Digital therapeutics have been plodding on a steady path toward acceptance within healthcare, but the modality reached new heights during a year of unprecedented adoption for digital health technologies. More and more software-based treatments are picking up regulatory approvals – including three De Novo clearances in 2020 alone – while the ongoing COVID-19 pandemic has exposed more consumers, providers and other stakeholders to the technologies than ever before.
As the sector continues to find its footing, new players small and large will look to throw their hat into the ring. By doing so, they'll come to a crossroad that's very familiar to those with a background in the pharmaceuticals industry: whether to develop their new product in house or to in-license and release a promising candidate from academia or another company.
While the business of digital therapeutics (and prescription digital therapeutics) still comes with the burdens of clinical validation and heavy regulation, there are some key differences between software-based treatments and traditional drugs that these companies will need to take into account.
"I think the one thing which is a bit different in this particular case is around usability and integration," Dr. Corey McCann, CEO of Pear Therapeutics, told MobiHealthNews. "If I'm a pharma company and I'm bringing a new asset into the pipeline, I probably don't think too much about how it interacts with other infrastructure or assets that I have.
"But really, there's an important element to have a cohesive offering across products, and there's an integration that's required after one brings an asset into a portfolio. That's very much dependent and inherent in software as opposed to the way we would usually think about pharma assets."
What's more, the in-licensing conversation can be a much more modular process for digital therapeutics than it is for traditional pharma, Austin Speier, chief strategy officer at Click Therapeutics, told MobiHealthNews. Software products are a collection of working parts ranging from user interfaces to data analytics algorithms, as opposed to a molecule that will act as a relatively complete treatment.
"The decision to go in-house or in-license is not as binary as it is in pharma. Even though we [at Click] have that preference for in-house development on our platform, even if we do in-license the technology we have to still redevelop it and move it onto our platform," Speier said.
"It's just more targeted and more granular, and [it looks] at individual mechanisms of action. ... We're in-licensing a digital building block of care."
Although Pear and Click are both viewing in-licensing with their own infrastructure in mind, those decisions are less clear cut for new market entrants looking to kick-start their digital therapeutics business. To learn more, MobiHealthNews spoke with digital therapeutics vets and a relative newcomer to the space about the major considerations organizations should take when gauging an in-licensing opportunity, and what startups or other market entrants should keep in mind while planting the first seeds of their own digital therapeutics portfolio.
In-licensing: A head start, but no substitute for due diligence
Although Pear has nearly 20 assets in its pipeline and internal teams working on new therapies from the ground up, the company got its start by working with external collaborators, McCann said. Both the reSET and reSET-O prescription digital therapeutics on the market today were based on the work of Dartmouth College's Lisa Marsch, and came at a time when the concept of digital therapeutics was more academic than commercial.
"I think what we're always looking to do is ask, how can we get the best products to patients in the most capital-efficient way," he said. "The beginnings of Pear ... [were] before the space existed, and really what you had were a bunch of academic assets. So we looked very consciously at many of the assets in academia, and we felt like some different in-licensing strategies were the fastest and most capital-efficient way to bring products to patients."
Years later, young digital therapeutics companies are still looking to researchers for a head start. Mahana Therapeutics was founded in January 2018, and it just received a De Novo clearance for its irritable bowel syndrome cognitive behavioral therapy Parallel in December 2020.
However, that product was developed over the course of about 15 years under the name Regul8, until the summer of 2019 when his company made a deal with King's College London.
This deal, like Pear's, was an opportunity for a young prescription digital therapeutics company to get a clinically validated software treatment onto the market "as quickly and as responsibly as we can," Mahana Therapeutics cofounder and former CEO Robert Paull told MobiHealthNews.
"When we founded Mahana, one of the very first things that I did [was] to reach out to some of the world's top experts who were working in the intersection of gastroenterology and psychology to see if anybody had already developed a digital treatment that was psychology-based for a GI condition," Paull said. "University of Southampton and King's College London had validated it. ... We found it so compelling, and did a lot of diligence on it ourselves."
But it's not only the younger digital therapeutics companies that have something to gain from these types of deals. Pear inked six in-licensing deals in 2020 alone, with McCann specifically highlighting deals focused on vocal biomarkers as a chance to add new technologies to their existing digital capabilities. And of course, those on the other end of a deal who have been developing novel tools are not often in a position to bring promising treatments to market and, subsequently, to patients.
"Often that is a win-win for us and our licensing partners, because there's an immense amount of really promising research going on globally within behavioral science, within digital, and machine learning, and artificial intelligence," Speier said.
"A lot of these academic labs, the results of their work [are] not complete. They often don't have the resources or skills to develop those as a regulated medical device that can be deployed at scale. So we can help escalate and accelerate that process of getting that out to patients as a comprehensive treatment, without necessarily looking to license a complete, end-to-end product."
Successful in-licensing is more than just throwing around some money. Much like in the pharma realm, companies need to do their homework when considering a target asset.
For Parallel, Paull said that researchers' clinical evidence was the primary factor in Mahana's decision. He said the company leaned on a 558-person randomized controlled trial that was, to their knowledge, the largest such investigation of a digital therapeutic among that population to date (although some pundits have critiqued the study's design and resulting data), as well as follow-up studies describing the treatment's longitudinal outcomes.
On top of that, Paull stressed the importance of the people behind that research. King's College's Rona Moss-Morris and University of Southampton's Hazel Anne Everitt, who conducted the large study on Parallel, are well-known names within their research communities, he said, and have the type of entrepreneurial mindset that helped Mahana move quickly and lay the groundwork for an international deployment.
"So when you combine ... clinical evidence [for a] best-in-class product with a really inspiring academic leader who shares a vision to bring these kinds of [products] in an accessible, affordable way, globally, it really became a perfect marriage," he said.
