Digital therapeutics at a crossroads after Pear’s downfall

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.

Not a Modern Healthcare subscriber? Sign up today.

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.

Download Modern Healthcare’s app to stay informed when industry news breaks.

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. 

DarioHealth, Big Health talk differences

In the wake of Pear's bankruptcy, digital therapeutics companies are quick to point out the differences between themselves and the fallen company. 

DarioHealth, which develops applications for musculoskeletal, metabolic and behavioral health conditions, has not gone the pharma commercialization route like Pear did, Anderson said. He said trying to go the pharma route requires companies to conduct rigorous FDA-approved clinical studies, build out massive sales teams, lobby the government for coverage, convince payers to get on board and more. It’s a massive, expensive lift. Even if they can get all that, as Pear was able to do, they still must convince physicians to prescribe the therapeutic. 

“All that adds up,” Anderson said. 

In contrast, DarioHealth and other digital therapeutics companies sell directly to employers and health plans without similarly large costs to commercialize.

“Once we get a health plan or an employer to cover the benefit then we can reach out directly to the members to bring them on board,” Anderson said. 

Gupta at Big Health said his company took the software approach over the pharma route for its insomnia and anxiety therapeutics. Like DarioHealth, his company also sells directly to health plans and employers. They can sell to their products to members as an added benefit. In this sense, the company is on the digital health formulary for Cigna’s subsidiary Evernorth and has partnered with the U.K. National Health Service in Scotland.  

“This space still holds a lot of promise and I’d say it’s somewhere past its earliest innings,” Gupta said. “We're obviously learning that certain models have, at least financially and from a business point of view, are different and better than others. That’s starting to shape out.” 

Both Molnar and Michael Pace, CEO and founder of industry consulting firm PalmHealthco, used to work at Pear Therapeutics. Pace said that companies like Pear needed to be a standard healthcare benefit within Medicaid to be successful.  

“From the outside, it's easy to say, ‘Here's a big company that failed or went bankrupt,’” Pace said. “But perhaps the outside doesn't recognize that an organization that is interested in supporting the recovery journeys of substance and opioid use disorder patients means serving a population in need of equitable access and in particular, Medicaid beneficiaries. So an organization like Pear is absolutely beholden [to that population] and its only chance of surviving and thriving was to be successful servicing [them].”

The challenges Pear faced in changing payer and physician behaviors were too much to overcome but going forward there is still optimism among those in the industry. Molnar said the company was able to break a lot of barriers that will make it easier for other companies, whether they go the pharma route or not, to move forward.   

“We have legislation in Congress that’s been introduced,” Molnar said. “We are seeing [current procedural terminology] coding, which will help providers get reimbursed. When I started in this industry, providers got no money for tracking patients remotely. We’re seeing Medicaid coverage. We’re seeing positive medical policies and some formularies are covering digital therapeutics products. This is not going away.”

This story first appeared in Digital Health Business & Technology.