Proteus Digital Health, maker of an ingestible sensor system for treatment adherence monitoring, was forced to furlough many of its employees last month after a $100 million funding round didn’t close as expected, according to a weekend report from CNBC.

These employees were brought back after about two weeks after Proteus was able to secure $5 million in emergency funding, according to the publication’s anonymous sources.

Core to the issue is that the so-called “digital pill” system hasn’t been very well adopted by the patients, the sources said. As a result, Proteus’ primary business partner Otsuka Pharmaceuticals wasn’t ready to commit to further investments, and other interested parties are unwilling to move ahead without supporting data from Proteus and Otsuka’s five-year, $88 million Abilify MyCite collaboration.

CNBC also noted that executives at other digital health companies have reported an influx of resumés from Proteus employees in the weeks since.

In an email statement, Proteus told MobiHealthNews that the company is “conducting an operational review and restructuring our business to optimize effectiveness,” with a particular focus on “the most valuable near-term opportunities to deliver the promise of digital medicines.”

The company also highlighted the data it has published so far in exploring the system’s effectiveness among infectious disease and cardiometabolic patients.

“Peer reviewed studies have shown repeatedly that digital medicines improve the quality and cost effectiveness of care, especially for patients who have the most difficulty succeeding with drug therapy. This extensive body of clinical evidence includes hepatitis C, tuberculosis and cardiometabolic syndrome,” Proteus CEO Andrew Thompson said in an email statement.  “Many of these patients were older, low income and had a mental health secondary diagnosis.

WHY IT MATTERS

For the last few years, Proteus’ “digital pill” has been among the go-to examples of a novel digital health product that has enjoyed support from investors and pharmas alike. However, CNBC’s sources are suggesting that the company’s high-tech approach hasn’t been moving the needle far enough to win continued patronage — not even from its existing commercial and developmental business partner Otsuka.

The news comes on the heels of an announcement in mid-October that Novartis’ Sandoz division had decided to part ways with another digital health frontrunner, Pear Therapeutics. While the circumstances between these two developments are very different, the fact that these high-profile setbacks are occurring within the span of a couple months is likely to give pause to investors and potential pharma partners eyeing the novel sector.

“The benefits of digital therapeutics are real but right now there are very few companies that have both the medical expertise to navigate the industry as well as the technical skills to build powerful and engaging digital products,” Mark Tluszcz, CEO of Mangrove Capital Partners, a venture fund that has made investments in other digital health startups, commented in an email statement.

Proteus’ financing stumble also offers a major PR opportunity for its rivals. EtectRx, maker of an ingestible adherence tracker that does not require its receiver to be directly adhered to the patient’s skin, made the timely announcement this morning that its ID-Cap System has been cleared by the FDA, and that it will be seeking new partnerships with providers, pharmas and researchers focused on rolling out the platform.

THE LARGER TREND

Proteus had its first patch cleared in 2010 and its first pill cleared in 2012. But it made headlines in November 2017 when the FDA approved Abilify MyCite, which allowed the digital ingestion tracking system to be combined with a schizophrenia therapeutic. Before, clinicians had to take the pill and add the Proteus chip, whereas this system more closely integrated the sensor and pill.

The months following this approval saw the digital health company announce plans with systems and health plans like Megellan Health and Children’s Health to roll out pilots of its core adherence system. It followed up these announcements in October 2018 with the announcement of its expanded deal with Otsuka.

Alongside proving adherence improvements, it’s also worth noting that Proteus has also been fighting another uphill battle regarding public perceptions that the digital pill system could have major negative privacy ramifications.

“I think that this Big Brother concept is a real issue, and people want to function autonomously and they don’t necessarily want anybody looking over their medicine when they take the medicine, if they take the medicine,” Dr. Eric Topol, founder and director of the Scripps Translational Science Institute, told MobiHealthNews shortly following the Abilify MyCite approval. “It is important for treatment of certain conditions — like for example tuberculosis, you can’t get a cure without a very tight adherence. But for many conditions, lack of full adherence might not have a big impact. So privacy and security is a big deal, but there’s this tradeoff here, which is [potentially] counterbalanced by much better results.”

ON THE RECORD

“Proteus remains committed to bringing these solutions to patients and providers to support medication treatment and improve clinical outcomes,” Thompson said.