Pear Therapeutics’s bankruptcy could be emblematic of a larger problem in health tech

Despite its status as a pioneer of prescription digital therapeutics (DTx), Pear Therapeutics filed for Chapter 11 bankruptcy in early April.

Company co-founder and former CEO Corey McCann cited “market conditions” that “have challenged many growth-stage companies, including us,” and alluded to Pear struggling to get payers to cover its products, according to a LinkedIn post announcing the bankruptcy filing.

“Payors have the ability to deny payment for therapies that are clinically necessary, effective, and cost-saving,” McCann wrote in the post.

Health tech analysts told Healthcare Brew that other digital therapeutics companies are likely to face similar conditions as those that led to Pear’s bankruptcy, and that Pear could be emblematic of a larger challenge within health tech: figuring out a sustainable business model.

A harbinger for the DTx industry

DTx companies face a challenging environment. There are the issues pretty much every industry is facing—the high cost of capital and more conservative behavior from venture capitalists, Adriana Krasniansky, head of research at digital health strategy group and venture fund Rock Health Advisory, told Healthcare Brew.

But the DTx industry also faces a unique challenge: the lack of a well-defined regulatory approval or reimbursement pathway, according to Krasniansky.

There has been some recent progress in terms of figuring out a reimbursement pathway. The Centers for Medicare and Medicaid Services (CMS) approved one Healthcare Common Procedure Coding System (HCPCS) code, for behavioral health digital therapeutics, in 2022, Julia Croxen, an engagement manager at Rock Health Advisory, noted.

But “even though change is happening, both on regulatory and reimbursement possibilities, it’s likely not happening at a pace that allows companies in the market right now to really operate sustainable businesses along the digital therapeutic product lines,” Krasniansky said.

“What Pear has indicated is emblematic of a lot of challenges that other digital therapeutics companies are gonna face,” Marissa Moore, an early-stage tech investor at Omers Ventures, told Healthcare Brew.

The task of getting payers to provide coverage is especially challenging, she said.

“There’s no sign that that’s going to turn around. All the other digital therapeutics companies are waiting on that,” Moore said. “I don’t think VCs are stepping up to be like, ‘Yeah, this trend is still going to be totally transformational.’ I think people are kinda like, ‘Yeah, the pioneers tried; it didn’t work out.’”

Emblematic of a larger challenge

These obstacles aren’t unique to DTx companies; the health tech industry at large has struggled to figure out sustainable business models for new products coming out in recent years, Moore said.

In health tech, the person using the product is usually not the one paying for it. So companies have to figure out not only how to get the product into users’ hands, but also how to convince the paying entity—whether that’s an insurer, an employer, or a provider—that the product is worthy of investment, Moore said.

Health tech companies like Pear, which have products that require a prescription, also have to get buy-in from clinicians—adding another layer of complexity, Croxen noted.

Another reason health tech has struggled to figure out a sustainable model is because the field has become crowded with a lot of players trying to do the same thing, according to Moore.

“There’s been so much money that’s gone into health tech broadly over the last couple of years into what I would say is not an overwhelmingly diverse set of companies, so your likelihood that there’s very similar companies approaching the same markets with similar go-to-market strategies is very, very high,” she said. Krasniansky told Healthcare Brew she wasn’t worried that Pear is emblematic of a larger problem for the health tech industry.

“There are so many different product types and operating models as well as payment pathways in digital health,” she said. “It really depends on the type of product or solution you’re creating.”

But according to Moore, “everyone in health tech should be looking at this and asking ourselves, ‘How do we protect ourselves from these challenges, or get around these challenges in a way that our predecessors couldn’t?’”