The copmany's goal was to offer cheaperprescription drugs to Americans, saving millions of people money.(Photo: Shutterstock)

Six years ago, the Yale-educated Chaiken brothers, Geoffrey andMatthew, had an audacious idea: Upend the $333 billion U.S.prescription drug market by selling medicinesonline at big discounts and create a health-care startup that couldstand alongside the giants of tech. One pitch included a slide thatput their ambitions in the same league as Uber and Amazon.

It hasn't worked out that way so far. Their company, BlinkHealth, has snared more than $165 million in venture capital,including from former Morgan Stanley Chairman John Mack. But thebrothers and their startup have been entangled in lawsuits andshadowed by deals that saw industry partners turn from friend tofoe, competition from two defecting employees, a threat from Amazonitself and no end of bad blood along the way.

The Chaikens' goal was to offer cheaper prescription drugs toAmericans, saving millions of people money. The pushback, they say,comes from entrenched middlemen who want to keep the status quo.“We got a huge allergic reaction from what I would call theindustry titans,” said Geoffrey Chaiken, Blink's 36-year-old chiefexecutive officer, sitting in a glass-walled office at thecompany's SoHo headquarters in New York in January, where visitorsare greeted by a “Humans First” sign. “They, in a prettycoordinated way, did everything in their power to put us out ofbusiness.”

But allegations made in lawsuits and interviews with more than adozen former employees, partners and investors suggest Blink'sheadaches were compounded by management turmoil, frequent turnoverin the early days and the Chaikens' naivete about how muchresistance they would encounter.

To get better pricing from drugstores, the company made claimsit was attracting outside funding for customers that nevermaterialized, according to a lawsuit filed by Blink's formerbenefits manager. The Chaikens told one investor that former PfizerInc. CEO Jeffrey Kindler would be on the board when he never agreedto that, another lawsuit alleged.

Most of the cases have been settled on terms that weren'tdisclosed. One that was brought against Blink was dismissed.Another is being challenged by Blink's lawyers on the grounds ofalleged misconduct.

Geoffrey Chaiken declined to comment on some of the accusations,citing settlement agreements. He denied misleading anyone,acknowledged making mistakes and blamed some of the legal disputeson “two bad apples.” He said the suits have had “zero impact” onthe business, which is now growing faster than ever. “I'm in aposition where I can't defend myself,” he said. “No one likes tohave lies spread about him. At the same time, that is part of thejob. So you have to take it on the chin.”

Back to the beginning

Geoffrey Chaiken long wanted to be a health entrepreneur. Theoldest son of a Manhattan ophthalmologist, he co-founded his firstcompany, Marinus Pharmaceuticals Inc., a biotech with anexperimental epilepsy drug, while an undergraduate at Yale. He leftMarinus in 2006, after finishing college and helping the companysecure financing, and went to Harvard Business School.

By 2013, Chaiken was working for a private investment companyand looking for a new venture. One day, while spitballing ideaswith his younger brother Matthew, who also had a job on WallStreet, Geoffrey suggested a website where patients could purchasedrugs online and pick them up at a local retailer. “That is theonly good idea you have ever had,” Geoffrey recalled his brothertelling him.

A former hedge fund manager, Michael Karsch, provided $1 millionin 2014 to help get the company off the ground. Charles Jacoby, afriend of Geoffrey's from Riverdale Country School, an elite NewYork City prep school, became general counsel.

The Chaikens envisioned a website that would make shopping fordrugs easier and prices more transparent. The model was simple.Blink would offer generic drugs at uniform low prices, appealing touninsured patients and those with high deductibles or inadequatecoverage. Customers would pay online and pick up prescriptions atany pharmacy.

Cash-discount programs often involve a pharmacy benefit manager,or PBM, collecting a fee from a drugstore that's split with amarketing company promoting the discount, according to ChristopherPetersen, a benefit consultant and PBM veteran.

