With all health systems being under high-cost pressure, digital medicine and digital therapeutics (‘DTx’) are well placed to help raise the quality of care while reducing costs.
Large pharma companies have seen a collapse in their R&D returns over the past decade, which has led to a lacklustre performance in the public markets. On the contrary, investors have shown much enthusiasm for digital health & wellbeing, where US$14.6bn was invested in 2018 (14x 2010). The market is projected to reach $379bn by 2024.
As digital health matures, investment focus is shifting from consumer wellness applications to DTx, which are clinically focussed solutions for disease management.
DTx products need to demonstrate efficacy through clinical trials and obtain regulatory clearance to be successful. As DTx provide direct personalised clinical interventions, clinical grade data quality, compliance with the highest standards of privacy and cybersecurity, and transparency in using AI (‘white box’) is a must.
Inclusion into standard care and payor reimbursement lists are essential for gaining broad adoption, as the majority of consumers are reluctant to pay for their care out of pocket. Outcome-linked pricing models help make DTx more attractive to payors.
Our research shows that DTx is best positioned for health conditions that can be addressed, by behavioural solutions; areas where demand is outgrowing treatment capacity (e.g. elderly care); conditions where connected devices can play a huge role in medical adherence (e.g. asthma and COPD), and personalised, or precision medicine.
DTx could help pharma companies improve their R&D returns by shifting from a pill to a total care package for both existing drugs and pipeline assets or even launching digital-only solutions. As they lack DTx implementation capabilities, the best strategy would be partnering with tech companies which have built cross-sector platforms to support R&D or buying niche tech players for key therapeutic areas and scaling them.
We believe that the best ways of capturing the value in DTx for Big Tech players are building or buying & scaling platforms to provide functional cross-therapeutic area solutions in the digital medicine space. Extending their wellness products into health by partnering with healthcare companies for expertise and market access; and building digital-led, behaviour change driven total care products in growing therapeutic areas such as autoimmune and mental health conditions.
For startup and scale up tech pure-plays and investors in this space the most significant opportunity is creating a highly focussed DTx solution for a therapeutic area, function or geography. For those with access to large volumes of capital, a roll-up of on-point technologies and becoming a systems integrator for a particular therapeutic area might be an excellent way to accelerate value creation.
For insurance companies, DTx presents an opportunity to cut the volume of claims by using digital diagnostics and disease management tools, improve customer retention by providing them with more convenient treatment options and attractive insurance deals, as well as unlock new customer segments that were previously uninsurable. The best way to realise this value is through partnerships and selective acquisitions.
For healthcare providers using DTx could help cut costs and improve the retention of customers by providing them with more convenient and cost-efficient treatment options. This value could be realised via partnerships with startups providing on-point solutions, or buying a startup and rolling out a solution globally and/or rolling up other companies/solutions into a new model care provider.
Given high multiples paid by private equity (‘PE’) firms for healthcare assets and more extended holding periods, building a reliable growth engine becomes crucial. PE firms are well positioned to create platform solutions for a particular therapeutic area or a function using an acquired asset as a core, and complementing it with bolt-on acquisitions. With their robust access to capital, PE firms could build disruptive models that can disintermediate traditional industry players, e.g. new model clinics.
Healthcare has been a slow-moving industry that works on evidence, precedence and practices that spread from flagship projects. However, once a few of these projects get results, we will see what happens very rarely in healthcare: a sudden and very, very rapid change and exponential growth. We believe that DTx is approaching its inflexion point, so the time to act would be now.
Our paper “What is Digital Medicine and Why Does It Matter” covers this in great detail.
By Carl Engelmarc & Irina Pafomova
©Engelworks Ltd, 2019