Something’s up at Sermo. Maybe CEO Daniel Palestrant Will Tell Us What it Is…

Something’s up at Sermo. I gather this about 15 minutes into my visit to the Kendall Square startup when CEO Daniel Palestrant excuses himself for an impromptu “three minute” call with his board—as if there is such a thing—leaving me to hang out with Sermo Director of Communications Greg Shenk and several of the staff members’ visiting dogs on a comfy orange-and-stain Ikea sofa.

It has been a good year for Sermo, which Palestrant founded in 2005 after leaving his surgical training at Boston’s Beth Israel-Deaconess Hospital. In September, the company launched a password-protected online community where physicians—and physicians only—can give each other advice about difficult cases, poll one another about drugs and other treatments, argue about almost everything, and, increasingly, discuss their burgeoning addiction to Sermo itself. In January, Sermo closed a $9.5 million Series B funding round led by SoftBank Capital. (The Series A money, totaling $3 million, came from Longworth Venture Partners.)

Then, in April, Palestrant and his team executed the part of the business plan that’s actually supposed to make money (the site has no ads or subscription charges for the physicians) by launching AlphaMD—a fee-based service that gives hedge fund managers and other clients special access to the Sermo community. The basic setup is that the paying clients can look at all the questions, comments, polls, and discussions that the doctors can see (plus some real-time polling data to which the doctors don’t have access). Clients can also post questions and polls, but they can’t comment or vote themselves. For clients like institutional investors, the potential value of the access seems fairly obvious: When the diabetes medication rosiglitazone was recently linked to cardiac trouble, for example, an AlphaMD client polled the docs on Sermo to see if the news would change their decision-making about prescribing the drug.

With the six to 12 AlphaMD clients it has signed up so far, Sermo is on track to reach its $4 million-to-$6 million revenue goal for 2007, says Shenk. He is cagey about exactly how many clients Sermo has landed—and who they are. The one exception is the American Medical Association, which signed a multiyear deal in May. And Shenk says the company will probably hit the 20,000-mark for registered physician users this coming week.

Those users loom large as he and I wait for Palestrant to extricate himself from his now 45-minute call, mainly because of the 19,500 tea light candles, each representing a current user, hanging almost directly over us in a fishing net that Palestrant has rigged into the ceiling beams. It’s a sweet, if slightly tortured, metaphor about the viral growth of an online community—something about how if you tried to light each candle individually you’d never get them all lit at once, but if you use each one to light several of the next… I get the idea, although I’m not crazy about having the whole 600-pound contraption so close to my head on Friday the 13th. Sitting directly in the line of fire, Jack, a handsome black Lab with a bandaged paw, seems untroubled.

Those 19,500 users—the real ones, not the candles—turn out to be a lot older than Sermo thought they would be when it set out to build the community. By a ratio of 3:1, the majority are over 40, Shenk says. He thinks it’s because many younger doctors are still in large training hospitals, and so still have plenty of real-world access to the kind of advice and camaraderie that Sermo users seem to be seeking online. The older physicians tend to work in small or solo practices, and tend to feel isolated.

There’s one way in which physicians are more isolated on Sermo than in the real world, however, and I’ve got to believe that a lot of them like it that way: on Sermo there are no drug companies trying to get their opinions or “educate” them about their products. But that’s about to change, since the startup is evidently close to deals with its first pharmaceutical clients. In fact, it wouldn’t surprise me if Palestrant was actually closing those deals while Shenk and I chatted. But when he emerged from his call, seeming pretty happy, he deftly directed the conversation to dogs in the workplace (clearly a cause dear to his heart), East Coast versus West Coast tech culture (we’re obsessed with it too), and Tanqueray Tuesdays (fairly self-explanatory).

Palestrant had to go walk his dogs and I had to go meet up with a fellow Kendall Square blogger, so in the end I’m left with many of the questions I came in with, along with a few new ones. Happily, Shenk has agreed to answer at least some of them here, in the comments section below, over the next few days.

Let’s start off with a tough one: How do you think it’s going to be possible to let pharmaceutical companies into Sermo without alienating a sizable portion of your physician members?

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3 responses to “Something’s up at Sermo. Maybe CEO Daniel Palestrant Will Tell Us What it Is…”

  1. Daniel Palestrant says:

    The uniqueness of Sermo’s business is that our greatest asset is our community. The community guides us, the community entrusts us with the custodianship of this asset, and ultimately anything that we do must be reconciled by that community. Fortunately, our product, our medium is inherently feedback based. We have only to listen because the community is CONSTANTLY telling us what they like and don’t like.

    In the case of Sermo’s future with pharmaceutical companies, something very unexpected happened. Several months ago we started getting more and more feedback from our community that the pharmaceutical industry “needs a seat at the table”. In other words, our physicians started saying that if Sermo is a voice for physicians, parties that can act on that voice need to be somehow be engaged. Pharmaceutical companies are critical stake holders in the healthcare industry, playing such a critical role in developing the treatments that empower physicians to treat patients.

    Meanwhile, the Sermo community was very clearly and very vividly surfacing some very contentious issues around their perception of current industry practices. This made it obvious to Sermo that if we were ever to consider engaging with industry we would need to find an approach that is a significant departure from the current norm. Right around this time, Sermo started getting approached by many industry leaders who were asking how they could re-create the relationship that they have with physicians.

    These two trends, a desire from physicians to work with industry, and industry’s desire to change their ways, created an interesting opportunity. For several months now Sermo has been working with members from both constituencies to find areas of common ground. The results have been absolutely fascinating and unexpected. We don’t have it figured out yet, but we seem to be closing in fast.

  2. Rebecca Zacks says:

    It seems like in most arenas where doctors, drug companies, and medical information come together—I’m thinking medical journals and conferences, drug marketing, etc—full identification and disclosure is critical for managing conflicts of interest. But Sermo users are, so far, anonymous to one another. What’s going to happen when you add pharma companies to the mix? And come to think of it, how do you know there aren’t already drug-company representatives among Sermo users? Plenty of pharmaceutical executives and drug reps have MDs, after all—will they have to identify themselves?

  3. A brilliant concept. Now physicans have a quick venue to obtain the answers we need about the inherent challenges in patient care.