Pear Therapeutics’ search for a buyer has yet to lead to a consummated deal, and the beleaguered digital therapeutics company is now looking to auction off the business or its assets under the protection of Chapter 11 bankruptcy.
The bankruptcy filing announced Friday followed financial struggles that included three corporate restructurings in the span of less than a year. The most recent restructuring, implemented last week, led to the layoff of 170 employees representing about 92% of Pear’s workforce. Included in the cuts was the job of Pear President and CEO Corey McCann.
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Boston-based Pear was one of the pioneers in digital therapeutics, an approach that uses software to treat diseases. In addition to a substance use disorder product, Pear has also received FDA clearance for two other digital therapeutics, one for opioid use disorder and another that treats insomnia. Despite boosting the number of prescriptions for its digital therapeutics since their respective launches, Pear has had less success convincing insurance companies to cover the products.
The inability to secure broader coverage has crimped the company’s revenue growth. Pear has pointed to insurers as a commercialization hurdle before, and McCann brought the point up again in a Friday LinkedIn post. McCann said Pear has shown that physicians will readily prescribe prescription digital therapeutics and patients will use them, which in turn saves money for insurance companies.
“But that isn’t enough,” McCann wrote. “Payors have the ability to deny payment for therapies that are clinically necessary, effective, and cost-saving. In addition, market conditions over the last two years have challenged many growth-stage companies, including us.”
Pear’s bankruptcy documents point to financial challenges dating back to the 2021 SPAC merger that took the company public. That deal raised only $175 million—considerably less than the expected $400 million, the company said in the documents. Revenue was another problem. The company’s annual report shows $10.4 million in product revenue for 2022, a 178% increase compared to the prior year. However, after showing increasing revenue through the first three quarters of last year, fourth quarter sales were down from the prior quarter, a trend that continued through into the first quarter of this year. Pear said it tried to secure financing throughout 2022 and the first quarter of 2023 but was unsuccessful.
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By the time Pear announced in mid-March that it had engaged investment bank MTS Health Partners to serve as its financial advisor in the exploration of strategic alternatives, the process was already underway. In the filing, Pear said MTS sought bids for the company or its assets throughout the four weeks of March. Pharmaceutical companies, insurers, healthcare providers, technology companies, health and medtech companies, and pharmacies were among those that explored a possible deal.
As of Friday’s bankruptcy filing, more than 90 entities engaged or responded to this strategic marketing process, according to court documents. About 24 of them have signed or are in the process of executing confidentiality agreements. Three parties submitted non-binding offers. The search for bidders will now continue under bankruptcy court oversight. Pear is keeping MTS as its investment banker throughout the bankruptcy process.
“The Debtors believe, in the exercise of their business judgement, that the proposed sale and auction structure will foster an open and competitive bidding process and provide the best option to maximize value for all stakeholders,” Pear said in court documents.
Pear goes on to say that given the inability to obtain additional financing from public or private markets, the only alternative to selling the assets would be liquidating assets under a Chapter 7 bankruptcy filing. That move would be “value destructive and wasteful,” as Pear’s assets would immediately lose value, the company said.
The Pear layoffs, completed on April 6, leave the company with 15 employees to handle the bankruptcy. Among them is Christopher Guiffre, Pears’ chief operating officer and chief financial officer. Guiffre will now take on McCann’s duties, though McCann will remain on the board and provide consulting services during the bankruptcy process. McCann will be paid $255 an hour for up to 30 hours per week, according to a Pear securities filing.
A bid procedures hearing is scheduled for April 21. Subject to the bankruptcy court’s approval, the deadline for bids for Pear’s assets is May 1, followed by an auction on May 3.
Photo: Chris Ryan, Getty Images
