By Keith Shaw, Robotics Data
For many robotics company founders, the dream is simple – start a company, grow it quickly, reap the rewards and change the world.
It sounds simple enough, but the history of the world has shown that sometimes even the best ideas produce failures from companies across the business landscape – and robotics is no different. Along the way, many companies have failed to achieve their goals through different methods, such as running out of investors’ money, coming to the market too soon, or failing to achieve mainstream acceptance.
Robotics company founders can find some solace and inspiration in the story of a robotics startup that began its life (and is still operating) in the Pittsburgh area, one of the world’s leading robotics communities. While the names of the company have changed along the way, the tale of Automated Healthcare and its medication-dispensing robotic system shows how persistence, resilience and a hard-nosed focus on product-market fit to solve customer problems can lead to commercial success.
Founded in January 1989, Automated Healthcare developed and marketed the first-of-its-kind systems that automated the dispensing and administration of medication in hospital pharmacies. The system used robotics to reduce medication errors, as well as decrease the cost of managing the pharmacy function for hospitals. The company successfully deployed robots in hundreds of hospitals for more than seven years before its first acquisition, by McKesson Automation in 1996. After a series of additional acquisitions and spinoffs, the technology created by Automated Healthcare is still a major part of its current iteration, Omnicell, and its $5 billion+ market valuation.
“This is the Pittsburgh journey of a technology that came out of the [Pittsburgh-area] universities a long time ago and how it found its little home,” says Douglas Descalzi, the vice president of robotics and automation at Omnicell. “It grew up, got acquired, had its successes and then sort of plateaued. It got spun out and was a private equity-owned business for a while. Now you’re seeing a new generation of robotics come out from Omnicell.”
While many people look at robotics now and see self-driving cars, cool vision sensors and new robotic arms that can do amazing things, Descalzi says a lot of this is still fledgling. For life science robotics companies like Omnicell, which has been developing automation systems for more than 30 years, it’s the practical application of automating the dispensing of medications by a hospital pharmacy that is having a major impact on the industry.
Omnicell now provides two major platforms for hospital pharmacies looking to automate their medication dispensing. The company’s XR2 Automated Central Pharmacy System, which dispenses medications in single and multiple doses, evolved from the dispensing cabinets from Automated Healthcare. Its i.v.STATION compounding robot provides similar dispensing tasks for liquid medications. In addition to robotics, Omnicell offers data analytics, services and support for central pharmacy operations.
The early days of automating medications
“We thought it was crazy that somebody could walk into a 7-11 and have a box of cereal scanned at the checkout counter to make sure you were charging somebody the right price. Yet a lot of the same kind of automation and technologies weren’t available in hospitals to ensure patients were getting the right drug at the right time,” says Rich Lunak, one of the early employees at Automated Healthcare, and now the president and CEO of Innovation Works, a Pittsburgh-based seed-stage investor of startup companies. “The act of drug dispensing at a large hospital is this highly repetitive activity that requires a high degree of accuracy. It’s very labor intensive, and we felt it lent itself very well to the application of robotics. Not just for the improvements in quality, but also reduction in costs – in this case the pharmacy – one of the highest cost centers in a hospital.”
After a few years of developing and selling the Robot Rx system, Automated Healthcare was bought by McKesson for $65 million, and became McKesson Automation. McKesson, which was a drug wholesaler, was looking to have an automation business because it fit with the wholesaling business, but revenues of $150 to $200 million at a $100 billion+ business did not have much of an impact, says Descalzi. So in 2013, the company was spun out to Francisco Partners, a private equity firm, and the company was renamed to be Aesynt.
Lunak says the early initial success of Automated Healthcare led to the problem of not being able to “cross the chasm” from early adopters into more mainstream customers. “When we first introduced robotics, this was an operational area of hospitals that had typically not bought a lot of technology in the past,” he says. “So early on, the types of hospitals we secured as customers were these visionary early adopters at very renowned hospitals – Duke University, University of Wisconsin, Johns Hopkins, places like that.” But with that approach, a normal 300-bed community hospital would say that they couldn’t afford a large system like that, and the company ran into other issues such as integration with hospital information systems, field service, and finding the right market partners. “Those became issues that we had to solve in order to crack into that broader market, and it definitely was one plateau,” says Lunak.
Descalzi says the private equity spinoff was actually good for the company, as it helped to reinvigorate the company and the entrepreneurial spirit from the early days of Automated Healthcare. “It gave us another spark, a little more access to capital, and allowed us to focus a little more on the automation rather than the drugs,” says Descalzi. “So we got big, we got into a huge company, and then we got small again. You saw some of that renewed entrepreneurial spirit.”
As Aesynt, the company began updating the original Robot Rx, which had now become fairly dated, with next-generation products that have evolved into the Omnicell XR2 system. In addition, the company began investing in robotics for IV compounding, including the 2014 acquisition of Health Robotics, which developed compounding and dispensing solutions. All of this work eventually led to the 2015 acquisition of Aesynt by Omnicell.
Paying off for the company
An example of the company’s dedication to automating pharmacy operations can be found at another Pittsburgh healthcare system, AHN Allegheny General Hospital. Arpit Mehta, Pharm.D., MPH, MHA; Director of Pharmacy at the hospital, recently deployed Omnicell’s IV compounding robots as part of a central pharmacy overhaul. In 2020, the company was able to save about $700,000 by compounding their own IV medications and operating room syringes instead of relying on outside 503B companies. With a successful program in hand, the hospital is also looking to expand with additional automation initiatives.
“We have pursued a contract with Omnicell for our other automation,” says Mehta, “so we looked at it from a larger perspective to do a bigger contract and truly build a partner rather than having multiple different vendors.”
Mehta says the hospital and its staff have been very pleased with the relationship it has with Omnicell. “It was a multidisciplinary approach when we chose Omnicell as a partner,” he says. “Our nursing colleagues are very excited because of the clinical efficiencies of dispensing medications with Omnicell that we didn’t have with our previous vendor. Our anesthesiologists are super excited about using Omnicell’s anesthesia cart workflow as well. We’ve had nothing but positive feedback so far from our direct partners.”
A 30-year rocketship ride
Descalzi says the journey from Automated Healthcare to Omnicell has had its share of bumps and bruises, but overall the slope has been positive for the company and its technology. “At Omnicell, we’ve got this technology where it’s growing, and the central pharmacy is now tying to point of care, and it’s integrating with IV compounding, and it's starting to gel again,” says Descalzi. “It’s a testament to persistence, of continuing to iterate, and finding a way that’s resilient. It’s not about the flash.”
He also compares the journey of the company that suddenly finds success to a hen laying an egg. “When a hen lays an egg, no one gets real excited,” says Descalzi. “But when that egg hatches everyone says, ‘Wow, cool, new life. This is unbelievable.’ Well, wait a minute. It was whatever the time before the egg hatched and the nurturing of the egg that created the inflection. At the company, it wasn’t some brilliant stroke of a CEO waking up one day and saying, ‘Here’s what we’re going to do.’ It speaks to more about the persistence and resiliency and the technology, continuing to refine it, to work for the best case of the market, and then finding a home for it.”
So whether a robotics company has an early exit or a 30-year journey to success, the big lessons to remember center around adaptation, persistence and finding the best product fit for your market.
Keith Shaw is a general partner at Robotics Data, a consultancy that writes market reports about robotics companies and the markets they are disrupting. He’s also a freelance technology journalist with more than 25 years of experience covering information technology, consumer electronics, and robotics and automation.