Digital Therapeutics Emerging as a Future Key Area of Healthcare

Over the past decade, the widespread adoption of mobile technology has paved the way for the rise of mobile health applications which provide consumers with real-time data on various aspects of their day-to-day health and wellness: resting heart rate, sleep quality, distance walked, calories burned, and more.  Additionally, mobile applications supporting mental wellness through guided meditation, emotional support, and incentive-based wellness programming have gained significant market traction.

In recent years, the convergence of mobile technology and healthcare has created clinically effective Digital Therapeutics (DTx).  These software tools utilize mobile applications to engage with patients before, during, and after receiving clinical care, providing a new link between care teams and patients.  DTx products possess one distinct characteristic which separates them from the thousands of health and wellness applications on the market today: DTx products have been proven to drive clinical results for their users.

What are Digital Therapeutics?
According to the Digital Therapeutics Alliance (founded in 2017), DTx are software programs that deliver evidence-based therapeutic interventions to patients in order to prevent, manage, or treat a broad spectrum of physical, mental, and behavioral conditions.  Digital Therapeutics can serve a variety of use cases and new market entrants, as many players have developed the capability to integrate with provider workflows, support patients with chronic conditions, and work in conjunction with existing therapies and pharmaceuticals to improve patient engagement and drive clinical outcomes.

DTx products incorporate a wide variety of intervention mechanisms to treat a diverse range of chronic conditions, including diabetes, insomnia, attention disorders, and behavioral/mental health.  Generally speaking, most DTx products can be classified into one of the following four use case categories:

Digital Therapeutics are uniquely positioned to provide meaningful benefits across the spectrum of stakeholders in the healthcare ecosystem – payers, providers, pharma, and most importantly, patients – all of whom stand to gain from increased development and adoption of DTx products.

• Payers benefit from improved population-level clinical and economic outcomes through increased engagement and lowered cost of care, while also increasing access to care for previously difficult-to-treat chronic conditions.

• Providers leverage DTx to deliver and support clinically proven therapies outside of a care setting while providing reliable patient engagement and wellness data streams which can be integrated into provider workflows and care management processes.

• Pharma partners with DTx products in conjunction with existing drug therapies, driving improved efficacy through increased medical adherence and capturing valuable real-world evidence.

• Patients receive personalized, flexible care to meet individual patients’ needs and schedules, while also providing targeted, reliable, evidence-based interventions as needed to promote patient adherence to care plans.

Market Trends
While the development of the Digital Therapeutics space is still relatively early, initial indications are positive.  The FDA has recently validated a streamlined review process for Software as a Medical Device (SaMD), and consumers are more likely than ever to utilize digital tools in conjunction with, or in lieu of, traditional therapies.

Additionally, strategic partners have been active in providing growth capital and forming development partnerships to emerging DTx companies. Key channels include retail pharmacies (CVS/Big Health, Walgreens/Propeller) seeking to provide more holistic care for patients/customers, and pharmaceutical companies, which are seeking to complement existing medications for a wide spectrum of therapeutic areas, including chronic neurological, respiratory, and cardiovascular disorders.

Unsurprisingly, given the significant strategic interest in emerging players within the DTx space, a number of market leaders have landed significant capital raises at lofty valuations over the past 18 months:

• Akili Interactive raised $68M in August 2018 at a $190M pre-money valuation from a consortium of investors, led by Temasek Holdings with participation from Merck Ventures.

• Pear Therapeutics raised $64M of venture funding in January 2019 at a $430M pre-money valuation: the investment was led by Temasek Holdings with participation by Novartis.

• Propeller Health was acquired by ResMed in January 2019 at an enterprise valuation of $225M.

• Omada Health raised $73M in June 2019 at a reported pre-money valuation of about $600M in a round led by Wellington Management.

• Neurotrack raised $21M of Series C capital at an $89M pre-money valuation in July 2019, in a round led by Khosla Ventures.

• Livongo completed an initial public offering in July 2019, closing its first day of trading at a $3.4B valuation.

• Happify Health, a TTCP portfolio company, raised capital at an undisclosed valuation in August 2019.

What’s Ahead for DTx?
At TripleTree and TT Capital Partners (TTCP), we are optimistic about the future for DTx companies.  The market tailwinds indicate continued opportunities for innovative companies to develop capabilities that augment and support existing treatment protocols and impact how healthcare is consumed.  In a previous blog we highlighted three considerations that DTx companies will need to pursue as they develop and implement their capabilities:

• First, we believe robust clinical evidence supporting their intervention is a critical gating factor for market adoption. Any vendor looking to position itself as an enhancement, and especially a replacement, to traditional modes of treatment will be met with scrutiny by buyers and regulators alike.

• Secondly, they must fit neatly into the end-user’s daily life, thereby increasing the likelihood of the technology being used in the necessary frequency and manner to enable clinical benefit.

• Finally, the technologies should be built and delivered in a way that enables rapid feedback. This allows the vendor to conduct continuous performance testing to improve intervention effectiveness and engagement over time.

Additionally, we believe DTx companies will also need to address several important areas in order to realize their market potential:

• Distinction from ‘Wellness Apps’. To a casual observer, the difference between commonplace mobile wellness applications and DTx products which deliver improved clinical results may not be clear.

• Clinician Adoption. For DTx products to drive substantial impact in the delivery of care, clinicians must (i) have confidence in the efficacy and safety of DTx products, and (ii) be able to easily prescribe and interact with DTx products as part of their existing workflows.

• Regulatory Approval. The FDA’s Digital Software Precertification Program began in 2017 with nine partner companies and has only recently begun awarding approvals.  While the FDA has affirmed a streamlined review process for SaMD products, DTx products today are still in the clinical trials/pilot stage, which presents a risk that efficacy in intended use cases fails to materialize.

• Payer Reimbursement. The final key in the pathway to adoption for DTx, as with any new therapy, rests in the hands of payers.  DTx providers must develop methodologies which prove both (i) the medical necessity of their products independently or in conjunction with existing treatments, and (ii) a measurable improvement in clinical outcomes.  In many potential use cases, this presents a unique challenge, as many chronic conditions that could be treated via DTx lack a current baseline of real-world evidence to support actuarial claims.

TripleTree and TT Capital Partners are excited to continue monitoring the developments in the DTx space and watch as these new capabilities gain traction and start to demonstrate their impact across the healthcare industry.