The digital therapeutics industry has evolved and evolved beyond all expectations. In June 2021, Pear Therapeutics, the "first stock of digital therapeutics", was listed; In April 2023, he filed for bankruptcy and bankruptcy; A year later, Better Therapeutics, another star digital therapeutics company, also fell; Four months ago, Akili chose to sell himself and delist and go private. So far, the three musketeers of overseas digital therapeutics have all fallen. If you count from the listing of Pear, a three-year cycle, the waves will sweep away the heroes. On the surface, the main reason for the collapse of these companies is financial problems, but the deeper reason is the commercialization challenges faced by digital therapeutics. The challenge is that digital therapeutics need to have drug-like efficacy in order to gain market acceptance, but the embarrassment is that prescription digital therapeutics are not drugs per se, but more about using technical capabilities to provide behavioral interventions to users, which are subject to multiple uncontrollable factors, including patient compliance, physician and payer wishes, and so on.

Due to the existence and interaction of these uncontrollable factors, even in relatively mature overseas markets, the commercialization of digital therapeutics companies is still not ideal, and once the strategy is slightly incorrect, it may fail. Looking back at the beginning and end of the failure of digital therapeutics overseas, it may also bring some enlightenment and caution to the development of China.

What is Digital Therapeutics? In its report, the Digital Therapeutics Consortium clearly defines it as: a software-based therapy that provides patients with evidence-based therapeutic interventions to prevent, manage, or treat disease. In simple terms, digital therapeutics can be used alone or in combination with other therapies and drugs to improve the health of patients. Video games for mental and behavioral health issues, digital platforms that combine neuro-music therapy, sensors, and artificial intelligence to help people with strokes or other neurological conditions rebuild their motor skills; and a mobile app that allows you to perform ECG tests at any time.

In the future, patients may no longer only get drugs according to the prescription issued by doctors, but also include a mobile app or a combination of software and hardware products, such as artificial intelligence diagnosis systems, patient remote monitoring systems, digital biomarker devices, etc. As an imported product, digital therapeutics first started in the United States. With the investment of many technology giants and pharmaceutical companies, a medical and health system supported by digital technology is being rolled out in an all-round way. However, at present, the development of the entire industry is very slow. Some companies may have been around for almost 20 years, but the industry is still in the early stages of development. In the past year, the successive collapse of overseas leading companies has shrouded the industry in endless gloom. On April 7, 2023, Pear Therapeutics, a United States digital therapeutics star company that has been on the market for less than two years, announced that it has filed for bankruptcy protection and is seeking to sell its business and assets. Eventually, Pear auctioned off the assets for $6 million. The former "No. 1 stock in digital therapeutics" has fallen silent after a brief period of listing glory. A year later, Better Therapeutics, another star digital therapeutics business, also fell.

In March, Better announced that it would voluntarily delist from the Nasdaq and would phase out production and shut down operations, lay off employees, and find buyers for the remaining assets. So far, of the three PDT companies listed since 2021, only Akili is still operating. In order to survive, it began to commercialize its over-the-counter digital therapeutics products in September 2023. However, due to the pressure of reality, in May this year, it sold itself to Virtual Therapeutics, a virtual reality software company, and was delisted and privatized. Although the downfall of these companies is not all about digital therapeutics, but more about the concentrated outbreak of internal and external reasons, this is undoubtedly a wake-up call for the industry in the early stage of development. On the surface, the main reason for the fall of Pear and Better is the broken capital chain, but the deeper reason lies in the commercialization challenges of digital therapeutics. The challenge is that digital therapeutics need to have drug-like efficacy in order to gain market acceptance, but the embarrassing thing is that prescription digital therapeutics are not drugs per se, but more of a behavioral intervention for users using technical capabilities, which is subject to multiple factors.

For example, AspyreRx, which was approved for marketing last year, is based on the principle of helping patients reconstruct cognition and build emotions through interactive therapy courses and skills training modules, so as to "allow patients to autonomously link behavioral changes with improvements in blood sugar and other biometric indicators". AspyreRx helps patients set weekly treatment goals and track their progress. As a prescription treatment, AspyreRx needs to be prescribed by a doctor according to the patient's condition before the treatment can be divided into 90-day cycles and delivered to the patient gradually. To put it simply, this is an intervention program, which mainly uses APP or AI and other equipment software to achieve the purpose of preventing or treating diseases. The treatment process is highly dependent on the energy invested by the doctor and the autonomy of the patient, and requires long-term use by the patient to show the effect of the treatment.

