Proteus : What's gone wrong at the Billion Dollar Digital Health and Smart Pill Startup?
Proteus Digital Health’s CEO once confidently proclaimed that in a couple of decades, “every medicine will have a chip in it.” At a time when many companies are trying to break into the airy realm of digital health, and getting funded, Proteus seemed to not only be making headway toward its CEO’s ambitious vision, but to have the bona fides to back it up.
Yet this week, as a CNBC report described it, Proteus is suddenly “desperate for cash.” Given that the company was considered one of the few validations of that chip-in-a-pill strategy, the news — combined with Sanofi CEO Paul Hudson’s just-announced plan to walk back Onduo, the firm’s diabetes management joint venture with Verily, and Sandoz’s October decision to relinquish commercial rights for prescription digital therapeutics to Pear Therapeutics — may have left some feeling unsure what this means for the future of so-called digital medicine.
How did Proteus go from a $1.5 billion valuation to having trouble just keeping the lights on?
“It’s all about evidence,” explained Everett Crosland, an expert in market access within the digital health field, when asked about the possible missteps that led to Proteus’ funding woes.
That is, evidence development and commercialization based off of that evidence. Crosland — formerly VP of market access, reimbursement and governmental affairs for Pear — has become well familiar with that requirement.
“There’s a learning curve occurring where multiple [digital therapy] companies raised money and told a story that, ‘Because we’re a new modality, we’re somehow excepted from the laws of healthcare physics.’ [But] we’re not. We have to meet thresholds and oftentimes exceed them because we are digital.”
In the case of Proteus, the company said that its body of clinical evidence has shown improvements in cost effectiveness and quality of care. Nevertheless, according to the CNBC report, it’s undergoing a restructuring after failing to close a $100 million funding round that had forced it to furlough the majority of employees last month. The issue involved a lack of traction among patients, sources said, which made Otsuka hesitant to commit further investment from its pledged $88 million, five-year partnership, and other potential investors leery of doing so as well without further data from the partnership.
The Redwood City, Calif., start-up, founded in 2001, had spent the ensuing decades developing a smart pill, a device designed to tell a smartphone app whether a patient has ingested a medicine. The firm applied for and secured FDA approval back in 2017 for Abilify MyCite, a product jointly developed with Otsuka that focused on the schizophrenia population.
Late last year, Otsuka committed to help Proteus expand its menu of digital medicines to other areas of mental health. As of January, Proteus had begun pushing into oncology, too, and had raised a total of $487 million in funding over 11 rounds from backers including Novartis Venture Fund and Kaiser Permanente Ventures.
That promising start made this week’s news all the more surprising. Which is why I asked Crosland for his take.
He’s now SVP of commercial for AppliedVR, which markets virtual reality technology to hospitals for use in helping patients cope with pain and anxiety. He spoke with MM&M about what he sees as the reasons behind Proteus’ stumble, as well as the overall state of reimbursement in, and payers’ evolving attitudes toward, digital health.
The following interview has been edited and condensed.
Talking about Proteus, they’ve had quite a turnabout for a company that seemed to be doing things the right way. Why do you think they’re in this situation now?
As a good steward in healthcare, if you’re selling and commercializing anything, you need to show it works and the only way to do that is through prospective studies. That comes in the form of randomized controlled clinical trials, health economics and outcomes research (HEOR) and value-based studies so that you know it works from a clinical perspective and a value perspective, that you’re creating value for health systems, payers and patients. Those are just table stakes.
The Proteus news just reconfirms that. In the earlier days at Proteus — I’ve heard them speak on this — is that you have to ensure in your partnerships that you’re driving toward the same goal…which inevitably should be evidence development and commercialization based off of [that] evidence.
What kind of evidence?
These [digital medicines are approved for] serious conditions that require evidence both from a clinical perspective to get through regulatory hurdles and health economic evidence to ensure that we’re driving value and cost savings.
We have to show more than a traditional drug because we have to demonstrate we’re clinically safe and effective and that patients will use our product, which if you’re a drug (for the most part) it’s assumed patients will use it, even though evidence shows poor adherence rates. Still, we have to hit that bar through randomized clinical trials.
Do you think they had trouble hitting that bar?
I can conjecture that what we’re all experiencing now is that the early pioneers of the industry — and there are a number of them — have signed…large, promise-based, bio-bucks deals that come in at $100 million to $300 million, if the product performs.
For the product to perform, you have to invest significant dollars in the evidence development and ultimately in true commercialization and scaling efforts. For the field force, that’s often a rather unique sale.
While Proteus has done some very impressive deals, it takes a few years for those deals to come to fruition…and to determine if a product is truly performing. And if you didn’t invest where you needed to invest in the early days, then it’s hard to catch up. That’s what ended up happening.
As you look around the industry, what digital health companies are leading the way with outcomes data?
A great example is Click Therapeutic’s [prescribable software] product for smoking cessation.
They’re covered by 200 mid- and large-sized employers. And the reason they have that coverage is their evidence. Big Health’s Sleepio insomnia app has a mountain of evidence behind it and has coverage across the U.S.
Evidence development drives coverage, and it’s a well-worn path. We are new in many ways but again, [there are] laws of healthcare physics that you’re never going to get around, [nor] should we try. We’re not selling bits and bobs; we’re selling healthcare products. If you don’t want to develop evidence, you shouldn’t be in healthcare.
