Overcoming the Challenges in the Digital Therapeutics (DTx) Market

Expert Profile

Section 1: Regulatory Hurdles

1.1. How are digital therapeutics regulated?

In the US, there’s a few different ways that we’ve been bringing digital therapeutics to market.

One way is known as enforcement discretion, and then you get into the classifications of FDA approved or FDA cleared. So that’s where many of today’s digital therapeutics fall. That is how we separate digital therapeutics from wellness apps or lifestyle apps. As we’ve brought digital therapeutics to market, we have sought after enforcement discretion and FDA clearances and approvals to differentiate us from many of the traditional things in the app store and make our barriers to entry pretty high. So, once we go through all of the regulation, it’s very hard for new competitors to enter the marketplace unless they’ve done some of the same measures and the same level of regulation we have.

For example, to get to a prescription digital therapeutic, you want it to become an FDA cleared or FDA approved medical device, where there is a lot more scrutiny and steps in the process and protocols to bring something to market. So once you have the FDA approval, at that point, that clearance allows you to get reimbursed on a few different capacities, whether through medical claims or in some instances through drug claims if you have an NDC code. So that’s the reason people go that route. The reason these regulation pathways exist is because with digital therapeutics, it is not as straightforward as a traditional therapeutic or medical device where pharma companies and med device companies were also experts in that space.

Now, when we’re bringing a digital therapeutic or software as a medical device to market, often there is no previous device to compare it to, and pharma is not experts in that space, so it’s created and led a lot of new companies to really be trailblazers in that space, and the FDA has put out pre-cert programs and other pathways to help us do a few things, to just validate that it’s safe and effective, or to validate that the software should be used as a medical device, and then we get to the point where it is a prescription medical device, that’s another level.

1.2. What are the challenges for DTx Companies to obtain approval?

1.2.1. Clinical Validation

So one of the challenges is clinical validation. I read an article recently that over 80% of the digital therapeutics companies right now do not have any type of randomized control trial of clinical validation or real world evidence to show the effectiveness of their solution. So that’s one challenge is that we don’t have a lot of the data or historical research that traditional devices and pharmaceutical agents have.

1.2.2. Determining self-administration or professional supervision

The other, is determining whether something needs to be prescribed under the supervision and guidance of a healthcare professional, whether it be a physician or a pharmacist; or is it something that can be self-directed and self-administered? And a lot of that ultimately comes back down to the level of risk. If they can show that there’s generally a lower risk to the user, that makes the regulation a little easier. Anything that is considered a higher class or a higher risk to end user, that slows things down the regulation process, and then requires a higher level of scrutiny to ensure the safety of the overall device.

1.2.3. Clinical research challenges

DTx is an area where we just don’t have a lot of research, we don’t have a lot of data. Ultimately, digital therapeutics varies compared to pharma; historically in pharma, you had to sell to a payer to cover a particular agent, put it on a formulary. Then you had to educate physicians on how to prescribe and how to use it. Then you had to have some way to educate and spread awareness to patients to actually use it.

With digital therapeutics, it is a bit more challenging and a bit different for the fact that with pharma, they historically haven’t reimbursed for technology or software outside of a traditional medical device, so you have to educate them on exactly what it is and why it should be covered. You have to now educate doctors who are a lot less aware of using a device, even if it’s approved and cleared, you have to educate them on using it.

So getting that real world evidence and usage among their membership and their patients has been a challenge for digital therapeutics companies. So that’s ultimately slowed down a lot of our regulatory processes and a lot of our trials because we still have to structure clinical trials similarly.

We still have to structure our research similarly to traditional agents. However, it’s a lot harder to have a placebo in a digital therapeutic than it is in a traditional pill or an injection. So to have a control trial or a control group where one group is using the digital therapeutic, I have to now use a dummy digital therapeutic in many instances to have a control group who are using an app still, but not the one that we’re really trying to target and validate.

