Using video games as medical treatments seemed promising, but a stunning failure raises questions about the future of digital therapeutics

• The digital-therapeutics pioneer Pear was sold for parts in an auction on May 18 for $6 million.
• Companies like Pear and Akili have struggled to get payers and providers on board with their tech.
• Experts warn more that failures may be on the horizon for the $3.9 billion industry.

A group of healthcare companies has spent the past decade building new technologies to treat patients with prescription software, creating an industry worth $3.9 billion and growing fast.

But the industry's pioneers have stumbled, raising questions about the future of the nascent market — including which companies will make it to the other side.

In 2017, Pear Therapeutics became the first company to receive clearance from the Food and Drug Administration for a prescription digital therapeutic, with its app to treat substance-use disorders. But Pear shocked the digital-therapeutics industry in April when it filed for bankruptcy.

The company, which went public in a $1.6 billion SPAC deal in December 2021, auctioned off its assets on May 18 for $6 million.

It's not the only digital-therapeutics company feeling the pressure of the tumbling healthcare market. The stock price of Akili, which makes a video game to treat ADHD in children, has plummeted more than 86% since the company went public in August.

The company's losses deepened in the first quarter of 2023 as Akili posted a $20.7 million loss, compared to a $16.8 million loss in the previous quarter. Akili and Pear didn't respond to requests for comment for this story.

With digital therapeutics' trailblazers in jeopardy, experts think more failures are on the horizon.

After years of slow progress to get the clinicians who prescribe medications and the insurers that pay for the treatments on board with the new technologies, the remaining digital-therapeutics companies will have to stick it out and play by the industry's rules for a chance of survival in the tumultuous market. 

"In healthcare, innovation often happens faster than all stakeholders are ready for," Jeffrey Abraham, a healthtech consultant and former Akili executive, said. "These companies need to have the runway to go a little bit longer."

Covering digital therapeutics hasn't been easy

Insurers, the ultimate gatekeepers in healthcare, have been slow to warm to the idea of reimbursing prescription digital therapeutics. When Pear filed for bankruptcy, its former CEO suggested in a LinkedIn post that some health plans had refused to pay for Pear's therapies.

Covering a digital therapeutic is different from covering a medical device or pharmaceutical drug because a digital therapeutic typically consists of just software, like an app on the patient's phone, to treat their condition. And insurers are looking for a wealth of data to support the use of the technologies, consistent with the data they're used to when drugs are approved by the FDA, said Rick Bartels, a managing partner at Digital Therapeutics Commercialization Consultants.

"They're going to need real-world evidence, health economic evidence, to show their therapy is at least as good as current therapies or can deliver cost savings," Bartels said. "That's going to command everything."

Digital-therapeutics companies will have to start establishing more pilot programs with insurers to collect that real-world data, Bartels said.

But getting that kind of evidence can take years. Digital-therapeutics companies will have to go one by one to each insurer and carry out yearlong pilots before the health plan considers broad reimbursement.

Doctors are reluctant to prescribe

Not all digital therapeutics require prescriptions. But those that do are more highly regulated — including the technologies created by the likes of Akili and Pear — and require companies to convince doctors to prescribe the therapies to patients.

It's no easy feat. Even if the companies can demonstrate their therapies are uniquely effective at treating a given condition, doctors can hardly guarantee the therapeutics will get covered without billing codes.

Plus, most digital therapeutics don't integrate with electronic-health-records systems, making it difficult for clinicians to track their patients' progress.

In March, the Centers for Medicare and Medicaid Services granted a code to the digital-therapeutics company AppliedVR for its virtual-reality therapy for chronic pain. It's the first time the agency has given that designation to a digital-therapeutics company. According to AppliedVR CEO Matt Stoudt, that decision was enabled, at least in part, by the fact that AppliedVR uses a combination of software and hardware, with a headset so patients can view its virtual-reality program.

"It makes all the difference in the world," Stoudt told Insider of the CMS decision. "Now that we have a category, it's not a question of if we get reimbursement, it's a question of when."

Senators reintroduced a bill in March that would guarantee Medicare reimbursement for prescription digital therapeutics. It's unclear how long it could take for the bill to pass, if it does — but the expectation is that if CMS creates a category for digital therapeutics, commercial insurers will follow suit.

Buying time

Many companies will have to adjust their strategies to extend their cash runway in a tough funding environment, Stoudt said.

Digital-therapeutics companies could begin integrating their products with other services, like telehealth, that they can guarantee will be covered by insurance.

Those companies could also seek out partnerships with pharmaceutical companies, which may leverage digital therapeutics as an accompaniment for their own drugs that treat the same conditions, Bartels said.

Stoudt and Bartels predicted more mergers and acquisitions to come for the digital-therapeutics industry. Medtech giants may be keener than pharmaceutical companies on such an acquisition because of the similarities in digital therapeutics and medical devices, Bartels said.

"If the strategy is, we're going to try this one thing, and if that doesn't work, we'll just wait — that's just not feasible to survive," Abraham said.

Want to tell us about your experience with digital therapeutics? Contact Rebecca Torrence at rtorrence@insider.com or through secure messaging app Signal at +1 423-987-0320.