Health management requires reversing the eating and lifestyle habits that individuals have developed over decades, and these habits have been developed by patients for a long time, and even the cause of the disease itself. Asking users to change decades-old habits is very difficult, and only very disciplined people are possible. Therefore, the health management of digital therapeutics is unattainable for patients with poor self-discipline, which means that the effect will be greatly reduced or even ineffective. In essence, the rise of digital therapeutics is mainly due to the shortcomings of traditional medical methods, as a supplement and optimization of traditional treatment methods, reaching the part of out-of-hospital health management that cannot be involved in traditional industries. However, few people are able to stick to such a boring and long-lasting treatment.

This is also a pain point for all digital therapeutics companies that are difficult to commercialize. As a result, we're seeing that digital therapeutics companies are making too little of their revenue. Pear, for example, has 3 FDA registration certificates, of which ReSET is a prescription digital therapy for substance abuse that can be used in combination with standard outpatient treatment for stimulants, marijuana, and cocaine-related substance use disorders. Using the principles of cognitive behavioral therapy, and aiming at the pain points that are difficult to reach for addiction patients, the face-to-face treatment plan is online, digital and standardized. The market has high expectations for Pear, which has completed eight rounds of financing before the IPO, raising a total of $409 million. On June 22, 2021, Pear went public as a SPAC. However, this highlight did not last long. Because, the market has found that there are many pain points in the commercialization of digital medical products.

Before the launch, Pear had made an optimistic estimate that with the gradual commercialization of three prescription digital therapeutics, it would achieve revenue of $22 million in 2022 and expand revenue to $125 million in 2023. Reality gave Pear a slap in the face. In 2022, Pear only achieved revenue of $12.694 million (product sales revenue of $10.417 million). What's more, these revenues are a drop in the bucket in the face of huge expenses — Pear's operating loss in 2022 was $123 million, after deducting various high costs. Better, which followed Pear's listing, is in an even more difficult situation. Although AspyreRx has been approved by the FDA and started selling, due to Better's lack of funding and the low commercialization value of the product itself, it has not been able to obtain large-scale revenue, and it has always been a pure cash burning model. According to the announcement, as of September 30, 2023, Better had a deficit of $134 million and only $6.6 million in cash on its books, and could only maintain operations until the first quarter of 2024. With no access to financing and no revenue of its own, closing the company was the only option. Before he even had time to prove or falsify himself, Better was out of the game.

Judging from the overseas commercialization experience of these companies, both doctors and payers are not willing to pay for them because of the doubts about their effectiveness. This can be seen from Pear's prescription fulfillment rate and payment rate. As of February 2023, Pear has issued more than 45,000 prescriptions, a slight drop from the estimated prescribing volume of about 50,000-60,000 in 2022 at launch. At the same time, compared with the 2022 semi-annual report, it is not difficult to find that the number of prescriptions in the second half of the year is actually in a state of decline. This means that after a period of clinical validation, doctors are skeptical of digital health products. In addition, prescription fulfillment and payment rates have gradually declined throughout the year. According to the annual report, the prescription fulfillment rate and the payment rate for the year were 53% and the payment rate was 41%. In the 2022 semi-annual report, Pear disclosed the prescription fulfillment rate and payment rate in the first two quarters, which were 57% and 50% in the first quarter, and 56% and 45% in the second quarter, respectively, showing a downward trend.

Pear has said that it wants to increase both fulfillment and payment rates to 50-65%. However, judging from the results, the fulfillment rate can still meet the target, and the key indicator of the payment rate is far from the target.

For an emerging industry, it's not surprising to be skeptical, it's about making improvements in products and services to dispel the doubts of payers. It's just that all kinds of practical predicaments have not given them enough time and space to improve. At the end of the day, the effectiveness of digital therapeutics depends not only on the software itself, but also on the effort put into the efforts put into the doctors, the compliance of patients, and the perfection of the healthcare system itself. As long as one link does not keep up, it will be difficult to reflect the efficacy of the entire product, and it will be impossible to persuade users to continue to use it, and it will be difficult for the payer to continue to cover such a product.