1.3. How do DTx companies overcome these regulatory issues?

One way is to really structure your randomized control trials and your research studies as rigorous as you can. You want to show, upfront, to have very clear KPIs and end points, but you really want to structure it the best you can and have great demographic information if possible, showing that it’s adult users between X age, that they have X diagnosis as far as disease state. You really want to be very clear on what you’re trying to capture in your randomized control trial. If you can use an outsourced IRB or even a central IRB just to run it very closely, make sure that you’re recruiting patients that fit those very particular requirements as precisely as possible, and just lead the way with that.

But also determine what level of clearance or approval or enforcement discretion you truly need. If you’re able to operate with just enforcement discretion and operate selling to employers or payers or whoever your desired target audience is to bring your product to the market for commercialization and usage, then that may be all you need to go for. If you need FDA approval, a unique clearance, or your desire’s to have a prescription only digital therapeutic, then I recommend heading down that pathway as early as possible, because you may need to have multiple submissions, you may need to change some of the parameters. I don’t recommend going for one, then going for another. I would encourage a digital therapeutics company to go for your highest level of approval or clearance on your first go round.

1.3.1. What are some successful cases of the ‘go to market’ process?

The ones I think have done a nice job, like Pierre (Voluntis) or Akili Therapeutics, they’ve gone at a high level for FDA clearance, and they’ve received an NDC code for this solution, which means the claim can be adjudicated by a PBM or a payer and it can come out of the drug benefit. So that’s a way where they’ve followed the path and they’ve done it at a level where it is very easy to be managed, to be adjudicated, they can document it. There are codes associated with it. It’s something that you have a very easy time commercializing because it fits the current workflow of payers and pharmacy benefit companies right now in the US, and as prescription and engagement from the physicians comes to play, that’s the optimal path. And those folks have gone to the highest level.

So for others, I’ve seen the opposite and here’s the double-edged sword. I’ve seen some go for that prescription only indication, and then have to pivot and go for an OTC type indication where they had more success being non-prescription because it was something that could be widely promoted and commercialized with the assistance of a partner within the health plan or a self-insured employer or a PBM. So I’ve seen both sides. It ultimately comes down to how you plan to commercialize. If it’s something that you intend to be prescription only, then you have to go for that FDA clearance and getting a unique identifier, an NDC code. If it’s something that can be commercialized in a different pathway, then enforcement discretion is often enough to get you in a contractable position.

Section 2: Commercialisation of DTx products

2.1. How are DTx products currently reimbursed by payers?

For payers, one of the ways is where companies have gone through the effort to get a NDC code or a unique identifier code for a medical device, where that’s reimbursed basically through the drug benefit. I’ve seen others who do not have a unique identifier who are going the path of trying to get reimbursed through a CPT code for the device or the software as a medical device for what it does. So, some of them going through remote patient monitoring codes, which is also known as RPM. So those codes were unbundled by CMS and most commercial payers in 2019. So I’m seeing many go the pathway of using either DME codes or RPM codes.

So, that’s one way to get it reimbursed, where the physician or the user is submitting a code for reimbursement, and that device or digital therapeutic is enabling them to achieve the criteria required to submit that code. So that’s another way.

And then I’m seeing other contracts with health plans or third-parties or PBMs where it’s a milestones or outcomes based payment, so the digital therapeutics company will be paid a small payment for activation, then I’ll see them get another payment for a milestone, whether it’s number of usages or if the is patient still an active user at 30 days or 90 days or 12 months. And then I’m seeing another payment for the achievement of the desired outcome, which could be A1C below seven or improvement in high blood pressure.

2.2. How do payers establish prices for DTx products?

For some of the digital therapeutics, the pricing can be established by comparable therapies. If the digital therapeutic is the intervention, often there is a comparable pharmaceutical agent or medical procedure that it’s comparable to, and that’s where a lot of digital therapeutics companies are trying to be compared to.

