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Pear Therapeutics Is A Buy Even With Low Penetration Assumptions For PDTs (NASDAQ:PEAR)

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Written by publishing team

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Healthtech is an interesting market, for sure, with a lot of business challenges to overcome, especially in the United States. Sadly, the United States has been plagued by serious issues that can be seen as existential threats to the country in myriad ways, thinking in horror from the opioid epidemic, death of desperation, and generally high healthcare costs due to a highly crystallized healthcare system. . Pear Therapeutics (PEAR) attacks these issues with both its treatment areas and treatment modalities, and we believe payers, also known as Pear clients, have every incentive to join this trend to achieve savings in their secured pools and drive further digitalization in healthcare. As the initiator of the DTx category with 510 thousand approved and marketed products already available to patients, Pear can reap significant benefits as the first mover in the fertility area at the intersection of both digital and mental health. Of course, exposure to the venture capital pattern emerging in the market through SPAC has its risks, such as the large fluctuations observed in prices falling more than 40% of the SPAC issue price, as well as execution risks. However, we believe that the size of the market and the severity of the issue mean that even with quite conservative assumptions, implementing an inherently cash-generating business model would make today’s valuation low with significant upside.

DTx

Digital therapy is something that has been developing for two years in the developed world. Germany has its own Fast Track program, which is digital therapies equivalent to Class 1, 2A prescription approval and general insurance reimbursement, and in the United States there is also a market clearance process from the Food and Drug Administration (FDA) that applies to digital therapies.

Pear Therapeutics is a class originator in the United States in that the reSet program for substance use disorder patients was the first digital therapy ever prescribed, commanding a hefty price tag of $1,665 for a 90-day program. This is thanks to the reimbursement standards for prescription treatments, as opposed to over-the-counter treatments, being very favorable. As for the quality of reSet as a treatment product, the retention rates are so strong that 90-day treatment periods are converted into several consecutive programs extending beyond a year. The rationale is that the app efficiently saves the healthcare system from ER and hospital visits due to drug-related overdose using highly scalable and digital modalities.

The economic impact of digital therapies

(Source: SPAC Disclosures)

The digital method will help avoid the stigma of seeing a doctor about certain mental health conditions, and it will also tend to be a more efficient telemedicine way of providing this type of treatment rather than going to a doctor’s or therapist’s office for cognitive or medical behavioral therapy. Medical prescriptions.

treatment areas

While the advent of digital prescription therapies has been substance abuse therapies, there has also been Somryst recently approved for insomnia, with other treatments for various treatment areas in the Pear pipeline.

Pears have a strong pipeline

(Source: SPAC Disclosures)

These are in the pipeline much like the drugs in a typical pharmaceutical pipeline, except for all the equivalent treatments being some combination therapy, or something like adjuvant drugs (last-line drugs), which are usually less valuable, but still useful than reimbursement standards. Excellent condition due to their prescriptions.

Target market, EBIT

In fact, these treatments cannot be used alone, and are often combined with other actual chemotherapy drugs. This ties into one of the major marketing issues that the company will have to deal with, which is that since it is not the primary treatment, promotion to physicians has to be more involved in making sure they take the initiative to prescribe it appropriately. The patients. Current revenue illustrates this difficult situation of having to create a market. Fortunately, the means to convince clinicians of the benefits of new treatments are already being facilitated through conferences and other knowledge-sharing programmes.

S-4 . registration statement

(Source: SPAC Disclosures)

Given the breadth of mental health treatment areas the company is targeting, the excellent reimbursement rates it is currently getting, with an effective marketing push, and with compelling clinical data in future areas, the financial future looks very bright thanks to an inherently cash-generating and scalable product and model. Given the prevalence figures and assuming very low penetration rates, considering the extent of the stigma and unmet needs in some of the more niche markets, we can find the total obtainable market. These are US numbers only.

pear accounts

(Source: The Value Lab)

