Pelago, a digital and telehealth start-up that was part of Y-Combinator (2018 Batch), has raised $58 million in Series C funding, bringing their total funding to $151 million since it was founded in 2017. Pelago uses Cognitive Behavior Therapy (CBT) to help people with Substance Use Disorder (SUD) and co-occurring mental health conditions. Pelago offers its CBT-based programs for tobacco, alcohol and opioid addictions.
A quick detour – SUD and Mental Disorder Co-occurrence
There is a complex overlap and connection between substance use disorder (SUD) and mental disorders which is often bidirectional. Per Elizabeth Evans, MD, medical director of Smithers Center at Columbia University Irving Medical Center, in this report, “Substance use can worsen the course of another mental health condition and untreated mental health concerns can increase the vulnerability to high-risk substance use or developing a substance use disorder.”
To provide some additional context, from SAMHSA’s (Substance Abuse and Mental Health Services Administration) most recent annual survey report on National Drug Use and Health –
- 70.3 million people (1 in 4 in the US, 24.9%) used illicit drugs in previous 12 months.
- 48.7 million people aged 12 and older (or 17.3% of the population) reported a substance use disorder (SUD) in the previous year. Of this, 29.5 million had an alcohol use disorder (AUD), 27.2 million who had a drug use disorder (DUD), and 8.0 million people who had both an AUD and a DUD.
- In Adults 18 and older, 21.5 million people had co-occurring Any Mental Illness (AMI)1 and SUD while 7.4 million had co-occurring Serious Mental Illness (SMI)2 and SUD.
The co-occurrence of SUD and mental disorder leads to tremendous effects on morbidity, mortality (including suicide), increased treatment costs and other negative outcomes for individuals and institutions. Co-occurring disorders are often difficult to diagnose and treat given the complexities of disorders and lack of specialized training, labor shortages and lack of integrated care. Based on SAMHSA’s 2021 data, only 6% receive integrated mental health and substance use disorder care out of all people receiving treatment.
Back to Pelago…
Pelago (formerly called QuitGenius) was started by three doctors who met in medical school – Yusuf Sherwani, Maroof Ahmed and Sarim Siddiqui. Pelago offers both virtual therapy and prescription service offerings to treat tobacco, alcohol, and opioid addictions, along with co-occurring mental health conditions. This integrated care approach, as we discussed earlier, has a better chance of success for the patient. Pelago offers its solution as a service through an employer’s and/or health plan’s benefits program.
By approaching its go-to-market as a B2B offering through employment benefits program, Pelago makes a case for treatment and recovery within the framework of economic and healthcare costs. It is estimated that 70% of all adults with a SUD problem are employed. This not only leads to huge productivity losses for companies, but also is costly to treat. In this analysis of 162 million workers under employer sponsored insurance, “mean annual medical cost attributable to SUD diagnosis” is estimated to be $15,640 per affected enrollee.
There is incentive for employer and health insurance benefit programs to drive down these high costs by providing prevention and treatment options to employees. In their own analysis, Pelago claims that when using their service, participants reduce their per-year medical claims by $9,367
Based on the data from Pelago, its execution appears impressive. Over the last 12 months, they’ve seen 287% revenue growth, and 10x growth since Series B 24 months ago (although they did not mention a baseline number). They also boast a 100% client retention rate, and an over 500% increase in substance use disorder-specific RFPs from employers and payers. They also offer their service available across the 50 states. As of August 2023, Pelago had 750,000 members utilize their service. In addition, Pelago has expanded their offerings to include teens (15-17 years) in 2023.
Pelago Investors
Existing investor Atomico doubled down to lead this Series C investment, with participation from all existing investors (Kinnevik AB, Octopus Ventures, and Y Combinator) plus new investors Eight Roads and GreyMatter Capital.
Early investors in the company included tennis greats Serena Williams’ Serena Ventures and Venus Williams.
- Any mental illness (AMI) is defined as a mental, behavioral, or emotional disorder. AMI can vary in impact, ranging from no impairment to mild, moderate, and even severe impairment (e.g., individuals with serious mental illness as defined below). Source – NIMH
- Serious mental illness (SMI) is defined as a mental, behavioral, or emotional disorder resulting in serious functional impairment, which substantially interferes with or limits one or more major life activities. The burden of mental illnesses is particularly concentrated among those who experience disability due to SMI. Source – NIMH