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.
To what extent are biopharma companies effectively moving and investing to capitalize on the digital medicine product opportunity today? We interviewed 41 executives from life sciences, technology, payer, and provider organizations to better understand the current state of digital medicine products. We found that:
Biopharma companies are experimenting with digital medicine products
Business models are evolving as reimbursement remains a challenge
Operating models to support digital medicine products are in early days
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:
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.
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).
The Deloitte Center for Health Solutions collaborated with the Digital Medicine Society (DiMe) to study the current trends around development and commercialization of digital medicine products. Between September and November 2020, we conducted 35 interviews with 41 digital health experts to understand leading practices, needed capabilities, reimbursement landscape, and challenges. Interviewed executives included heads of digital health functions, medical directors, and strategy officers from life sciences companies, providers, and payers, and CEOs of tech companies. The goal was to develop a comprehensive look at what has worked well, lessons learned, and where the market is heading.
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.
The 21st Century Cures Act of 2016 laid the groundwork for new regulatory frameworks for digital health.
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.
FDA expands access to digital health products for mental health
For the duration of the pandemic, the FDA has waived several requirements for digital health products for mental health and psychiatric disorders. These include 510(k) submission, registration and listing requirements, and unique device identification requirements.16
A few companies took advantage of this opportunity releasing their products on a limited basis prior to their final FDA approval. Akili Interactive Labs released EndeavorRx, a gamified digital therapeutic to improve attention in children with attention deficit hyperactivity disorder.17 Orexeo, a Swiss pharmaceutical company, launched its digital therapeutic products Vorvida for problematic drinking and Deprexis for depression in the United States.18
CMS waives many virtual health restrictions
To help Americans stay safe while getting access to health care, the US Centers for Medicare & Medicaid Services (CMS) and the Trump administration made many temporary changes to telehealth regulations, waiving certain restrictions and providing other flexibilities, such as:
While the flexibilities are tied to the pandemic and will likely be pulled back or modified when the public health emergency is declared over, many expect regulators to use the normal rule-making process to take into consideration what was learned during the emergency and what flexibilities should be adopted moving forward.
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.
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:
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.
"Our digital companion strategy is not just about the patient but the entire spectrum of needs: adherence, access, and affordability, and from health care professionals’ perspective, diagnosis, treatment, identification and awareness of a disease, and helping to treat that disease. We are looking at this from all points of view for each of our customers."
—Senior VP of digital, mobile, and user experience, biopharma company.
Executives we interviewed say it can be difficult to accurately estimate ROI from digital companions. Companies are experimenting with multiple metrics and approaches for assessment. A common approach is to analyze the companion’s ability to improve adherence to treatment protocol and support patient engagement. Metrics include usage statistics (number of downloads, ongoing usage, and frequency), adherence to drug therapy, staying on therapy, and patients’ feedback.
One interviewed company makes its investments in digital companions contingent on achieving predetermined milestones. Once a minimum viable product is built, the company conducts a proof of concept to understand its uptake and benefits to patients. This involves a variety of qualitative (observation and interviews with patients) and quantitative (usage metrics, uptake at the time of promotional activity) assessments. Based on the data, a decision is made on whether to invest in a full-scale launch or to tweak the companion and reassess its performance: “If we go through a number of release cycles and we’re not making a substantive improvement on the asset, we pull it out of the marketplace.”
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.
"The revenues in the CNS space for depression and anxiety are modest compared to other TAs. Even if you consider MS, can a digital therapeutic take the place of an $80,000 drug? No, not at all. Other TAs, like diabetes or hypertension, are very low margin drug areas."
—Head, digital therapeutics company
From our interviews, digital medicine product developers are exploring the following reimbursement in the United States:
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.
"Even when cognitive behavioral therapy (CBT) is covered under the medical benefit (as opposed to carve-out), we’d want evidence the digital app will be replacing in-person visits. But if it’s used in conjunction or in addition to in-person CBT, then you are adding expense."
—Medical director, national health plan
"Welldoc found that, as a prescription product, taking the payer route and the physician route was really tough. Now they have direct-to-employer business model where the employer pays for it and offers it to the patient (without a prescription)."
—Head, digital therapeutics company
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.
Even though digital medicine products have not been a priority for payers, some are experimenting with new reimbursement models to support patient access to these products
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.
"We are very much focused on the patient problem for digital innovation. It’s about 'What is the patient challenge and where is the problem?' We then proceed to the market and figure out what is the right technology or innovations to help resolve this issue that we’re seeing."
—Director, corporate strategy and innovation, biopharma company
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.
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.
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.
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:
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.
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.
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:
Incorporating digital medicine products successfully into a company’s portfolio will require a rethinking of traditional drug development processes and:
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.
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.
ConvergeHEALTH helps put patients at the center of health care. By connecting an ecosystem of digital health and analytics platforms and industry partnerships with the global reach of Deloitte, ConvergeHEALTH empowers organizations to make the shift to value-based personalized health care.