Outcome Health trial: Leerink Capital Partners investor lost big


The Outcome Health case is now entering its eighth week, and prosecutors expect to rest their case this week. The trial comes more than five years after Outcome Health, then one of Chicago’s hottest and fastest-growing companies, tumbled spectacularly and without warning just months after raising nearly a half-billion dollars in 2017.

Witnesses in the trial, however, have revealed previously undisclosed chinks in the armor, like badly missing financial targets. Cozzens testified that Outcome Health missed its first-quarter revenue goal of $48 million by about one-third. 

“Missing a quarter in the midst of the fundraising process is a best-practice no-no,” Cozzens said in an email introduced at the trial.

Leerink decided to invest anyway, although it cut the amount from a planned $25 million to $15 million.

Cozzens said Outcome Health blamed the revenue miss on one-time factors, such as a strategic switch to begin negotiating deals directly with the pharmaceutical companies that were its biggest customers, rather than going through ad agencies.

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“They said it took a while to renegotiate contracts; it wasn’t lost revenue but delayed revenue and would return to normal,” Cozzens testified. “It was mostly a timing issue. It was still a fast-growing company. The explanations seemed reasonable.”

The revenue miss was just the beginning of bigger problems. Within a few months, Pfizer, then a major customer, discovered Outcome had been overbilling it for advertising. It demanded a $5 million refund.

By October, allegations that Outcome had overbilled pharma companies and falsified the increase in prescriptions that resulted from its advertising network made headlines in the Wall Street Journal. Cozzens said Shah had warned investors that a negative story was coming but that the assertions weren’t true.

After the story broke, “sales started to decline rapidly,” Cozzens said.

Shah, Agarwal and Purdy were forced out of the company, which merged with Cincinnati-based rival, PatientPoint, two years ago for undisclosed terms. When asked the value of Leerink’s investment, Cozzens said, “We have marked it at 10 cents on the dollar.”

Outcome was seen as a likely IPO candidate. Emails produced at trial provided glimpses of the mating dance between founders and investors eager to get in on a hot deal. Cozzens described his team as “bubbling over” after meeting with Outcome executives, which included recent additions from Facebook and Salesforce. He gushed, “I would consider myself a connoisseur of great teams on great missions” and put Outcome in that category.

Defense attorneys have blamed one of Shah’s lieutenants, Ashik Desai, for falsifying the return-on-investment data that were relied upon by investors and customers. Desai, who pleaded guilty to fraud in a deal with prosecutors, testified for more than two weeks.

Prosecutors contend Shah, Agarwal and Purdy were misleading customers from the company’s earliest days, selling inventory they didn’t have and not disclosing it. The company concealed underdeliveries from auditors in a way that inflated its revenue by 20% or more, prosecutors say.

This story first appeared in Crain’s Chicago Business.


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