Podcast | Healthcare (HC)

What’s Next For Digital Therapeutics?

April 24, 2025

[01:23:12] Corey McCann You have 20 to 30 million Americans that suffer from addiction conditions, about the same number of Americans that suffer for anxiety and depression, a similar number of American that suffer from things like chronic insomnia, and pretty quickly you get to a majority of the United States that suffers from some form of a mental health condition. I am a believer that there is a future state where patients expect to receive a digital therapeutic first line. And where clinicians expect to prescribe a digital therapeutic first line, and where payers begrudgingly reimburse for a digital therapeutics first line.

[01:23:51] Josh Nelson That’s Corey McCann, the managing partner at TRX Capital and the founder and former CEO of Pear Therapeutics. And I’m Josh Nelson, head of healthcare at THL Partners. And this is Healthcare in Action. It’s a podcast that explores the latest developments and innovations transforming the US healthcare sector, from cutting edge technology to thoughtful approaches to patient care. I’m here with my colleague, Jon Lange, who’s going to lead us in a conversation about digital therapeutics. Including reflections from the early days of the market and the opportunities that lie ahead. Jon, take it away.

[01:24:28] Jon Lange One of the really exciting things about the healthcare landscape today is the potential for technology to accelerate innovation and drive better care. And one area that’s received a lot of attention in the past several years is digital therapeutics, which is software used to enhance medicine or used as a therapeutic on its own. While digital therapeutics have had a lot of ups and downs over the past decade, they offer the potential to transform treatment for a variety of conditions and dramatically expand access to care. From addressing addiction to insomnia to chronic diseases. FDA-approved digital therapeutics are pushing the boundaries of what technology can do in medicine. But there are a lot of medical, technological, and regulatory considerations that digital therapeutics companies will need to navigate and bring their products to market. Today I’m joined by Dr. Corey McCann, managing partner of T.Rx Capital and the founder and former CEO of Pear Therapeutics. In addition to being a trailblazer in the digital therapeutic industry, Corey has been a CEO, entrepreneur, investor, and a researcher and physician. In this episode, we’ll discuss his experience as a pioneer in the space, the challenges of navigating uncharted territory and healthcare, and a number of lessons Corey has learned through his experience running innovative companies and also investing in them. So let’s get into it. Corey, thank you so much for joining me.

[01:25:46] Corey McCann Jon, thank you for having me.

[01:25:47] Jon Lange So maybe to start, for those who aren’t familiar, would you tell us a bit about T.Rx Capital?

[01:25:53] Corey McCann Of course, T.Rx is an early stage venture capital fund. We specialize in investing at the intersection of technology and biology. And what that means for us is on one end of the continuum, we’ll look at things like tech enabled services, right down the middle of the fairway, will look at TechBio, so places where technology is part of a medical device or a diagnostic. And then on the other end of spectrum, we look at traditional biotech. And specifically places where computation has the ability to inform biotech platforms. As I mentioned, we’re early stage. So we tend to look at everything from starting companies in the office through to opportunistic series Bs. And we tend to deploy five or so million dollar initial checks with the opportunity to grow to 10 to 15 million dollar positions for the winners in our portfolio.

[01:26:47] Jon Lange And both at T.Rx and at Pear Therapeutics, you have spent a ton of time at the intersection of technology and biology. So for those who don’t spend all their time in this space, could you just take a step back and give us a little bit of the landscape? What are the key problems? What the key indications? What key challenges people are trying to solve? And what sorts of companies are you working with and backing to try to address those problems?

[01:27:16] Corey McCann Sure. I think generally speaking, this is all about leveraging software and technology to address existing problems. I mean, I think what we were finding and what I was finding, both as an entrepreneur and an investor, is that there’s a bit of an expertise gap. And so on one end of the spectrum, you have traditional software and tech investors, and they tend to be quite good at thinking about parameters like CAC and LTV and growing consumer businesses. I think on the other end of the spectrum, you have traditional biotech investors, and they tend to gravitate toward things like phase two or phase three data packages. I think what we were finding as entrepreneurs with Pear was that there weren’t investors who were really purpose-built to handle both of those sets of constraints. And that’s what we’ve set to really capitalize on with T.Rx. And Again, we saw an either-or world, and we believe that this is really an obvious convergence, and it’s about to become an and world, and that’s why we built T.Rx.

