Issue 107
Digital health research from Brian Dolan

Welcome back to E&O Fridays, a paying subscribers-only weekly newsletter focused on the world of digital pharma products and FDA-regulated digital health.

 E&O Fridays.

OK, here’s what’s happening this week in the world of pharma digital products and FDA-regulated digital health:

• I know there is quite a bit more going on this week, but today’s issue is focused on the Pear Therapeutics exit. Since the analysis below went a bit long, I’m going to save this week’s shorter news items for next week.

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Analysis: Pear Therapeutics’ $1.6B SPAC exit, FDA recall, VA deal and more…

As you might have guessed, I spent most of the week digging into the Pear Therapeutics SPAC’s SEC filings and discussing the news with E&O readers. (Read E&O’s 4,500-word deep dive into Pear Therapeutics to understand the company’s trajectory up through 2019.) I’m not going to rehash much of what you likely read elsewhere already — so, for a basic primer on Pear’s SPAC plans, read the company’s press release here. If you’re ready for more, read on for:

• a few easter eggs hidden in the filings, including a five-year deal with the VA
• details on two oddly-timed FDA recalls for Pear’s flagship digital therapeutics,
• some thoughts on the significance of the Pear SPAC for other PDT companies,
• and more…

The obvious: Why Pear’s $1.6B exit is good for the PDT category

It’s an open secret in digital therapeutics circles that some VCs have put a halt to injecting additional funds into prescription digital therapeutics until they see significant commercial traction or a big exit. Pear’s $1.6 billion exit will give up-and-coming prescription DTx companies a proxy to point to when an investor balks at comparisons to Livongo and its $18.5 billion merger with Teladoc. Pear’s exit probably could help loosen up funding for those in later stages too.

The roads not traveled: Novartis acquisition and traditional IPO

When the Sandoz-Pear relationship unraveled in 2019 some of the anxiety that debacle created was rooted in an expectation that Novartis would acquire Pear someday.

The conscious uncoupling — and subsequent breakup with Novartis over the schizophrenia DTx’s trial results a year later — meant that an acquisition would never come to fruition. (Novartis, of course, remained an investor in Pear.)

Around the time of the Sandoz incident, Pear started talking up an IPO internally. (One of its early advisors even stated this in a public forum once.) In the wake of Sandoz, however, Pear had trouble raising a mega-round to set it up for its hoped-for IPO. While it did, eventually, end up raising $80 million at the end of 2020 and another $20 million in early 2021, it sought out as much as twice that amount a year earlier.

On the other side of the SPAC merger, Pear will have at least $400 million in its bank account. Much more than it could raise elsewhere. The SPAC trend arrived right on time for Pear Therapeutics.

The risk: Pear’s exit spotlights how difficult the prescription pathway is for digital health companies

While the $1.6 billion exit will help convince some investors to continue to inject capital into the PDT category, quarterly updates from Pear Therapeutics will shine a light on how difficult the prescription pathway is for digital health.

Pear says it is aiming for this steep revenue trajectory:

• $4 million in revenue for 2021
• $22 million in revenue for 2022
• $125 million in revenue for 2023

It’s possible that Pear’s disclosures help buoy the larger digital therapeutics category (software as treatment) while hurting the subcategory of companies focused entirely on the prescription pathway.

Adoption: 20,000 prescriptions but only a fraction of those are fulfilled, according to two FDA recalls this week

One of the big reveals in the investor presentation that Pear Therapeutics created for the SPAC deal is that — across its three commercialized digital therapeutics — the company has managed to accrue 20,000 prescriptions.

Of course, fewer than 20,000 people fulfilled their Pear prescription.

Two new data points might help here. According to two FDA recalls disclosed on the FDA’s website the day before Pear announced its SPAC merger, there were:

• 3,370 reSET-O users between August 10, 2020, and April 30, 2021.
• 812 reSET users between August 10, 2020, and April 30, 2021.

The recall focused on an apparent bug in the two SaMDs that allowed some users to receive contingency management rewards (monetary rewards in the form of gift cards) even if their urine drug screen results were positive.

The bug first showed up on August 10, 2020, so the number of users listed above includes users of reSET and reSET-O (for both Android and iOS) during those eight to nine months.

Scoop: Pear’s <$10M, five-year deal with the VA

While Pear’s commercial traction to date has been minimal, it quietly inked a handful of deals in recent months that point to how it expects to hit $22 million in revenue next year.

A footnote in one of the SPAC’s SEC filings this week mentioned an agreement that Pear signed with the VA.

I dug into a few government databases to learn more: The deal was inked in February and it landed Pear’s three prescription digital therapeutics in the VA’s Federal Supply Schedule. Here’s the pricing for the VA:

• $1,623.17 reSET 90-day prescription for substance use disorder
• $1,623.17 reSET-O 84-day prescription for opioid use disorder
• $877.39 Somryst 63-day prescription for chronic insomnia

The agreement went into effect in March and expires in five years. During that period the total potential contract value maxes out at $10 million.

