Pear Therapeutics dreamt of huge revenues and ‘commercial scale.’ It never came close
Mario Aguilar
By Mario Aguilar April 13, 2023
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glum Benjamin — health insurance coverage from STAT
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In January, Pear Therapeutics was quickly running out of money. The digital health startup embarked on an effort to sell up to $150 million worth of its stock, which could have tossed Pear a crucial lifeline as it sought to claw its way to a sustainable business.
By the end of March, the stock sale had yielded just $1 million and it was evident that investors were no longer interested in funding the company. In early April, Pear filed for bankruptcy and announced it would lay off almost all of its employees.
In the wake of the filing, much has been made of the promise of the digital medicines that the company developed. Less has been said about how the company so misjudged its trajectory in believing that it was “poised for near-term commercial scale.”
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In regulatory filings and investor presentations circulated before the company went public in 2021, Pear laid out both the modest state of the company’s business and its aggressive projections: By strength of momentum, Pear would grow its business selling prescription apps for the treatment of opioid use disorder and other conditions from $4 million in 2021 to a whopping $125 million by the end of 2023.
Pear’s revenues never got close to that number, despite burning hundreds of millions in investor cash. By the end of this year, it will likely be sold off for parts.
To some industry observers, Pear’s forecasts are a classic case of magical thinking. Pear’s leaders underestimated the challenges the company would have to overcome with insurers, providers, and logistics. Though the company made progress on coverage and managed to grow its revenue, its projections would’ve required large-scale adoption that remains far out of reach.
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“Entrepreneurs are pathologically optimistic,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. “If they weren’t, they wouldn’t be entrepreneurs.”
In a more generous light, the projections could be seen as emblematic of the optimism created by unprecedented technology adoption in health care during the Covid-19 pandemic, as well as record-breaking investment in digital health companies that would total $29 billion at the end of 2021.
Alex Waldron, who worked as both chief commercial officer and chief strategy officer at Pear before leaving in February 2021, said the company felt a flood of support for its products among state Medicaid groups and even on Capitol Hill in the early days of the pandemic. Though he wasn’t involved in writing Pear’s projections, he understands the climate from which they emerged.
“There were definitely some indicators that would have said, ‘listen, this is going to move very quickly and we certainly are optimistic in terms of where those numbers are going to go,’” he told STAT. He conceded that “in retrospect, you could certainly say they were too aggressive. But some of those aggressive statements were made before a lot of the things that caused macro issues — exogenous things you couldn’t control for — fell out, which is a shame for everybody.”
Related: Digital health pioneer Pear Therapeutics files for bankruptcy
Certainly, Pear’s projections would have required substantial changes in health care. But the pandemic year that preceded the projections had seen many of the unlikeliest changes take place. Millions of people suddenly started using telehealth, and insurers had loosened their rules to make it easier to pay for that care. Now that tech had shown its worth, there was a feeling in the industry that maybe even more was possible.
And anyway, many top flight venture capital companies had shown a willingness to throw endless money at health care technologies. If this hundred million didn’t get the job done, many founders seemed to think, the next hundred million would.
Even before the pandemic, Pear had managed to accomplish significant milestones. The company, founded in 2013, was a trailblazer in the development of smartphone apps that could be prescribed by doctors for the treatment of disease. In 2017, it secured the first Food and Drug Administration clearance for such a prescription digital therapeutic, called reSET, which used cognitive behavioral therapy techniques to treat substance use disorder. Two more clearances for reSET-O and Somryst — for the treatment of opioid use disorder and insomnia, respectively — followed in 2018 and 2020.
Its early success navigating the challenges of FDA regulation were somewhat dampened with its first prominent setback. After entering into a commercial partnership with pharmaceutical company Sandoz in 2018, the two parted ways a year later, and Pear was left to try to sell the products on its own.
Related: Inside Pear’s ambitious plan to become the most dominant player in digital therapeutics
Making money would prove difficult. The company turned its attention to convincing health insurers and the Centers for Medicare and Medicaid Services to cover its products for large populations. While most drugs and medical devices have a relatively straightforward route to coverage through established pathways, there’s no such path for digital therapeutics.
Though the company over many years produced research showing the benefits and cost savings of its products, major insurers never budged. The difficulty convincing payers is evident in a 2020 report from the Institute for Clinical and Economic Review, which was tepid on reSET-O’s evidence and its potential to save money. Though smaller payers like Highmark have recently warmed up to coverage, larger players like Aetna remain steadfast in their refusal.