[01:28:22] Jon Lange And you mentioned that digital therapeutics are really intended to address existing problems. Can you talk about just the scope of those existing problems in the US? What is the opportunity here if digital therapeutcs as an industry ends up being able to address these problems in US?

[01:28:41] Corey McCann Tam is massive, the SAM is massive. You know, we are in the midst of a behavioral health crisis, and you have 20 to 30 million Americans that suffer from addiction conditions, about the same number of Americans that suffered from anxiety and depression, a similar number of americans that suffer from things like chronic insomnia. And pretty quickly you get to a majority of the United States that suffers from some form of a mental health condition. We’ve focused on mental health here. But you see digital therapeutics in cancer care. You see them in gastrointestinal conditions. You see the in cardiovascular care. I’m a firm believer that there are hundreds of these products that are poised to impact human health. And so suffice to say, the number is large.

[01:29:28] Jon Lange And the impact on patients is potentially staggering.

[01:29:32] Corey McCann I am a believer that there is a future state where patients expect to receive a digital therapeutic first line and where clinicians expect to prescribe a digital therapeutics first line and where payers begrudgingly reimburse for a digital therapy first line.

[01:29:49] Jon Lange Maybe taking a step back for those people who aren’t familiar with the pair story and with digital therapeutics, would you just go back to the beginning, and tell us what are digital therapeutics, and take us back to the founding of Pear? What was the idea there? What was the mission? What’s the story there?

[01:30:06] Corey McCann There’s been so much said on the topic that, I’ll try to be both comprehensive and brief at the same time, at times, it’s been called software as a drug, at times it’s been called digital therapeutics. I think the, the title and the moniker is less important. I think approach is a bit more what characterized the company. And so the way that we thought about these products is that fundamentally these are medical products, specifically their medical devices. They are software as medical devices. And what we did was we developed digital products to treat specific patient conditions. I’m sure later here we’ll talk about our products in addiction and possibly insomnia. But there was a whole pipeline of products, much like you’d find in an early stage biotech company. We ran those products through clinical trials to understand what are the risks and what are benefits associated with patient use of the products. We showed an efficacy benefit for the products. Took that to the FDA, and ended up getting labels for these products. And I’m still very proud of the work that we did there. Pear had three of the first three ever FDA approved pieces of patient facing software. It’s two of our addiction products. One of our chronic insomnia products. And that really formed the basis for the field that’s now called digital therapeutics. From a commercial perspective, the model that we employed was very much like what a pharmaceutical company would employ. We had the product prescribed by clinicians, used by patients, and reimbursed by third-party payers, i.e. insurance companies. I think that’s a model that still has a good deal of merit, and I’m sure in this conversation, we’ll talk about what worked, what didn’t work, and what we might do differently.

[01:31:53] Jon Lange That’s great. And maybe just to make it even more concrete, can you talk about maybe your first product, and, you know, maybe the path to FDA approval, and also the patient experience, how a patient would interact with that product?

[01:32:07] Corey McCann Absolutely. So our first product was and is called reSET. This product is an app which is prescribed to patients who are suffering from addiction to a number of substances including alcohol, cannabis, cocaine, and stimulants like methamphetamine. So a patient is suffering from something like methanphetamine use disorder. They go to their clinician, the clinician diagnoses them. And writes a prescription for the reSET product. The patient then uses their own smartphone. They via the prescription download the app, and they’re then walked through a 12-week course of a very specific type of behavioral therapy which traditionally would be delivered by humans with PhD level training in behavioral therapy. And in clinical studies and also in the real world, patients who utilize the reset product had significantly lower rates of substance abuse. So they were able to use their substances of abuse less. They tended to show up to their in-person therapy appointments more frequently. And for this patient population, retention is something that’s quite important. And then when we looked in the real world, those were patients who were costing several thousand dollars less to the health care system overall.

[01:33:33] Jon Lange And as I think about the differences or the benefits of digital therapeutics versus traditional therapeutics, one might be access, one might be standardization and best practices. But then there are also some things digital therapeutcs can do that behavioral therapy in person can’t. And so can you talk about those differentiators? How is a digital therapeutic, different, and what are the benefits versus traditional models?

