Exploring Digital Therapeutics
At Grand Ventures, we are sector-agnostic B2B software investors. We often rely on industry-specific investors and experts when we pursue deals in unfamiliar verticals. Recently, our team kicked off an initiative to get smarter on sectors that we are passionate about and believe have significant promise. Digital health has always been a particular interest of mine, so I was inspired to dive in and learn more. Instead of trying to understand the entire sector at once, I opted to start with a specific sub-sector called digital therapeutics (DTx). I’m excited to share the research I’ve compiled thus far. Below, I’ll go into detail about the positioning of DTx within the digital health space and delineate key players, go-to-market, trends, barriers, and questions.
Positioning Digital Therapeutics within Digital Health
Digital health start-ups — technology-first companies that seek to improve human health — are hot. According to Rock Health, venture capitalists invested $7.4 billion into 374 digital health start-ups in 2019, 3.5x the amount invested in 2013. Six companies IPOd: Livongo, Health Catalyst, Phreesia, Change Healthcare, Peloton, and Progyny. Top funded areas include fitness, on-demand health services, disease monitoring, diagnostics, treatment of disease, and precision medicine.
VCs are pouring money into digital health, but picking a winner is no easy feat; digital health is an incredibly complex and crowded sector. Below is a market map from CB Insights that illustrates this point:
To increase the chance of picking a digital health winner, finding a niche focus can be helpful. One of the most exciting and crowded spaces within digital health is mobile health. The mobile health space primarily contains consumer-focused apps that seek to treat conditions like obesity, diabetes, and mental health disorders. It’s a promising market since mobile health apps can be cost-effective, easily scalable, and effective treatment methods for expensive health issues — 90% of the U.S.’s $3.5 trillion healthcare expenditures can be attributed to treatments for people with chronic conditions and mental health disorders.
That said, there’s a lot of noise in mobile health as well; there are over 300,000 mobile health apps, most of which have not been able to provide rigorous proof of their efficacy. According to Nature’s Digital Medicine Journal, less than 12 apps were able to prove positive health outcomes during random controlled trials. Getting key stakeholders onboard with these apps can consequently be challenging. Lack of proof of efficacy negatively impacts patient activation and engagement. It also means that providers are less likely to suggest the app to their patients, payers are less likely to offer coverage for the app to their members, and employers are less likely to distribute the app to employees. This is where DTx comes into play — DTx solves for the proof problem that mobile health start-ups traditionally face.
What are Digital Therapeutics?
Digital therapeutics are software-driven medical treatments. In the US, they pass through a similar process for approval from the FDA as drugs do; FDA-approved DTx tools are scientifically proven to do what they say they do based on random controlled trials. A DTx might be similar in form to a consumer meditation app like Headspace, but it can make the claim that it actually treats a medical condition because it has completed clinical trials and received clearance or approval from the FDA. This enables it to go to market through health plans and for doctors to prescribe it alongside or instead of traditional drugs. Becoming a DTx also means the FDA constrains how you can market your product and to whom. Interestingly, avoiding these constraints is a reason many digital health companies I have spoken with say they do not want to become a DTx.
Below are some examples of digital therapeutics companies and their products. Notably, digital therapeutics treat and monitor a variety of both behavioral and physical health conditions.
Pear Therapeutics: Creates digital therapeutics that are designed to treat disease and can be prescribed by a doctor. FDA-approved products include reSET for treatment of substance abuse disorder, reSET-O for the treatment of opioid use disorder, and Somryst for the treatment of chronic insomnia. Pear has raised $134M.
Akili Interactive Labs: Akili builds digital therapeutics that feel like video games to help patients with cognitive disorders, like ADHD, depression, and autism. Its Endeavor product was cleared by the FDA to treat ADHD in children. Akili has raised $140.9M.
Better: Creates digital therapeutics designed to treat cardiometabolic disorders like diabetes, hypertension, and hyperlipidemia. Better will offer some of its therapeutics via prescription and others that can be accessed without a prescription through a health plan. Better has raised $23.8M.
Click Therapeutics: Its leading digital therapeutic is focused on smoking cessation. The company is also developing digital therapeutics related to depression, insomnia, and acute coronary syndrome. It seeks to get clearance for its therapeutics as class 2 medical devices. Click Therapeutics has raised $27.4M.
Kaia Health: Its digital therapeutic is focused on treating musculoskeletal disease. Its app includes custom exercise programs, a motion coach, and support. Users receive access to Kaia Health through their health plan, employer or doctor. No prescription is needed. Kaia Health has raised $48M.
Kaiku Health: Its digital therapeutic focuses on digital symptom monitoring for cancer patients. A random controlled trial of 766 metastatic cancer patients found that digital symptom monitoring led patients to live 5.2 months longer, improved the quality of life for 31% of patients, and reduced emergency room visits by 7%. Kaiku Health has raised $6.6M.
