Digital medicine products are transforming research and care models, and changing regulations’ aim to expand access. Explore how organizations are aligning for success in the Future of Health™, where digital medicine products will be used at scale.

Executive summary

The last few years have witnessed a proliferation of digital medicine products, including digital therapeutics (i.e., regulated products that employ software to deliver evidence-based therapeutic interventions) and digital companions (i.e., products that provide additional services and insights for patients to improve their experience, knowledge, and outcomes of their existing drug therapy). The potential for their use in conjunction with or as an alternative to drug therapies has sparked interest among many companies, even outside of traditional health care and life sciences, including large technology players and digital health startups.

In our Future of HealthTM vision, we expect some diseases will be prevented, managed, or cured with nonpharmacological interventions such as digital therapeutics. These interventions could reshape the health care industry, shifting the focus toward prevention and well-being, moving care outside of health care facilities, and putting consumers at the center of their own care. Even today, digital medicine products are beginning to transform health research and care models, and the COVID-19 pandemic has accelerated this transformation.

Our view is that life science companies that reimagine their business models and put the consumer-patient at the center, will be most likely to succeed in this future paradigm. Incumbents’ clinical and regulatory expertise puts them in a strong position to commercialize digital medicine products in a highly regulated environment and win over digital innovators and other entrants by doing this at scale. This will require new capabilities.

• Digital medicine products offer the opportunity to become more patient-centric, influence patient adherence and outcomes, better understand the patient experience of disease, and generate real-world data that is relevant to customers.
• However, biopharma companies are still figuring out how to tap this opportunity at scale. Many have experimented with digital companions, but few are developing digital therapeutics.

Business models are evolving as reimbursement remains a challenge

• Market access pathways for digital medicine products remain ill-defined.
• Pharma companies expect most digital companions to enhance revenue for core products rather than create a separate revenue stream; therefore, companions are typically offered for free or built into the pricing of the pharmaceuticals they support.
• Developers of digital therapeutics—mostly small technology companies with a specific clinical focus—are testing multiple commercialization models, (including direct to consumer, direct to provider, and coverage under medical benefit). But there is no clarity on the winning model or models that will be required for sustained commercial viability.

Operating models to support digital medicine products are in early days

• Today, most biopharma companies partner with large technology companies or small digital therapeutic developers; few have yet decided to build digital medicine products in-house.
• Most companies have or are in the process of standing up a centralized digital function, which acts as an adviser to product teams to identify unmet needs and select technology partners. Some are creating similar leadership roles in R&D to align digital medicine product strategy to the therapeutic strategy earlier in the process.

Digital medicine products call for new approaches and capabilities while leveraging core competencies that can provide strategic advantage. Based on our research, we recommend biopharma companies:

1. Articulate a clear vision of how their digital medicine product strategy will create value within the broader digital health ecosystem in conjunction with their therapeutic strategy, recognizing that each therapeutic area (TA) is likely to have distinct differences based on the etiology of the disease.
2. Leverage their strengths and experience of understanding the patient journey, the clinical evidence generation process, and the regulatory pathways to bring products to market.
3. Define and implement an operating model and decide whether to build product development capabilities in-house or partner/outsource. If developing digital medicine products is core to the strategy, companies will need to cultivate new expertise and talent pools with requisite skills in software design, agile development, medical device regulation, software quality management systems, and digital product management.
4. Reinvent the development process. Building digital medicine products requires rethinking the traditional development processes. The iterative nature of building software calls for tighter coordination between commercial, medical, regulatory, and development teams.
5. Expand the traditional business models. The traditional commercialization and acquisition playbook may not be enough. Pharma companies may need to build relationships with new stakeholders or change relationships with existing ones; and business development opportunities should take into account digital medicine products.

The age of digital medicine products is here, and life science companies that can identify a clear place for themselves within this burgeoning ecosystem will likely see a competitive advantage.