[01:34:03] Corey McCann I think about this as almost a two-by-two matrix. So, you know, what are the benefits versus in-person therapy? What are the benefit versus pharmacotherapy? And I think you nailed the two versus in person therapy. It’s access and standardization. Most of the people that suffer from these conditions are not able to access any care, let alone the best breed standard of care. And they’re for things like opiate and methamphetamine use disorder. There’s actually an anti correlation between the severity of the problem and availability of face to face providers. Think about areas like rural Kentucky, where methamphetamine has ravaged the state. There are counties that don’t have a single licensed mental and behavioral health provider there. So that’s sort of the versus in person care access versus pharmacotherapy. I think of the benefits as being twofold there as well. So one, these are digital products and while they’re not side effect free, these are products that have far superior side effect profiles to drugs. So take for example, SSRIs like Prozac for the treatment of depression. You have a whole number of different very standard adverse events or side effects that patients just learn to live with. And in the case of a digital therapeutic… Patients don’t have to learn to live with those things. I think the other thing that’s worth mentioning is that for many of these products, they are targeting conditions for which pharmacotherapy just doesn’t work. So, if you think specifically about what’s called negative symptoms in schizophrenia. So this is things like a decrease in cognition for patients with schizophrenia. There are not medications that are approved to treat that constellation of symptoms. However, there are some promising digital therapeutics that are poised to address those symptoms for that patient population.

[01:36:02] Jon Lange And you mentioned these products are sometimes described as software as a drug. Of course, drugs take years or decades to develop and billions of dollars. And so what are the benefits of being able to have an ecosystem of drug-like software to treat really important unmet needs when in the past we’ve had this long and costly life cycle.

[01:36:28] Corey McCann Yeah, so I’ll switch hats from one of a software investor to one of a biotech investor. If a biotechnology investor is looking at a portfolio of novel molecules, they’re thinking about development time, they are thinking about probability of technical and clinical success. And they’re thinking about spend per unit patient or spend per unit trial. Those are the three parameters that you would want to cost out. And if you look at digital therapeutics, at least in theory, these are products that should be more likely to be clinically effective and safe than traditional drug products. They’re products where one can recruit patients, generally speaking, for decidedly lower sums of money. And so clinical trials. Are cheaper. Generally speaking, the clinical effect sizes for these products are larger than traditional drugs, and so trials can be smaller, and you wind up with a constellation of parameters where the products are significantly higher probability, faster, and cheaper to develop than traditional drug products. That is theoretically, that was our experience, But I think if you look at some of the comps in the space. You’ve seen some digital therapeutics that have taken an excess of a decade to develop where in the end they didn’t show differentiation versus placebo, and where clinical trial costs were quite high. So it’s not to say that the promise of the space has been seen by every developer.

[01:38:03] Jon Lange And in an ongoing way, digital therapeutics are able to collect data faster more easily than many traditional drugs. How important is that? And how did you bring that to bear in operating paratherapeutics?

[01:38:17] Corey McCann Yeah, so I think it’s important to highlight that save a very small number of examples, traditional drugs collect no data. And so after a clinical study, you’re effectively operating in a vacuum, you know, pharma companies have real world evidence efforts, and in some cases, they’re deploying apps, and they’re fighting the good fight there. But generally speaking, these products go into a vacuum once they’re commercialized. A digital therapeutic is much different. You understand engagement. You’re able to push patient-facing outcomes. In many cases, you’re able to collect what is more objective patient data, like, for example, assessment of cough via the smartphone mic, or incorporation with a blood pressure cuff or a smartwatch to assess things like heart rate variability or HRV. There’s a tremendous amount of ability to collect data in the real world. So much so that I really believe that this is one of the principal attributes of digital therapeutics. And so we were seeing remarkably higher rates of data capture than really what had ever been seen before in the remote patient monitoring space.

[01:39:32] Jon Lange Maybe, taking a step back, tell me a bit about the journey at Pear. Of course, Pear went public in 2021 at a 1.6 billion dollar valuation. Ultimately, a couple of years later, he wound it down. And so tell me about the promise, but then also what didn’t go as expected.