Even with uncertainty around coverage, the enthusiasm for digital health during the pandemic and a firehouse of available capital translated to increased interest from investors. Pear raised additional funding from SoftBank in 2020 and went public via a merger with a special purpose acquisition company in 2021.
From there, the company landed positive coverage decisions from the state Medicaid organizations in Florida and Massachusetts, secured an important CMS code for its products, and landed revenue-generating contracts with organizations like SelectHealth. Pear, along with other companies and industry organizations like the Digital Therapeutics Alliance, worked with lawmakers to introduce the Access to Prescription Digital Therapeutics Act, which would force CMS to create a benefit category for digital therapeutics. The hope was that with a CMS category in place and a rising tide with Medicaid organizations, the commercial payers would eventually fall into line.
Related: We need a way to tell useful mental health tech from digital snake oil
But the company still earned just $12 million in revenue in 2022 — less than the $22 million it projected at the time of SPAC merger, and not nearly enough to keep operating without additional capital.
According to Waldron, at least some of this shortfall was attributable to the cooling economy which hurt Pear’s chances for adoption as analysts were hounding payers about their stock prices.
“From a payer perspective taking on anything new during a period of time when they are under the microscope, every spend becomes that much harder,” he said. “It is harder and harder to do anything innovative. All you want to do is really shore up your bottom line during a time when the economy looks sketchy.”
Indeed, in a LinkedIn post CEO Corey McCann attributed the bankruptcy in part to payers who “have the ability to deny payment for therapies that are clinically necessary, effective, and cost-saving.” McCann did not respond to an email request for comment.
Related: 5 to watch: Tech startups trying to solve health care’s staffing crisis
But observers point out that it was unrealistic to expect insurers to move as quickly as Pear thought they might. And even if Pear had managed to secure coverage, it still had to create demand by convincing providers to write prescriptions — a practice-changing shift.
Beyond a lack of short-term business prospects, Pear’s financial problems were driven by its growth into an enterprise with hundreds of employees trying to help the company capitalize on its first mover advantage and become the dominant player in digital therapeutics. In addition to its commercial products, it was working on a dense pipeline of other candidates. Recognizing the challenges of its situation, the company in 2022 twice laid off workers and scaled back work that was not related to earning money from its commercial products.
Despite all of its optimism, Pear’s leadership was clear in its early regulatory filings and in public comments since that the SPAC fundraise would not be enough in the long term. More capital would be required to get to sustainability. When executives first acknowledged that need for funding in 2021, it had raised from blue chip outfits like 5AM Ventures and SoftBank and the market was flush with capital.
Related: The Q2 health tech tracker: 13 key industry events and milestones to watch
In the years since, capital has dried up. Those investors who had backed Pear in the boom times did not come to its rescue now.
Gordon, the Michigan business professor, said that the bankruptcy was reflective of “financial management that counted on there forever being endless amounts of VC money to support the losses.”
“If we were back in the go-go times where the VCs had more fear of missing out than they had of losing money,” he said, “they probably would have gotten another round of money and been able to last another, you know, 18 or 24 months.”
The bankruptcy will end Pear as a company. But it’s possible that a pharmaceutical company or some other player will purchase the assets and run with them and the versions of reSET-O and other technologies Pear built will reach patients at scale as Pear promised. Even if they don’t, Pear laid the groundwork that could give new companies with big dreams a chance to succeed.
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https://www.statnews.com/2023/04/18/mindstrong-pear-future-digital-mental-health/
April 18
What the recent failures of Mindstrong and Pear tell us about the future of digital mental health
By John TorousApril 18, 2023
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a person scrolls through phone in dark – First Opinion coverage from STAT
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Over the past five years, digital mental health has risen from a niche topic to a global health priority. Patients, researchers, regulators, and investors alike are thrilled by the potential of ubiquitous mobile technology like smartphones to help diagnose problems, monitor health, and even deliver evidence-based therapies. Two companies that came to embody this potential were Mindstrong for smartphone monitoring of mental health and Pear Therapeutics for FDA-approved apps and digital interventions. Mindstrong raised nearly $160 million, and Pear Therapeutics once had a $1.6 billion evaluation.
