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March 24, 2023

Pear Therapeutics: What Happened and What does this mean for DTx?

Commentary
Maggie O'Donovan

What happened with Pear Therapeutics?

Prescription therapeutics company, Pear Therapeutics, announced last week that they are looking into “strategic alternatives” that could bolster its current precarious financial situation. The company is looking to “maximise shareholder value” through a potential merger, acquisition, or outright sale, and is also considering the possibility of a licensing agreement for or sale of specific assets. Without securing a strategic transaction, Pear may need to reorganise, restructure, or liquidate the company entirely. Pear has announced no set timeline for the process.

Pear, who offer FDA-cleared prescription digital therapeutics for substance use disorder, opioid use disorder and insomnia, has been on the public markets since late 2021, however, its stock price has declined over the last two years, with its stock closing at 39 cents a share last Friday, down 34% from the previous day. In the third quarter of 2022, the company reported a net loss of $30.7 million, and revenue of just $4.1 million. 


What does a struggling trailblazer mean for DTx? 

Pear Therapeutics have been considered by many to be trailblazers or pioneers in the DTx community, making regulatory progress, opening up a public policy discussion and forging a clear path for other DTx companies to follow. So why is it that this trailblazer has been unable to generate sufficient market traction and revenue to survive under its current ownership model?

Pear has failed to secure widespread reimbursement for its solutions in the US. Despite FDA clearance, market acceptance has been low among payers and providers. Reportedly, 31,000 prescriptions were written for Pear’s products in the first nine months of 2022, with just 58% of these actually filled. The solutions cost an average of $1,300 for 3 months, which would understandably act as a barrier to adoption among patients who are not covered by payers.

Evidence does not equal reimbursement or adoption

To attain reimbursement takes many years of evidence building and dissemination. Pear can not be faulted for its approach to securing reimbursement: the company’s clinical evidence is among the strongest of any prescription digital therapeutics, with more than 40 published studies including several large RCTs, many of which were published in high quality and well respected journals. Pear has also performed strongly in user experience testing, reportedly showing a plausible strategic fit with tools treating common, expensive and important clinical problems like opioid use disorder and insomnia. However, when approaching payers in the current economic climate, compelling health economic data, budget impact models and real world evidence for large numbers of users are also required to demonstrate the direct benefits to payers. Additionally, evidence of providers' appetite to adopt and utilise DTx solutions, are needed to convince payers of the real world impact of novel solutions.

Although the company pushed the envelope somewhat (Medicaid, BlueCross BlueShield, SelectHealth), it appears that despite the large amount of investments secured to fund the long runway to accumulate a solid evidence base, the company did not build a sufficiently compelling case to achieve reimbursement at great scale. This highlights the challenge of creating novel treatments in the absence of broad third-party payer coverage, further accentuating the real need to pass the ‘Access to Prescription Digital Therapeutics Act’ in this session of Congress in the United States.

Pear built too large a pipeline before proving commercial viability

Pear has a considerable pipeline, with plans to create over 50 products. However, it appears Pear may have moved too quickly in this regard, that is building out a pipeline before it had really proven the commercial viability of its first few products. Furthermore, gaining access to patients and physicians is very expensive. Pear built out direct to consumer (D2C) and HCP sales teams prior to having reimbursement contracts in place. Given Pear’s considerable headcount, significant revenue would have needed to be generated to break even. 

All in all it looks like Pear jumped the gun too quickly; in some ways the company’s over ambitious mission to succeed in a market characterised by slow moving adoption and maturity has likely contributed to the significant financial losses observed.


Industry implications: Is Pear's predicament a warning for the digital health industry?

This could potentially be the first domino to drop in what could be a larger upheaval  of the digital health industry (perhaps a dot com bust equivalent?). After several years of massive investment in this space, the next couple of years are going to be challenging for the digital health industry. Many digital health companies have been majorly overvalued and there are too many players in the market. Consolidation is a natural byproduct of market evolution. However, in this case, consolidation is unlikely to come from mergers and acquisitions, as most companies offer little to no value to a prospective buyer. Unfortunately, it is more likely that some companies will go out of business, until only a much reduced set of leading digital platform companies will be left standing. To succeed, those left standing will need to be right-sized and must get to breakeven profits within the next 12-24 months to survive. A market shakeout is inevitable.


Going forward, to be successful, DTx companies need to develop a new, value-based business model that delivers a higher return on investment (ROI) to payers and improved workflow to clinicians, compared with current treatment alternatives. Strategies need to be diversified, so companies are not relying on one type of customer only. DTx needs to think of themselves as being in a two-sided market, where they provide their products to providers and patients for free to improve HCP workflow and efficiency with improved health outcomes, and then get payers, pharma, governments and employers to pay for these benefits.


A successful DTx must compete for user attention with all applications installed on their smartphones. A product needs to deliver maximum engagement and adherence. Companies need to focus on immersive content, engagement mechanisms, and adding in-person coach support where this is needed.  In the US, there needs to be more recognition by regulators and payers, and a new generation of higher quality products that clearly demonstrate strong patient adoption. 


As the industry evolves, digital therapy will become part of standard care - and Pear will have played a major part in this. The story is shifting to focus more on the unmet patient needs and proving positive clinical outcomes irrespective of the modality deployed, digital or pills. DTx companies will really need to pay attention to both clinical and HEOR outcomes and not hold themselves to any less of a standard than people do for other therapeutics like for pharmacotherapies. 


Not all gloom! Learning from Pear’s fate

Pear’s collapse is indicative of the challenges facing the DTx industry, but it does not mean the future for DTx is doomed! The industry needs to ask itself ‘what can we learn at this moment?’ New technology models take 20 years to come about, so we are only about half way through the digital therapy (r-)evolution. It's important that we, as an industry, don’t let the foundations set by Pear go to waste. The future of digital therapy is bright. We need to push out the milestones for now and recognise the significant expense of this exercise. 


A huge thank you to Eugene Borukhovich, who helped us gather expert insights for this analysis from trailblazers, and thought leaders in the DTx space, in particular Christopher Wasden (Chief Strategic Officer, Twill), Andrzej Jończyk (Co-Founder and CEO USA, Prosoma), Kal Patel (CEO and Co-Founder, BrightInsight), Nate Beyor (Managing Director & Partner, BCG Healthcare), Francesca Wuttke (Founder and CEO, Nen Health), Dominik Burziwoda (CEO and Founder, Perfood GmbH), Chris Bergstrom (President, Amalgam Rx), David Benshoof Klein (CEO, Click Therapeutics), Edward Kliphuis (Partner, Sofinnova), Andy Molnar (CEO, Digital Therapeutics Alliance), Steven Driver (Medical Director of Digital Therapeutics, Advocate Aurora Health), Grady Hannah (Co-Founder & CEO, NightWare), and Sammeli Liikkanen (Director, Digital Medicine, Orion Pharma).

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