#21 Mindset Health: Harnessing the mind-body connection to help a billion people
A digitally native pharma company, HCP led growth and why Mindset might succeed where Pear and Akili have failed
Hi friends,
I’ve got a fascinating deep-dive for you today.
There’s an Australian startup using digital hypnotherapy to help patients manage chronic conditions. They’ve got an inspiring story, a big vision and there’s a lot of lessons to be learned from them.
Alex and Chris Naoumidis are the founders of Mindset Health and over the last few months I’ve got to know them.
They’re two very intelligent guys and they’ve taken a first-principles approach to building an interesting business based entirely around the mind-body connection.
They went to YC in 2019, raised an $18m series A and built a suite of digital hypnotherapy products used by hundreds of thousands of users.
They have twenty thousand five star app reviews and have released a stack of research showing impressive outcomes.
What’s more, they’ve done all this through a D2C, user-pays model.
The long term vision? To become a digitally native pharma company, leveraging the mind-body connection to help a billion people. A lofty vision indeed.
I spent some time with Chris and Alex to learn about what they’re up to and where they want to take Mindset. We discuss the challenges they’ve faced and the lessons they’ve learned along the way.
That’s what we get into in today’s post.
We’ll learn about;
- The mind-body connection: Understanding how Mindset use digital hypnotherapy to help people self manage chronic conditions.
- Building a digitally native pharma company: The vision for Mindset, taking what works about pharma, getting rid of what doesn’t and sprinkling some extra goodness on top.
- D2C, more than just an acquisition strategy: Chris and Alex grew Mindset to hundreds of thousands of users through a purely D2C model. But D2C was much more than just an acquisition strategy, it was at the core of their business and product success.
- Building HCP moats; The why and how behind Mindset’s shift to HCP led growth.
- A new era for Digital Therapeutics: Why Mindset can succeed where Pear and Akili have failed.
Let’s get into it.
1. The mind-body connection
The mind-body connection is at the centre of everything Mindset do. In fact, if the name wasn’t already taken, I’d suggest they call themselves MindBody… Alas…
If you don’t know much about the mind-body connection, here’s the 101… It refers to the relationship between our mental / emotional states and our physical health. It describes how our thoughts, feelings, and attitudes can influence our physical well-being, and vice versa.
Here’s a simple example. We know that when we experience anxiety, our body can react with physical symptoms like increased heart rate or muscle tension. Conversely, engaging in physical activities like exercise can boost our mood and alleviate feelings of depression and anxiety.
This is not a new phenomenon in health - many existing therapies are based on it.
But one interesting way that the mind-body connection can be used to help patients, is through hypnotherapy.
Hypnotherapy? Really??
Before I had spent time researching this, I was skeptical too. But there’s a significant body of research showing that hypnosis can be extremely effective. It can help patients cope with stress and anxiety and can influence a range of physiological processes, such as pain perception, inflammation reduction, and immune function enhancement. It’s powerful stuff backed by a large body of evidence.
Chris and Alex explained it to me in an interesting way;
“Hypnosis is focused attention and heightened suggestibility, making you more receptive to messages and different interventions. For example, CBT plus hypnosis is more effective than CBT alone”. (source).
Hypnotherapy is a layer that can make a range of therapies more effective.
Chris and Alex had experienced the impact of Hypnotherapy first-hand when trying to find ways to manage their own health challenges.
But at the time, it could only be accessed by seeing a healthcare provider for in-person sessions. It was obvious to them that that would always limit the number of people who could access it.
“It was clear that Psychological based interventions can help with a lot of health disorders because there is often a mind-body link and you can leverage the mind to regulate that. But the problem is, there's a very limited number of psychologists and providers who can deliver this treatment.”
So they had a question; could hypnosis be delivered digitally?
They started reviewing the research and came back with an answer… a resounding yes.
Hypnotherapy worked and it could be delivered digitally. On the back of this insight, Chris and Alex started building Mindset.
Since 2018, they have created a suite of digital products to help people use their mind to manage a range of conditions - from mental conditions like anxiety and depression to other indications like Irritable Bowel Syndrome (IBS), Menopause and even to help people stop smoking.
