Why I would double down on DTx if I were in pharma

Recently, I was having a discussion with the country head of a #pharmaceutical company. She asked me if they wouldn’t be cannibalizing their pill business if they were to develop and market #digitaltherapeutics (#dtx) products. Some people may think that this question shows some old-fashioned, misanthropic dog-eat-dog attitude. I don’t. I think it’s a legitimate concern and suggests a focus on protecting their business and the investment of their shareholders – which, frankly, is often the money of pension plans and health insurance groups. Here are the thoughts I shared when I was asked the question, and I thought I would share it with you as well.

Firstly, DTxs are usually low-risk products. The aim of a well-designed #dtx is to induce lifestyle changes in patients. DTxs can and are being used to target the treatment of mental health and chronic conditions, such as obesity, type 2 diabetes, musculoskeletal issues, depression, anxiety disorders and the like. Approximately 90% of the United States’ 4.1 trillion healthcare expenditures are being spent on treating these types of conditions.[1] In the EU, it is estimated that between 70 and 80 percent of healthcare costs goes towards chronic illnesses.

So how can #digitaltherapeutics play a role in addressing chronic illness, growing healthcare spending costs and the socio-economic burden of chronic diseases. Let’s be upfront with what DTxs can and can’t do. DTxs are usually less effective than drugs when it comes to treating the symptoms of conditions. However, for patients and indications in which DTxs are effective, they can lead to lasting improvements by targeting the root cause(s) of a disease. A #dtx can educate patients and can reduce comorbidities. They don’t cause new problems through side effects. So, if a #dtx works in a patient, it’s clearly the preferred choice. Hence, it makes them a premier first line therapy to treat a chronic condition.

The costs related to bringing a #dtx to market are also substantially less than the (USD) 2 billion it takes to bring a drug to market. Since DTxs are low-risk products, they require less studies. No animal models, no dose-finding study. The result is that studies can move to stage 2 and stage 3 much faster.

Our experience developing #digitaltherapeutics at Perfood shows that it that it takes around 2-3 years to bring a #dtx to the commercial stage. This time frame includes development and full clinical validation. Comparing this timeframe with that of drug development it is apparent that DTxs have a pricing advantage.

Also, DTxs are usually not protected by patents. But there is a lot of know-how in developing them. For example, to develop an effective #dtx, you must tailor the user-experience, user interface, functionality and content to a specific patient group. You must personalize the user journey with data and smart algorithms. In addition, you may have to use #digitalbiomarkers from #wearables and CGMs as core components. All of these ingredients take knowledge, deep technology and inspiring design. Replicating all of this expertise is no simple feat.

Moreover, what will define the successful #dtx company is the strategic capacity to develop a playbook around unifying these cutting edge practices across indications  - similar to how pharma and biotech companies have proprietary assays. In essence, absence of a patent does not mean the absence of intellectual property.

After engaging with these perspectives, my conversation partner said she understood what DTxs could accomplish, but still believed the adoption of DTxs posed some risks to the revenue model of drug therapies. My response was, ‘well, kind of and kind of not.’ Here is my perspective on this.

Let’s take type 2 diabetes as an example. In patients with type 2 diabetes, treatment guidelines recommend lifestyle changes as a first line therapy. They don’t use the word #dtx, but they implicitly recommend it without referring to a specific product. So, a #dtx could be prescribed to every newly diagnosed patient who has the ability to use it.

For the sake of this exercise, let’s assume it is 100% of people with a type 2 diabetes diagnosis. The #dtx can be used as a stand-alone, but also as a companion to drug therapy. In type 2 diabetes, patients usually get Metformin to begin with and then move on to more advanced oral-antidiabetic drugs (OAD) such as GLP-1, SGLT2-inhibitors, DPP-4-inhibitors or GLP-1-(receptor)antagonists. Let’s assume the #dtx really works well in only 30% of the patients. Hence, instead of maybe 90%, now 70% of patients proceed to getting advanced OADs. Now, let’s assume the 70% will be split up evenly among three drugs, giving each a market share of approx. 23%. If there wouldn’t have been a DTx, the shares would be 30% each. The #dtx would then be prescribed to perhaps 50% of these patients on top of the OAD treatment since it does no harm. Now the pharma company that is offering the #dtx has 23% market share in the OAD segment and is still serving a vast majority of the patients with the DTx.

The pharmaceutical company that is not offering the #dtx simply just lost 7% market share. And if the total pie with or without #dtx was the same size, the pharma company that started offering the #dtx, gained in total 14% of the market from the other two by doing so. This company now has a total of 37% market share. It would have had 30% had it done business as usual - and more than 50% more market share than its competitors after it had started to market its #dtx for the same indication as its traditional drug therapy. Most importantly, if someone else had done it before, it would have lost almost 25% of its market share.

I know the example and the numbers are simplified and drug market dynamics are vastly complex. My point is though that this is a classic prisoners’ dilemma example, and the first mover is likely to come out on top. This is why I would double down on #dtx if I were a pharmaceutical company.

With the Digital Healthcare Act, Germany has become the first jurisdiction to offer a clear path to reimbursement for DTxs. But the overall economic disease burden of lifestyle-associated illnesses is so pressing that it’s just a matter of time until other countries follow Germany’s path. It might be one year, it may be three years, but it will happen. As in finance, market timing is difficult, if not impossible. Optionality always has a price and if I were a pharmaceutical enterprise, I’d be incentivized to invest a couple hundred million dollars today to achieve a 50% market share gain relative to my present competitors – within a mere 5 years from now.

All in all, the conversation with my friend was good. I may not have fully changed her mind, but there was much food for thought – so to speak – after our discussion.

If you would like to talk DTx, get in touch. Send me a message on Linkedin.

[1] https://www.cdc.gov/chronicdisease/about/costs/index.htm