[01:39:47] Corey McCann I think obviously a number of things didn’t go as expected or we might be having a very different conversation. I think the promise remains to create a company that generates first line therapeutic products for most medical conditions via digital. I think there are still companies that are pursuing that promise. I look forward to the day when this is mainstream medicine. I’m still very supportive of the vision and continue to be a believer. As we were building the company, we were a company of firsts. We were the first company to raise money for digital therapeutics broadly. Before they were called digital therapeutics. We were first company go to the US FDA and engage the US FDA and to help them think about how to regulate digital therapeutics. We were the first company to have a digital therapeutic be cleared or approved and we had the first three of those. And ultimately the first company to go public with the value proposition as well. So to this day I’m very bullish on our ability to move the needle. And I’m proud of the work that we did. It’s hard to be first, and I think you have to have a pretty thick skin to be a leader. I think the other piece that was very much a learning was just all things reimbursement. And, you know, I think a lot of digital health companies, Pear included have this belief that if you satisfy the triple aim, if you make clinicians’ lives easier, if you improve patient outcomes, and if you save the system money, that your success is inevitable. And I think what we found is that that’s just not necessarily the case. We had cases where payers would put us on six-month repeating cycles of meetings, and every six months would schedule another meeting with us and ask us what was going on with a new team who knew nothing about the last meeting. And that’s not startup timing. So, you know, I certainly can say more about third-party payer reimbursement and how we think about it today as investors, but that was the leg of the stool that I think didn’t necessarily hold up. And it’s always the multi-hit hypothesis. And for us, it was the combination of SVB plus being caught in a deconstructive market plus perils with reimbursement. And I think those were, you know, a set of forces that were greater than as a small company we were able to endure.

[01:42:07] Jon Lange It makes sense, and so many companies across sectors, whether it’s pharma companies or providers or others, struggle with relationships with payers, with making their argument with payers, and then also just dealing with timelines with payers. What takeaways do you have from the experience or what advice would you give to an entrepreneur in any one of these spaces that is thinking through the strategy with payers?

[01:42:34] Corey McCann I think when it comes to payers, you have to really internalize a given payers incentive and a given payer’s business model. Looking at companies and certainly having been guilty of this myself with Pear, we believe that if we improved outcomes and we decreased cost to the system, that that would be sufficient to bring payers on board. And I think the answer is not quite that simple. And I make one of the things that we found that frankly we were not prepared for was this idea of transitions of coverage. And so if you take the addiction patient journey, oftentimes you have a patient who starts down a path to addiction and they’re employed and they are part of an employer plan. And as part of the first relapse, they lose their job. And so the employer is not necessarily incented to think about multi-year or even multi-month outcomes for patients with addiction conditions. Many of those patients go on to Medicaid and there you would think that there’d be a longer term incentive to control cost and enhance patient outcomes. And in the addiction world, many patients who go on Medicaid and have subsequent relapses ultimately end up incarcerated. And the incarceration healthcare system is an entirely different healthcare system than the Medicaid healthcare system. And you would think that the two would roll up because they’re both effectively part of a state’s budget or impact a state budget, but those are two groups that never talk to one another and so a dollar saved for one does not equal a dollar save for another. Then when you go to the incarceration system, when patients ultimately overdose in an incarceration setting, generally speaking, those are patients that end up having a terminal event. And so they’re no longer part of a health economic model for that given prison or jail. And so what you have is this sequential passing of the buck, and in those cases, it oftentimes becomes difficult, if not impossible. To show the right health economic benefit.

[01:44:56] Jon Lange Really interesting. And maybe taking a step back, you’ve been an investor, you have seen investments succeed and fail. You have taken a company public at a billion plus dollar valuation. You’ve had to wind the company down. Given all of that experience, what advice would you give to a new entrepreneur trying to think through whether to take the risk of starting a company?

[01:45:20] Corey McCann I hear a lot of people articulate that they want to become an entrepreneur and an operator so that they can later become an investor. And I think that’s a path. I would happen to advocate for exactly the opposite path, which is I think the best entrepreneurial training is to become and investor first. And I think there are opportunities to learn what you like, what you don’t like, what good looks like, what not good looks like, when you’re trafficking in thousands of opportunities a year as opposed to one, and it is incredibly easy to fall in love with your one idea. Whereas if you’re on the buy side, seeing hundreds to thousands of ideas per unit time, I think gives you the context that it really takes to be successful as an entrepreneur. So yeah, all in. I’m a believer that people who are bullish on entrepreneurship should take that analyst or associate job at a fund, and do it, and love it, and learn as much as you possibly can, and then make the educated decision as to whether you want to do something completely different or whether you wanna stay an investor or whether you want to become an entrepreneur.

[01:46:36] Jon Lange Well, Corey, as always, it has been a real pleasure. We really appreciate you taking the time and look forward to continuing the conversation soon.

