By the time the pandemic broke out, interest in digital therapeutics (DTx) had reached an all-time high. Investors, pharma giants and even health systems have poured billions into the products promising to change medicine.
A few of the pioneers in the space, including Pear Therapeutics, which has several addiction therapeutics, and Akili, which is focused on ADHD therapeutics, got wrapped up in the SPAC craze of 2021 and 2022 and went public.
While digital therapeutics may still have their day, some of the industry’s forerunners have had major stumbles. That makes it worth considering whether there is still a future for the DTx industry – a role for DTx to play in behavioral health care.
Digital therapeutics refers to evidence-based treatments delivered through software interventions to treat or manage a condition. Although DTx products address various health issues, they predominantly target behavioral health disorders, including substance use disorder (SUD), anxiety and attention-deficit/hyperactivity disorder (ADHD).
Historically, reimbursement challenges and a lack of awareness of the products by both the medical community and the public have plagued DTx. Because of those issues, we’re now seeing some cracks in the digital therapeutics foundation, I believe.
In 2023, Pear Therapeutics, which landed a de novo clearance for its substance use disorder product reSET in 2017, declared bankruptcy – just a few years after hitting the public market. The company was later sold for parts.
Then, last month, Virtual Therapeutics announced its plans to acquire Akili, which created a video-game-like digital therapeutic to treat ADHD, for roughly 4% of what it was worth at its peak.
Still, there are some glimmers of hope for the industry, including alternative reimbursement pathways, such as employer–DTx, and deals to help spread the uptick of the products.
For example, mental health DTx provider Big Health recently teamed up with outpatient mental health platform Grow Therapy with the intention of giving patients more access to the services – potentially showing a path forward.
As part of this week’s BHB+ Update, I discuss behavioral digital therapeutics’ challenges, missteps and future.
Reimbursement considerations
Despite investor interest, the DTx still lacks a solid reimbursement pathway. Payers have been reluctant to pay for digital therapeutics.
“I’ll tell you what we aren’t seeing take [hold], which is reimbursement by third-party payers and, in particular, insurance companies,” Jennifer Goldsack, CEO of the Digital Medicine Society (DiMe), told me last year during a Behavioral Health Business webinar.
Yet some payers have been leading the charge on reimbursement. For example, in 2022, Cigna (NYSE: CI) became the first commercial health plan to cover these products.
Early players in the DTx space have also made some headway with Medicaid. For example, Pear Therapeutics made deals with at least 11 state Medicaid programs, including Massachusetts, Oklahoma, Ohio and Kentucky.
But these partnerships could be a double-edged sword for new DTx players. Yes, Pear blazed the trail with Medicaid, but the company went out of business before the partnerships fully came to fruition.
“Part of the problem with Medicaid is that it was the primary channel that Pear was using [for reimbursement],” Chris Wasden, chief strategy officer at Twill, told me during a BHB webinar. “But because Pear went bankrupt, it left a bad taste in the mouth of these Medicaid programs that they can’t trust the digital therapeutic company to be around long enough to deliver.”
Reimbursement is one of the factors that led some providers to go the over-the-counter route instead of the prescription. Typically, prescription digital therapeutics have an FDA 510(k) clearance, whereas, over-the-counter products do not.
The other benefit of over-the-counter products is that patients don’t need a prescription. If more companies move in this direction, it could mean digital therapeutics are covered less and less like a pharmacy benefit.
This could open up other reimbursement pathways, such as employer coverage for the products. And as health care consumerization continues, it could also leave the door open for patients to pay for these services.
It seems even some companies with FDA clearance are looking to the over-the-counter model for the future. For example, on Thursday, Akili announced that it landed FDA authorization for EndeavorOTC, a video game ADHD therapy, as an over-the-counter treatment. The company previously landed an FDA clearance for its pediatric version of the game EndeavorRx, which does require a prescription.
I think if the DTx industry is going to come out on top, it will need to find some creative ways of making money. The payers have had years to consider coverage and the hype of DTx products has waned a bit, taking the pressure off these stakeholders to cover the services.
The move from prescription to over-the-counter
While many DTx companies were keen to land an FDA 510(k) clearance for their products, the long regulation process was somewhat of a mismatch with software that was constantly iterating a new version.
In 2017, the FDA created the Pre-Certification pilot to help curb this delay. The pilot’s goal was to allow certain companies, including Pear Therapeutics, that the FDA designated as responsible and safe to build products without each device needing to undergo the FDA clearance process.
It was a great idea in theory, but the pilot ended in 2022 with the agency concluding that while a new regulatory framework, like the Pre-Cert program, would be helpful for the future, more oversight is needed.
I don’t think that the slow regulatory pathway was what really turned DTx companies away from the prescription route.
The prescription route posed a more complex challenge: the need for doctors to be aware of the existence of these products. This seemingly straightforward task of educating doctors about DTx products proved to be a significant hurdle for the industry. I’d bet you if you ask 100 psychiatrists today how many of them have prescribed a digital therapeutic, it would be under 25% — maybe even under 10%.
It’s important to note that companies going the over-the-counter route still have a lot of work ahead of them to educate patients and other stakeholders – possibly employers – about their products.
Digital therapeutics dead?
I don’t think DTx is dead yet, however. There are still some bright spots for the DTx industry. But as Akili and Pear have learned the hard way, sometimes being the first doesn’t pay off.
It’s possible that some of these early companies did a lot of the groundwork in spreading awareness and working with stakeholders.
While I think DTx services will be here for a long time, I’m not convinced we’ll see startups get buckets of investment and go public before a true business case has been proven.
I think we’ll see more in-house innovation from pharmaceutical companies that have been curious to integrate DTx products into their portfolios for nearly a decade. Pharma companies owning the digital therapeutic IP could solve a few issues. First, pharmaceutical companies know how to spread the word about their products. Has anyone heard of this lesser-known medication called Ozempic?
One new initiative I’m excited about is pharma giant Otsuka’s new company called Otsuka Precision Health, which is focused on digital health. Medtech Dive recently reported that the subsidiary is planning to roll out a prescription digital therapeutic for major depressive disorder this summer.
Even so, I doubt that pharmaceutical companies will roll out new digital therapeutics in the same way they do drugs. I could see these therapeutics being used as companions to medications. This would make sense, especially in the behavioral health space, where adherence to medications is relatively low.
So at the end of the day, traditional DTx companies may need to rethink their reimbursement pathway. As for investors, they may want to make sure companies have a solid plan for getting paid before pouring money in.
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