Unfortunately for startups, opportunities that meet those criteria can be few and far between when a smaller company is working within a novel space and targeting international regulatory clearances, Paull continued. This is part of the reason why Mahana has already begun work on developing its next gastrointestinal digital therapeutic using an in-house team.
"A lot of the challenge of in-licensing is really a timing one," he said. "We're certainly open to exploring additional in-licenses, but right now it's a mix of both."
Speier agreed that in-licensing a fleshed-out asset from academia is a viable path for companies that haven't yet established the infrastructure for internal development, but warned against moving forward without critically reviewing and improving upon the product's design and body of evidence.
"I would just caution companies that are interested in taking that strategy to be wary of taking too many shortcuts on that route, because I find that some companies in attempting to adjust their product to match the in-license, they rely too much on the existing data or existing product," he said. "In that case, you end up taking on legacy decisions from the original developer that may not be optimal for a positive experience, or for that broader patient population.
"Use that in-license asset as a starting point, and not as a compelling digital therapeutic right out of the box."
In-house development: Long-term portfolio synergy with high upfront investment
In-licensing new digital therapeutics is often the more timely approach for a new company, but in-house comes with several clear advantages when a company is thinking about its product portfolio as a full digital platform, the executives said.
Even when building products across a range of different therapeutic areas, the shared DNA between each allows teams to become more efficient during the development process, Speier said. In other words, when one team has a breakthrough regarding one specific mechanism of action within their software product, it can be quickly shared and implemented in the architecture of another.
"We're very structured and very systematic in terms of how we approach product development," Speier said. "We have a playbook that really lays out the various steps of digital therapeutic development that we've [built] in house, so the products work their way through our entire team – behavioral scientists, clinicians, neuroscientists, all working hand-in-hand with our product design, compliance and tech teams. There's a huge amount of cross-functional collaboration that goes on with one of these products, so, because of that, our default preference is really to develop on our platform using in-house expertise."
That cohesion between products could also translate to a market advantage down the line. Pear and other prominent names like Akili Interactive have spoken in the past about the benefits of controlling the full process of digital therapeutics commercialization and distribution from a business perspective. Speier added that the approach would also be more appealing to the clinicians who want to provide their patients with a single, consistent digital treatment.
"I think if we fast-forward five years and there's a world where there are many different digital therapeutics out there for many indications, I do think there will ultimately, longer term, be an advantage for a model like [ours], where a clinician who wants to a complex patient who has multiple comorbid indications can turn to that kind of coherent platform that works across indications," he said.
All of these benefits do come at a substantial cost, the executives said. To be successful when developing a new digital therapeutic (let alone a full platform portfolio), companies will need to make major investments into a workforce with knowledge beyond just the disease that they're hoping to treat.
That means taking the time to search for and hire experts in software development, product development, clinical trial design, quality management systems, device regulation, cybersecurity and more.
"You need a fully end-to-end, cross-functional team," Speier said. "You need to be an excellent software startup, and you need to be an excellent biotech and behavioral health startup. You need to bring together those two skill sets ... Integrating all those different functional areas into a cohesive whole is necessary to turn around a full product."
This was the kind of approach Click has targeted since its founding in 2012 and, according to Speier, has helped distinguish the company from its competitors over the last several years. But that level of upfront investment can be prohibitively expensive for newcomers to the digital therapeutics space, Speier admitted, even before taking the challenges of systemizing development and structuring the eventual platform into account.
With that in mind, he said that many companies will likely find more success by starting with an outside product, and then using that momentum to strengthen their foundation.
Digital therapeutics are "a triple-black diamond of a business model"
Regardless of where a digital therapeutics company starts, it's likely that a successful business will eventually include some degree of internal development, in-licensing and other types of deals.
In addition to melding external tech components with its internal infrastructure, Speier noted that Click's product development is often conducted in collaboration with its partners in the pharma space. Meanwhile, McCann noted that the maturing digital therapeutics market is beginning to look at licensing opportunities as less of a starting point and more of a means to consolidate.
"I think the trend that you are seeing is maybe a shift from front-end licensing to back-end licensing," he said. "What I mean by that is in the early days of the space, a lot of the licensing that took place was to bring in assets. I think some of the licensing that you are starting to see, and continue to see, is asset companies looking to come onto platforms.
"That's certainly something that's in Pear's future, which is to take our platform – which includes things like our quality management system, our clinical dashboard, integrations into different [EHRs], our PearConnect and our virtual care capabilities – and to really try to bring that to prescription digital therapeutics companies."
If there's a constant for all of the space's players, it's treading the lines between clinical effectiveness, software engagement and safety.
Reflecting on the prescription digital therapeutics sector as a relatively recent entrant, Paull described it as "a triple-black diamond of a business model." Even before deciding whether to build or to buy, he advises others looking to break into digital therapeutics "to find people who are exceptional at developing products in a variety of industries, and bring them together."
McCann shared a similar sentiment, and stressed that the choice to license assets or develop them in-house is first and foremost "a business decision" rather than a moral one. Regardless of the path a new player takes, it'll be their internal infrastructure and clinical rigor that defines success.
"On the infrastructure side, it's being able to develop according to a 21CFR [Part] 820-compliant quality management system. It's being able to work with the regulators. It's, post-approval, having the ability to process and adjudicate claims. It's lots of infrastructure you wouldn't think about if you were typically just building an app.
"And on the clinical rigor side, I think what the space has moved toward is demonstration of gold standard clinical outcomes via randomized clinical trials, getting those outcomes on label and then demonstrating additional health economic data. So, whether a company is in-licensing or developing entirely in-house, I think it's that combination of infrastructure or rigor that's required for success."