Introduction

Multiple stakeholders involved in digital health (including the Digital Therapeutics Alliance [DTA] and Digital Medicine Society [DiMe]) have collaborated to define digital health as technologies, platforms, and systems (such as health IT systems, mobile apps, telehealth platforms, and wearables and sensors) that engage patients for lifestyle, wellness, and health-related services.¹ Such products support prevention, diagnosis, treatment, and management of health and disease. Digital medicine products are a subset of digital health and include evidence-based software and hardware products that measure and/or intervene in the service of human health.² A growing number of startups and technology companies are introducing innovative digital medicine products to enable patients to take greater control of their health.³ In this paper, we focus on two categories of these products: 1) digital companions to drugs and 2) digital therapeutics (figure 1 has definitions and examples).

In our Future of Health vision, we expect health care will shift to prevention and wellbeing and become centered around consumers’ needs. Consumers are becoming increasingly active participants in their own health and care, and this will accelerate as new digital health tools and platforms become available and provide more value. With full visibility into and control over their health information coupled with AI, consumers should be able to make health-related decisions and perform many activities that today require a clinician’s involvement. Digital medicine products will likely be used at scale for prevention, proactive care, and as stand-alone treatments. For instance, they could make existing treatments more effective, reduce the need for medications by supporting sustained behavior change, or in some cases even become a viable alternative to traditional pharmacologic treatments.⁷

We are beginning to see elements of Deloitte’s Future of Health vision take shape today. The Deloitte 2020 Survey of US Health Care Consumers shows use of technology for health and fitness has increased rapidly since 2013, and the COVID-19 pandemic has accelerated many of these trends.⁸ The percentage of consumers using virtual visits grew from 15% in 2019 to 28% in April 2020.⁹ Going forward, the optimal level of virtual visits is expected to be similar to the peak witnessed during the pandemic, according to the Deloitte 2020 survey of Health System Clinical Leaders. For primary care and chronic care management, this means between 30% and 34% of the visits should be virtual, up from only 5%–6% prepandemic. Regulators, too, recognize the importance of digital health, and during the public health emergency period, a number of regulatory flexibilities expanded access to digital health products and virtual health services in the United States. (See sidebar “Changing regulations aim to expand access to digital health products.”)

Although thus far innovations in digital health, including digital medicine products, have come from the tech sector.¹⁰ (figure 2), we believe biopharma companies should capitalize on these opportunities: Their scale and their clinical and regulatory expertise put them in a strong position to commercialize digital medicine products in a highly regulated space and win over digital innovators and other entrants. To accomplish this, however, they should invest in new capabilities in software product management and engineering talent and make cultural shifts toward more agile ways of executing development.

Research findings

This research has many parallels to our first real world evidence benchmarking survey five years ago.¹⁹ Biopharma companies understand the increasing importance and transformative disruption digital medicine products will bring to the industry. Most companies established small teams focused on the disruption. However, most efforts are relatively small in scale with heavy dependence on external collaborations vs. building in-house enterprise capability, and there is still uncertainty on how big to bet and how much capability to ultimately build in-house vs. outsource.

Biopharma companies are experimenting with digital medicine products

Interviewed executives expect the importance of digital medicine products to increase as a strategic priority, and spoke of growing investments in digital capabilities. As patients become more empowered to make their own therapy and treatment choices, the ability to directly engage with them will grow in importance. Digital medicine products present an opportunity to move beyond the pill, better understand patient needs and patient journey, and enhance patient experience and outcomes while on a therapy. Our interviewees highlighted some of the benefits of digital medicine products:

• Increasing adherence and persistence can improve patient outcomes and generate additional revenue from existing branded products.
• Better patient education about their disease and medication and improved management of co-morbidities and symptoms, such as anxiety and depression, can create a closer relationship with patients, improve their experience, and strengthen brand loyalty.
• Capturing patient-reported outcomes can improve understanding of the patient journey and disease progression, improve care coordination, and support pharmacovigilance. There are also opportunities to use this data for market access and regulatory purposes.