They’ve grown their team to 37 people, helped over 80,000 people reach clinically significant outcomes and have only scratched the surface of how the mind-body connection can be used to help people.
Their most successful product so far has been Nerva (their IBS program) which has delivered impressive results;
- Over 200,000 people have used Nerva (their IBS product)
- A 4.6 star rating in the app store from 26,000 reviews
- Over 7,000 clinicians have recommended Nerva
- Their recent RCT showed that 71% of users of their product (the app-delivered Gut Directed Hypnotherapy) experienced a clinically significant improvement in symptoms, compared to 35% in the control group)
How it works is pretty straightforward. Take a free quiz, use the Nerva app to listen to gut-directed hypnotherapy, learn skills to help manage your symptoms and improve your quality of life.
Now I know that IBS is not a mental health condition so why are we writing about it?
Mindset focus on more than just mental health conditions, but we can still learn a lot from them. They face a lot of the same challenges of mental health businesses - improving reimbursement, getting provider referrals, building a sufficient evidence base, acquiring users, improving user adherence and retention etc.
And they’ve found clever ways to grow and overcome a lot of these challenges. They also operate at the intersection of mental and physical health and I think that’s fascinating.
But to really understand what is special about Mindset and the potential this business holds, we need to understand what it means to be a digitally native pharma company…
2. A digitally native pharma company
Whether we like it or not, pharma has been one of the most successful industries of the last fifty years. Last year alone, pharma generated $1.5 trillion in revenue, with top companies like Pfizer and Johnson & Johnson delivering $31 billion and $18 billion in profit respectfully.
There are a lot of benefits to pharmaceutical products. In general, they are cheap to produce, can be made at massive scale, are easy to prescribe, easy to take and are embedded into the fabric of our healthcare system. This has allowed them to help a lot of people. It’s also allowed them to print a lot of cash.
Mindset want to build a company that has a lot of these same characteristics. They want to be able to produce treatments for a wide range of conditions at scale. They want to take what works about pharma, get rid of what doesn’t and sprinkle some extra goodness on top.
What does it mean to be a digitally native pharma company?
Where pharma companies use molecules to help people, Mindset aim to use digital therapeutics. They want to be the platform that turns clinical research into consumer-friendly digital therapeutics at scale.
So what does it actually take to do that? You need an organisation that can;
- Conduct clinical research to develop new ideas and IP
- Turn that research into a useable product that delivers outcomes
- Get that product through regulatory approval
- Get that product reimbursed
- Get HealthCare Professionals (HCPs) to prescribe / refer your product
- Get patients to use it
Mindset are building this full stack of capabilities.
They have created research teams, regulatory capabilities and recruited product talent capable of developing impactful digital programs. They are also building commercial capabilities that will allow them to drive reimbursement, HCP referrals and patient growth for new products that they bring to market (a few components peers like Pear and Akili missed).
The sprinkles on top
Developing digital products is very different from creating drugs and it's interesting to see how these differences give companies like Mindset an edge over traditional pharma businesses;
- Access to data: Mindset collects real-time data on how users interact with their products. They can track when people start a program and when they fall off. They can also learn this is happening. This helps them see what parts of their product work best and how to improve them over time. Adherence is a huge challenge in healthcare, but with this insight, Mindset have the ability to reduce drop-off and improve outcomes.
- An ability to iterate on product: Data is useless unless you use it to improve your product and user experience. But because Mindset deliver digital products, it’s easy for them to do this, to iterate, to constantly tweak the experience based on what they learn about their users. If a pharma company wants to change a drug compound, that could take years to get it to market. Mindset can do that in days. And most importantly, they can see the impact it has on users. This ability to iterate quickly is at the heart of the success of many tech businesses and it’s the envy of many health businesses. But not Mindset…
- Product personalisation: Precision medicine holds a lot of promise. Shouldn’t treatments be tailored precisely to each individual? Of course they should, but when dealing with drugs and even other treatments like psychotherapy, it’s just quite hard to administer this level of precision. If there’s one thing digital products can do well, it’s personalisation. Mindset have only scratched the surface here so far, but the potential is huge (more on that later)
- A patient relationship: Pharma companies don’t have a relationship with their user. In fact, most people hate pharma businesses. That’s not the case for Mindset. Because people come to Mindset to use their product they build a relationship with the business and with the brand. They come to like Mindset and to trust them. This has a bunch of benefits. It allows Mindset to create real world research and gets patients advocating for Mindset with their friends, and more importantly, their doctor. Mindset have a clever tactic to enhance that advocacy. When a new patient signs up for Mindset, they ask them to enter their doctor's information. They then send a letter to that doctor (with the patient’s permission of course), sharing information on what the patient will be going through, how they are progressing and their results. This bottoms-up marketing motion increases awareness of Mindset with HCPs. Seeing their patients use and get results from Mindset products is a powerful way to convince HCPs of the value of Mindset.
