What Does Pear Therapeutics’ Bankruptcy Mean for PDTs?

Pear Therapeutics Inc. was a pioneer in digital therapeutics — and prescription digital therapeutics in particular — so when the Boston-based company filed for bankruptcy in April and stopped filling prescriptions, it cast a shadow over the nascent industry that sees apps and smartphones as the future of healthcare.

Industry observers say some of the reasons for Pear’s downward spiral were specific to Pear. Its products were relatively high priced and targeted conditions that are difficult to treat, such as substance use disorders. Plus, the odds of failure are shorter for leading-edge companies. Others can watch and learn from their mistakes.

“Pear was really kind of outstanding insofar as setting precedents” for FDA approval, says Tom Cassels, M.P.P., president and CEO of Rock Health Advisory, a digital health strategy group. “They were the first mover in prescription digital therapy development and took the most risks regarding their business model and reimbursement strategy.”

But Pear’s bankruptcy also highlights some of the challenges facing digital health companies. Physicians and payers remain wary of what they are selling. Getting to the scale where a digital therapeutic will be profitable will be difficult, especially because many of the companies are small startups without a lot of market muscle. Digital therapeutics are more likely to gain traction in areas of healthcare where the cost of care is high, says Cassels. Pear’s experience, he says, will serve as “a learning experience for how to go to market and how not to go to market.”

The rise and fall

Pear, which was founded in 2013, developed reSET to treat substance use disorder, reSET-O to treat opioid use disorder and Somryst to treat chronic insomnia. The products rely on cognitive behavioral therapy techniques. In 2017, Pear became the first company to receive FDA approval for a mobile app to help treat substance use disorders when reSET was approved.

Pear’s products were primarily covered by Medicaid programs. The company garnered favorable attention when it entered into a value-based agreement in 2021 with Prime Therapeutics LLC, a pharmacy benefit manager owned by Blue Cross and Blue Shield plans. Later that year, Pear went public through a merger with the special purpose acquisition company (SPAC) Thimble Point Acquisition Corp. Inc. in a deal valued at $1.6 billion. Cassels says there were signs of future trouble: “They went public with a limited number of contracts and a huge burn rate (of cash) on research and development.”

When it announced its third-quarter financial results in late 2022, Pear projected that its annual revenue for 2022 would be between $14 million and $16 million with between 35,000 and 45,000 prescriptions for the year and average sales price for its product between $1,150 and $1,350. At the same time, the company announced that it was laying off almost 60 employees, or more than 20% of its workforce. “Pear demonstrated the ability to grow its business while reducing operating expenses again in the third quarter,” said Chris Guiffre, J.D., MBA, Pear chief financial officer and chief operating officer, in a news release. But approximately four and a half months later, on April 7, the company filed for bankruptcy.

In a LinkedIn post, Corey McCann M.D., Ph.D., Pear’s president and CEO, suggested that healthcare insurers were, at least in part, responsible for the company’s woes. “We’ve shown that our products can improve clinical outcomes. We’ve shown that our products can save payers money. Most importantly, we’ve shown that our products can truly help patients and their clinicians. But that isn’t enough. Payers have the ability to deny payment for therapies that are clinically necessary, effective and cost saving.”

Cassels credits Pear for tackling substance use disorders, but he says, “almost half their revenue was from three payers with very different contract structures,” which made things challenging. “Reimbursement is a stumbling block” for the digital therapeutics industry, says Autumn Brennan, spokesperson for the Digital Therapeutics Alliance, the trade association for the digital therapeutics industry.

For Pear, “the promise wasn’t backed up to adoption to create scale,” says Marisa Greenwald, MBA, M.A., a partner at EY-Parthenon, the consulting arm of Ernst & Young. Cassels notes that Pear’s products were expensive relative to the many lower-cost, nonprescription apps. Plus, someone could buy themselves a book on cognitive behavioral therapy to learn the techniques, he says.

Digital challenges

The companies selling digital therapeutics tout their convenience.It’s all there, right at your fingertips, whenever you want. But getting a prescription for a digital therapeutic filled is “not like going around the corner to CVS,”
says Cassels.

Fritz Heese, Dipl.-Kfm., a partner at consulting firm Oliver Wyman, notes that patients might need help downloading an app or answers to questions about how to use it.

A limitation for many digital health companies is that “they don’t have a strong commercial muscle. They’re tech companies,” Heese says. That can mean a lack of sales and marketing expertise to win over providers and patients.

Along with Pear, other digital therapeutics companies have gone public in recent years after mergers with SPACs that raise capital and then acquire or merge with an existing company. Akili Interactive merged with a SPAC last year and went public. Akili is marketing EndeavorRx, a video game-based prescription digital therapeutic for children with attention-deficit/hyperactivity disorder. Earlier this year Akili announced it was laying off 30% of its staff.

Better Therapeutics Inc., which uses cognitive behavioral therapy to address diseases such as diabetes, also went public through a SPAC in 2021. It recently announced it was laying off 35% of its staff. It is still awaiting FDA approval of its first product. At least a dozen companies across various industries that had merged with SPACs have gone bankrupt, and more than 100 others are running out of cash, The Wall Street Journal recently reported.

If digital therapeutics companies don’t generate enough revenue, it can deter investors, Heese says. Companies “got a very high value through SPACs,” Heese notes, “but since the IPOs (initial public offerings), they have lost value.”

The future of digital therapeutics companies hinges on reasonable to-market business models and “prices that the market will bear,” says Cassels, who sees products for musculoskeletal issues as candidates for traction. If someone is in significant pain, they may be more willing to add an app or virtual reality therapeutic if it helps them learn pain management techniques, Cassels says. Greenwald agrees, noting that digital therapeutics for diabetes as well as musculoskeletal and similar conditions are more likely to grow in acceptance.

Susan Ladika is an independent journalist in Tampa, Florida, and a frequent contributor to Managed Healthcare Executive.