Path to Market for Digital Therapeutics
In order to go to market as a DTx, FDA approval or clearance is required. The FDA regulates DTx as medical devices (as opposed to drugs, which have a much longer approval process). The difficulty of obtaining FDA approval or clearance depends on the strength of the claim the company is making. For example, there’s a higher bar if a company claims to effectively treat a medical condition like depression as opposed to a claim that the company improves the quality of life for people suffering from depression.
Below is a useful chart from the Digital Therapeutics Alliance which shows the kinds of claims that require FDA validation of efficacy and safety before the product can be sold and prescribed.
The first digital therapeutics company to receive FDA approval was Pear Therapeutics. In 2016, its Reset app (which provides a 12-week cognitive behavioral therapy for people with addiction to substances like alcohol and cannabis), secured de novo FDA clearance. De novo clearance can be obtained only for low-to-moderate risk devices that do not have existing competitors. In 2019, it received FDA clearance for a similar app that treated opioid addiction. In 2020, Pear Therapeutics’ insomnia-focused DTx, Somryst, was the first DTx to get cleared through the FDA’s new pre-certification pilot program, which allows low risk products to get to market faster. Apart from Pear, few DTx companies have successfully completed the FDA approval process. Most recently, the FDA cleared Akili Interactive’s EndeavorRX video game as a prescription digital therapeutic for ADHD in children.
Receiving FDA approval for DTx is challenging primarily because the space is still largely uncharted territory. There are also unique challenges with respect to conducting clinical trials when medicine is contained in an app; clinicians need to get creative when designing digital placebos, for instance. Furthermore, aggressive standardization of data is key when DTx inputs come from varying sources like wearables and self-reported user entries. That said, the ability to collect data in real-time and recruit patients from an app’s existing user base are significant advantages of DTx.
Getting FDA approval is just one step in the go-to-market journey for a DTx. DTx companies must also secure reimbursement from payers and get providers to prescribe the DTx. Partnering with pharmaceutical companies is helpful for both aims. Pharmaceutical companies typically can offer the scale and relationships necessary for commercialization. For example, Pear Therapeutics’ partnership with Sandoz was what ultimately helped the company get to market (though this partnership ended in 2019). The graphic below illustrates how active Big Pharma has been in partnering with DTx companies.
It will be interesting to see how big tech companies end up interacting with DTx as Apple and Amazon explore healthcare more deeply.
DTx as an industry is predicted to grow significantly in the near future. Business Insider predicts the space will grow 21% annually to reach $9B by 2025. Below are some key trends that may help drive this growth:
- Increased interest from Big Pharma: The pharmaceutical industry has strong incentives to invest in DTx given the significance of chronic disease and the opportunity DTx provides them in terms of data and feedback. Such data-driven outputs are difficult to access with traditional medicine. It’s likely the interest in DTx from Pharma will continue to accelerate in coming years as DTx demonstrates a more tangible return on investment.
- FDA is creating faster pathways for clearance: The FDA is beginning to appreciate the need for DTx to move quickly and incorporate constant updates. Its new pre-certification pilot program prioritizes evaluating developers and allows low-risk products to get to market faster. Real world data is used after pre-certification for further validation. 9 companies are part of this program. Interestingly, the FDA also increased leniency for low-risk DTx during the COVID-19 pandemic. Internationally, Germany is at the forefront of creating rules that facilitate DTx going to market quickly. Starting in Q2 of 2020, low risk medical devices can apply for fast track market entry and get approval from Germany’s regulatory body within 3 months, allowing them to be prescribed by doctors. To further facilitate the advancement of DTx, Germany is creating more access to anonymized patient health records for research purposes and requiring that everyone on public insurance have access to their electronic health records.
- Shift to multi-disease platforms: patients often have multiple conditions; having to use different apps for each disease is cumbersome. It is plausible that DTx companies will collaborate with each other to offer more comprehensive platforms and integrate into existing disease management programs commonly used by providers.
- New pathways for distribution: new channels and technologies are emerging that facilitate distributing DTx. For example, Akili decided not to seek pharma partnerships and instead created its own distribution platform for its DTx. This makes intuitive sense given that the training and support that a patient requires when prescribed a DTx is very different than that required when a patient is prescribed a traditional drug (for example, you don’t need tech support when taking penicillin). Pharmacy benefits managers like ExpressScripts and CVS Caremark are also facilitating distribution of DTx through their creation of digital formularies that curate best in class DTx and digital health solutions. Relatedly, tech start-ups like Xealth and BrightInsight are emerging to help create infrastructure that makes prescribing and monitoring DTx easier.
- Consumer mobile health apps will seek to become digital therapeutics: it is intuitive that consumer mobile health apps will seek to show scientific proof that they are effective in order to differentiate themselves and potentially secure a spot in the DTx space. Notably, Headspace recently raised $93M in an effort to secure clinical validation for its meditation and mindfulness app (in addition to other efforts).