Pharma might have an army of sales people, but Mindset have an army even more powerful… an army of happy customers!
While this is definitely an exciting vision, it’s also a huge mountain to climb. Competition will be high - Mindset are certainly not the only people trying to do achieve this goal. Getting there will require a lot of capital, flawless execution and a fair bit of good luck to boot.
3. D2C, more than just an acquisition strategy
“Move fast and break things” doesn’t work in healthcare.
But neither does “Move so slow that nothing ever improves”.
One thing we can learn from Mindset, is their ability to be both a fast-paced, user-focused business, whilst also working within the requirements of health systems. They thread the needle and it sets them apart.
This user-focus informed their initial acquisition strategy (focusing on D2C channels) but it’s also brought them much more than a growth channel…
Building Product, Research and Brand
Chris is obsessed with understanding the Mindset user, their journey and their experience of Mindset. This obsession permeates through the Mindset team and is what allows them to build products users genuinely love.
“The person who wins here builds the best product. In pharma, the best product is the molecule. But in digital therapeutics, it's about much more than that. It’s about how engaging the product is. How rewarding it is to users. If it makes you feel like you're making progress every day.”
Chris and Alex think about the advantages of being a digital first company and how they can use that to make better products for their users.
“Many digital therapy programs just replicate the in-person approach without the consideration of what digital can enable; such as data, 24/7 access for users and daily engagement.”
Overcoming the downsides of digital
But there are also downsides to digital that need to be addressed.
“You also need to think about what digital lacks - such as the ability to create instant rapport and the personal nature of in-person care.”
By understanding this difference and the needs of their users, they have been able to implement some clever features into their product to improve the customer experience.
For example, they use a commitment pledge to get over the challenge of having lower rapport than in-person treatments.
“There’s no inbuilt accountability in digital products.So you have to build that in and do it in a way that feels calm and helps the user feel like they’re talking to someone that they know.We use a commitment pledge to help with this. When a user first starts, we get them to do a bunch of stuff to increase their likelihood of sticking with the program. For example, we inform their doctor, which increases user retention by 30%.”
Mindset also use their D2C model to conduct a lot of their own research. They use their direct relationship with users to collect data and develop findings on how their products work. They can use these findings to generate evidence but also for the discovery of new products.
The final benefit of their consumer focus, lies in the strengths of the brand they have created. In a field where there may be hundreds of digital products offering a solution, how do you stand out? By having a brand that people know, trust and like. Brand is the most ignored lever for value creation in mental health and that is a hill I am willing to die on. Thankfully, Mindset aren’t ignoring it.
What do you need to succeed in D2C?
Considering the success Mindset have had with their D2C strategy, I wanted to understand what it takes to actually succeed in D2C. They believe it comes down to three things;
- A deep consumer need. For D2C to work, you need your market to be crying out for a solution, so that when they see it in their feed, they jump at the chance to use it. If you have to educate them on their problem or why they need a solution, you won’t succeed in D2C. This is one of the reasons Mindset have had such success with Nerva. As Alex put it “IBS is a really painful condition. People are searching for solutions. They've tried a lot of things and nothing has worked. There's a deep need there.”
- A really good product. Your product must solve the core need of consumers. And you must be easily able to prove that to them. That means having really strong research behind what you are doing that can lend credibility to what you do. It also means having reviews, a lot of them. Social proof is a must in D2C so if you can’t generate strong ratings and testimonials, it will be hard to convert users.
