In the last month I have spoken at an event about digital therapeutics and been invited to speak at 5 more unrelated events on the same topic (note: I am not doing them all). In my world view, this constitutes a trend, particularly since I haven’t been asked to speak on this topic repeatedly before. When something becomes this popular, you have to ask yourself whether it is on the rise or whether the topic has jumped the shark. But based on the still-growing fascination with how digital technologies can improve the world of healthcare, I’m thinking we haven’t seen the half of it. I wrote my first blog post on the topic in 2016 (hence the part 2 of the title of this one), but even then it was pretty early in the cycle before we started to see FDA-cleared products in the space.
I want a new drug, one that won’t spill
One that don’t cost too much
Or come in a pill
-Huey Lewis in I Want a New Drug
In the olden days, like 2016, the term “digital therapeutics” wasn’t in the usual parlance of those of us trolling around on the healthcare seen. I asked the audience at a recent JLabs event on the topic (the event was Digital Therapeutics and the Future of Medicine) how many of them felt that they could effectively define the term and few hands went up. People are a bit tentative about the topic, I believe, and not entirely sure what’s in and what’s out of the mix. Here’s how Wikipedia, my go to source for all things medical, defines it, “Digital therapeutics, a subset of digital health, is a health discipline and treatment option that utilizes a digital and often online health technologies to treat a medical or psychological condition. The treatment relies on behavioral and lifestyle changes usually spurred by a collection of digital impetuses.” In a recent McKinsey report on the topic, Jörg Land, CEO of Sonormed, described it as, “…an intervention based on software as the key ingredient, which has direct impact on a disease.”
The two people I had with me at the JLabs event, Beth Rogozinski, Chief Content Advisor for Pear Therapeutics, and Tony Simon, Founder and CEO of Cognivive, had a lot to add to these thoughts. Tony’s view is that digital therapeutics is “…software targeted to a specific human organ–the brain—that seeks to change it’s function.” He adds that the goal of digital therapeutics is to, in effect, use the science of neuroplasticity to “change the bugs in the software of a person,” adding, it’s like a way of melting down the grooves of a vinyl record and refining them. For those of you who don’t know what a record is, please go away.
Beth noted that a true digital therapeutic will also allow for 24/7 access, be FDA cleared, be clinically validated, allow for instant feedback and connect to the clinical workflow. While that isn’t a definition per se, it is a pretty compelling set of requirements that set a high bar for what should be included in the category.
According to our collective experience, the three of us have seen digital therapeutics that target cognitive health, substance abuse treatment and mental health, but also cardiovascular disease, pain, asthma, diabetes for a start. The general view of Beth and Tony is that any disease that can be improved through behavioral change is eligible, and that includes virtually all chronic disease and virtually all non-communicable diseases. There are even some digital therapeutics focused on acute conditions, such as post surgical pain (see this podcast with AppliedVR’s Matthew Stoudt for an example . Notably, while digital therapeutics may fit into the “beyond the pill” category, meaning that they are most effective when used in conjunction with traditional medication style therapeutics, there are a rising class of standalone digital therapeutics meant to be used instead of pills and potions, which can have questionable utility with some conditions if they get taken at all.
In a way, these “digitally compounded” interventions (Tony’s term) are one of the best manifestations of the concept of precision health, as they can be tuned and textured to respond to the individual motivations of patients, targeting motivations that result in treatment compliance and actual patient engagement (god I hate that term – is there a better one we can start using?). But getting people to buy into the long term treatment process that is typically required of chronic illnesses, getting the patient to actively participate is one of the most important factors in improving outcome.
Interestingly, the entrepreneurs who are developing digital therapeutics companies are pretty darn clear that the FDA needs to be a key part of their success. While many in the field of digital health have bent themselves into pretzels to figure out how to avoid the FDA, Beth, Tony and many others clearly believe that full blown clinical trials with control arms and FDA oversight are essential to product success. I happen to agree. If you figure that most people don’t engage in treatment unless their doctor/clinician recommend or prescribe it, you also have to figure that no such professional would likely prescribe these products if they haven’t passed regulatory and clinical trial muster.