Sunday’s news story said pharma lacks a clear roadmap to get these products out to patients.
Is there a demand problem?
Of course there has to be demand for it, but you have to be out there with the on-ground sales force, and most of that is selling to payers and to physicians and educating the market to ensure that you’re changing the prescribing behavior that needs to be changed.
You’re pulling through those prescribers, making it clear that this is a benefit to patients, and [that] we have an amazing opportunity to monitor that data in a quicker turnaround than any other modality. We can see when patients are using it, what’s working and what’s not.
But at the same time, the sales force has to be out there educating. These products won’t sell themselves by any means. This is not a traditional pharma sale, but a modality where largely what we’re trying to do is change behavior, and a behavior-change sale is not a pill sale.
Pharma and start-up don’t always adhere to the commercial roadmap, as we saw when Pear and Sandoz unraveled part of their co-promote recently. To what extent are these kinds of relationships fraught with friction?
I think that we’re getting to a place between digital health and pharma where we’re really understanding how we work well together. I sat on a panel with Proteus and Otsuka a year and a half ago, and they talked about how when they first got together, their relationship…struggled but got to a place where they understood best practices in their alliance. More and more, we’ve got pharma players who have dealt with enough digital-health companies where they now know how best to work with us.
At the same time, we as digital therapeutics companies have to ensure that we…are good partners. That requires us to ensure that our product team has dedicated resources and bandwidth in the roadmap so that when these pivotal partnerships come in the door, we have product [teams] tell us what’s possible in the deal-making phase and [inform] every step of the alliance.
That’s an alliance digital-therapeutics companies are starting to understand. It’s not something that was clear even two years ago.
Interestingly, the Pear-Sandoz breakup announcement was almost immediately followed by Bayer, Novartis and other pharma companies getting [deeper] into the space. There’s no slowing of these partnerships [due to] the precedent of Sandoz and Pear.
Are the two ironing out their cultural differences?
We both come to the table with distinct cultures and mindset. Pharmas come to the table with often decades…of process. Every decision has an incredible amount of rigor behind it. In our world, the start-up digital therapeutics world, we don’t have that legacy. That can help us move faster, scale faster, help us think more creatively and get into markets that a pharma probably would have overlooked or killed due to process.
At the same time, we have to recognize there are limits to that agility and risks. And if we’re talking about a deal worth hundreds of millions of dollars, we need to find a middle ground between cultures. Most importantly, both need to understand it’s not our job to change the mindset of our partner’s organization. It’s not the digital therapy’s job to drive digital transformation at our pharma partner’s organization. It’s our job to execute on the deal in the timeframe we agreed to and make it a success. It’s not the pharma partner’s job to help [the start-up] grow up and be more process-driven. We just have to understand that there are middle grounds to be found, and our success is executing and pulling through on the deal ahead of schedule. That’s success, not driving some sort of ethereal or cultural change at the partner.
Sunday’s story also alluded to a lack of clarity around patient monitoring for digital therapies. Do you agree?
That’s an accurate general statement, and that would vary by health condition and disease state. Especially with MyCite and schizophrenia…when a schizophrenia patient isn’t following up and is struggling to adhere, I could absolutely see that being challenging. In other disease states, like with [ADHD], if a pediatric patient isn’t adhering you can find a primary care physician and the caregiver — most likely a parent — and follow up with them.
Not every disease state is so clear, [certainly] not schizophrenia….We felt that at Pear in the opioid-use disorder area. The patient journey still has a lot of gaps in it. If a digital therapeutic fills those gaps, it can help bring clarity [i.e., data] to that patient journey that you just otherwise don’t have. But at the same time, we won’t be able to solve everything.
How have payer views evolved in reimbursing digital-therapy combos?
They’ve evolved more rapidly than I thought they would and in a positive direction. They’ve moved beyond “is this competitive with pharma” or “a replacement of pharma” and recognize there’s a role and need for both products, either alongside of, or within, the treatment paradigm. Just like any product for unmet need, it’s not replacing a drug but supplementing or filling in a gap in the current treatment paradigm.
More importantly [payers] like Express Scripts, CVS Caremark, Solera with BCBS of California are putting in place the plumbing or infrastructure that facilitates payment and coverage of digital therapeutics. That wasn’t the case two years ago; every payer was different. Now, we’re seeing a move toward uniformity in the evidence payers require for coverage and payment, and mechanisms like billing and coding being put in place. When Express Scripts announced they were putting together a digital health formulary, and CVS Caremark followed suit, that was a watershed moment for the industry.
Have regulators been moving rapidly enough in this area?
The Food and Drug Administration has been very helpful and forward-thinking. They recognize the potential of these products to help patients. They also see the need for evidentiary rigor to be applied to these products because they’re going to be used, one way or the other, and need to be held to the gold standard. I haven’t seen anything to suggest they’re slowing down.
The Centers for Medicare and Medicaid Services is behind the FDA in that regard. They have not put in the amount of thinking, have not engaged stakeholders in that way. They are lagging behind, and that will become an increasingly stark lag as CVS Caremark, Express Scripts and other payers start to facilitate coverage and payment for the commercial, Medicare Advantage and Medicaid managed care populations. When those populations start to be able to access these innovative solutions at scale and start to improve outcomes, and if those on traditional Medicare are unable to access these products, that will be a problem.