Trouble could be brewing for California-based digital therapeutics (DTx) startup Proteus Digital Health — maker of the first trackable, sensor-embedded pill to earn FDA-clearance — after its expected $100 million financing round came to naught, CNBC reports. The startup reportedly failed to close the round after pharma giant Otsuka — Proteus’ partner that helped launch the FDA-approved digital drug system — didn’t send over fresh cash, which led other investors to backpedal on their plans to float cash over to the firm, too. The startup — which has raised about $500 million over the last two decades — did manage to scrape up $5 million in emergency cash, an anonymous source told CNBC.
Proteus is navigating a space where few others are operating, which has afforded it ample industry attention — but digital drugs are still in their nascence, and it’s likely been hard to convince most customers to get on board:
- Pharma companies were eager to team up with Proteus as it showed potential to counteract the US’ $300 billion medication nonadherence problem weighing on their top lines. Pharma companies are prime targets for tech firms looking to bolster medication adherence since a patient base that fails to stick to regimens could translate into fewer drug sales. Otsuka and Proteus are still partners after developing Abilify MyCite — a “smart pill” that combines Proteus’ dosage-tracking sensor with the drugmaker’s meds for patients with schizophrenia and bipolar disorder, who have notoriously low adherence levels. The upstart was also previously pulled into a deal with pharma titan Novartis to use its tech to monitor adherence among patients post-organ transplant back in 2010. Proteus’ tech is currently incorporated into over 40 medications, according to CNN.
- But winning over reticent patients hasn’t been easy, per CNBC — which could be weighing on Proteus’ ability to rake in cash. Prescription drug-taking is common practice — 55% of US consumers take at least one prescription medication — so adding in novel elements like Proteus’ accompanying digital tech might not appeal to patients who are accustomed to traditional methods. And incorporating tech for certain drugs could just make the medication process more complicated for the 42% of older adults who have to stay on top of regimens for five or more meds.
Proteus’ financing blunder isn’t an isolated incident — it’s just the latest sign that high-flying DTx developers are operating in an entrenched healthcare industry that might not have the means to fully embrace them yet. We’ve seen pharma companies that have presented interest in the space soften their DTx strategies — which could show that commercialization efforts aren’t producing a high enough return yet for deep-pocketed drugmakers: For example, Novartis cut ties with Pear Therapeutics — developer of digital treatments for mental health conditions — in October, calling into question just how valuable partnerships with smaller digital players are for massive pharmaceutical companies. We think that pharma companies have a lot to ultimately gain from diversifying offerings with digital alternatives — but it’s evident that marketing these solutions to patients and docs is proving difficult right now, especially since the regulatory pathway for DTx is still being built, per STAT.
Because it appears DTx firms still have ample work to be do before they can get their solutions into the hands of the masses, we could see legacy drugmakers take a more conservative approach to funding this year. Funding for global DTx firms plummeted in Q3 2019, sinking 56% year-over-year to $133 million in total, according to CB Insights’ tracking. And we’ve seen the world’s top pharma companies in particular open their wallets and contribute to newcomers’ funding rounds. But until these players are able to effectively generate a return on digital meds, we could see fewer pump cash into the sector in the year ahead.