So, what about abandoning the prescription model and focusing on the C-end? At present, the development of such enterprises is not optimistic. For example, Akili, a well-known game digital therapeutics for ADHD in children, believes that the prescription model limits the accessibility of products, so it began to make the transition to over-the-counter products for adults, and sought to convert OTC licensing for existing products for children.

Although the revenue of the over-the-counter product once increased sharply and became the main force of the company's revenue, entering this year, the revenue has been declining month-on-month, and the loss has continued to expand. According to its financial report, as of the end of March 2024, Akili still has $63.2 million in cash and equivalents, which can probably last for half a year, and the situation is not optimistic. The difficulty in Akili's development lies in the fact that it will have to increase market investment in order to obtain large-scale revenue in the future. This is actually the development model of Internet companies, burning money for users and growth, but today's capital environment obviously does not support Akili to burn money on a large scale. In the face of reality, Akili chose to sell herself.

At the end of the day, Akili's dilemma lies in the fact that it is based on a 2C model, and United States digital health is a B2B2C model as a whole. For now, Talkspace, another publicly traded digital therapeutics company, is relatively healthy, with $150 million in revenue in 2023 and achieving scale, with more than 76% of its revenue coming from insurance and corporate payments, and only $35 million from individual payments.

Looking back at the failure of digital therapeutics overseas, the root cause is that the development of digital therapeutics "contradicts" the original intention. The original intention was to develop products through a rigorous, evidence-based medicine model and obtain the efficacy of similar drugs, but the reality is that efficacy depends mainly on uncontrollable factors, including patient compliance, the willingness of doctors and payers, and so on.

Judging from the current performance of several digital therapeutics listed companies, even in relatively mature foreign markets, due to the existence and interaction of these uncontrollable factors, the commercialization capabilities of digital therapeutics companies are still insufficient, and revenue is relatively difficult. If the strategy is not done properly, it is possible to fail. This shows that digital therapeutics are still in their early stages and the market still needs to be nurtured. So, where has the digital therapeutics industry, which started later, in China? Take Aurora, which applied for a Hong Kong stock IPO and sprinted to become "the first stock of China's digital therapeutics", as an example. According to the prospectus, it was founded in 2012 and launched the first regulatory approval of the digital therapeutics for cognitive impairment in China, and it is also the company with the highest commercial revenue of medical-grade digital therapeutics for cognitive impairment in the domestic market in 2022.

Cognitive impairment is also the main position of digital therapeutics in China, and most products on the market are focused on this field. The core product of Brain Hole Aurora is the software system of the brain function information management platform, which has promoted the commercialization of products for four main types of cognitive impairments: vascular diseases, neurodegenerative diseases, neurological diseases, and child developmental defects, covering eight indications. To put it simply, it is to provide a dynamic training question bank with big data support for patients with cognitive impairment, so that medical institutions can provide more accurate assessment training for such patients.

In 2018, the product obtained the first Class II medical device registration certificate, which allows the use of the system to assist doctors in the comprehensive management of medical information for patients with brain dysfunction caused by various brain injuries and diseases, including clinical diagnosis, treatment and brain function assessment.

But it wasn't until June 2020 that the road to commercialization officially began. At present, the "brain function information management platform software system" of Brain Aurora has entered the medical insurance reimbursement catalog of 30 provinces in China, but the scale of performance is still relatively limited. According to the prospectus, in the first quarter of 2021, 2022, 2023 and 2024, the company's revenue will be 2.3 million yuan, 11.29 million yuan, 67.2 million yuan and 25.884 million yuan respectively. Although the revenue growth rate is high, the absolute value is still low, coupled with the high cost of sales and expenses, the company is still in the loss stage. From 2021 to the first quarter of 2024, the company lost 698 million yuan, 502 million yuan, 359 million yuan and 51.608 million yuan respectively.

It can be said that domestic companies represented by Brain Hole Aurora are also experiencing the difficulty of commercializing digital therapeutics. As an emerging treatment with a history of only 10 years, digital therapeutics have gone through the stage of proof of concept and product implementation, and how to deal with the challenges of commercialization has become the core issue facing everyone.

Source:https://mp.weixin.qq.com