OK, so the FDA smacked down every investor’s poster child for the promise of ingestibles and digital health. Yes, last week, the FDA declined to approve the output of the collaboration between Proteus Digital Health and Otsuka Pharmaceutical Development and Commercialization, which would enable patients, payors and providers to track the use (adherence) of Otsuka’s antipsychotic medication Abilify. Submitted to the FDA as a new drug application in 2015 by the companies and expected to bring rapid approval, the drug and mechanism instead received a Complete Response Letter (CRL) from the FDA laying out the additional steps the companies must take to gain approval at a later date.
“Proteus seems to me to be one of those technology companies where investors fall in love with the technology, but leave some common sense in their pockets while getting their checkbooks out.”
For those that haven’t been following, Proteus Digital Health’s Discover platform consist of a sensor-enabled pill, a small wearable patch, and applications that can be accessed via mobile devices and other computers by patients, payors and healthcare providers. Proteus Discover directly measures medication-taking and physiologic metrics to support patient self-management and to help physicians and care teams optimize therapy.
It will be quite interesting to see how the venture and strategic investors in Proteus Digital Health handle this new development, especially in light of the massive markdowns similarly situated inflated “unicorns” have faced as public market investors like Fidelity cull through their portfolios and mark their investments with …ahem….a bit more scrutiny than private investors and venture funds. It will be especially interesting after what looked like a $50M round of new financing announced recently, though it is very unclear whether this was an insider-led round or a newly priced by outsider round of financing.
Yet, as we think about the missed milestone and accordant valuation drama, we can’t help wondering if this is much ado about nothing. Not nothing in the sense you think. Nothing in the sense that even without this setback, Proteus seems to be one of those technology companies where investors fall in love with the technology, but leave some common sense in their pockets while getting their checkbooks out. Here’s the thing. While the technology is amazing, it has to solve real problems. Certainly, adherence is a huge problem, but guess what? The absolute costliest parts of our healthcare system–costliest to payors, and costliest to providers, are those with chronic conditions that choose to not adhere and also refuse to be monitored! It is universally accepted that about one in three patients don’t even fill their prescriptions! So let’s take 33% of the market and just toss it away. Of the remaining market, most if not all don’t want to be monitored, even if it will make them healthy. This is most of the market. Period. End of story. Great technology, big problem, perhaps WRONG application. And this, more than any set back from the FDA, is the fundamental problem faced by both Proteus Digital Health and its investors. For all of us deeply invested in the success of the space, let’s hope we’re wrong.