A digital health investor’s perspective: digital therapeutics (DTx)
Kicking off this new series of articles, in which we will be sharing views on several digital health-related topics, from our perspective as early-stage investors
Digital Therapeutics (DTx) have been in the spot light for some time now and the picture is starting to get clearer. Multiple start-up/pharma partnerships, FDA approvals and (finally) substantial M&A action (i.e. Teladoc acquiring Livongo for US$18.5 bn in October 2020) are all signs pointing towards the maturation of the sector. Even regulators & payers are working on ways to better assess and support this new class of treatment: the best example being Germany, which enacted the Digital Care Act (DVG) in 2020 to provide early reimbursement to digital therapies. In this article we will share our perspective on some of the opportunities and challenges of DTx.
First thing first: what is a digital therapeutic?
As the name suggests, digital therapeutics are software or apps intending to provide therapeutic benefits, as a standalone or in combination with another modality (drug, physical intervention…). But to earn the DTx label, these benefits must be backed by clinical evidence. As per the Digital Therapeutics Alliance’s definition: Digital therapeutics (DTx) deliver evidence-based therapeutic interventions that are driven by high quality software programs to prevent, manage, or treat a medical disorder or disease. They are used independently or in concert with medications, devices, or other therapies to optimize patient care and health outcomes.
This is fully aligned with our investment philosophy: if you claim to be either a therapeutic or a diagnostic product, you should be prepared to demonstrate your value with rigorous science. As a side note, we do believe that digital health as a whole has suffered from a general lack of evidence, with a multitude of apps and software making bold claims with no semblance of clinical data (i.e. the snake oil syndrome).
Why so much interest in digital therapeutics?
By virtue of being software products, DTx provide a scalable form of therapy with less or no side effects compared to pharmacological drugs. In chronic pain for example, the side-effects and risks associated with opioids have been very documented. Governments, healthcare systems and patients are actively looking for safer yet effective alternatives. The solutions developed by our portfolio company Lucine (https://lucine.fr/) is providing just that, by using a digital therapy to directly affect the mechanisms of pain known as nociception.
Overall, we see a lot of potential for DTx in disease areas where standards of treatment leave significant needs unmet and where a mental/behavioral component can be (at least partially) addressed through habit formation.
Learning disabilities such as dyslexia interfere with basic children’s learning skills that can harm further education and consequently future in adulthood. In addition, irrespective of the quality of care by dedicated therapists, the frequency of care is important. This is one of the reasons why we invested in BMotion Technologies, a DTx company providing a rehabilitation product called Mila (https://www.mila-learn.com), using music & games to help children with learning disabilities. These games are engaging and fun to play but that’s not all: they trigger well-known mechanisms in the brain to address cognitive challenges.
Another benefit of digital therapeutics is the ability toleverage rapid feedback collected from users. Indeed, by monitoring how patients interact with the product, individualizing the intervention and identifying (and solving for) non-compliance issues becomes possible.
What are (some of) the challenges that lie ahead for DTx companies?
We talked about the importance of generating clinical evidence, but from a product perspective digital therapeutics must also be engaging enough to foster sustained use. In other words, DTx products must be appealing and offer a satisfying patient experience in order to get compliance.
With that in mind, gamifications approaches used by Akili Interactive (the first company to develop a therapeutic video game and getting a FDA approval for it) or BMotion Technologies are interesting because they are more likely to keep the user coming. Designing a compelling digital product for a healthcare-related use is not trivial though and itrequires the right skill set. Expect to hire some talented game designers if you intend to create a videogame-like experience.
Go-to-market is another interesting challenge and one that no DTx player has completely cracked. By-and-large, we can identify 3 go-to-market approaches to DTx:
Prescription DTx are digital drugs i.e. drugs which happen to be of a non-pharmacological nature. As such it makes sense that they be prescribed by doctors.