Recognizing these benefits, many biopharma companies have invested in digital companions (i.e., pairing digital tools with drugs). As they all pursue a similar approach, we expect that going forward, digital companions may not be a point of differentiation but table stakes in many disease areas.

Business models are evolving

The business case for digital therapeutics is less clear than for companions, at least for now: The economic benefits, the opportunity cost, and reimbursement pathways are unclear. Only a few of the biopharma companies interviewed have invested in digital therapeutics, and even fewer have created structures to develop and commercialize such products in-house. Doing so would likely require new operating models across R&D and commercial.

Not all TAs lend themselves to digital therapeutic or monitoring solutions with therapeutic features. Through our interviews, we have identified only a handful: behavioral health conditions, such as depression, anxiety, addictions, PTSD, and insomnia; movement disorders such as chronic stroke or Parkinson’s disease; chronic and acute pain; and diabetes. For biopharma companies that don’t already play in these TAs, investments in developing therapies—digital or conventional—for these conditions could siphon away resources from the core business. We also heard that the scientific process of discovery and regulatory pathways for digital therapeutics have more similarities to medical devices than to traditional pharmaceuticals.

Since digital companions are expected to enhance revenue from existing drugs rather than create a separate revenue stream, most biopharma companies intend to offer digital companions for free, with software development absorbed into the cost of the core product. Seeking regulatory review and approval is not typical, and many digital companions under development will be available without a prescription.²⁰ We have heard of digital companions being developed in several TAs: oncology, multiple sclerosis, hemophilia, diabetes, and respiratory conditions. However, questions remain about the ROI, especially in TAs with effective and inexpensive treatment options, such as diabetes or heart disease.

Reimbursement is a key challenge

From our interviews, digital medicine product developers are exploring the following reimbursement in the United States:

Direct-to-consumer

• Under the direct-to-consumer (DTC) approach, users pay subscription fees to access digital therapeutic applications. These models have had mixed success because consumers generally expect their health care costs to be covered by their insurance or employer, particularly for chronic conditions, and DTC marketing can be expensive.²¹
• For digital companions available without a prescription, DTC is expected to be the primary channel, mainly through pharma companies’ customer support programs.

Commercial payers: Fully insured

• Coverage under the pharmacy benefit would be the most likely approach for prescription digital therapeutics; but so far, we have seen few examples. While an FDA approval could make the product eligible for formulary inclusion, payers will want evidence that a digital intervention lowers the cost of care.
• Digital therapeutics with a hardware component can be covered as durable medical equipment (DME) under the medical benefit. Stand-alone digital therapeutics (regulated as SaMD products) can pursue reimbursement in the same way as conventional medical devices, but we have seen little success to date.²²
• Insurers indicated that in the future they may support an “over-the-counter” approach to digital companions, and possibly therapeutics, by directing members to information about the product but having the member pay for it. The mechanism to do so is not in place yet.

Commercial payers: Self-insured

• In this model, digital care specialists sell directly to a self-insured employer that offers the product to its employees, either through a care management program or as a wellness benefit. Pricing can be per user per month or in the form of licensing fees.
• Digital medicine products can be part of outcome-based contracts with payers, where the contract is tied to outcomes or reduction in overall cost of care, but this practice doesn’t appear to be widespread. We have seen examples of cost sharing or pay-for-performance tied to user engagement, adherence, or patient-reported outcomes, and less commonly, to clinical measures or cost of care (mainly in diabetes).

Direct-to-provider

• Several digital medicine innovators sell or license their products to health care providers, who in turn make them available to patients. This approach tends to work when:
  • Digital products are used in-clinic (like virtual reality)
  • There is a remote patient monitoring component that relays data back to the providers for use in clinical decision-making
  • A reduction in patient visits for monitoring, treatment, or diagnosis is offset by reimbursable activities (like remote patient monitoring) or happens in fixed budget scenarios (like bundling or capitation)
• For the most part, existing payment models for providers do not offer sufficient incentives to adopt digital medicine products or a new standard of care. Greater adoption of value-based payment models may change that if digital medicine products help providers reduce the cost of care or improve performance on quality measures used in the payment systems.

