Issue 118
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.
A few of the posts below ended up longer than usual, so I’m going to save the short bulleted items for next week…
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Pear’s S-4: CEO stock sale, Novartis break-up dollars, product strategy, SG&A expenses
This week, as part of its forthcoming SPACing, Pear Therapeutics filed an amended S-4 documented that is chock-full of the company’s financial details, risks, strategy, and more. Here are a few things I found:
Pear Therapeutics paid its CEO $11M in 2020 stock sale
Based on the excerpt below, the company purchased shares from Founder and CEO Corey McCann MD for just shy of $11 million in 2020 as part of the company’s Series D-2:
“During the year ended December 31, 2020, in connection with the Series D-2 preferred stock offering, the Company completed a tender offer whereby the Company purchased 2,788,732 shares of common stock from its President & Chief Executive Officer, and 41,100 common shares from certain eligible employees, at a purchase price of $3.9433 per share totaling $11.2 million and resulting in a stock-based compensation expense of $7.3 million, representing the difference between the purchase price and the fair value of the common stock on the date of the sale.”
Ancient history: Pear also revealed some dollar amounts related to its two canceled Novartis deals
“In September 2019, the Company received a termination notice from [Novartis-owned] Sandoz, with whom it had a collaboration and license agreement and a $20.0 million collaboration note payable. In October 2019, Sandoz forgave the $20.0 million collaboration note payable, resulting in a gain on extinguishment of debt.”
“In October 2019, Sandoz terminated the agreement to commercialize its two lead products, reSET and reSET-O and for the year ended December 31, 2019, the Company recognized $28.3 million under the then collaboration and license agreement with Sandoz. In addition, for the year ended December 31, 2019, the Company recognized $4.2 million under the [Novartis Institutes for BioMedical Research] Agreement, which was terminated in June 2020.”
(The NIBR agreement’s termination wasn’t as obvious as the Sandoz break-up. When I read the Novartis report (Issue 083) on the schizophrenia PDT’s clinical trial’s results this past January, however, the dissolution of the partnership was apparent.)
Pear makes clear its next four commercialized products will focus on alcohol use disorder, schizophrenia, GAD, and MDD reSET-A:
One reveal in the filing was that Pear will brand its prescription digital therapeutic for alcohol use disorder “reSET-A”. (Really should have seen that one coming.) The company described reSET-A as “a multimodal PDT candidate that delivers digital CRA, Fluency Training, CM and Behavioral Activation and validated assessments to improve clinical outcomes of AUD.”
Schizophrenia: Not sure any of this is new but Pear explained that its schizophrenia-focused PDT, Pear-004, “is a multimodal PDT candidate that delivers BA, cognitive restructuring, illness self-management, cognitive behavioral therapy, and validated assessments to improve clinical outcomes in patients with schizophrenia.” Pear noted the PDT has completed the proof of concept stage and is now ready for a potential pivotal RCT to support an FDA submission, but clinical trial planning has not started.
Anxiety: Pear gave more details on its anxiety PDT candidate, which “delivers Panic Modulation (A digitized form of psychotherapy where the patient is instructed and learns to employ mechanisms of modulating their fear, anxiety or panic response to stimuli to desensitize them to future exposures to the inciting stimuli), BA, CBT, sleep hygiene and stimulus control plus medication management and validated assessments to improve clinical outcomes in patients with anxiety disorder.”
MDD and other depression: Similarly, it shared a bit more on its depression-focused therapeutic:
“Multimodal PDT candidate that delivers CBT, BA with Ecologic Momentary Assessment (repeated sampling of a patient’s behaviors and experiences on which brief interventions by the software are delivered), sleep content plus medication and validated assessments to improve clinical outcomes in patients with depression.”
Product strategy to include not just neurobehavioral interventions but dose-optimization therapeutics in GI, cardiology, and oncology
“There are two categories of PDT’s interventional mechanisms of action… The second category is dose-optimization. In diseases where pharmacotherapy exists, PDTs can be integrated with the molecular therapeutic to assess patient response and optimize medication dose and frequency. Use cases include titrating a medication to therapeutic effect, optimizing chronic dosing, tapering medication, and recommending dosing as needed when a disease exacerbation is occurring.”
