Incentives & Challenges to Success for DTx Manufacturers

Bernhard Kappe

Published on: January 13th, 2022

This blog contains Chapter 7 & 8 of the Orthogonal eBook titled: Digital Therapeutics (DTx): Accelerating Success Using Fast Feedback Loops. The following are links to each chapter of this eBook:

Chapter 1 & 2: Introduction to Digital Therapeutics (DTx)

Chapter 3: Two Main Subcategories of Digital Therapeutics (DTx)

Chapter 4: Comparing and Contrasting Digital Therapeutics (DTx) to Traditional Pharmaceuticals

Chapter 5: Best Practices for Leveraging Data in Digital Therapeutics (DTx)

Chapter 6: Regulatory Approaches of Digital Therapeutics (DTx) Manufacturers

Chapter 7 & 8: Challenges to Success for Digital Therapeutics (DTx) Manufacturers

Table of Contents show

Companies seeking to compete in the DTx market that model conventional FDA approval processes for drugs are already working in a way that the existing channels and their regulators understand. Although this method is more costly upfront, there are actually several longer-term benefits to this approach from a business model and valuation perspective:

Working within the existing valuation framework has economic benefits for DTx companies.

Companies that develop a Tx agent, pharmaceutical firms, or any other parties that ultimately buy or distribute this drug, such as pharmacies, already know how to value these drugs. The Tx product valuation is based on the evidence curve; i.e., investigation of tolerability, safety, and efficacy as demonstrated by preclinical (animal model) studies; as well as the potential cash flow obtained from selling the product.

Regulatory adherence boosts a therapy’s attractiveness to investors.

Those who fund such therapies (i.e., venture capitalists) also know how to value these assets. A drug at a later stage of testing can become very lucrative, particularly once investors understand that it has passed several regulatory hurdles and that it fits into their investment portfolio. A drug progressing through its later stages, having passed all regulatory hurdles, could be acquired for billions of dollars.

Digitization enables automation, which leads to better—and faster—optimization.

Companies that successfully digitize a therapy can take advantage of automated systems. DTx, like other SaMD, can collect data quickly to drive fast feedback loops to rapidly enhance a product. Automated systems drive faster innovation of therapies and improve health outcomes.

Data collection + good outcomes = evidence of efficacy.

Because so much data is collected with IoT-enabled DTx, data analysis can occur much more cost-effectively than in the pharmaceutical world. The data collected with DTx can provide evidence of better outcomes in a more straightforward manner than that for traditional pharmaceuticals. And, as highlighted earlier, because DTx are drug-agnostic, there is an incentive for the broader market to adopt DTx as a companion treatment. Companies that combine traditional drugs and DTx can benefit from improved and automated data collection, giving them a competitive advantage.

Challenges to DTx Success

As illustrated in this paper, DTx has many novel and exciting elements. However, many challenges remain, particularly around adoption, regulation, validation, and distribution of these new products.

Adoption of DTx

Providers are, by nature and training, skeptical of new claims of effectiveness. Clinicians rely on evidence-based, scientific research to draw conclusions. When they apply the same evidence-based mindset to various domains of digital medicine, the evidence base is still relatively weak and there are grounds for skepticism at this early stage.^[1] There have been numerous high-profile failures of consumer tech companies, and even the most successful digital health companies are not overwhelmingly successful^[2] when compared with disruptive software applications in other areas of society. Provider-driven decisions control 80% of healthcare costs.^[3] And herein lies the challenge to DTx adoption, since providers are very used to prescribing and overseeing care that includes traditional pharmaceutical therapeutics, whereas treating patients with software-based therapeutics requires new learnings the human tendency to avoid new risks and time allocations in any already risky and busy role as provider. Getting provider buy-in is imperative to getting DTx into the hands of patients. It is our perspective that there are four principal areas where health-tech companies should focus to meet regulatory requirements and positively drive provider adoption: distribution, integrity, privacy, and adherence.^[4]

Bahvnani and Shah^[5] lay out practical steps to share DTx advances and advantages with physicians. One of the most important points that can be made to busy clinicians is demonstrating how the DTx solution will reduce their workload. Many providers equate IT with more work due to their frustrations with the clinical workflow frictions created by their EHRs. DTx companies will have to prove that their products will not add a burden to providers’ already packed schedules and that they will improve clinician and patient experience.