Traditional fee-for-service payment models (e.g., tying payments to claims for clinical activities like therapy or diagnostics, DME, or a national drug code) do not always work for digital therapeutics. Some digital therapeutics developers voiced criticisms that payers do not apply the same criteria to digital that they do to conventional therapeutics and refuse to pay even when there is a cost and/or quality benefit against the standard of care. And from payers we heard concerns that digital therapeutics can create new costs. For these reasons, many digital care specialists and some digital therapeutic innovators find direct-to-employer sales a more effective business model than working though health insurers or pharmacy benefit managers.

We have identified little activity with government payers in the United States. If digital health companies choose not to pursue reimbursement from government payers, it could potentially exacerbate the digital divide by excluding patient populations of lower income and with higher disease burden.

Operating models to support digital medicine products are in early days

Our research has brought to light early operating models that companies are experimenting with. Most drug companies we interviewed are partnering with technology companies to build digital companions. A few are building and launching digital companions in-house.

Regardless of the buy or build approach, most companies have or are in the process of standing up a digital function that provides resources and expertise for digital product development. The digital function typically acts as an adviser and strategic partner to product teams to identify and articulate unmet patient needs and create digital solutions to support them. Digital solution teams often undertake desk or primary research and engage with brand and product development teams, patient groups, and key opinion leaders to identify the patient needs a digital solution should address. Some teams conduct ideation and cocreation sessions with patients and physicians to test initial concepts and prototypes. The digital team also identifies, vets, and matches external technology vendors with internal needs and technology requirements, even at companies that have in-sourced much of the work.

Organizations typically choose to house their digital resources in commercial or in R&D, or as an enterprise function under IT. While the primary benefit for concentrating digital capabilities within R&D is to digitize the clinical development process, it also makes it easier to consider digital companions earlier in the drug development cycle. Moreover, close coordination with R&D teams enables creation of digital companions that could be used across entire TAs and brands. On the other hand, positioning digital expertise within the commercial function supports deployment of digital companions for on-market products and enables closer coordination and access to marketing resources.

Our research suggests that funding sources for digital medicine product development differ across and even within organizations. Funding is a mix of a fixed amount from a central budget dedicated to digital staff and to cross-functional digital initiatives and variable project-specific funding from brand teams, R&D, or commercial functions. At several companies we interviewed, the funding and budgeting process was ill-defined, leading to an inability to commit to multiyear programs. Even if processes do exist, executives described difficulties. For instance, one executive said the annual budgeting cycle is not conducive to digital medicine products’ fast product development cycles: It is difficult to access funding (e.g., mid-year) to begin product development as soon as a need is identified. As a potential solution, the company is contemplating funding digital companion projects through a corporate venture capital fund.

Partnering with technology companies

Pharma companies are partnering with technology companies, consultancies, and digital health startups to access the expertise to build digital medicine products. Internal teams from biopharma companies (where the digital function exists) assess the tech landscape to identify potential partners that best suit their needs.

Partnerships can involve access to a propriety technology platform that is often TA-specific. For instance, BMS has partnered with Voluntis to use its Theraxium Oncology platform to build a digital companion for self-management of symptoms related to cancer therapy.²⁶ Sanofi partnered with an established mental health digital therapeutics firm, Happify Health, to build a digital therapeutic to help multiple sclerosis patients manage anxiety and depression.²⁷ Technology companies are likely to remain important partners for biopharma as a source of expertise and innovation in digital medicine products.

Selecting the right partner ensures efficiency, regulatory compliance, and speed to market. Our research has helped us identify important considerations that pharma and technology companies seek while selecting a partner to work with (figure 3).

At present, partnership deals mostly resemble in-licensing agreements. Technology partners may license their products to biopharma directly for a fixed fee per year, or payments could be tied to the achievement of specific project milestones (e.g., regulatory clearances). Though less common, licensing arrangements may include incentives tied to performance metrics, such as patient outcomes and adherence, or collection of clinical or health-economic data to support formulary positioning.

