Digital Therapeutics: Dawn Of A New Treatment Class

In this follow up to our 2016 report “Digital Medicine: Beyond The Molecule”, we explore what we view as the next step: Commercialization. With a growing body of evidence demonstrating safety and efficacy, we believe digital therapeutics are beginning to mature into a viable new class of therapeutics that could present attractive opportunities in the near future for investors.

Digital Therapeutics Establishing Foundation Of Efficacy And Safety
We think the space of digital therapeutics has continued to evolve in recent years, driven by a growing pool of evidence supporting the efficacy and safety of digital therapeutics. Recent FDA approvals of Pear Therapeutics’ reSET and Otsuka Pharmaceuticals’ Abilify MyCite using Proteus Digital Health’s ingestible sensor is a clear indication that digital therapeutics is no longer a concept, but actual product supported by evidence. Positive data from other leading players like Akili Interactive and Chrono Therapeutics point to additional products coming to market following submission to and (hopeful) approval by the FDA, further establishing the field of digital therapeutics.

Digital Therapeutics Represents Potential Paradigm Shift In Treatment
We believe digital therapeutics represent a potential paradigm shift in the way disease is treated, as the software itself, in many cases, starts to become the therapeutic agent. Beforehand, software was generally used by individuals to track and manage lives. Now, clinical evidence is beginning to demonstrate software can effect change as a therapeutic agent. Additionally, data generated by therapeutics can be a valuable asset used in a broader array of uses. Some of these uses include the ability to develop faster given the iterative nature of software development, and to capture more accurate real-world data on utilization and response. As digital therapeutics come to market, we think there will be an increasing focus on the value of the data generated, which can help facilitate a greater focus on outcomes based payment models and treatment recommendations.

Novelty Of The Class Presents Some Challenges
The first entrants in the digital therapeutics space face the challenge of educating stakeholders including payers, providers, and patients. We think the companies that are first to commercialize digital therapies will need to carefully consider product pricing and payer willingness to reimburse given the novelty of the space, and have a willingness to explore value-based contracting. In addition, we believe provider education and acceptance will be a key factor in the success of digital therapeutics, with data platforms that support digital therapies being thoughtfully designed to integrate into existing provider workflows.

We Are Optimistic On The Outlook
Given discussions with digital therapeutic companies, along with some of their biopharma strategic partners, we are optimistic on the outlook and believe investors should be actively watching to see early traction of the first-to-market digital therapeutics expected later this year. A positive regulatory environment along with what appears to be early positive response from key constituents (payers, providers and patients), sets the stage for success. We think that successful companies that gain traction in the market could eventually enter the public markets or become attractive acquisition targets.

For more information, contact your Cowen sales representative.