Cognitive relies on numbers from similar apps such as Lumosity, and PEPY which is the value of the contract with payer annually is based on the Somryst price tag, with a slight discount in order to be conservative, to calculate potential reimbursement criteria the company may have in emerging areas, where the reset price is $1,665 less likely to make. 2026 is an arbitrary estimate of when a deeper penetration of digital therapies could be achieved given that Pear expects more major revenue to begin only in 2024. Fixed costs were measured from about $14 million in annual technical costs per processing line (technical infrastructure, development application) + 25% of revenue in research and development, and we assumed 25% of revenue would be eaten up by marketing costs. This GM is relatively low on assumption because this is a B2B business model, where marketing is usually cheaper (rethink Tivity Health (TVTY) and nutrition system differences), but we were conservative to account for more difficulty in market education.

Current Rating

Without GDPR data protection laws in the United States, patient reporting features and other aspects of digitally appropriate data collection could be monetized more easily to drive greater shareholder value through lighter, more cash-generating business models that include potential partnerships with Pharmaceutical companies, many of which have products with side effects that Pear Therapeutics PDTs will address. And with the size of the markets assuming Pear continues with the current Pharmask model, the valuation is already attractive. Note also that migraine is an attractive market due to the large amount of absenteeism and lost productivity experienced by migraine-affected companies in their ranks. This could be the next big area for Pear.

Let’s look at the fully diluted structure to understand what the true multiplier is here in the 2026 future opportunity, assuming all shares acquired are allocated based on successful performance and current cash balances.

pear accounts

(Source: The Value Lab, SEC.gov prospectus)

You see, there appears to be a huge margin of safety on operating income for 2026, assuming things really go well and the total market obtainable, with a very meaningful penetration indicating dominance, reflects Pear’s key leadership.

However, there is a risk that by creating a category, they are also paving the way for other entrants to launch their own products that deal with similar and very trendy mental health categories. There is also a risk of immediate implementation as it may be difficult to persuade clinicians to prescribe these new classes of products on a large scale. However, even assuming much lower penetration rates in the overall US prevalence figures per treatment area:

pear accounts

(Source: The Value Lab)

We still get a very attractive multiplier, probably because of our assumptions about R&D intensity.

pear accounts

(Source: The Value Lab)

Even assuming R&D inflated to 40% of revenue under the new penetration assumptions, which seems unfair given that the current expenditure is only $83 million, most likely R&D, and contributed to the launch of the reSet product and we actually succeeded And gaining momentum with full approval, we still got a very nice multiplier.

pear accounts

(Source: The Value Lab)

Remember that due to the mitigating effects of a lot of collateral at lower exercise prices held by different parties that do not include public market investors like us, there will be additional mitigating effects in several stages both immediately and after the completion of the SPAC merger.

pear accounts

(Source: The Value Lab, SEC.gov filings)

According to our collected Securities and Exchange Commission figures, each year dollar will eventually be diluted by 27% due to large gains, warrants and other takeovers held by third parties, (according to our understanding of filings, please do your own due diligence), so if the value The market capitalization is $0.8 billion as of today, we’re actually paying about $1.1 billion based on current prices just by looking at the mitigation effects, which is what we’ve been using in the tables.

They already have 20 million of the population insured to pay as payee beneficiaries through their payer partnerships, which is just under half of what could be achieved in the best-case scenario for partnership breeding, that’s early days. To reap the benefits of such a large population already insured, physician education is a relevant next stage to drive revenue growth. Based on the long horizon and a relatively safe start to what is essentially a venture capital exposure, I believe income figures for 2026 are entirely feasible, and biopharma-like margins are out of the question in logical reasoning about technology and knowledge-based business models. In fact, even better economies are possible thanks to the digital nature of business, and less burden on PDT companies due to the lower likelihood of things like cognitive behavioral therapy, upon which some of their programs rely, causing accidental harm like a searched molecule or chemical. Overall, the market opportunities for mental health and digital therapies are clearly large, and I think the post-dilution equity value of $1.1 billion or $0.69 billion as a price tag is not particularly expensive to access that opportunity. We rate it a buy.

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