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Investor-fueled chain of treatment centers dissolves in difficult economy

July 22, 2009
by Gary A. Enos, Editor
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Former Townsend Recovery CEO and medical director now operate smaller business in Louisiana

A group of outpatient addiction treatment centers whose explosive growth since 2007 had highlighted the private investment community’s interest in the addiction treatment market is no more, having been forced to abandon its growth strategy after losing its key financial partners.

Townsend Recovery, which from February 2007 through the end of last year had established 15 clinics in Alabama, Florida, Georgia, Louisiana and Texas, officially ceased operations in March. The company’s CEO and medical director at that time executed an asset purchase of five clinic sites in Louisiana and continue to operate them as outpatient centers offering medical management and cognitive-behavioral treatment.

Staff members at Townsend Recovery’s first clinic location, in Fort Walton Beach, Florida, made a similar purchase to keep that location open. The other nine Townsend Recovery clinic sites have closed. The sites still in operation have the right to the Townsend name, although they now use “Townsend” alone and not “Townsend Recovery.”

Former Townsend Recovery CEO Michael Handley, who with medical director Howard Wetsman, MD, runs the Louisiana operation, says Townsend Recovery’s problems began with the decision by the company’s primary investor (an individual) to withdraw support during the economy’s collapse late last year. Handley says that decision was based purely on the investor’s personal financial considerations and had nothing to do with his outlook on how the business was being run or on its long-term prospects.

Before the primary investor pulled out, Townsend Recovery had entered into an arrangement with New York City-based investment company Branford Castle, Inc., in which Branford Castle became a strategic investment partner to help give Townsend Recovery credibility with other financial backers. (This arrangement was profiled in the December 2008 cover story in Addiction Professional magazine.) The deal was to involve a financial commitment from Branford Castle, but only after another professional investment entity had been secured. Handley explains that at the end of last year and into this year, the timing for identifying such an investor couldn’t have been worse.

“No one was investing in companies that weren’t profitable,” Handley says. “We were in a growth mode at that time; we were not designed to be profitable at that point.” The company in fact had planned to open three dozen new treatment sites in 2009.

Dealing with the loss of its sole source of supplemental capital, Townsend Recovery in mid-January got smaller in a hurry, laying off about 40% of its workforce and targeting for closure sites in larger markets that were farther from profitability than others. Handley says the company worked feverishly for about two months to achieve profitability with a smaller number of sites, but soon realized it would struggle to meet its overhead costs under the downsized structure. The decision to close the company was made in March, Handley says.

Handley and Wetsman have now made their own personal financial commitment to the new Townsend operation in Louisiana. Handley says he believes the private capital markets still have a keen interest in innovative and effective addiction treatment as an investment opportunity. Yet he acknowledges that some veterans of the treatment field will try to use Townsend Recovery’s rapid downfall to bolster their argument that these venture capital-fueled operations can’t ultimately succeed in this field.

“Nobody has told me that they think that, but I’d have to be naïve to think that they feel otherwise,” Handley says. “From the outside it looks like a total business failure.”

He adds, “I don’t say this to be critical because most of my friends are in this field, but I see the field as somewhat resistant to new ideas. We have some old ideals.”

For Wetsman’s part, he believes it is now easier to remain faithful to the clinical model in a smaller operation where there is more ongoing communication across sites. Townsend’s clinical philosophy emphasizes stabilizing the brain’s reward system and minimizing the effects of withdrawal in order to make cognitively based treatment more effective for each client.

About half of Townsend’s business is covered by insurance and about half is self-pay. About a dozen individuals are served in intensive outpatient services at each location at any one time, with another 60 or so per location receiving less intensive services.

“We’ve modeled this conservatively, and it’s going better than planned,” Wetsman says of the new and leaner Townsend. “Neither of us is in this to conquer the world.”

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