I’m seeing some trying to price themselves comparable to telemedicine or comparable to in-person assessments. Some others, I’m seeing some at-risk models where they’re trying to be priced based on their impact on the budget impact model or where they can reduce medical spend. So depending on who you sell to, others, their pricing may be inelastic. So often if you’re getting a PMPM, you may get a lot less, but you’re getting paid for a much larger membership and audience. So instead of getting paid just for that particular prescription or that particular patient, you may get paid per member per month, or per patient per month, and that may be for a large audience of thousands or millions of members at a few cents a month, versus one particular patient for several hundred or a thousand dollars per year.

So that’s one way for the RPM pricing. That’s pretty defined by the health plan. So many of those health plans say we will pay somewhere between $135 and $211 per month for patient monitoring, and that varies by state. If you’re able to qualify for the RPM codes, then ultimately you would contract with the physician or physician group for a percentage or set fee based on the reimbursement they would receive. I’ll give you an example, if a physician is going to be reimbursed $130 per patient per month for a particular digital therapeutic, ultimately the DTX manufacturer would try to contract with them for somewhere from 33 to 50 to 60% of that amount, and then the physician would pay the DTX manufacturer.

A lot of it is based on comparables or based on the codes that you can meet the criteria for. For some manufacturers that have a sophisticated device with a digital therapeutic and maybe some other type of connected device to it, sometimes some of those codes are not rich enough to cover the cost of their actual device being deployed and utilized.

2.3. What strategies can DTx companies use to increase physician DTx product adoption?

There’s a few different modalities, but I would say as a digital therapeutics company that hopes to commercialize to the provider side of the business in the US, a few things that are critical.

2.3.1. Interoperability

One is going to be integration into the EHR to make sure that the providers don’t have to log into a different system to utilize your product, to make sure that when they prescribe it, they can use e-prescribing, to make sure that the usage and the prescription and the data lives within their EHR, whether it’s Epic or Cerner or Athena. It needs to be interoperable, or you’re going to have a lot of obstacles in a very, very challenging time getting physician adoption and engagement. That’s one of the key things there. So e-prescribing, they need to be able to just prescribe and deploy it from the system they use, and then EHR operability, because they need to be able to file claims and process billing and account for their time and usage in the system. So that’s key.

2.3.2. Third-party platforms

There are some third-party platforms now like a Xealth or Solera, AppScript, there are some that are acting as a platform that’s an aggregator of digital therapeutics for different areas to bring it all to a central location for physicians to be able to identify what’s available by disease state and deploy it and dispense it. So I think that’s a great approach. That’s something, as a digital therapeutics company, I would encourage them to figure out what platforms may be in the works and see if it’s worthwhile to join, seeing many of those come to fruition in a few different ways. Some that are very general with digital therapeutics from all categories, and I’m seeing some very specialized specific to diabetes or mental health. So that’s some of the key things there.

2.3.3. Education & Awareness

But part of the challenge is raising awareness among the physicians. This is a different challenge than any pharma company’s ever had to face, because with the exception of maybe some of the physicians that are right out of school or still in university, many practicing physicians for the past 30 years have not had to consider or even had the option to use digital therapeutics. It’s very challenging to raise awareness. For most digital therapeutics companies, we do not have large sales forces with thousands of reps that can go and educate doctors in their office like pharma companies have done in the past.

And one of the other challenges is with pharma, a lot of DTx companies have partnered with pharma companies unsuccessfully because often the pharma rep has never sold a technology solution. They’ve sold a molecule and basically they have to stick to a physician guide and say, “Here’s the dosage, here’s how it’s used, here’s what the side effects profile is, and it’s covered by insurance.”

A digital therapeutic is a little different than a traditional drug where every year it’s expected to get better, faster, cheaper. There are some other things to take into consideration, such as interoperability with an iPhone or an Android. Can they use it on a tablet? Can they use it on a desktop? If they don’t have a cellular connection, are they still transmitting data in real time? There’s a lot of other questions and challenges that present themselves that doctors are just not equipped to be the call point for a patient if their phone is not working right, or the app isn’t working right on the iOS update. The doctor’s not equipped to handle that, so that’s a challenge for the physician as well.

