When patients have bad reactions to prescription drugs, doctors can voluntarily submit reports about such “adverse events” to the Food and Drug Administration. The FDA gets at least 500,000 such reports a year, meaning it has lots of data that could be useful to pharmaceutical companies hoping to spot early warning signs of dangerous drugs—and thereby avoid Vioxx-scale liability. So you might think that a startup specializing in cleaning up, analyzing, and repackaging this data would be very popular with drug makers.
But you’d be completely wrong.
AdverseEvents, a Santa Rosa, CA-based startup that came out of stealth mode in late 2011, discovered that pharmaceutical companies were not only uninterested in better statistical data on bad drug reactions, but actively ran away from it. “They didn’t want to see this data, and they certainly didn’t want to pay for it,” says Brian Overstreet, AdverseEvents’ founder and CEO. “It took us a little while to figure out that that was not where our market was going to be.”
But it turned out that there was another, perhaps even larger customer base for the drug reaction data: health insurers, managed care providers, hospitals, and other organizations that have to consider all the costs when deciding which drugs to buy for their patients.
“They don’t have a way of figuring out if Drug A is going to cause side effects and hospital readmissons and end up costing thousands of dollars extra over Drug B,” Overstreet says. AdverseEvents’ database “gives them a much better view of what’s happening in the real world with these drugs.”
Since rebuilding its data services to serve managed-care clients late last year, AdverseEvents has been growing fast. The company recently opened a four-employee sales office in Cambridge, MA, and today it announced that it has raised $2 million in Series A financing from Evaluate, a London- and Boston-based provider of market intelligence for the life science industry, and a group of individual investors.
“AdverseEvents has identified a major gap in healthcare information and has built a lasting solution that will have far-reaching implications for all of the industry’s participants,” Evaluate founder and CEO Jonathan de Pass said in a statement about the funding round.
Other backers include Trevor Fenwick, founder and executive chairman of global information publisher Euromonitor International, and Michael Tansey, former president and CEO of healthcare information provider Jobson.
“They are not typical Silicon Valley VC folks,” Overstreet says of his new investors. “They are tried-and-true investors and operators in the health information space, guys who understand the value of what we’re doing.”
Even drug companies will eventually be forced to acknowledge that value, Overstreet predicts. But before he could start to prove that point, Overstreet had to put another political battle behind him: the fight to prevent the State of California from imposing a retroactive tax on small-business investors.
Last year, Xconomy exhaustively covered Overstreet’s campaign to prevent the Franchise Tax Board—California’s version of the IRS—from collecting millions of dollars in back taxes from investors who’d profited from the sale of stock in California-based small businesses. The board’s move came after a state appeals court struck down a law designed to encourage small-business investment by allowing these taxpayers to exclude part of their gains from their taxable income.
Overstreet himself was in line for a big tax bill, having sold his previous company, enterprise data startup Sagient Research Systems, in 2012. California Business Defense, a lobbying group formed by Overstreet and other small-business owners, argued that the tax board’s plan to make investors pay taxes on the formerly excluded income all the way back to 2008 was unfair, even unconstitutional.
Sympathetic legislators pushed a relief bill through Sacramento, and Governor Jerry Brown signed it into law in October, sparing investors some $120 million in back payments.
The demands of the lobbying effort forced Overstreet to put off plans to raise financing for AdverseEvents. “The multiple trips to Sacramento, being on the phone with different legislators, and managing the group of affected taxpayers sucked up a lot of time,” he says. “At the time I wanted to think that I was juggling all the balls at once, but in retrospect that is not how it worked. I’ve gotten more done since October than in the previous year or two combined.”
The first step at AdverseEvents was acknowledging that there was a flaw in the company’s original business plan. The company’s core activity is to gather post-FDA-approval drug safety data from the FDA itself—which is “a disaster,” in that it’s riddled with spelling errors, duplicate entries, and other inconsistencies, Overstreet says—and clean it up so that it can be properly searched and analyzed.
Originally, Overstreet thought drug companies would pay the startup for access to the cleaned-up data, which could help them track the effects of prescription medications, a $1 trillion business around the world.
Instead, manufacturers saw the data as a potential source of liability—a hornet’s nest that they didn’t want to kick. “Their initial reaction was ‘Go away,’” Overstreet says. “When they realized we weren’t going away, they tried to discredit us. When they couldn’t pull that off, now they are just fighting us.”
Today, in fact, AdverseEvents plans to release a report on comparing the safety of various medications for Type 2 diabetes, including brand-name drugs like exenatide (Bydureon) from Amylin Pharmaceuticals and AstraZeneca, and alygliptin (Nesina) from Takeda. The bottom line: Bydureon may be the safest choice within its class of GLP-1 inhibitors, while Nesina and other so-called DPP-4 inhibitors may be “linked to more serious side effects than is widely believed,” in the language of the report.
“I guarantee you that within five minutes of that report coming out, there will be a statement from the manufacturers saying, ‘You can’t use this data, it’s not reliable, blah blah blah,'” Overstreet says. “They will have a list of reasons for why that is. But we have