Integration with current clinician workflows is a key factor for adoption. Providers are skeptical of IT because, as noted by Schulte and Fry,^[6] their current IT systems have failed to meet their initial promises. Clinicians are overworked and spend more time on their computers than they want. Very rarely will clinicians be interested in an application that requires a separate website or login, so integration directly into the clinician workflow will significantly help facilitate adoption and subsequent utilization.

Finally, it’s critical for DTx makers to understand the complex playing field for providers. Health systems are known for their bureaucratic red tape, and as Jain describes “death-by-pilot”^[7] incrementalism can make moving the needle forward on even the simplest of projects challenging (e.g., getting a notebook and pen in each patient’s room). Gaining buy-in from multiple stakeholders and health system committees is a recommended part of the process.

Providers and health systems will fall on a spectrum of early adopters to late adopters for DTx. Being able to articulate the novel way that DTx fills the value gap at the specific provider level (specialists vs primary care providers vs nurse practitioners) will help move DTx from the margins to the mainstream.

Regulation of DTx

As discussed in Section 5, regulation is one of the key challenges for DTx. How does a company manage real-world innovation, taking performance data from DTx, and use it in the most effective way? How can this new 21^st century therapeutic paradigm guarantees patient safety and product efficacy?

Emerging models are demonstrating how to navigate this complex new arena. DTx fit within the SaMD Working Model and Excellence Principles found in the FDA’s Digital Health Software Precertification Program,^[8]^[9] which are designed to enable fast innovation (i.e., fast feedback loops) while keeping patient safety at the forefront. The same techniques used for SaMD are helpful in navigating DTx. The FDA’s current working model^[10] in the software precertification program presents a new approach that could speed up the DTx pipeline, and more generally, the SaMD development process.

Key components of this pre-certification model include verification of the software product’s continued safety, effectiveness, and performance; product claims that are well-defined and can be proven; and a streamlined product review process to allow companies the freedom to innovate while ensuring that safety and effectiveness claims are evidence-based.

Clinical Validation

Clinical validation is one of the most important aspects of this new regulatory framework, as it is in the existing pharmaceutical framework. There are different ways of validating a Tx, but all of them hinge on demonstrating the safety and efficacy of the product while ensuring that the data being collected and analyzed are compliant with IRB requirements and other ethical standards in medicine.

RWD are collected and analyzed, clinical studies are completed, and randomized controlled trials are conducted, and these data are then published in peer-reviewed journals. As discussed in the Section 6 above, there are several paths for regulatory compliance. There are pros and cons for each path, and each product company will have to weigh the risks and benefits to determine the right path for the product. The workflow diagram (Fig. 4) in Section 6 helps hone in on the initial questions product companies should be considering when bringing their product to market.

Product Distribution

Product distribution is another persistent challenge in the production of DTx. Two main functions of distribution should be considered: enabling providers to prescribe the device (includes formularies and payor coverage and reimbursement) and enabling delivery of the therapeutic to the patient. Once a drug becomes commercialized, electronic medical records (EMRs) are updated with formulary data so that it can be prescribed by clinicians. Pharmacies also receive new drug information so that costs, copay, and integration with insurance occurs. This process costs money, and according to the University of Southern California,^[11] the different stakeholders—wholesalers, insurance, pharmacy benefit managers, and pharmacies—take approximately 41% of the total revenue from the drug as the drug passes through the supply chain. Based on conversations with device industry experts, for traditional medical devices, manufacturers sell the product to distributors for about a 50–60% margin on cost of production, and distributors then resell the devices to consumers for ~30–40% margin.

A company can use an existing (or adapted) non-digital distribution channel for a DTx, but not all DTx require the same distribution process. DTx distribution can reduce overhead costs built into in the traditional distribution system. There is currently a value gap in the market and an opportunity for enhanced DTx distribution; DTx product companies can retain a great percentage of the total revenue of DTx.

First-mover DTx product companies may have an advantage. If early DTx companies can establish a platform that is validated, secure, integrated with key industry players, and can seamlessly deliver technology to patients, there is an opportunity to become the distribution platform for future DTx products. Future DTx companies may then be incentivized to distribute via an established platform to accelerate time-to-market, as opposed to attempting to build their own distribution platforms.

It’s important to note that the “platform play” doesn’t have to stop at distribution. There is a possible future scenario in which a DTx platform provides a validated backend infrastructure along with frontend components that can help accelerate development and provide a DTx distribution channel. The tech industry has seen success with the “platform play” with companies like Salesforce and AWS. The regulatory requirements and cross-industry integrations required to make a DTx platform successful in the healthcare environment are complex, but once they are solved, first movers as well as future DTx companies could benefit from a democratization of ability to create and deploy DTx.