Some great examples of companies that have made this effort and been rewarded include Pear Therapeutics (focused on substance abuse treatment), Freespira (focused on panic disorder and post-traumatic stress disorder), and Welldoc (focused on diabetes). One thing that all of these companies have had to do that traditional drug companies have not had to do nearly as comprehensively is prove the pharmaco-economic value of their products in the short term. Payers are looking for the math to pencil out pretty quickly when they look at digital therapeutics. While they are starting to demand the same for new chemically-compounded drugs that come to market, those products seem to get away with much higher prices and a much less well-defined economic bar.
Notably, digital therapeutics have very few side-effects, a significant advantage over the other kind. You might get carpal tunnel and eye strain or even a bit of insomnia from staring at the blue light of your phone (#irony), you are unlikely to have a heart attack caused by a digital therapeutic intervention. So that’s a plus.
But as I look at this newly evolving category with the eyes of an investor, I think the big questions on how this field will evolve are more about business model and product roadmap/strategy than they are about technical and clinical efficacy. Let’s stipulate that people love to interact with their digital devices (often more than they like to interact with their families) and let’s stipulate that the products can really make a difference in outcome, whether paired with a drug or not. But under what circumstances can these new market entrants be good investments and great companies?
My first question: can any of these companies make it beyond the earliest stages as standalone entities? It’s incredibly expensive to detail physicians (aka sell to them). It’s an inefficient and resource-intensive process that virtually no startup company can afford to undertake. While the discovery and clinical trial costs may be less than traditional pharma must bear, the process of convincing physicians these products are prescription-worthy is pretty damn expensive. And even if you could get there, how are the prescriptions filled? This is a pretty significant change in workflow for physicians and not all of them are going to get there in the short term. While I do believe that Amara’s Law is accurate and thus that digital therapeutics have long term potential, investors calendars only span 7 or 8 years. This will take the kind of patience that is rarely seem among the money crowd.
Amara’s Law: We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run. (Roy Amara, Institute for the Future)
So hey, then, why not sell directly to consumers? Oy, please don’t ask me that because I will say all the stuff I said about halfway down my 2017 post called Digital Health, Destiny and Doritos. In a nutshell (taco shell?), consumers don’t like to pay for medical products and services that they think their insurance should cover. There are few exceptions to this and don’t try to tell me lifestyle and wellness services are paid for by consumers so…I will argue you to the death on this one. I may be wrong, but I think we will both be dead before the market proves you right.
Furthermore, the most successful drug companies have a healthy pipeline, not just one drug. One product drug companies get acquired and integrated into big drug companies most of the time. It’s the way the big pharma R&D pipeline works and also a representation of the cost of market entry for new therapeutics. Given that most of the digital therapeutics companies are pretty singularly focused, it may be tough for them to realize significant value on their own. Those with lots of products (and FDA approvals and clinical proof of value) are more likely to make it further downstream into standalone company-ness.
And lastly there is pricing and how reimbursement will play out, always the canary in the coal mine for new products in healthcare. Naturally the digital therapeutics companies think that if they produce equal or better outcomes, they should get the same reimbursement as traditional drugs in the formulary. I sort of get the point but the justification for the outrageous cost of most of the drugs out there is that there were outrageous costs to getting the product to market. In the case of digital therapeutics, the cost should not be a billion dollars prior to coverage. If it is, you are doing entrepreneurship wrong, my friend. So how are prices set?
As for reimbursement and getting into the PBM formulary, that is its own black box. We are seeing some success here on the commercial insurance front (Magellan is paying for Pear in a pilot, Highmark is working with and paying for Freespira, for instance), but we are way early in this dynamic and there is a lot of glass to walk across before this becomes routine, before coverage codes are standardized and before Medicare and Medicaid say yes. See Amara’s Law and the venture capital patience index (my own invention as yet memed). At the moment we are mostly seeing big pharma partner with digital therapeutics companies to establish a differentiation from other drugs without an expectation of higher reimbursement. It will be curious to see how this changes. The Otsuka/Proteus partnership is the tip of the spear here.
This is definitely a trend to watch and if you are feeling anxious about the investments you have made here, you can try the products to help.