Some partnership deals involve leveraging pharma’s marketing and distribution capabilities for commercial rollout. Contrary to expectations, such deals have not always been successful. Digital medicine products are a new modality for biopharma companies, and their commercial teams lack the experience, incentives, or training for engaging with physicians and payers on their economic and clinical value.

Buy vs. build

Most companies today leverage some platform capabilities and services from technology vendors to build digital companions. At one biopharma company we interviewed, the digital function has built a centralized platform in-house to enable product teams to develop digital companions for their brands.

As the number of digital products in their portfolio grows, biopharma companies could increasingly face the choice between building internal capabilities and reliance on external vendors. Either approach comes with pros and cons that we outline in the figure below.

Digital medicine products call for new approaches and capabilities

Preparing for the future of health built around patient centricity, prevention, and personalized therapies calls for biopharma to look at digital medicine products in a new light. Developing and commercializing such products require a clear articulation of how they fit within a company’s product portfolio and the operating and business models needed to support that.

Based on our research and client experience, we recommend biopharma companies:

1. Formulate a vision around digital medicine products

Biopharma companies should articulate a vision of how they will position themselves within the digital medicine product ecosystem. Do they see themselves as preferred partners or leaders in the field? This is the essential starting place for guiding the short- and long-term strategy.

• Consider alignment with the existing product portfolio and future pipeline.
  • In the near term, our research suggests that digital companions are likely to become standard offerings around pharmaceutical products for conditions associated with complicated symptoms and comorbidities, requiring complex treatment regimens and monitoring of side effects.
  • A drug product’s life cycle (e.g., approaching loss of exclusivity, prelaunch) and competitive position may inform the digital companion strategy.
  • In the long term, we expect some companies to explore digital therapeutics; a handful are developing these capabilities today, recognizing that digital therapeutics represent a new frontier of treatment in certain disease states like depression, anxiety, and chronic pain, and this list should grow over time. We also expect that digital companion capabilities will serve as an on-ramp to digital therapeutics.
  • We also envision alliances between pharma and medtech companies around development of devices that combine passive and active monitoring, drug delivery, and diagnostics.
• Position within the consumer health journey. Short term, companies are considering how to leverage digital medicine products in TAs where they already play. Long term, some companies are considering how to make digital tools and platforms the connective tissue from wellness and prevention to medical and surgical interventions to postacute care.

2. Play to their strengths and expertise

Pharma companies should apply their expertise in creating and commercializing evidence-driven products to their digital medicine product ambitions: regulatory science in the case of digital therapeutics and market access in the case of both digital therapeutics and companions. This is a significant competitive advantage against consumer tech companies that do not have this as a core competency.

3. Define an operating model that best supports their digital medicine product strategy

Effectively developing digital medicine products can be a steep learning curve for biopharma companies; comparisons to the development and commercialization of traditional medicines reveal just as many differences as similarities. We have outlined a few important considerations:

• Distributed vs. centralized digital expertise
  • Our research shows value in centralizing digital expertise. In most cases, we have found examples of concentrating digital resources within R&D, within the commercial function, or as a separate center of excellence. But bridging the traditional R&D and commercial silos remains a challenge.
• Buy vs. build
  • The vision will in part dictate decisions on whether to develop products in-house or partner with other stakeholders in the field. As digital medicine product offerings increase in number within a pharma company’s portfolio and as biopharma’s experience grows, we expect the cost benefit will shift in favor of insourcing.
  • We also expect that over time, standardization via an enterprisewide platform will be more beneficial than developing ad hoc or bespoke custom-built digital solutions. Given the shift to cloud computing, the cost structure can be elastic and scale with success and adoption.
• Talent requirements
  • Even with significant outsourcing, pharma companies should still develop an internal or contract talent pool with technical skills around cloud computing, AI, software development, cybersecurity, and data science.²⁸ These agile development teams should also include professionals who understand clinical measurement and patient and user experience and have access to legal, compliance, and medical device regulatory expertise. And most importantly, they should include individuals with a strong strategy and business acumen who can navigate technical, clinical, and business aspects, and facilitate conversations across multiple parts of the organization and with external partners.
  • Many of the existing talent and capabilities within organizations could be leveraged, including rich patient and provider insights and a deep understanding of the health care landscape. Strong connections to regulators and frequent touch points with payers could help drive conversations around holistic therapeutic solutions that include traditional pharmaceuticals, companions, and digital therapeutics.