After the delivery function is defined and distributed, companies offering DTx must still determine how to enable their Tx to be prescribed as well as reimbursed. The industry is slowly evolving to include DTx on their formularies. Express Scripts announced in December 2019 the creation of a digital health formulary.^[12] Their formulary, which was initiated in January 2020, initially included 15 approved digital health companies, including Propeller Health and Welldoc. To be included on the formulary, the DTx had to be reviewed by a team of physicians and pharmacists who evaluated Tx value, effectiveness, and safety. A month after the Express Scripts announcement, CVS Health followed suit, announcing its Vendor Benefit Management program.^[13]

DTx manufacturers can pursue more traditional distribution channels, or they can bypass them altogether, as Akili has done.^[14] Akili is choosing a “pharma-free” pathway by developing their own distribution and commercialization platform. Anyone can download EndeavorRx from their smartphone app store. Patients are then directed to an online web enrollment form and survey to determine eligibility. This approach is more costly in the short run but allows the company to have control over the end-to-end patient experience, which can reap benefits in the long term.

Currently, there is no one settled method for DTx distribution. This new white space provides an opportunity for DTx companies to be creative and help push the industry into forming novel DTx distribution channels that take advantage of unique properties of DTx when compared to other therapies.

Conclusion

As a close relative of SaMD, DTx will help drive faster data collection and innovation in a more cost-effective manner than traditional drug therapies. SaMD best practices also apply to DTx, with the added ingredients of engagement adherence, persuasion, and enhanced user experience. Companies that prioritize fast feedback loops and rapid iteration for their DTx products are more likely to gain market traction in this quickly growing market.

Companies that continue to monitor patient engagement through product analytics using RWD will be at an even greater advantage. The best approach to developing digital therapies is to treat them like drugs that can be continually improved “in the wild.”

DTx are growing in popularity because people are starting to understand the business models and commercialization opportunities for this new class of therapies, as well as successful value capture paths. Although DTx as a new class of Tx is still in its early stages, the broad adoption of a range of technologies including IoT, AI/ML, smartphones, and cloud computing across numerous industries is driving more of these underlying faster, cheaper, optimized technologies and approaches and will enable companies to develop more powerful DTx and treatment options for patients.

Success for DTx is not guaranteed, for any given DTx, for any given company creating a DTx, or even for DTx as a new class of therapeutics. It is possible that DTx will not reach its full potential (or fail to do so in the coming years), as we have seen happen with many other medical technologies in the past which were proven to be over-promised and under-delivered.^[15]^[16]

However, by applying the power of fast feedback loops, our collective odds of success are increased by gaining a deeper understanding of the consumer/patient, enabling DTx products to deliver features that close current value gaps in patient care.

We at Orthogonal believe in the potential of DTx to improve healthcare outcomes and to help bend the healthcare cost curve. The potential is too great to ignore. The potential is also too great for MedTech to collectively flop or fizzle because we all made “old and proven mistakes” instead of “new and interesting mistakes.”

This is how we return to our fundamental thesis that the range of interlocking challenges presented by DTx (including but not limited to regulatory and reimbursement pathways, distributions channels, clinical trials to demonstrate clinical and comparative effectiveness, patient engagement, clinical adoption, and continuous improvement) all lend themselves to the tested and proven suite of techniques that have grouped under the term Fast Feedback Loops. By leveraging concepts such as Agile software development, Lean Startup, Lean User Experience, DevOps and design thinking, DTx developers can accelerate their learning process and remain nimble as they find a pathway from a concept for a better therapeutic delivered through a digital means to a successful medical product in the marketplace that achieves continued commercial success by demonstrating its value to all of its stakeholders: patients and their caregivers, providers, payors and regulators.

This blog contains Chapter 7 & 8 of the Orthogonal eBook titled: Digital Therapeutics (DTx): Accelerating Success Using Fast Feedback Loops. The following are links to each chapter of this eBook:

Chapter 1 & 2: Introduction to Digital Therapeutics (DTx)

Chapter 3: Two Main Subcategories of Digital Therapeutics (DTx)

Chapter 4: Comparing and Contrasting Digital Therapeutics (DTx) to Traditional Pharmaceuticals

Chapter 5: Best Practices for Leveraging Data in Digital Therapeutics (DTx)

Chapter 6: Regulatory Approaches of Digital Therapeutics (DTx) Manufacturers

Chapter 7 & 8: Challenges to Success for Digital Therapeutics (DTx) Manufacturers

References for Chapter 7 & 8

1. Kvedar J. Evidence for the effectiveness of digital health. https://www.nature.com/articles/s41746-020-0231-9. Published 2020. [Accessed December 6, 2021].