- A deep understanding of the psychology of your consumer. To create successful ads and landing pages (requirements for D2C), you’ll need to be able to speak to your audience like you are one of them. You need to know their objections, where they are in their journey, they type of language they use. What motivation do they need to start using your product? And what will they need to keep using their product.
It’s also important to note that D2C isn’t for everyone. Even within Mindset, they look at each new product and make independent decisions on the best Go-To-Market strategy. Before launching a new product, Alex asks himself three questions to understand the best route to market;
- Is D2C the most suitable and the best entry point to the system?
- How valuable will this be for employers or insurers?
- How valuable will this be for healthcare providers?
Understanding the answers to these questions, combined with understanding the degree of consumer need and awareness, allows Mindset to choose the best GTM strategy for each new product.
However, while D2C is definitely not for everyone, it’s also definitely not forever either.
Mindset are a classic example of a business implementing the D2C bridge strategy using it as a way to build a great product, grow their user base and evidence base, but ultimately, transitioning into more profitable and scalable channels.
Which is exactly what they are pursuing with their HCP led growth strategy.
4. Building moats with HCP led growth
Why are Mindset pursuing HCP led growth? It comes down to two reasons, improving LTC:CAC and developing owned distributed channels.
Improving LTV:CAC
The challenge every D2C Healthcare ultimately bumps up against is their LTV:CAC ratio. Competition on digital platforms is high which makes it expensive, especially as you look to scale. Most businesses also want to maintain prices at accessible levels for patients and will always have some level of churn. This puts a ceiling on LTV and restricts your LTV:CAC ratio. Businesses need to achieve at least a 3:1 LTV:CAC ratio (and ideally more like 5:1) to grow sustainably and to be attractive to investors.
Mindset are pursuing HCP led growth as a way to improve this ratio by reducing CAC. Yes, they need to spend the money and effort to acquire a HCP. But once they do, one HCP could refer hundreds if not thousands of clients to Mindset, each at zero marginal cost, driving CAC going down over time.
Developing an owned distribution channel
“First time founders are obsessed with product. Second time founders are obsessed with distribution.” Justin Kan
While a fantastic product is a necessary requirement to win in this space, it is not sufficient.
The other key element is distribution. Building distribution is bloody hard. But develop a defensible distribution channel and it will serve as a moat and massive value driver for your business.
Mindset see HCPs as a defensible distribution channel. By developing relationships with HCPs they can use it to grow adoption of their current product range. They can also use it to launch new products (at lower CACs).
Once they have built trust with a HCP, they are more likely to recommend a future Mindset product. That distribution channel serves as a moat against any competitors looking to enter the space. This only works, however, if Mindset’s future products are relevant to the HCPs they have already acquired. There’s no point trying to get a Gastro specialist to refer a patient to a smoking cessation program…
Of course, many healthcare businesses have tried a HCP led growth strategy. And many have failed.
They think that shifting from consumers to HCPs will simply solve their LTV:CAC problem, but instead of solving the problem, it just kicks it down the road. They now just have the problem of how to acquire HCPs instead of consumers.
So what are Mindset doing differently? They have three priorities to facilitate their HCP led growth strategy.
- Inspire belief in healthcare practitioners. Mindset are investing in building best in class research and evidence to build trust with HCPs and remove any scepticism about their products. They are also doubling down on their “bottoms-up” adoption strategy, continuing their D2C marketing to drive patient growth with patients then telling their doctors about Mindset.
- Build a seamless referral process. Funnel drop-off is a killer to HCP led growth. You can do all the work to get HCPs on board, to get them referring you to patients, but if the patient doesn’t end up actually acting on the referral and using your product, you don’t make any money. Mindset are laser focused on this journey, ensuring that every single part of it is optimised in order to maximise conversion rates.
- Close the loop: Delivering feedback to HCPs. “The core reason HCPs refer us is because it works and patients love it”. HCPs want to know if their patients are getting better. Mindset close the loop by giving referring HCPs and clinics feedback and data on how their patients have improved from using their products.
5. A new era for Digital Therapeutics?
The idea of building a Digital Therapeutics business that can become a digitally native pharma company is not a new dream. A few such dreamers have met harsh endings in recent years - specifically Pear and Akili.
So why do Mindset think they can succeed where others have failed?