But in March, Mindstrong announced it was ceasing operations. And on April 7, Pear Therapeutics announced that it was filing for bankruptcy.
Both companies were founded by smart and passionate people who wanted to improve access to mental health care. They were staffed by hard-working employees who wanted to help change the world. The concept of using data from personal patterns of smartphone use to help diagnose a mental illness or track recovery is appealing. So is the concept of using a smartphone app to receive evidence-based care from the palm of your hand. Pear Therapeutics even received some of the first Food and Drug Administration clearances for software as a medical device for mental health.
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But the companies went wrong in a way that is symptomatic of the rest of the digital mental health field.
Related: How Mindstrong’s rush to roll out a ‘smoke alarm’ for mental illness led to its downfall
Both companies tackled the pressing need for a transformation in mental health care. They drew on the global need for a paradigm shift in mental health and offered a scientific pathway toward that vision. Mindstrong built off a 2018 pilot study of 27 subjects capturing smartphone data over seven days to pilot digital biomarkers of cognitive function, which could remotely diagnose or monitor mental health conditions. Pear Therapeutics had many products but was likely most well-known for its apps that promised to help treat addiction.
The story of using technology to monitor and help support mental health made sense five years ago and in fact still makes sense today. Digital technology will help increase access to and quality of mental health care.
But the story only goes so far.
The next step is to prove out the story with science. Just as a new drug for a mental illness like depression undergoes numerous careful studies on its pathway to approval, the same process is necessary for digital software. Both Mindstrong and Pear Therapeutics undertook research and began the scientific journey. In Mindstrong’s case, the company founders have come out on the record stating they felt pressured to commercialize too soon and before the science was sound. Looking in the scientific literature, the lack of peer-reviewed publications corroborates this narrative. We need more research before smartphone sensing to detect mental illness is even clinically validated, let alone commercially viable for a business like Mindstrong.
Related: Pear Therapeutics dreamt of huge revenues and ‘commercial scale.’ It never came close
Pear Therapeutics appeared to have the evidence since it obtained FDA clearance on some of its software. Yet in 2020 the Institute for Clinical and Economic Review wrote a public report noting that the “evidence is inadequate to demonstrate a net health benefit.”
In fact, that evidence was not based on any smartphone at all. It came from a related computer program called the Therapeutic Education System. This was tested in 2014, in a study where patients came twice a week, in person, to a clinic to log on and use the program on computers in the clinic. Even in 2014, the authors of that study wrote “additional research is needed to assess effectiveness in non-specialty clinical settings.” Pear Therapeutics acquired the rights to this program, worked to get an adapted version FDA-cleared, and then marketed it as a digital therapeutic. (It’s worth noting that there is no consensus on the definition of a digital therapeutic.) Nearly a decade later, it’s still unclear whether this system can work outside of a specialty clinic.
Thus, in both the case of Mindstrong and Pear Therapeutics, there was no dramatic story of something going wrong. The problem was that neither company was able to invest the money to carry out the necessary scientific research. While Mindstrong and Pear Therapeutics are two of the most well-known, the lack of resources for clinical science is widespread in the industry. A 2022 report suggested that 44% of digital health companies has a clinical robustness score of zero.
But that does not mean these products and digital mental health have no future. These failures tell us that patients, clinicians, and payers want digital tools that are effective in real-world settings. That means promising pilot studies, like those that launched this industry in the 2010s, must be followed by high-quality studies. When my colleagues and I conducted a meta-review in 2022, we found that overall, the quality of most digital mental health studies was low. Now it is time to think about a new generation of evidence and new studies to build the type of real-world data we need to ensure products offered are both safe and truly effective. This means studies that account for digital placebo effects, are run in real-world clinical settings, involve diverse patients, and can be replicated by outside teams.
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We already know how to do this. Pharmaceutical companies offer one example of high investment in medical research and development. They invest in thousands of potential drugs and take the top-performing ones through more and more rigorous studies. The National Institute of Mental Health is another example, now investing heavily in digital research and supporting rigorous mechanism of action studies. As patients, payers, and investors demand more evidence and proof that digital software really works as promised, new companies will rise to the challenge. Of course, there is a major difference between drug R&D and digital mental health care, which is that software needs additional research to prove it can successfully work in the context it is deployed in. But even this is a surmountable hurdle.