Scoop: Pear’s deal with Blues-owned PBM Prime Therapeutics

Pear also quietly signed a deal with the fifth-largest PBM in the US, Prime Therapeutics, which is owned by 10 Blues plans, including Florida Blue, BCBS of Alabama, Capital Blue, and BCBS Minnesota. The PBM serves 23 additional Blues too as well as big employers like Hormel, Boeing, and General Dynamics.

This agreement went into effect on June 1, 2021.

I don’t have any more details on this deal but Pear described it as a “value-based contract”.

(Pear also just announced this week that another PBM, Serve You Rx, added Somryst to its formulary. It already has reSET and reSET-O in its formulary.)

Pear’s recent pipeline changes and the biotech question

Two weeks ago I flagged a number of changes that Pear made to its pipeline of digital therapeutics. Pear added four therapeutic areas to its list of candidate digital therapeutics:

• generalized anxiety disorder (GAD),
• major depressive disorder (MDD),
• cardiovascular,
• and alcohol use disorder (AUD).

The addition of these four makes a bit more sense in hindsight. They significantly impact Pear’s TAM, and the crux of Pear’s pitch is that it should be evaluated on the future potential of its pipeline.

A common refrain on social media this week was that Pear should be evaluated like a pre-revenue biotech company. Pear secured its first market authorization in 2017 though. It’s had years to build commercial traction. I don’t understand this argument.

Pear’s oversubscribed $125 million PIPE and its mystery IDN anchor

I don’t want to get lost in the financial weeds of SPACs, but one piece of the Pear SPAC merger I wanted to mention was its oversubscribed PIPE. In its earlier filings, the company said it hoped to raise a $100 million PIPE as part of its SPAC merger to provide some proof that its valuation was correct. It ended up raising an oversubscribed $125 million PIPE, which is a positive signal to Wall Street.

While the PIPE included some new backers, some of Pear’s existing investors contributed to its PIPE too. It’s funny, though, in most of the documents one of the PIPE’s three “anchor” investors is unnamed but rather described simply as “a leading integrated delivery network”.

That’s the same phrase Pear used for the investor who added the $20 million to its most recent round of funding earlier this year.

(In possibly unrelated news: Pear noted in a May 2021 investor presentation that leading integrated delivery network Kaiser Permanente was among those existing investors that expressed an interest in participating in the PIPE. However, KP Ventures does not list Pear in its portfolio.)

Does Pear have a platform? 

As discussed above, Pear has not yet demonstrated meaningful traction for its three commercial products (the first of which received FDA market authorization in September 2017).

The other narrative that the company focuses on in its investor materials is Pear’s opportunity to become the leading platform for prescription digital therapeutics. The company envisions partnering with other PDT companies to take their PDTs to market for them. The sponsor behind Pear’s SPAC merger even pointed to this opportunity as the reason why they chose to do the deal with Pear in the press release:

That’s from Elon Boms, CEO and Chairman of the SPAC, Thimble Point Acquisition Corp., and the managing director of the family office behind it. (The family is one of the heirs to the Hyatt fortune.)

While Pear does have some infrastructure (Pear Connect), Pear currently works with partners like Truepill to get its prescription digital therapeutics to patients. It may be building its own in-house capabilities to replace Truepill at some point in the future.

Today, Eversana seems to be the company that has emerged as the partner for prescription digital therapeutic companies looking to outsource some or all of their go-to-market.

Will Pear’s 20,000 prescriptions figure (or its 4,000 plus “units in commerce” from the FDA recalls) inspire other PDT companies to go to them for their expertise?

Based on the information we have today, Pear-as-a-PDT-platform still seems far off.

What are Pear’s next moves?

Here are a few questions I have about Pear in the next few months:

• Once it gets through the SPAC, how much of its $400 million war chest will Pear spend on sales and marketing to hit its $4 million and $22 million revenue goals?
• Will Pear immediately begin to advance other DTx in its pipeline or will it wait until its first three products start to generate meaningful revenue? (The latter was the plan when Pear last raised funding.)
• When Pear needs to raise more money will it have an easier time post-SPAC?
• Will Pear become more litigious and leverage its patent holdings (many licensed from Intellectual Ventures) to extract fees from other digital therapeutics companies? Will those settlements seed its platform ambitions?
• Will Pear’s future SEC filings reveal Pear’s platform capabilities today? When will the company have a homegrown, end-to-end distribution for PDTs set-up?
• And, of course, once the 180-day lock-up expires, which of Pear’s current shareholders sell and which hold?

What do you think is next for Pear Therapeutics?

Hit reply and let me know your thoughts on the above analysis along with how you think this will play out.

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