Pear Therapeutics was one of the most notable companies in digital therapeutics and its downfall could be an ominous sign for other industry players.
“I worry it’s a signal for the immediate future of digital therapeutics,” said Dr. Rishad Usmani, founder of Healthtech Investors. Usmani has mentored and consulted founders in the digital therapeutics industry on getting physicians to adopt these tools.
While most industry observers, including Usmani, are bullish on the long-term potential of digital therapeutics technology, there is a growing acknowledgment that the business model needs improvements. There’s also a consensus that those improvements need to happen quickly as the challenges come at a time when the digital health industry is dealing with less friendly funding conditions.
Companies that develop prescription digital therapeutics, software applications that must be prescribed by clinicians, sometimes mirror the route pharmaceutical companies take to reimbursement, Usmani said. The problem is biotech companies have more leeway for development before the expectation of revenue generation, he said.
DarioHealth president Rick Anderson agreed with this assessment and said it’s hard for companies in digital health to go this route.
“Biotech startups spend hundreds of millions of dollars developing a product and then if it’s successful, they essentially sell it to a pharmaceutical company in order to commercialize,” Anderson said. “There is a massive lift to go to market.”
Pear Therapeutics, which developed applications for opioid use and substance use disorders, was emblematic of this challenge. Last Friday, the Boston-based company filed for Chapter 11 bankruptcy protection and eliminated most of its workforce. In the bankruptcy petition, the company listed $65.6 million in assets and $51 million in debt.
The company, founded in 2013, made strides that few others in the industry have been able to achieve. Three of its prescription digital prescription tools were approved by the Food and Drug Administration. It was one of the first prescription digital therapeutics companies to get FDA clearance and take its product to market. Its therapeutics were covered by 15 Blues carriers and multiple state Medicaid plans, according to founder and former CEO Corey McCann.
Nevertheless, Pear struggled financially. The company earned just under $13 million in revenue in 2022 while suffering losses of around $123 million.
In a post on LinkedIn last Friday, McCann said the company failed because of denials from payers and market conditions. McCann stepped down as CEO before the Chapter 11 filing but will serve as a paid consultant during the company’s dismantling. He did not respond to an interview request.
Andy Molnar, CEO of industry trade group the Digital Therapeutics Alliance, said payer reimbursement is the biggest challenge the companies in his association face along with an environment of reduced funding. He said Pear’s demise is already having an effect.
“Everyone is getting the question right now, ‘How are you not like Pear?’” Molnar said.
Arun Gupta, CEO of digital therapeutics company Big Health, said he wouldn’t want to have to raise money right now. He said his company is well funded and has been diligent about lowering its spending.
“Investors are gun shy, appropriately, because they’re losing money on one of the biggest platforms in the space,” Gupta said.