Digital mental health might be stumbling in 2023, but these disappointments may signal a new era in how we approach the next generation of digital tools. The stories that founded and sustained both MindStrong and Pear Therapeutics are still valid today — they are just waiting for the next generation to take them off the page and into a scientific reality.
John Torous is an assistant professor of psychiatry at Harvard Medical School and staff psychiatrist at Beth Israel Deaconess Medical Center. He is the scientific advisor for Precision Mental Wellness, a company he holds equity in.
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https://www.statnews.com/2023/01/12/jpm-lesson-digital-front-doors-dead-ends/
Jan 12 2023
A lesson from JPM: Too many digital front doors in health care lead to nowhere
By Owen TrippJan. 12, 2023
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digital health door leading to a brick wall superimposed on a futuristic digital background.
PHOTO ILLUSTRATION ALEX HOGAN/STAT, ADOBE
Top health care leaders braved rain, hail, and flash flood warnings at this year’s J.P. Morgan Healthcare Conference in San Francisco. The other thing they’re navigating? The downpour of new-entrant retailers in health care. Announcements at JPM and the recent CES 2023 conference in Las Vegas have confirmed the desire of folks including Amazon, Best Buy, CVS, and even Samsung to try to make health care simpler.
CVS is making a play to extend its arm into primary care and behavioral health. Walgreens is entering new markets, acquiring Summit Health. And Amazon’s recent acquisition of One Medical seems set to go through approvals.
All these investments, deals, and partnerships tout convenience. It’s the right impulse. But in 2023, convenience is not enough. If a solution is not transformational, addressing the U.S. health care system’s big and small problems at scale, there’s no room for it.
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Americans have been promised simple access to health care for years, so it’s understandable if they lunge to enter the many new digital front doors. But too many of those doors lead to tiny, dead-end foyers with no real connection to — or understanding of — their health histories, insurance benefits, unique needs, or preferences.
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This disconnect creates convenience without connectivity and more confusion, which is a frustratingly familiar scenario for people seeking care. The pressing need for anyone seeking health services is for something far more comprehensive, valuable, and long-lasting, something that goes beyond making health care convenient to making it foundationally better. For everyone.
I believe that integration is the innovation that counts now.
Successful long-term players in health care will take the steps needed to rethink the whole system and nail the problems they can uniquely solve, in the channels where they can drive the most impact. That’s certainly the focus of Included Health, the company I lead. We feel we can make the biggest difference by connecting people to the right care at the right time, whether virtual or in-person, in a way that is fully informed by their insurance coverage, health history, preferences, identity, and needs.
Here’s the thing: Too many shiny new offerings further fracture the health care experience. Anything less than a combination of clinical leadership, care delivery, technological expertise, and consumer-oriented service, all measured by a healthy dose of patient-reported outcomes, won’t work. It won’t overcome the out of control costs, inaccessibility, inequity, and just plain poor experiences that too many people face.
Related: The health care providers and insurers we’re watching at JPM23 — and why
To drive true cross-industry and cross-country change, innovators in health care need to avoid distractions and focus on the actual antidote to complexity, fragmentation, and individual isolation: an experience for people that encompasses their whole health and whole life. Half of Americans are confused by their health insurance benefits and, even if they could understand them, 84 million live in places with primary care shortages.
New retailers looking to enter health care may mean well, promising personal health care delivered to one’s phone, watch, or doorstep. But people need so much more than that. They need guidance. This means advocacy, accurate and empathetic care interactions, and one-on-one support for navigating it all: the everyday, the urgent, and the more complex. People are tired of having to connect the dots. To fill in their primary care physician, if they have one, about their experience at urgent care or about the text conversation they had with a therapist through their workplace health benefits. Done right, integration will have an enormous impact: better health at lower cost. Included Health recently compiled data showing that this kind of approach can reduce health care costs by 6% to 10%.
Digital solutions alone are not enough to reinvent health care. Electronic health records have created chaos. First-generation telehealth has failed to reduce the burden on health care providers, creating more barriers for patients trying to access their own health information. Early personal health tracking devices did not lead to promised health improvements. Any solution that fails to leverage data and connectedness, to predictively and personally deliver care, is a well-meaning short-term play. It may be good for short-term revenue, but it’s bad for health.
So let’s think long-term. This is bigger than convenience. People need health care designed, and proven, to treat them better.
Owen Tripp is the co-founder and CEO of Included Health, an integrated navigation and virtual care company.
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