Working backwards and Building Distribution
The Pear and Akili strategy looked like this; build products, get them FDA approved, get them reimbursed, distribute them. The assumption was that once their products were approved, reimbursement and distribution would follow. But they were wrong. Reimbursement and distribution never came.
Mindset have taken the opposite approach. Yes, they started with building a great product but they then immediately shifted their focus to distribution. Their thinking was “we have a great product, what’s the easiest way for us to get it to the people who need it?”. The answer was through D2C. D2C is hard, but it was in that D2C fire that the Mindset of today was forged.
Forged in the fire
Working backwards and starting with D2C (with no reimbursement) forced Mindset to build important muscles. They had to deeply understand their users and build products they really love, products they use regularly and actually help them with their symptoms. They’ve generated a lot of research and built a strong brand. They’ve built distribution channels for both patients and providers which they can use to bring new products to market. These are all muscles that put them in a strong position to take advantage of favourable industry changes when they come - like the introduction of new Medicare codes…
A Changing Reimbursement Landscape
The willingness of payers to reimburse digital products is changing. One major sign of this is Medicare’s announcement earlier this year where they proposed a new way to pay for digital therapeutics. From 2025, it is expected that Medicare will introduce three new codes to cover Digital Mental Health Treatment (DMHT) devices. Medicare are the largest payer in the US and usually set the precedent for how other payers pay for healthcare. While the exact details and reimbursement rates are yet to be announced, this is an incredibly positive sign for the industry and should hopefully open up a significant market for Mindset and others.
Lower Product Development Cost
One failure of Pear and Akili was that it was extremely expensive for them to develop new products. This meant they had to charge high prices which limited adoption. It’s harder to patent digital therapies compared to the molecules that pharma can patent. This means products are less defensible and makes it harder to justify high R&D costs. Mindset aim to avoid this mistake by producing new programs at lower prices. By building the infrastructure to research, build products, test them and bring them to market, they can keep their costs in check, allowing them to keep prices affordable whilst still generating sufficient margin.
Full funnel focus
Despite building clinically effective products that were FDA approved, Pear and Akili failed because they never made any money from their products. This was because they had serious gaps in their funnels. They couldn’t get HCPs to prescribe their product and even when they did, they had huge fall-offs in fulfilment and reimbursement rates. Mindset are addressing this full funnel, ensuring that their products are much more commercially viable and work in the real world (not just in the lab).
The future of Mindset
Chris and Alex are pretty excited about the potential to continuously improve and personalise their products.
“Generative AI is super exciting for us. Think about it, what is the gap between digitally delivered programs and in person therapy? It’s the level of personalisation that you get from speaking to someone, the level of rapport that you can build. That gap doesn’t have to exist”
“Think about what could happen if you can dynamically personalise the product to the person that’s using it. Based on the context that they've shared, the questions they've answered, how they're feeling in the moment. Maybe even how their heart rate is changing, how their skin conductivity is changing, how all of these data points get fed into a digital therapeutic using generative AI and then transformed into audio using a generative voice tailored to the preferences of the user. And what does that all look like as technology advances? Right now, it’s a mobile app. But what does it look like when it's neuralinked into your brain?”
When we were wrapping up our last chat, Alex made an interesting point to me. He said;
“We're in the business of research.”
While hypnotherapy has proved very effective, we still don’t understand much about the mechanism of how it works. Mindset want to close that understanding gap and use it to build new products.
They want to build a digitally native pharma business that develops first line treatments for chronic conditions. One that can help a billion people to improve their lives using the power of the mind-body connection. That’s a big goal.
And while they may not be the first to attempt it, they might be the first to succeed.
If you liked this post, the best thing you can do is to share it with someone else. It would mean a lot.
Keep fighting the good fight!
Steve
Founder of The Hemingway Group
P.S. feel free to connect with me on LinkedIn
P.P.S. an important note about Nerva
Disclaimer: Nerva is a self-guided program that may help people self-manage and live well with their diagnosed irritable bowel syndrome. Nerva has not been evaluated by the FDA, TGA, MHRA or similar regulatory bodies. Users are directed to not make any changes to their prescribed medication or other type of medical treatment without seeking professional medical advice.