Pear pointed to gastroenterology, cardiology, and oncology as “particularly promising therapeutic areas” for dose-optimization products that bundle in neurobehavioral interventions. (Pear’s name comes from “pairing” digital and pharmaceuticals. A wide swath of its patent holdings and licensing agreements focus on digital interventions paired with pharmaceuticals too — so this move is a long time coming, really.)
Details on Pear’s SG&A expenses in 2020 and 2019
Considering Pear’s low product revenue to date:
- 2021 (first 6 mos) — $1,347,000
- 2020 — $149,000
- 2019 — $65,000
I found the company’s breakdown of its SG&A expenses interesting:
“Selling, general and administrative—SG&A expenses were $56.2 million and $27.5 million for the years ended December 31, 2020 and 2019, respectively. The increase of $28.7 million was primarily due to the following:
- An increase of $9.9 million in personnel-related costs, including incentive-based compensation costs primarily due to the build-out of our patient service center, a market access team and commercial sales force that resulted in an increase in sales and marketing team from 34 employees as of December 31, 2019 to 67 employees as of December 31, 2020;
- An increase of $7.3 million of stock-based compensation related to the tender offer in connection with our Series D preferred stock offering representing the difference between the purchase price and the fair value of the common stock on the date of the sale;
- An increase in market access and other related commercial activities of approximately $4.0 million;
- An increase of approximately $5.0 million in marketing and advertising costs;
- An increase of $2.7 million related to our patient service center in Raleigh, North Carolina; and
- A decrease of $0.4 million in other related administrative costs.”
Pear and Palantir’s reciprocal relationship… I mentioned that Palantir was backing Pear’s SPAC in the analysis I wrote a few weeks back. Pear offered up more details on its relationship with the company:
“Palantir Technologies, Inc., or Palantir, entered into a subscription agreement on June 21, 2021, and has committed to purchasing $10.0 million of THMA Class A Common Shares substantially concurrently with the closing of the Business Combination.” “On June 17, 2021, and later amended on August 4, 2021, the Company entered into a non-cancelable purchase obligation for a data foundry cloud subscription, including support services, updates, and related professional services with Palantir for $9.3 million payable over three years, continuing through September 30, 2024.”
This is already too long, but I did want to mention this filing has more detail on Pear’s patent holdings, which are quite extensive. Read the full S-4/A filing here and skip to page 186 (under the heading License Agreements) to read about its IP.
Breaking down the costs (estimated dollar amounts) to commercialize a DTx
As part of its comments to CMS about the proposed 2022 Physician Fee Schedule, the Digital Therapeutics Alliance (DTA) included a breakdown of the costs associated with bringing a digital therapeutic to market. (If you’re part of the DTA, I’m sure you’ve seen this before, but I’m not sure it’s been published publicly prior to this. I’ve never seen it before, anyway.)
Obviously, the DTA is trying to educate CMS on the distinction between software providers buy to run their practice and software that a medical professional might prescribe to a patient as a therapeutic.
What do you think — do these numbers look about right?
“While basic software can be developed quickly, software meant to go through rigorous clinical trials and be regulated to treat disease and disorder is incredibly expensive to bring to market.”
“The initial cost usually starts with grants to test out a theory in a lab or academic setting. After spinning out a basic minimum viable product to a digital therapeutics manufacturer, the engineering costs come first. While these are mostly headcount and outsourced development costs, they are necessary to preparing a product for rigorous clinical trials and start in the hundreds of thousands to millions of dollars. This is followed by clinical research. Powered clinical trials, whether they are run in-house or via a Clinical Research Organization, can cost anywhere from hundreds-of-thousands of dollars to tens-of-millions of dollars.”