4. Reinvent the product development life cycle

Incorporating digital medicine products successfully into a company’s portfolio will require a rethinking of traditional drug development processes and:

• A deep understanding of unmet needs and pain points for patients and providers, as well as expertise in the features and development possibilities of digital medicine products.
• An iterative process with evaluation pilots and a feedback loop between user experience in the field and ongoing product improvements. This requires an agile build, test, and learn approach to product development and refinement, which will run on cycles that are different from current drug development models. Some of the initial investment and pilots will fail, but this experience will create learnings and a foundation for standing up robust digital capabilities.
  • Digital medicine products can be developed concurrently with drugs, but the timing of product design and availability must be positioned carefully within the standard regulatory and payer review and submission processes. The iterative nature of building software will require tighter coordination between commercial, medical, and product development teams.
• Development teams should leverage insights from commercial teams to identify where digital companion and digital therapeutics would be more useful, anticipate patient needs, and build products accordingly.
• Digital companion developers should be able to reuse or build upon digital tools used in clinical trials of the corresponding drug.
• Clinical development and digital teams should have access to internal and external libraries of validated electronic clinical outcomes assessments (eCOAs), such as those maintained by the Digital Medicine Society²⁹ or FDA.³⁰ There should be a process for identifying which digital endpoints or patient-reported outcomes in the company’s core TAs could be available and appropriate for use in digital companions.
  • Access to such libraries could be an important starting point for developing digital therapeutics, as the efficacy of a digital therapeutic could be measured by the same or similar endpoints.
  • Commercial teams should have a basic understanding of eCOAs used in clinical development and which ones can be repurposed for digital companions and/or digital therapeutics.

5. Expand the traditional business models

With digital medicine products, the traditional commercialization and acquisition playbook may not be enough. Pharma companies may need to build relationships with new stakeholders or strengthen relationships with existing ones: e.g., care management or population health leaders at health plans; employers as payers or influencers; ambulatory providers as buyers, not just prescribers; and most importantly, patients as the chief health care customer. Identifying digital medicine investment opportunities should be part of business development activities.

• There may be opportunities to use traditional distribution channels in new ways, such as retail and specialty pharmacies, as well as less traditional ones like online prescription platforms.
• Generating demand from patients via DTC is an option for digital companions, whereas digital therapeutics require activation of all stakeholders: patients, providers, payers, pharmacists, and employers.
• Digital therapeutics could be a major change for providers and payers, as they will require adoption of a new standard of care. This will require large awareness and education initiatives, and pharma’s customer-facing personnel will need to learn how to position digital products to these customers.
  • Sales needs to articulate value in relation to other products. There should be incentives to promote digital medicine products.
  • Field medical personnel will need to become comfortable explaining the development and science behind digital medicine products.
  • New types of field-based and market access roles may be required that specialize in digital medicine products.
  • New customer support functions and roles may be needed to support digital medicine products

A future built around prevention, early detection, curative and personalized therapies is emerging. Developing a robust digital medicine product strategy is essential to succeed in this future, especially as evidence continues to grow as to their efficacy in improving outcomes and quality of life. Our research shows that although it may be early days, the age of digital medicine products is here. Life sciences companies that can identify a clear place for themselves within this burgeoning ecosystem should see a competitive advantage with their customers, demonstrate more value to the health care system, and ultimately, deliver better outcomes for patients.

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