Can digital therapeutics be profitable?
Software-based treatments face hurdles in getting insurance reimbursement as well as winning over patients and physicians.
In 2020, the Food and Drug Administration cleared Akili Interactive's video game to improve attention in kids with ADHD. It was the first time a video game for treatment was cleared by the agency, and is one example of a digital therapeutic, a class of software-based therapeutics with FDA indications.
Now, as the market develops further, these companies have built up big ambitions.
Corey McCann, the CEO of Pear Therapeutics, which has three FDA-cleared digital treatments, hopes to make them the standard of care and to win widespread insurance coverage. After going public last year, Pear aims to increase its revenue 30-fold by 2023, based on expectations that more insurers will cover its products, and more physicians will write prescriptions.
However, it remains to be seen whether they will be able to achieve these goals, or sustain the costs that come with developing a new class of treatments.
While getting FDA clearance was a first step, experts identified several hurdles ahead, including winning physician uptake, building pathways to reimbursement and, importantly, developing software that patients will want to use.
"There's still a lot of foundational work that needs to be done," said Maya Desai, director of life sciences for Guidehouse. "There's a lot of behavioral change that needs to happen across the stakeholders and their mindsets to think about digital therapeutics as a category of its own."
Price is another area where prescription products differ from their over-the-counter counterparts. For instance, the average price for Akili's game-based treatment, EndeavorRx, is $247 in cash, and $387 when reimbursed, according to an investor presentation. At launch, Pear's app for insomnia was priced at $899, though it advertised a discount for new patients.
"We're asking physicians to prescribe it. We're asking patients to use a therapeutic versus just taking a pill," Desai said. "Adhering to [digital therapeutics] long term, and even seeing the benefits, especially when we have a crowded market of wellness apps out there which tackle a lot of the therapeutic areas that companies are looking at, that requires a shift in mindset."
Andy Molnar, CEO of the Digital Therapeutics Alliance, said that the rigor that initially went into proving digital therapeutics were safe and effective was not appreciated.
When Molnar started in the field, people assumed digital therapeutics might be a companion product that comes for free with a medicine. Now, the CEO said people are considering the economic value of these products, as they would with durable medical equipment or pharmaceuticals.
Is the business sustainable?
So far, just two digital therapeutics companies have publicly disclosed their financials: Pear, which began trading on the Nasdaq in December after merging with a special purpose acquisition company, and Akili, which has also filed for a SPAC merger. Their revenues, which are a fraction of their accumulated deficits, pose a question: Will they be able to carve out this new market quickly enough to sustain their businesses?
Both companies have seen revenue decline in the last three years, as they've brought in less from licensing deals. For instance, Akili earned nearly $20 million in revenue in 2019, while in 2020 it brought in nearly $4 million, most of which was from an ongoing licensing agreement with Shionogi & Co. to commercialize its products in Taiwan and Japan. Pear brought in $32 million in revenue in 2019, most of which came from an agreement with Novartis' Sandoz, which dissolved that year amid a leadership shuffle in the drugmaker's generics business. Last year, the company brought in $4.2 million.
Pear projects its revenue will increase to $22 million in 2022, and $125 million in 2023, per an investor presentation. At the same time, the company is forecasting a corresponding increase in the number of people with insurance coverage for the service, prescriptions written and fulfillment rates.
Differentiating from wellness apps
One early challenge has been distinguishing digital therapeutics from other software products.
In a market saturated with hundreds of thousands of health and wellness apps, many of which are clamoring for benefits executives' attention, companies with clinical evidence are looking to set themselves apart. Some, such as Pear, have started referring to their products as "prescription digital therapeutics," or PDTs.
There's also substantial overlap, as many digital therapeutics are focused on behavioral health, which has also been a top area of investment among digital health companies. A few companies are considering other platforms, such as Voluntis, which got FDA clearance in 2019 for its software to help cancer patients manage their symptoms, and AppliedVR, which won FDA clearance last year for virtual reality-based cognitive behavioral therapy to treat chronic lower back pain.
"It looks like an aggressive goal, a big step up from where they were," said Marie Thibault, managing director of medical technology and digital health equity research for BTIG. "It's a bit hard to know how this sort of increase is going to unfold."
However, Thibault noted the company did meet its expected $4 million in revenue for last year, and reaffirmed its guidance for 2022.
"When reimbursement kicks in, and when you have more prescribers prescribing more regularly, refilling prescriptions, as all of this comes together, we do expect Pear's revenue to step up meaningfully throughout the year," Thibault said.
BTIG and Pear have had an investment banking services client relationship in the past year, and BTIG has received compensation for providing investment banking services. The firm also expects to receive or seek compensation from Pear in the next three months.Most of Pear's revenue in 2021 came from sales of its products — a departure from previous years. Pear's McCann told MedTech Dive that is also the main driver behind Pear's figures for 2021 to 2023.
"It's not to say that we won't do licensing deals, there's still deals that the company may contemplate there. But I think the big driver is really in the core business model," the CEO said.
Licensing deals with pharmaceutical companies were an early strategy for digital health companies, but not all of them have lasted.
Proteus, a company that had teamed up with Otsuka Pharmaceutical to develop and sell a schizophrenia medication with an embedded sensor, filed for bankruptcy last year, with Otsuka acquiring the remainder of the company.
"On the commercialization front, it did feel like the pharma path was the first version of what a lot of folks were chasing," said Christina Farr, a principal at Omers Ventures. "That was really difficult for all sorts of reasons, one of the bigger ones being, pharma companies at the end of the day … they know how to sell drugs. They don't know how to sell a piece of software or a device that connects to a piece of software."
Guidehouse's Desai added that while, digital therapeutic companies should not be dismissive about the idea of partnering with pharmaceutical companies, their goals should also be aligned.
"A lot of these companies are working with pharma companies for partnership, and exactly how that partnership is going to benefit each individual party is not very clear," Desai said.
Akili is still running a pilot of its main product, EndeavorRx, although it is planning a commercial launch in the second half of 2022. It hasn't shared any revenue expectations yet.
"There's no playbook for the commercialization of a product like EndeavorRx," Ashleigh Chung, Akili's head of commercial strategy and operations, wrote in an email. "We are looking at several key metrics that may be leading indicators, from the number of prescribers to patient engagement."
The process of developing and marketing these products comes with a cost. Both Akili and Pear have been operating at a net loss, with Akili reporting a $42 million net loss for the first three months of 2021, and Pear reporting a $65 million net loss for the entire year. Both companies have also accumulated deficits of over $200 million.
"There are a few barriers impacting the wider adoption of digital therapeutics. These potential challenges range from [healthcare provider] awareness of digital therapeutics to reimbursement, each a potential barrier for patients trying to secure treatment," Chung wrote. "While a number of digital therapeutics have gone through the regulatory process and are prescribed like a drug, they are not reimbursed."
Chung added that Akili is in discussions with payers about reimbursement, and it also working with other industry leaders to lobby legislators to put in the mechanisms needed for Medicare and Medicaid coverage.
More information in a original Published on April 11, 2022
Published per Elise Reuter