“Cost to commercialize: According to internal intelligence, the DTA has been able to coalesce to the cost to commercialize various Digital Therapeutics products, and it can amount to the following:
- Pricing Research: $150,00 – $300,000
- Additional Market Research: $200,000 – $500,000
- Reimbursement Consulting: $150,000
- Segmentation via claims analysis: $300,000 – $1,000,000
- Marketing Agency: $1,000,000 – $11,000,000
- Training Materials (leadership, deliverables, live training, sustainment): ~$1,000,000
- PR: ~$16,000 per month
- Website Build and Maintenance: $50,000 – $200,000 per site
- Advisory Boards (patient, provider, payer): $30,000 to $60,000 each”
“Operations:
- Customer Management System: $50,000 – >$500,000
- Hub and Patient Services: $1,000,000 – >$3,000,000 per year -9-
- Customer Care (ticketing systems, training): ~$500,000
- Contract Operations: $75,000 per year
- Government Affairs: $5K – $30K per month”
“Additional data collection: Claims data for retrospective analysis and patient journey: $100,000 – $400,000 Payer partnership to do a value assessment: $50,000 2+ pilots to collect real world evidence: $500,000 to >$1,000,000” “Headcount: Field Sales Reps: $225,000 per rep, 10 for a targeted launch, 40+ national Field Sales leadership and Ops: minimum 4 Marketing: Minimum 6 Market Access Account Directors: ~6 Market Access Ops and Government Affairs: 6 Operations: Minimum 8 Patient Services: 9 Patient Services Program Specialists (call center): based on volume” “Maintenance and software updates should be considered as well. While the cost to bring these products to market can be very expensive, the potential for savings to the healthcare industry, streamlined services, and providing care to patients who otherwise wouldn’t receive quality care is extensive. In addition, some products offer solutions that are not otherwise treatable through drugs.”
Trial updates: Sanofi, Akili, BehaVR
Here’s E&O’s weekly roundup of changes and additions to clinical trials focused on FDA-regulated digital health devices and other pharma-related digital health.
Akili adds sites, outcomes measures to its adolescent ADHD trial
Akili’s STARS Adolescents trial, “a multi-center, unblinded/non-controlled study to evaluate objective attention functioning and ADHD symptoms and impairments in children between adolescents aged 13 to 17 years old, with a diagnosis of ADHD (combined or inattentive subtype), stably on or off ADHD medication, after 4-weeks of AKL-T01 treatment,” expanded its number of sites from between four and six to “up to 10”. Akili, which focuses on treating attention issues in ADHD, also added a number of third-tier outcomes measures focused on other ways of evaluating changes in TOVA (Test of Variables of Attention) metrics.
BehaVR to study its opioid use disorder (OUD) digital therapeutic MORE-VR
Not too many details in this recent posting from BehaVR: Digital Therapeutic Development of Virtual Cognitive-Affective Training for Opioid Use Disorder:
“This is a Phase 1 trial that aims to establish the safety of MORE-VR, as well as to collect feasibility, usability, and engagement data, for patients receiving medications for opioid use disorder (mOUD).” MORE-VR stands for “Mindfulness-Oriented Recovery Enhancement therapy delivered over virtual reality.” BehaVR and its partner the University of Utah expect to enroll about 30 participants.
Sanofi pares back partner devices from its My Dose Coach study
When Sanofi originally posted details of its My Dose Coach study back in December 2020, its partner ecosystem had prime billing — even in the title: “My Dose Coach and Connected Ecosystem Titration & Maintenance in Patients With Type 2 Diabetes Mellitus on Basal Insulin.”
The pharma company removed the words “Connected Ecosystem” from the study’s title along with every other mention of the phrase in the study’s posting. While Sanofi originally included devices from partners AgaMatrix and Biocorp (the Jazz Wireless 2 meter and the Mallya smart cap for insulin pens, respectively), Sanofi removed them from the study description last week. The brief summary of the study has remained the same:
“The purpose of this research study is to evaluate an electronic application (app) designed to help people with type 2 diabetes (T2DM) adjust their insulin doses. The app is called My Dose Coach. This research study is being done in 2 phases. Specifically, in Phase 1, the study is assessing the role of the My Dose Coach app in helping participants make insulin adjustments to get their blood glucoses to the target level that is planned for with the diabetes team, called the dosing or titration phase, when first starting insulin. In Phase 2, the study is assessing the role of the My Dose Coach app in helping participants keep blood glucoses in the target range, called the maintenance phase.”
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