Allowing customers to pay one low price in advancedifferentiated Blink from GoodRx, a startup that opened forbusiness in 2011. GoodRx also offers discounts and transparency,but prices vary by pharmacy, and customers pay at the drugstore.Blink, like many others in the industry, doesn't disclose how itshares revenue or what it makes on each prescription.

“People join most startups to make a lot of money, but peoplejoin Blink Health to save lives”

The Chaikens had little experience with drug supply chains.Early on, they hired a consultant, Brian Burk, who operated a smallhealth-care technology firm. According to Burk's version of events,as outlined in a lawsuit he filed against Blink, he introduced theChaikens to numerous people in the industry and Geoffrey offeredhim a 1 percent stake in the company that would vest immediately.Burk said he signed an employment agreement in September 2014, butChaiken never returned documents confirming the stake. A monthlater, Burk was fired.

Burk claimed in his lawsuit that Blink reneged on its offer togive him a stake in the company. Blink's lawyers said in courtfilings that Burk was fired because he didn't deliver what hepromised. In July, a New York judge dismissed the case, saying Burkhad signed a separation agreement promising not to sue. OrinSnyder, a lawyer at Gibson Dunn & Crutcher who representsBlink, said Burk wasn't offered the equity. “The entire lawsuit wasa combination of fantasy and untruths,” Snyder said. “The court sawthrough the bogus allegations.”

One thing Burk delivered, he said in court papers, was anintroduction to MedImpact Healthcare Systems Inc.—though GeoffreyChaiken disputed that as well, saying he didn't need Burk to makethe connection. Talks between the two companies resulted in anagreement, effective in April 2015, for MedImpact to become Blink'spartner, connecting the company to drugstore chains across thecountry. Ten months later, Blink officially opened its website forbusiness.

Taking on the PBMs

Pharmacy benefit managers started decades ago as claimsprocessors, but they gradually gained more control over drugpurchases. Hired by employers, unions and health plans, thecompanies create lists of covered drugs and negotiate prices withstores and manufacturers. The three largest PBMs processed 76percent of U.S. prescriptions last year, according to Drug ChannelsInstitute, an industry research firm.

While PBMs say their profit margins are low, they've beencriticized for opaque pricing arrangements. The Pharmaceutical CareManagement Association, a trade group, says its members “bringtremendous value to the health-care system” by negotiatingdiscounts on drugs.

As a side business, PBMs have long offered discount cards forcash-paying patients with limited or no insurance, often inpartnership with marketing firms. GoodRx aggregates such deals onits website, in addition to discounts offered by pharmacies ontheir own, making it easier for patients to find the best ones.Blink promised low prices, direct online purchases and aneasy-to-use website. In early 2016, it advertised a month's supplyof generic Xanax for $4.39, less than half of what it said theretail price was at the time.

Blink got off to a fast start. NBC Nightly News and the New YorkTimes profiled the company. By June 2016, Blink said, more than100,000 people had used the service. The Chaikens talked about howeveryone was going to get rich, two former employees recalled.“This is not the way we communicate with our colleagues,” GeoffreyChaiken said in an email. “People join most startups to make a lotof money, but people join Blink Health to save lives.”

MedImpact, which was in charge of maintaining a network ofpharmacies for Blink, extended its deal in May 2016, investing $13million for a 10 percent stake. The PBM's founder, Frederick Howe,became a board member. But the relationship soon soured. In Octoberof that year, Howe, who's no longer on the board, told GeoffreyChaiken that Walgreens Boots Alliance Inc., one of the country'slargest drugstore chains, wanted to stop taking Blink patients,according to a lawsuit Blink filed against MedImpact.

Walgreens wanted to be paid more. It learned MedImpact wasreimbursing Blink claims at low rates reserved for commercialcustomers, such as big insurance companies, rather than the smallerprice cuts Walgreens provided for drug-discount offers. Blink saidin court papers that the service agreement signed with MedImpactnever required Blink to obtain outside funding for its patients andthat MedImpact didn't complain about the matter until after Blinksued.