Pioneers such as Akili Interactive (https://www.akiliinteractive.com/) or Pear Therapeutics (https://peartherapeutics.com/) have chosen this path, going through the most rigorous clinical evidence-generation process and eventually registering their product(s) with the FDA, hence getting a universal stamp of approval for medical relevance. This stamp is a high reward but the road is long, difficult and costly for a start-up that doesn’t have the war chest of a big pharma and is experimenting with a completely new modality.
Furthermore, regulatory approval is far from being the end of the road: getting doctors comfortable enough with your product to prescribe it is a crucial step (as is securing reimbursement). Hiring a sales force is expensive, hence the option to partner with a pharma company may seem enticing. But pharma companies are good at… selling pharmaceutical products! Selling digital products is a whole different ball game and one that can entail a steep learning curve. The example of Pear Therapeutics and Novartis/Sandoz aborted deal is still in a lot of memories as a wasted opportunity. That being said there has been a series of high profile partnerships in the last few months (Chiesi & Kaia Health, Boehringer Ingelheim & Click Therapeutics…) and it will be interesting to see how they incorporate learnings from the past to create a landmark for success. Not putting all eggs in the same basket (i.e. a portfolio management approach) may be the best way and it’s exactly what Kaia Health (https://www.kaiahealth.com/) is doing. They entered into a strategic commercialization partnership with Chiesi for their COPD product, while retaining the rights of the core chronic back pain/MSK product.
Payers-first DTx are aiming to leverage healthcare payers rather than doctors in order to reach patients. The approach is more common in the US, where the payer landscape is more fragmented and where payers hold strict formularies of what they cover, thus having more influence on treatment options for their members.
This is the approach that Livongo (https://www.livongo.com/) favored: by catering to end points that are meaningful for payers (with regards to glucose and HbA1c control in particular), they were able to get contracts signed and revenue coming in, without relying on doctors prescriptions. Although the approach may seem easier, it definitely comes with some downsides. Despite formularies, payers are typically not the most efficient organizations to handle user acquisition. Just because they endorse a treatment doesn’t mean that their members will rush to adopt it, unlike the recommendation of a doctor which typically carries more weight.
Also, with more and more companies seemingly choosing the payers-first path to get to the market faster (i.e. avoid lengthy regulatory processes and/or having to knock on the doctor’s door), there is a risk that payers end up flooded with a multitude of solutions and it’s highly unlikely they will cover all of them.
Going direct-to-patient is another option to reach the market fast. It’s not the easiest approach in Europe though, as citizens are used to so-called “free healthcare”. The other challenge is the hundreds of thousands of direct-to-consumer healthcare apps out there competing for attention and not always resulting in a positive experience. But it can work if you have what it takes to stand out from the crowd and if you are addressing a chronic ailment with a strong impact on quality of life. Take chronic back pain for example: after multiple sessions with a physiotherapist, painkillers and possibly the prospect of a very invasive yet uncertain surgery, no wonder people are willing to pay out of pocket for Kaia Health’s product, which combines cognitive behavior therapy with tailored exercise programs and even remote sessions with a physiotherapist if needed.
We at Kurma Partners tend to have a sweet spot for prescription DTx, but we recognize that the approaches listed above are not mutually exclusive and the best way is probably a combination of at least two of them. Taking yet again the example of BMotion Technologies, the company has the ambition to demonstrate that its product is prescription-grade, but meanwhile many parents struggling with their child’s dyslexia are taking matters into their own hands and thus looking for treatments now, hence the significant B2C traction that the company has been experiencing.
Many more challenges remain to be addressed in order to cement DTx’ position as a credible therapeutic option (quality management, distribution to patient, data management…) but the field has been fascinating to follow over the last few years. A lot has happened, from the inception of the concept itself to the first FDA approvals to a first high profile transaction with the acquisition of Livongo by Teladoc. We are convinced that this modality is addressing a need for patients, HCPs and payers alike and is thus here to stay.
If you are an early-stage DTx company with the ambition to do something big and meaningful, please give us a shout → contact@kurmapartners.com
