Pear Bankruptcy Filing Highlights Reimbursement Barriers for Digital Therapeutics

Pear Therapeutics, Inc. filed for Chapter 11 bankruptcy in April, saying that it had laid off about 92% of its staff but would still pursue a sale of the company or its assets. Health care insiders tell AIS Health, a division of MMIT, that the announcement by one of the pioneers in the prescription digital therapeutics industry highlights the challenges such companies face getting their products reimbursed. The difficulties are exacerbated by investors being wary of backing companies that promise future growth but have yet to turn a profit. 

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In 2017, Pear Therapeutics’s reSET digital app to treat patients with substance use disorder became the first FDA-approved PDT, which are software-based therapies to treat medical and behavioral conditions. Since then, the FDA has approved more than 40 DPTs, according to Brandon Aylward, Ph.D., director of digital health for RTI International, a nonprofit research institute.  

Still, Medicare does not cover PDTs, while commercial payers and state Medicaid programs have been hesitant to pay for them, as well. For instance, Pear said in October 2022 that about 10 states, a few Blue Cross Blue Shield plans and SelectHealth were the only payers that covered one or more of its FDA-approved products: reSET, reSET-O to treat opioid use disorder and Somryst to treat chronic insomnia. The company generated just $12.7 million in revenue last year while incurring a net loss of $75.5 million.  

“It’s really important not to abstract from this experience that the market is somehow not healthy,” Dan Mendelson, CEO of Morgan Health, the health care investing arm of JPMorgan Chase & Co., tells AIS Health. “With that said, I think that commercializing a new FDA-approved therapy is really challenging, and it’s challenging for new devices and it’s even more challenging for the more innovative categories like digital therapeutics. There is a whole array of companies that have raised a huge amount of capital during a period when there was just unbridled optimism and very low interest rates. Some of the valuations got way ahead of the business fundamentals.” 

Corey McCann, Pear’s co-founder and CEO before he was laid off in April, acknowledged the reimbursement issues in a LinkedIn post following the bankruptcy filing. “[Payers] have the ability to deny payment for therapies that are clinically necessary, effective, and cost-saving,” he wrote. “In addition, market conditions over the last two years have challenged many growth-stage companies, including us.” 

Bidders May Acquire Pear’s Products, Other Assets

Pear, which was founded in 2013, went public in December 2021 via a merger with a special purpose acquisition company (SPAC). The company had hoped to raise $400 million through the SPAC deal, but it only raised $175 million. 

In January, Pear hired financial firms H.C. Wainwright & Co. Virtu Americas LLC to help it raise up to $150 million through the sale of its common stock. But as of the end of March, it had raised just $980,000. 

Last month, the company hired MTS Health Partners, L.P., an investment bank, to serve as its financial adviser and help “explore strategic alternatives to maximize shareholder value,” including selling the company or raising additional capital. A court filing notes that MTS reached out to pharmaceutical manufacturers, health insurers, providers, health technology firms, private equity companies and venture capital firms to gauge their interest and that three parties submitted non-binding offers for Pear.  

Despite declaring bankruptcy, Pear intends “to proceed with a robust court-supervised bidding and auction process” that could include the sale of the company’s products, intellectual property and other assets, according to the filing. Companies have until May 1 to submit a bid. If two or more qualified bidders are interested in the same assets, there may be an auction on May 3 at the New York offices of Foley Hoag LLP, a law firm that is serving as Pear’s counsel.  

Mendelson expects well-capitalized companies will be interested in some or all of Pear’s products and other assets, particularly at a cheap price.   

“I think what they have developed has value,” he says. “[It makes sense] if you think about commercializing a product like that in the context of a broader portfolio, where an organization already has the relationships with the insurance companies to be able to make the case that it does have value. I would anticipate that despite the status of the company that the technology will continue to be available.” 

Akili Is Also Facing Challenges

Akili Interactive Labs, Inc., which went public last year via a SPAC merger, is another PDT company that has faced challenges. The FDA in June 2020 approved Akili’s EndeavorRx game-based digital therapeutic for children between 8 and 12 years old with attention-deficit/hyperactivity disorder (ADHD). But in January, Akili announced it would lay off about 30% of its staff by the end of the first quarter and put programs related to cognitive health, outside of ADHD, on hold to “conserve capital and focus.” 

Eddie Martucci, Akili’s founder and CEO, wrote in an email to employees that “in recent months, the economic environment has dramatically shifted” and that “while EndeavorRx is gaining traction, we still must reduce our spending in response to the new realities of the world around us.” 

For 2022, Akili generated just $323,000 of product revenue from EndeavorRx, up from $186,000 the previous year. The company lost $8 million last year compared with a $61.3 million net loss in 2021.  

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In all, 1,719 prescribers wrote a total of 4,558 prescriptions for EndeavorRx last year, consisting of 3,241 new prescriptions and 1,317 refills. Akili noted that 94% of the prescriptions were self-paid, while just 3% were reimbursed by payers and the remaining 3% were provided for free to patients. 