One weekend after he got word that Walgreens wanted out,Geoffrey Chaiken recalls, he sat alone in his office, practicallyin tears. He said he feared “the dominoes would fall,” otherdrugstores would leave and Blink would fail. Then he got a callfrom John Mack, the Blink investor and adviser, who encouraged himto persevere. On the spot, Mack offered to put in an additional$500,000 as a vote of confidence. The pushback from large drugstorechains, Mack said in an interview, “that in itself to me was kindof a flag that they really have something here to make adifference.”

Walgreens said in a statement that it had offered to extendMedImpact terms while talks continued, but Blink declined. GeoffreyChaiken said Walgreens's offer was never conveyed to Blink. Incourt papers last year, Blink blamed MedImpact for cutting off itsaccess to the drugstore chain. Walgreens, which stopped takingBlink customers in March 2017, said it remains open to discussionswith Blink.

Blink said in its MedImpact lawsuit that it spent millions ofdollars transferring patients from Walgreens and other pharmaciesto CVS Health Corp., another large chain. The Chaikens said theyhad received assurances from MedImpact that there was no risk ofCVS pulling out, but in August, the chain said it would stop takingBlink customers. MedImpact said the only way to keep CVS would beto accept an almost 250 percent price hike with a bigger fee forMedImpact, according to Blink's version of events. By the time CVSpulled the plug, it was filling more than half of Blink'sprescriptions.

CVS “made a business decision to end its participation in theBlink Health program following an internal review,” MichaelDeAngelis, a spokesman for the company said in an email toBloomberg News that didn't elaborate further. “That decision hasnot changed.”

The Chaikens, shaken again, decided to fight back. In November2017, less than a month after CVS pulled out, Blink sued MedImpactfor allegedly violating its contract, which promised that thepharmacy network wouldn't fluctuate significantly.

A few months later, MedImpact countersued, claiming it had beenthe victim of fraud. Among the allegations: Geoffrey Chaiken hadtold MedImpact executives in 2015, months before a contract wassigned, that he had lined up outside sponsors to allow patients totap into funding from nonprofits, employers, drug companies andloyalty-rewards programs.

“This is not BS,” Geoffrey Chaiken wrote in a January 2015 emailto a MedImpact executive. “This is a fully funded plan.” Anattachment to another email sent to MedImpact the same day listedthe American Heart Association, the American Diabetes Association,American Express, Diamond Resorts, drug companies Merck and Bausch+ Lomb, and 10 other companies and nonprofits as sources offunding. A document sent to MedImpact that August displayed thelogos of many of these organizations and said “multiple fundingsources provide additional savings to users.”

The American Heart Association, the American DiabetesAssociation, American Express Co., Diamond Resorts, Merck & Co.and Bausch told Bloomberg News they were unable to locate recordsof deals or significant negotiations with Blink or its predecessorcompanies. Spokeswomen for the American Diabetes Association andBausch noted that there had been extensive executive turnover attheir organizations since 2015.

Geoffrey Chaiken said Blink had conversations with every entitylisted on the slides but couldn't make a deal with any of themuntil it had an agreement with MedImpact. Blink eventually signedcontracts with some of the organizations, he said, without namingthem. “Blink misled no one, and there is zero evidence that waspresented that we did,” said Snyder, Blink's lawyer. The slideslisted potential partners Blink was in talks with at the time, andthe company never suggested to MedImpact that it had deals in placewith those groups, he said.

Blink tried to “stack the deck” in its negotiations withMedImpact, according to the PBM's lawsuit. A Blink predecessor hadhired William Barre, MedImpact's head of business development, as aconsultant in August 2014, several months before contract talksbegan, paying him $3,000 a month. Barre, still employed byMedImpact at the time, didn't tell his employer about thearrangement, even as he negotiated key details, MedImpact said incourt papers. MedImpact said it had no idea Barre was a “secretagent” and a “mole” for Blink until more than a year after it hadsigned a contract.

Snyder, Blink's lawyer, disputed this account, saying MedImpactwas aware Barre was working as a Blink consultant and that therewas nothing unusual about the relationship.