2. Khosla N. On the Digital Health Conundrum (Part I). Medium. https://medium.com/@nealkhosla/on-the-digital-health-conundrum-part-i-7019d6961aae. Published 2019. [Accessed August 24, 2021].

3. Crosson F. Change the Microenvironment: Delivery System Reform Essential to Controlling Costs | Commonwealth Fund. Commonwealthfund.org. https://www.commonwealthfund.org/publications/other-publication/2009/apr/change-microenvironment-delivery-system-reform-essential. Published 2009. [Accessed August 24, 2021].

4. Pittman A, Kappe B, Horton R. Patient Engagement and Connected Medical Devices: Building the Next Generation of Wearable Devices to Enhance Remote Patient Care https://www.medtechintelligence.com/feature_article/patient-engagement-and-connected-medical-devices-series-building-the-next-generation-of-wearable-devices-to-enhance-remote-patient-care/. Published 2021. [Accessed August 19, 2021].

5. Physicians will decide the fate of the digital therapeutics industry. MobiHealthNews. https://www.mobihealthnews.com/news/physicians-will-decide-fate-digital-therapeutics-industry. Published 2020. [Accessed August 19, 2021].

6. Fred Schulte F. Death By 1,000 Clicks: Where Electronic Health Records Went Wrong. Kaiser Health News. https://khn.org/news/death-by-a-thousand-clicks/. Published 2019. [Accessed August 19, 2021].

7. Jain S. Healthcare Holdups, Death-By-Pilot, And The Scourge Of Incrementalism. Forbes. https://www.forbes.com/sites/sachinjain/2021/03/16/healthcare-holdups-death-by-pilot-and-the-scourge-of-incrementalism/?sh=73afb0063df0. Published 2021. [Accessed August 19, 2021].

8. Digital Health Software Precertification (Pre-Cert) Program. U.S. Food and Drug Administration. https://www.fda.gov/medical-devices/digital-health-center-excellence/digital-health-software-precertification-pre-cert-program. Published 2021. [Accessed August 19, 2021].

9. Digital Health Software Precertification (Pre-Cert) Program. U.S. Food and Drug Administration. https://www.fda.gov/medical-devices/digital-health-center-excellence/digital-health-software-precertification-pre-cert-program. Published 2020. [Accessed September 22, 2021].

10. Fda.gov. https://www.fda.gov/media/119722/download. Published 2019. [Accessed August 19, 2021].

11. Neeraj Sood P, Shih T, Karen Van Nuys P, Dana Goldman P. Flow of Money Through the Pharmaceutical Distribution System. USC Schaeffer. https://healthpolicy.usc.edu/research/flow-of-money-through-the-pharmaceutical-distribution-system/. Published 2017. [Accessed August 24, 2021].

12. Express Scripts Improves Patient Access to Digital Health Solutions | Express Scripts. Express-scripts.com. https://www.express-scripts.com/corporate/articles/express-scripts-improves-patient-access-digital-health-solutions. Published 2019. [Accessed August 19, 2021].

13. CVS Health kicks off digital health-friendly service for PBM clients with Big Health’s Sleepio. MobiHealthNews. https://www.mobihealthnews.com/content/north-america/cvs-health-kicks-digital-health-friendly-service-pbm-clients-big-health-s. Published 2019. [Accessed August 19, 2021].

14. Akili is building its own digital therapeutic distribution platform, foregoing pharma partnerships. MobiHealthNews. https://www.mobihealthnews.com/content/akili-building-its-own-digital-therapeutic-distribution-platform-foregoing-pharma. Published 2019. [Accessed August 19, 2021].

15. Taulli T. IBM Watson: Why Is Healthcare AI So Tough? Forbes. https://www.forbes.com/sites/tomtaulli/2021/02/27/ibm-watson-why-is-healthcare-ai-so-tough/?sh=7dec7e15375f. Published 2021. [Accessed September 21, 2021].

16. The Most Over-Hyped Technologies in Healthcare - The Medical Futurist. The Medical Futurist. https://medicalfuturist.com/the-12-most-overhyped-technologies-in-healthcare/. Published 2016. [Accessed September 21, 2021].