since “skyrocketed,” Corkern says. She adds that Talyst now follows more of a Microsoft model for installing upgrades, which is more automated and “not invasive.”

Corkern also shared a couple of interesting anecdotes about hard decisions she made concerning elements of the product line that weren’t making money. “They were cool and sexy, and [customers] said they wanted them,” she says. For example, a wireless device designed so a caretaker could keep track of medication orders while walking around a pharmacy. But hospital pharmacies are usually located in basements with concrete walls where wireless signals are unreliable, leading to dropped orders. “We had the courage to shoot some products,” she says. “Don’t be afraid to kill something even if you’ve invested in it.”

Talyst turned profitable this year, following its major restructuring of 2008, Corkern says. As for the new markets it is targeting—facilities like nursing homes and prisons—the company is running pilot tests in long-term care homes in Texas, Florida, and Indiana. It has also closed deals with five pharmacies that service hundreds of facilities, including correctional facilities at 13 locations in San Bernardino County in California. The company’s traditional competitors in the hospital pharmacy space, like Cardinal Health and AmerisourceBergen, probably won’t follow Talyst into nursing homes or jails, Corkern says. But wherever it goes, Talyst will still face competition from the likes of Advanced Pharmacy and Omnicell in the increasingly crowded healthcare-IT space.

It’s still early days for the company’s market shift, Corkern says. Eighty percent of Talyst’s revenue still comes from its established hospital business, which is about $35 million to $40 million a year and growing at a rate of five to 10 percent annually, she says.

“To get explosive new growth, we need to grow a $35-40 million business in a new market,” Corkern says.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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