MedImpact and its lawyers didn't respond to emails seekingcomment. Barre no longer works with either Blink or MedImpact anddeclined to comment about his role. But in a brief phone interviewlast year, he said he thought Blink was a good idea at the time,and he still thinks so. The two companies settled their lawsuitslate last year on terms that weren't disclosed.

The Chaikens worked grueling hours and expected employees, whowere paid well, to do so too. One former employee said Matthewwould wander around the office after 6 p.m., wondering out loudwhere everyone had gone.

In those early days, turnover was high. Workers were let go whenthey clashed with the brothers or didn't meet expectations, saidpeople familiar with the company's operations. One former employeerecalled a meeting where Geoffrey gathered a few dozen workers notlong after a series of departures and promised Blink would be likea family going forward. Within two years, all but a handful hadleft. Chaiken said his management team has been stable for morethan a year and that Blink's turnover rate was in line with otherstartups. He said he didn't recall the meeting.

One person who left the company was Eugene Kakaulin, a formerHarvard Business School classmate who became Blink's chieffinancial officer. He alleged in a lawsuit filed in federal courtin New York in October 2016 that he was bothered by the Chaikens'maneuvering to buy back shares from an early investor for a lowprice when the company had already lined up new investors at morethan four times the valuation. Kakaulin said in legal filings thathe was worried something similar might happen to him.

Kakaulin claimed he was stripped of his responsibilities afterhe told the Chaikens they might be violating securities laws bymisrepresenting financial statements and fabricating statistics. Hesaid in his lawsuit that Geoffrey asked him to use unrealisticallyhigh revenue projections to fit what investors wanted to see.Snyder, Blink's lawyer, said the Chaikens “never did such a thingand never would.”

In his court filings, Kakaulin said a clause in his contractgave him the right to cash in his shares when the founders did.When he learned they planned to take as much as $6 million forthemselves in a new round of financing in 2016, he asked for $1million for himself, according to his lawsuit. The brothersrefused, saying investors would balk if the CFO was selling,Kakaulin's complaint said. He was fired a few weeks later.

Details of the lawsuit, including a text message allegedly sentto Kakaulin by a former girlfriend of Geoffrey's, were splashed inthe New York Post under the headline, “Generic Viagra peddleraccused of stiffing business partners.”

The case was settled in early 2017. Terms weren't disclosed.Kakaulin and the Chaikens declined to comment.

One lawsuit that hasn't been resolved was brought in 2017 infederal court in New York by Michael Karsch, the early backer. Heclaims his $1 million investment in the form of convertible debtwas returned in 2015 against his wishes. Karsch said in a courtfiling that the Chaikens tricked him into thinking his money wouldconvert into a stake of no less than 5 percent, which would now beworth at least $30 million, when all along they planned to dump himfor other investors once the valuation increased.

Blink responded in court papers that the money was a loan andthat Karsch had asked to be repaid. “Karsch has only himself toblame for his decision,” Blink's lawyers wrote.

Karsch also said Geoffrey Chaiken misled him by suggesting thatKindler, the former Pfizer CEO, would be on Blink's board. In aslide sent to Karsch eight days before he invested, Kindler waslisted as a vice chairman of the nascent company, with hisbiography placed directly below Geoffrey Chaiken's, according tothe lawsuit.

Chaiken said he had extensive talks with Kindler that didn'tlead to the bigger role he envisioned. Kindler said in a textmessage that he never served on the board, but he didn't respond toquestions about the nature of his talks with the Chaikens.

“Nothing was misrepresented or concealed from Mr. Karsch,” saidSnyder. Karsch “knew that plans had shifted.”

In a March 1 court filing, Blink accused Karsch and his lawyerof destroying evidence, including emails from the period underdispute, and asked the judge to end the case. Karsch's lawyerdenied the allegations. A hearing is scheduled for this month.