Barriers to Adoption of Digital Therapeutics
- Provider adoption: Your doctor probably has not prescribed you one of Pear Therapeutics’ apps. Indeed, few doctors prescribe DTx today. One reason for this is that doctors are incredibly strapped for time and prescribing a DTx would likely complicate their workflow. One company that navigated this issue well is Omada Health. Omada Health is focused on treating chronic diseases and partnered early on with the American Medical Association. The partnership allowed them to seamlessly integrate with clinical workflows and electronic health records. Other intuitive reasons for few DTx prescriptions by doctors include lack of conviction that DTx work and lack of awareness about DTx.
- Payer adoption: Interviews of payers by Rock Health and McKinsey both found that payers remain skeptical of DTx. Health insurers often have difficulty wrapping their heads around the value of investing in chronic condition treatments. Individuals usually stay with their health insurer for roughly 10 years, but the most expensive problems associated with chronic disease, such as stroke from type 2 diabetes, often don’t play out for 20+ years after disease onset. Why invest in making someone healthy if another payer will see the benefit? Furthermore, there’s the issue of getting patients to use DTx apps consistently. DTx that target diseases like insomnia, which show more immediate impact from treatment and can more easily be compared against traditional treatments, will probably have an easier time receiving coverage. Furthermore, DTx that are distributed through employers can bypass the ROI dilemma health insurers face because they can see immediate ROI in the form of employee productivity and happiness.
- Getting a partner in Pharma: Signing a partnership with a pharma company is very difficult, according to DTx leaders. It is often critical for commercialization given pharma’s sales channels and knowledge of approval pathways. This is especially true for more niche indications.
- Achieving patient adoption: In order for DTx to work, patients have to use the app. Patients don’t have to worry about nasty side effects from a DTx, but nevertheless, getting patients to consistently engage on an app is challenging. Financial incentives, gamification, and proof of efficacy can all help keep patients engaged. Furthermore, the app needs to be designed based on the needs of the patients. Interestingly, a McKinsey survey found that patients reported lower levels of satisfaction with DTx apps compared to other consumer apps they use.
- Culture shift: In order to get patients, providers, and payers onboard with digital therapeutics, a culture shift is necessary. People must truly believe an app can function as a medicine. Noise from the thousands of unvalidated mobile health apps inhibits this shift, though high-quality consumer health apps that provide effective treatments may facilitate change.
Hypothesis and Additional Questions:
Digital therapeutics is a nascent industry with significant barriers to overcome before its ready for prime time. At the very least, DTx will push the broader digital health industry to show more clinical proof of efficacy. At full scale, DTx would be prescribed by doctors instead of traditional drugs with harmful side effects to treat serious behavioral and physical conditions. In the mean time, it will be fascinating to see what technology emerges around DTx to help with overcoming distribution and adoption barriers.
Step 0 of trying to understand digital therapeutics was getting myself to write about it. The next step is to continue my research, talk to experts in the field, and learn through trial and error. Eventually, I would love to lead an investment in a digital therapeutics company.
Below is a list of some questions that remain on my mind.
The overarching question I hope to answer is what a DTx company poised for success looks like at an early stage. I would guess it would consist of the following: 1) Team that understands how to scale consumer oriented software, has significant credibility in the scientific community, and has relationships necessary for navigating clinical trials and commercialization; 2) Product rooted in existing scientific research that is highly engaging for patients and interoperable with provider’s existing workflow; 3) Targeting an indication where showing short-term ROI is possible (ex: a DTx that results in physical change vs. behavioral change); 4) Singularly focused on becoming a DTx company and only uses direct to consumer avenues to learn quickly for product development purposes; and 5) Has some secret sauce that allows it to sway skeptical stakeholders to adopt it.
- What are the characteristics of an early stage DTx company poised for success?
- What tech will emerge around DTx to make adoption and distribution easier?
- Will different DTx companies get connected to each other on a single platform?
- Are there room for several DTx winners or will there be just a few?
- How do DTx fit into the trend of precision medicine?
- At what stage of a DTx company should investors come in?
- What are the benefits are drawbacks of becoming a DTx?
- Is pursuing a B2C strategy in addition to becoming a DTx beneficial?
- What are alternative ways for DTx to commercialize?
- For what indications do pharma partnerships make less sense for commercialization?
- Why aren’t more doctors prescribing DTx?
- How will DTx work globally?
- Are there any unique challenges with EHR integration for DTx?
- How many different indications should a DTx pursue in its pipeline?
- How do you interpret non-clinical data to predict odds of success in a clinical setting?
- How expensive are trials for digital therapeutics? How long does the process take?
- How important are relationships for navigating clinical trials?
- What are the pros and cons of the different FDA pathways available for DTx?
- What are pros and cons of FDA approval vs. clearance?
DTx vs. Mobile Health:
- How will DTx impact mobile health apps? Will they increase the bar for proof of efficacy for everyone? Will they pave the way for further adoption of mobile health apps by proving the potential of software to treat disease?
- Will the same tech that doctors use to prescribe DTx be used by doctors to suggest mobile health apps that aren’t clinically validated?
- How will employers and pharmacy benefits manager’s adoption of mobile health apps impact DTx? Will this discourage start-ups from developing DTx?
- Will mobile health apps emerge that copy DTx?