2.4. What commercial opportunities are there outside of the national healthcare space?

2.4.1. Self Insured Employers

There’s the ones that are going to self-insured employers and doing a very nice job with that as selling it as a benefit or a wellness benefit to their employees. A lot of companies started in that space. Livongo, Omada, they’ve done a really nice job, and you’ve seen them evolve. Some of them may have collaborated with telemedicine. Some of them have integrated devices and wearables. So they’ve found different ways to evolve without necessarily selling to payers, and ultimately they got there, but they started really heavily in the employer space. Other digital therapeutics companies have created DTX solely with the intentions of selling to pharma or collaborating with pharma. That’s been a lucrative model for a lot of people, because pharma has rich resources and deep pockets.

2.4.2. Big Pharma

For pharma, some of the attractiveness to a DTX is the fact that it could take seven years and hundreds of millions of dollars to develop a drug molecule in a certain disease state, but you can enter a new category without a molecule probably for $20 million in a few years with a digital therapeutic. So time to market is much faster. It allows a drug company to do a few things. You can enter a new market that you’re not even in with a digital therapeutic, just to get a presence in a particular category, or you can buy a generic or an orphan drug and put a digital therapeutic companion with it to really revitalize that particular delivery method or that particular drug and bring it to market as a new offering. So that’s exciting as well.

A lot of pharma companies are in, what we call a red ocean, which are very polluted spaces with a lot of competition, they’re using digital therapeutics as a way to be more competitive to drive adherence. If it’s an expensive drug, if you can use a digital therapeutic to get people to take one or two more dosages or refills over a particular drug, say for cancer, that may be thousands of dollars in prescriptions. So, if you can get someone to refill an expensive cancer medication based on the ability to drive adherence or compliance using a digital therapeutic, that’s quite lucrative. And also the ability to see and track side effects. Some are using the digital therapeutic to monitor side effects to see how well tolerated a particular agent is being tolerated by a user or by a patient and managing that dosage to keep them on the drug longer as well. So, pharma has a very opportunistic field where you can keep people on your drugs longer and get them to take it faster. There’s a lot of upside on the pharma side.

2.4.3. Direct to Consumer

Some companies have gone that way. Others have gone, with good success, a direct to consumer way. It’s something if you have a large addressable audience, direct to consumer has been good for many, but that’s cash pay. You’re not worried about reimbursement from the payer. You’re not worried about prescription from the physician. So that’s been good for many or at least a good entry point to get revenue. I’ve seen others go through partnerships with PBMs where they’ll work with the PBM to offer a digital therapeutic that’s in an OTC capacity where prescription is not required, where I’ve seen PBMs commit to certain volumes, if they know it’s an audience, they have a large number of members managing that particular condition. I’ve seen PBMs provide upfront payments and commit to X thousand units per year to keep a preferred pricing in place.

So there’s a lot of options, and then I’ve seen other partnerships with unique organizations, such as Weight Watchers; I’ve even seen tobacco companies partner with different types of non-tobacco offerings that are reimbursable by diabetes prevention programs. So I’ve seen DTX find some real unique partnerships and ways to commercialize.

2.5. What commercialization strategy would you recommend for a start up DTx company?

So you want to make sure you have a large addressable audience. I’ve seen too many get so niched within a specific category that the addressable audience or the census within any particular physician’s patient base is too small to be lucrative. Make sure you have a large addressable audience. There’s a lot of opportunity within women’s health, within oncology. There’s a lot of opportunity where the need is tremendous. Access to care is a challenge. Preventing bad outcomes is a challenge. And those are areas that are so costly to manage, and they affect so many people that your upside is tremendous, even if you can only penetrate a very small percentage of it.

I wouldn’t encourage anybody to be the greatest solution for a disease that only affects a few people. And I see a lot of that. So just make sure that you have something that has enough latitude where you can touch a large number of lives, so even if you fall in a situation where you’re forced to have a reimbursement at a low price point, it’s still rich enough to help you reach cashflow breakeven, and have a profitable business. And your cost to acquire a customer should ideally be low and a lifetime value be substantial. So the only way you can achieve that is with an offering that touches a large audience.