[01:46:45] Corey McCann Awesome, Jon, so good to see you. Thank you for having me. And it’s been a pleasure.

[01:46:51] Jon Lange As we wrap this episode, I’m joined by my colleague Andrew Garske, vice president of the Healthcare Group at THL. Andrew, you spend a lot of time looking at healthcare IT companies, and you also spend time with services companies with innovative care models. How would you put digital therapeutics in the context of the landscape of the companies that you look at more broadly?

[01:47:12] Andrew Garske Digital therapeutics is such an interesting category, and it’s a great example of how entrepreneurs have been trying to address a massive unmet need in healthcare through innovative technology and care models. Digital therapeutics are inherently multifaceted. One way I think about them and one way they can be applied as an alternative for traditional outpatient therapy. And just in that example, there is such a staggering unmet needs and just demand for this across the US, particularly in underserved areas. Another key benefit and application of digital therapeutics is actually to extend traditional intensive inpatient behavioral health care models, where digital therapeutics can be combined as part of a holistic care model to actually extend that journey outside of a facility after a patient may leave, improving both kind of the patient experience as well as the outcomes and the quality of care. You know, and overall, any technology that expands access to best-in-class care, has a ton of potential to improve outcomes and really to become a significant and profitable business and actually impact the overall care delivery system. And maybe most importantly, what makes things fun about it is it’s really exciting to see talented entrepreneurs and clinicians partnering to build companies and really develop and push the frontier on care models and a really unique combination of technology and clinical expertise, along with kind of novel treatment pathways.

[01:48:35] Jon Lange Andrew, you highlight such an important point about the unmet need that digital therapeutics companies have been trying to address, and also the importance of continued innovation in healthcare more broadly. And just as digital therapeutic companies have been focused on innovating in patient care, they’ve also been pursuing some pretty innovative business models. As you think about the digital therapeutical business model, how would you evaluate that and put it in context of all the other businesses you look at?

[01:49:02] Andrew Garske It’s a really interesting question because digital therapeutics is a really unique blending of a couple of older business models that have been around for a long time, namely in that it has software-like development and delivery characteristics, but it also has the clinical impact and the outcomes that we traditionally associate with pharma ecosystem and drugs. So the business model, the intersection of those two things has the potential to be very attractive and really uniquely scalable. One key issue that Corey raised in your conversation was that historically digital companies didn’t have a blueprint for how to get adequate reimbursement for payers because there wasn’t a model like this that existed. That’s of course an essential part of any reimbursement driven business and if they’re ultimately going to be successful digital therapeutics companies will have to sort that out and scale a model across the entire payer ecosystem. As you might expect in healthcare, which is tremendously complex with a lot of regulatory considerations that is not always a linear, straightforward process.

[01:49:58] Jon Lange Andrew, as you think about what sectors get you excited within the healthcare landscape broadly, are there themes from my conversation with Corey that really resonated with you?

[01:50:07] Andrew Absolutely. One reason I think digital therapeutics is such an interesting area, is that it touches on multiple themes that are really attractive and have been historical power alleys for us here at THL. One of those areas is the pharma and life sciences ecosystem, where we continue to see a ton of innovation, including around clinical trials and also the drug discovery and development process. At THL, we have a really strong franchise investing in that ecosystem, particularly in companies that provide best breed solutions to pharma and biotech companies as they increasingly look to outsource partners to deal with some of the most complex parts of the value chain and getting their drugs to market. Another really exciting area is healthcare technology, where A ton of room for continued innovation, both adopting next generation technologies and models that uniquely combine and apply technology with clinical expertise to solve labor and clinical shortages, and really just make the care journey better for both patients and providers. Of course, THL has been an active healthcare technology investor for many years, and we continue to see tremendous opportunity across the ecosystem, specifically in the provider, payer in pharma and markets where technology has an ability to make a tremendous impact on quality outcomes and costs and really to serve the entire ecosystem more effectively.

[01:51:27] Jon Lange Andrew, thanks so much for joining me today. I’m looking forward to continuing the conversation with you and with Corey very soon.

[01:51:36] Josh Nelson Thank you for listening to Healthcare in Action, brought to you by THL. To help Healthcare in Action reach more listeners like you, either share this episode with a colleague, subscribe to the show, or rate and review us on Apple Podcasts. And for more background on THL’s Healthcare Vertical, visit thl.com/verticals/healthcare.