Cerebral CEO Blames Market Conditions For Impending Layoffs As Company Faces DOJ Investigation

Cerebral CEO David Mou seemed to create more confusion over planned layoffs at the mental health startup during a Friday town hall, where he blamed the coming terminations on “macroeconomic” factors while downplaying issues around the company’s prescribing of controlled dangerous substances, which have led to a Department of Justice investigation and the ouster of cofounder and CEO Kyle Robertson. Employees have been in limbo ever since receiving an email from leadership earlier this week warning of impending layoffs for corporate headquarters staff by July 1.

“The company is in good shape,” Mou, who served as chief medical officer before taking over as CEO last month, told employees on Friday. “We’re in an economic downturn and so all companies necessarily need to be more conservative.”

In terms of what positions would be affected, he said, “we haven’t made final decisions yet,” though he made clear client-facing clinicians would not be part of the restructuring. Bloomberg first reported Cerebral planned to layoff employees earlier this week.

“We want to be able to grow in a sustainable fashion, and we want to make sure the company is stable for our patients, as well as our employees. It’s for these reasons that we’re having to make some difficult decisions in the coming weeks around restructuring our operations,” Mou told employees Friday. “The controlled substance piece has nothing to do with the layoffs. They have always been a minority of our business.”

The San Francisco-based startup, valued at $4.8 billion after a $300 million funding round led by SoftBank last year, announced in May it would pivot away from prescribing controlled dangerous substances to new patients – the same month it received a subpoena from the U.S. Attorney’s Office for the Eastern District of New York related to “possible violations of the Controlled Substances Act.” The federal law regulates the prescribing of medications that have potential for abuse and dependence, including stimulants and benzodiazepines. A Cerebral spokesperson said the company is “continuing to cooperate with the DOJ in this investigation and have no other comment at this time.”

The company is also facing a lawsuit from a former executive who alleged he was fired in retaliation for speaking up about unlawful and unethical business practices, including the company’s prescribing procedures around ADHD medications. Cerebral has said the company will “vigorously defend ourselves against these false and unfounded allegations.”

Prior to the pandemic, a federal law known as the Ryan-Haight Act required at least one in-person visit for the prescribing of controlled substances, with a few limited exceptions. This requirement was suspended during the federally declared Covid-19 public health emergency, meaning Cerebral could prescribe these medications to new patients through virtual-only visits. The public health emergency has been extended by the federal government every 90 days since January 2020, and the current extension is set to expire in mid-July.

When Cerebral announced its plan to stop prescribing controlled substances to new patients in May, Mou said the company had reached a “crossroads” and was preparing for the expiration of the Ryan-Haight waiver in an email to clinicians. Existing patients would need to be titrated off these medications or transferred to a different provider by October 15. On Friday’s call, Mou said it “was a very intentional and strategic decision for us to move away from [controlled substance prescribing], because our understanding of the federal regulations is that this is not going to be allowed in October.”

The company did not respond to questions about how shutting down a line of business could be unrelated to planned layoffs. In a statement, a spokesperson said the company was undertaking an “organizational review that will simplify our structure, reinvest into our core business, double down on quality, and better align our operating model to best meet the evolving mental health needs of the patients we serve.”