In the interview at Blink's office in January, Geoffrey Chaiken,dressed in black, said he considered shutting the company manytimes. But he continued because of the “hundreds of thousands ofpatients who are completely relying on the service to survive.”That forced Blink to come up with a new way of doing business, hesaid, one that cut out all middlemen to create a company “purelyaligned with interests of patients.”

Last year, Blink partnered with former Express Scripts HoldingCo. employees to set up Blue Eagle Health, which it calls apharmacy benefit administrator. Blue Eagle maintains a network ofmore than 35,000 pharmacies, including independent stores, regionalchains and Walmart outlets. Susan Lang, a former Express Scriptsexecutive, is now Blink's chief strategy officer. Blink also hiredseveral e-commerce veterans who previously worked at Kayak.com. Itwon back a supermarket chain, Publix Super Markets Inc., which hadstopped taking Blink customers in 2017.

“We are growing faster than we were before our dispute withMedImpact and before we lost CVS and Walgreens,” Chaiken said. Hewouldn't disclose revenue or prescription numbers but said thecompany had almost quadrupled its headcount in the previous 16months.

Blink's realized gross revenue, which peaked at more than$700,000 a week in the summer of 2017, fell by about one-third overthe next several months, according to a performance report viewedby Bloomberg News. It started climbing again last year, and as ofearly 2019 was above $500,000—higher than at the beginning of 2017,before the big pharmacy chains pulled out, but well below the peak.Blink said it couldn't comment on revenue numbers.

Meanwhile, competitors aren't standing still. GoodRx, theaggregator of cash-discount offerings, said it had revenue of morethan $200 million last year and that more than 25 million peoplehave used its discounts since it started in 2011, including 3.5million in January. Blink said that month that more than 500,000customers had used the site since its launch. Its mobile app had200,000 downloads in 2018, a fraction of the 3.1 million forGoodRx, according to analytics firm App Annie.

Another potential competitor is online pharmacy PillPack, whichAmazon bought for about $1 billion in June. It has pharmacylicenses in 50 states and focuses on patients taking multiple drugswho need help keeping track. If it decides to emphasize low-costgenerics, it could be a threat to companies like Blink.

And then there's Kakaulin, the spurned former CFO, and Jacoby,Chaiken's former prep school pal, who also left Blink afterdisputes with the Chaikens. They've formed their own discount-drugscompany, Hippo Technologies LLC, with offices 20 blocks north ofBlink's in lower Manhattan. Their site, which launched in Februarywith $10 million in venture funding, allows people to get a textmessage discount card that can be used at drugstores, including CVSand Walgreens. Hippo plans to market its service to employers,health plans and other membership organizations.

Last March, Blink sued Hippo in federal court in New York,alleging it stole trade secrets, including Blink's computer code.It listed three other former Blink employees and contractors asco-conspirators. The suit was settled in October on terms thatweren't disclosed. Kakaulin said the lawsuit interfered withHippo's fundraising for the better part of a year, but now that thecase is over, Hippo will surpass Blink “very quickly.”

Blink has modified its one-low-price-everywhere strategy and nowoffers its best deals at select drugstores. It calls them “BlinkSmart Deals” and guarantees the lowest price for prescriptiongeneric drugs in a particular area or it will refund thedifference. It also added a free mail-delivery option that issometimes even cheaper. Blink, Hippo and GoodRx all advertise bigdiscounts on typical full-cash drugstore prices.

Some industry experts wonder whether companies like Blink andHippo are taking on a problem that technology can't solve. They arefighting an uphill battle against giant drugstore chains andmiddlemen that aren't about to let go of their profit streams.

The Chaikens and their backers aren't conceding anything. Blinkis “on the side of angels,” said venture capitalist Kimmy Scotti of8VC, Blink's lead outside investor. “The incumbents really want tokeep prices high and, more importantly, profits for themselves.There is no incentive for them to make any changes in a system theyhave benefited so greatly from.”

Read more: 

• 5 things senators are hearing about drugprices
• Despite regulatory intervention, PBMs are stillgaming the system
• Express Scripts' new formulary: The start of a PBMrevolution?

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