Digital Therapeutics 2.0, Part One: Connecting Products to Value

As DTx comes of age, there are an increasing number of important questions about sources of value and product development programs.

Co-authored by: BCGDV Managing Director and Partners Dr. Nate Beyor and Dr. Gunnar Trommer

Balancing user experience and clinical outcomes in DTx is hard. Here, in part one of a two-part series, we summarize our perspectives from recent work in the space looking at how to connect DTx products to value. Read part two, on regulation and commercialization, here.

With the explosion in digital health, a new class of treatment, digital therapeutics (DTx), has taken off. Now that software developers are able to secure FDA regulatory clearance for Software as a Medical Device (SaMD) therapy solutions, the industry is rich with brand-players commanding major venture investments and strategic partnerships, including Akili and Shionogi ($125 million), Click Therapeutics and Otsuka (($300M), and Pear Therapeutics and Novartis (undisclosed), to name a few. The therapy area where DTx has made the most progress so far is diabetes, where Omada, Livongo, and Noom have all achieved unicorn status.

But questions persist about what digital therapeutics truly are and how they drive value. This is no academic exercise. These answers are crucial for knowing which regulatory strategy to pursue, and, more importantly, how to commercialize.

What “Digital Therapeutics” Really Means

The term “digital therapeutics” can be used to describe a broad range of applications in the health and wellness industry. Sometimes unregulated consumer wellness products with spurious clinical benefits claim to be digital therapeutics, while remote monitoring platforms with a hardware anchor use the label to expand brand appeal. Here, we take a more limited view of the definition of digital therapeutics akin to the one adopted by the Digital Therapeutics Alliance:

Digital therapeutics are evidence-based software products, which have received clearance or approval from a recognized regulatory body and have been shown to impact clinical outcomes

Software as a medical device (SaMD) encompasses a broader category of products than digital therapeutics. SaMD products may include features of telehealth, personalized content, peer or expert advice, remote monitoring, messaging, or clinical decision support. But without an empirically derived clinical outcome and a regulatory milestone, these products are not digital therapeutics.

How Digital Therapeutics Generates Value

No one doubts that there is intrinsic value in making people healthier. But unless this intrinsic value can be translated into monetary value, there will be no business or sustained product adoption. The torrent of deal-making between biopharma and digital therapeutics players suggests that industry giants see a path to dollars. And a lot of dollars, at that: the huge amounts big pharma companies are paying for these deals suggests that they also believe these products have the revenue-generating potential of traditional molecule-based blockbusters.

From a biopharma’s perspective, there are four chief components of value:

• Direct monetization. Many DTx developers are betting that clinical benefit will translate into dollars. However, so far reimbursement has been limited, and direct cash payment is simply not how the healthcare system works. There’ve been few exceptions so far. Noom, for example, earned revenues of $250 million.

Furthermore, even the digital therapies with the greatest potential are still in the minor leagues compared to a standard billion-dollar blockbuster drug. For this reason, the larger biopharma players often make direct monetization a low priority.

• New data. Offering a new way to engage patients and providers, digital therapies could unlock new classes of data that would benefit other businesses. Data on user engagement could inform patient targeting for a drug franchise. Adherence patterns could indicate where potential sales were being lost, which biopharmas could recoup through better education of physicians.

What’s more, outcomes data, enhanced by the fact that it’s captured at a high frequency through patient-reported outcomes (PROs), could be leveraged to design better clinical trials for future drugs. Data could also be used for value-based drug pricing. The possibilities seem limitless, and so this source of value is often the highest priority for biopharma companies.

• Pass-through drug revenue. For years, biopharma has been dabbling in patient-oriented digital solutions — so-called “companion apps” — to support their existing product lines. However, these offerings, for the most part, were not true digital therapeutics based on the definition above. The hope going forward is that by improving outcomes, digital therapeutics can help make pharma products more compelling. They might even improve adherence, thereby accelerating and increasing revenues in the core business.

But linking apps with drugs has important strategic implications. If app usage improves clinical outcomes more than drug usage alone, could it threaten the core by eroding the customer base for those who can’t or won’t use digital? Companies need to weigh this consideration carefully.

• Capability building. Every company is trying to get more out of digital in the ’20s. At BCG, we use the term Bionic Company for firms that successfully combine digital technology with the human capabilities needed to unlock its full potential. By dedicating teams to develop software solutions in this cutting-edge digital space, biopharma companies have a means for building new capabilities among their current employees, an engine for recruiting talent that was previously inaccessible, and a path to establish a track record of innovation.

It’s clear that digital therapeutics are on their way to becoming the next new thing in health care. There are compelling reasons for biopharma companies to enter this space. Be on the look for our next post, “Digital Therapeutics: Connecting Users to Outcomes” when we discuss how to do this.

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