“Innovation is difficult, especially when disrupting the health care industry,” Martucci writes in an email to AIS Health. “While not all products or companies will succeed given their own specific circumstances, the need and opportunity for validated digital treatments is as big as it’s ever been. Health care providers and patients are increasingly looking for safe and proven treatment options, especially in the area of mental and cognitive health where digital therapeutics shine.” 

Martucci adds that “in pharmaceuticals, there is more than one type of pill. Likewise, in digital therapeutics there are many different technology approaches and target markets. Digital therapeutics will continue to find success, and there’s no question they’ll increasingly become an essential part of [the] standard of care.” 

Industry Seeks Medicare Coverage

Andy Molnar, CEO of the Digital Therapeutics Alliance (DTA) trade group, says that Pear’s bankruptcy filing was not surprising considering the company hired a financial adviser last month and struggled to get its products covered. Still, he is disappointed that payers have yet to fully embrace PDTs. 

“My takeaway from this is how the U.S. health care system is not made for innovation,” he says. “The health care system is designed for people to say no….Being a first mover is hard. What Pear was able to do for this industry, I think if they had one more year, nobody would be asking this question. But instead, their runway wasn’t long enough.” 

Molnar notes, as an example, that payers were hesitant for a long time to cover continuous glucose monitors (CGMs) for people with Type 2 diabetes because CGMs were much more expensive than blood glucose test strips. But he says that payers have recently begun expanding coverage for CGMs as they see the products’ effectiveness and potential to save costs in the long-term.  

Molnar hopes payers will begin adopting similar coverage for PDTs, starting with Medicare. As of now, Medicare does not cover PDTs, although a Health Affairs article noted CMS last year implemented a code for “prescription digital behavioral therapy” that covers some of the early PDTs. The authors said that many PDT manufacturers have lobbied CMS to have individual codes for each FDA-approved PDT, although that has not come to fruition.  

Last month, Sens. Jeanne Shaheen (D-N.H.) and Shelley Moore Capito (R-W.Va.) introduced the Access to Prescription Digital Therapeutics Act, which would make Medicare cover PDTs.  

“It’s always a chicken or egg thing,” Molnar says. “But if Medicare were to cover the products and come up with a coding scheme, then everything else could flow a lot easier,” and more commercial payers would likely follow suit. 

Molnar says the DTA has 105 member companies, each of which is working on multiple products, so he expects the PDT market to expand in the coming years. Managed care leaders agree, according to a survey of 50 health care decision makers that was funded by consulting company Xcenda and presented in October 2022 at the Academy of Managed Care Pharmacy’s Nexus annual meeting. The survey found that 56% of respondents said there would be more PDTs covered in the next 18 months, while 70% said digital therapeutics would expand beyond mental health, cardiology and diabetes during that same time period.   

The DTA’s members range from small startups to pharmaceutical companies such as:  

• Boehringer Ingelheim, which has a partnership with Click Therapeutics to develop PDT for schizophrenia;  

• Otsuka Pharmaceutical Co., which launched a clinical trial with Click testing the effectiveness of digital therapeutics in adults with major depressive disorder; and  

• Sumitomo Dainippon Pharma Co. Ltd., which has partnered with BehaVR, Inc. to develop PDTs for the treatment of social anxiety disorder, generalized anxiety disorder and major depressive disorder.  

“We have a huge community of people that are continuing to move these innovations forward,” Molnar says. “But without the government really standing behind it, we’re stifling the progression of U.S. health care. It’s insane.” 

Physician Adoption of PDTs Is Lacking, Too

Besides the issue of reimbursement, PDT manufacturers are also seeing slow adoption by health care providers, according to Aylward. He notes that 22% of providers who responded to a Decimal.health survey last year said they had prescribed a digital therapeutic, although 87% indicated they would be interested in prescribing them in the future.  

“While I think a large number of physicians are interested in using digital therapeutics, the number of those that actually are is pretty low at this point,” Aylward says. “Some of the challenges are how they fit into the clinical workflow [and] the process they have to go through for reimbursement. And I think there’s a lot of education that needs to happen with digital therapeutics compared to if you’re prescribing a drug, for example. There’s a lot of education, onboarding and then patient engagement to really drive home the adoption of these tools.” 

Mendelson says provider adoption should come as more payers cover PDTs, although that could take some time. The delay in reimbursement could negatively impact companies that have high expenses and need to show their investors a pathway to profitability.  

“As I look at that [PDT] market, it does not surprise me that reimbursement has been slower than what the entrepreneurs anticipated,” Mendelson says. “It also does not surprise me that the payment rates are not what the entrepreneurs want them to be…Without wanting to get into specifics of individual companies, I would say that this is really a matter of applying business fundamentals — what is the revenue, what is the profitability, what is the market uptake — and really judging each of these products through kind of a skeptical lens of how the product is likely to develop in the marketplace. But I do think that over time, they will become much more prevalent.” 

 

A version of this article originally appeared in AIS Health’s Health Plan Weekly. AIS Health and Pink Sheet are part of the same parent company, Norstella.