The digital therapeutics market has had its share of ups and downs. While there’s excitement around the potential to bolster patient outcomes, few products have been fully embraced by patients, providers, or insurers. A big stumbling block is the absence of reliable clinical evidence.
But the industry may be at a turning point. The Food and Drug Administration in October announced the creation of a digital health advisory committee charged with offering input on new health technology, including digital therapeutics. Something that may have a more immediate impact is an FDA draft regulatory guidance for prescription drug use-related software. The guidance provides a pathway for digital therapeutics to be included on drug labels. That, according to David Klein, Co-founder and CEO of Click Therapeutics, could be a game changer. Click Therapeutics develops digital prescription therapeutic products.
As more clinical evidence emerges, the next generation of digital therapeutics companies are positioned to have a significant impact on the industry, Klein said. He spoke with Oliver Wyman Partner Fritz Heese about the current state of digital therapeutics and where the segment is headed. The following is an edited transcript.
Heese: The market hasn't reached its full potential yet. What’s your sense of where the market is now?
Klein: At best we are in the bottom of the first inning, or maybe even still in the top of the first inning, to be candid. We've seen some products that have been commercialized despite failing to show efficacy in clinical trials. I think there was a sense in the market from companies that they could get narrow clearance from the Food and Drug Administration and quickly commercialize a product.
However the market responded in the right way by requiring evidence of efficacy before something gets covered for reimbursement. That’s been the model for new medicines and digital therapeutics shouldn't receive special treatment.
A newer generation of prescription digital therapeutics is being designed specifically for the mobile phone. They incorporate machine learning and artificial intelligence to continuously drive better engagement and outcomes, which are being studied in very robust, pharmaceutical-like, randomized controlled trials.
This second generation of products will include strong evidence packages with proven clinical outcomes and, this is key, their related health economic outcomes that will drive shareholder value and obtain broad provider buy-in. Providers are ready to prescribe these programs but there must be seamless integration.
Pharmaceutical companies will become integrally involved as strategic partners with digital therapeutics developers. They are in the best position to get new medicines into the commercial work stream.
Heese: What kind of clinical evidence are providers and regulators looking for and what would get them excited about digital therapeutics?
Klein: Providers are looking for solid proof that there are meaningful clinical outcomes. They also want to see seamless integration into their existing systems. Startups in this space have missed the boat on that front. They seem to expect a provider to log into a new portal, figure out the interface, get the data, and import it into their electronic record system. It’s important to drive more seamless integration from the beginning and to understand that prescribing must fit into a doctor’s existing workflow.
Heese: You mentioned the role that pharmaceutical companies can play in commercializing digital therapeutics. Why do you think they are the right stakeholder for that role?
Klein: The FDA in September issued a draft guidance on regulatory considerations for prescription drug-use-related software. It lays out a clear pathway for software as a medical device. The guidance says that software can be included on a drug label if, during one or more well-controlled studies, it demonstrates additional clinical benefits for the patient taking the drug.
It’s monumental for this space and could change the conversation for pharma from “What's your digital therapeutic strategy?” to “What's your strategy to use digital therapeutics to improve the drug labels of your bestselling drugs? And what are you going to do if your competitors get to it first?”
It's never been more critical for pharma to embrace this space in a significant way.
Heese: How do you see that translating to the patient? What could the benefit be for them of this closer alignment between drugs and digital therapeutics?
Klein: Patients would have much more control of their treatment and their data. We’d also see safer and more effective treatments through the combination of drugs plus software. And safer, more effective treatments have always been the Holy Grail for patients, providers, and payers.
Heese: Investors are another important stakeholder group. There’s been a lot of excitement around digital therapeutics but, as we’ve discussed, there have been challenges getting more momentum in the market. What's your view on how investors should be looking at the category and what their strategy should be going forward?
Klein: Investors should look at this space in the same way they looked at biologics and the biotech revolution of the 1980s, as well as how they looked at early social media companies.
Both of those industries required some time to get their footing and scale commercially, until now they are ubiquitous. The early generation of digital therapeutics players that have struggled are a little like the Myspaces of the world. Every company in a new industry won’t be ultra-successful or an industry-maker. But we will soon start to see the Facebook, Instagram, and TikToks of the segment develop. With the draft guidance from the FDA, now is the time to get into the space.
The pieces are starting to come together. There are products, including some that are complementary to a drug or are standalone, showing real clinical evidence. Those will start to get integrated into the system and will be part of the standard of care.
Heese: There are several digital therapeutics innovators, some more advanced than others. Do you think we’ll see consolidation and a small number of strong players emerging, maybe even acquisition by pharmaceutical companies?
Klein: The optics, along with some of the real struggles that early entrants had, made it a tough funding environment for a lot of the smaller companies that are reliant on raising capital. I would expect to see a significant amount of consolidation, including roll-ups.