Digital Therapeutics: Investors & Inventors Guides

There has been an explosion of health apps designed to help us improve our health and manage diseases. It is an exciting time in the world of healthcare innovation with the convergence of pharmaceuticals, medical devices, and digital health. This very recent convergence is referred to as Digital Therapeutics in which the App is part of a Food and Drug Administration (FDA) approved, peer-reviewed service which is prescribed by physicians to improve patient self-care and disease management.

… digital therapeutics tend to target conditions that are poorly addressed by the healthcare system today, such as chronic diseases or neurological disorders. In addition, they can often deliver treatment more cheaply than traditional therapy by reducing demands on clinicians’ time. And all the while, more evidence is emerging to demonstrate their value in clinical terms.

McKinsey 2018: Digital therapeutics: Preparing for takeoff

Electronically supported healthcare has penetrated greater than 90% of the provider market due to more than $30 billion dollars of federal government subsidies and private sector investment. Today’s electronics take the form of Electronic Health Records (EHRs) which represents a promising but undeveloped approach to improved communication and efficient care. The meager achievement thus far in electronic healthcare is summarized in Dr. Robert Wachter’s Digital Doctor.

… someday the computerization of medicine will surely be that long-awaited “disruptive innovation,” today it’s often just plain disruptive: of the doctor-patient relationship, of clinicians’ professional interactions and workflow, and of the way we measure and try to improve things.
― Robert Wachter, 

The Digital Doctor: Hope, Hype, and Harm at the Dawn of Medicine’s Computer Age

Digital Therapeutics represents the next evolution in electronically supported healthcare. This article is intended to guide inventors and investors by laying out a framework from lab to marketplace.

Electronic healthcare includes current EHRs, health apps, and emerging digital therapeutics apps. EHRs support documentation, billing, and basic clinical decision support. EHRs have companion patient portals which provide access to clinical documents and convenience features such as appointment and medication refill requests.

Health apps are standalone, consumer-focused smartphone apps that are rarely connected to EHRs and are not FDA approved and lack peer-reviewed evidence of safety and effectiveness.

Digital therapeutics apps are FDA approved and have published peer-reviewed evidence of safety and effectiveness. These apps will likely be integrated into a remote monitoring service which is prescribed by physicians to improve patient self-care and disease management.

Reason for Action: The US healthcare system represents $3.5 trillion dollars of expense per year (and growing), making our system by far the most expensive system per capita in the world. Dr. Hans Rosling summarized the world’s progress in health to wealth.

Experts estimate we waste between $100-290 billion dollars each year due to disorganized medication management. The Institute of Medicine has published seminal reports that detail the safety, quality, and service missteps wired into the healthcare system that generate 200,000 premature deaths every year. The average American is foregoing primary care and prevention due to increasingly unaffordable out of pocket expenses.

Current State: Drug development is a well-understood activity for inventors and investors. On average it costs more than $1 billion dollars to bring a successful drug to the US market. Pharmaceutical companies and investors continue to make these investments given the strong market of prescribed medications. In contrast, health apps are inexpensive and use consumer technology models. This has resulted in thousands of low-value health apps with no evidence of safety and effectiveness. Consumer and physician adoption has been dismal. Federal agencies including the Food and Drug Administration (FDA) are promoting processes that should be better suited to properly approve apps and algorithms to bolster consumer and provider confidence in the safety and efficacy of these tools. The major challenge for both inventors and investors is the lack of experience and unclear total costs of getting apps to market. We have not yet seen a blockbuster app as we have seen in the form of drugs.

Future State: It is anticipated that a series of digital therapeutic apps will receive FDA clearance, have peer-reviewed published evidence of effectiveness, and have clear payment models. Digital therapeutics apps may improve the effectiveness of remotely monitoring cardiac disease, neurologic disease, diabetes, and respiratory diseases. Today, some patients are using off the shelf technologies from Amazon, Apple, and Google to improve adherence to medications, reminders, and to monitor loved ones. Each of these technology giants is making significant investments in healthcare innovation, including for their own employees. However, the consumer approach to health app development is inadequate.

… partner with frontline providers, especially primary care physicians who have established relationships with their patients and families.

Announce your initiatives AFTER you have achieved public and peer-reviewed results to build trust from both patients and providers.


In order to justify payment from insurance companies, these companies and inventors must be able to publish peer-reviewed evidence. Once there is evidence for the effectiveness and safety, physicians will more willing to prescribe these services to support the triple aim aligned essential relationship. Inventors will be more successful by partnering with physicians to sustain their practice autonomy, focus on accurate diagnosis, and manage risk. Today’s EHRs have negatively impacted these areas and have un-intentionally reduced productivity and contributed to professional burnout. Well designed and tested digital therapeutic apps will automate accurate data collection, encourage patient adherence to care plan, and support problem solving during face to face encounters.

In order to move to this future state, it is important to identify and manage phases from invention to market acceptance. The remainder of the article will describe opportunities for improvement.

Invention Phase: Many apps are created as a simple solution at one institution or within a narrow specialty. These solutions often are deployed at academic centers of excellence. This is analogous to the basic science research that contributes to pharmaceutical drug discovery. It is important to note that a digital therapeutic app that is successful at one institution represents a solution but is not yet a product that is ready for the market Just as with devices, inventors should publish peer-reviewed evidence of their early work and collaborate with community healthcare systems to evolve their solution to the broader market. The invention phase is incredibly challenging for those not based at academic institutions. Inventors need to be agile at raising funds from grants, contracts, and angel investors during this phase. It will likely require $1-2 million dollars of non-sweat equity funding to survive to the early product phase.

Product Phase: It is essential to pursue FDA clearance during this phase and to improve remote monitoring for expensive chronic cardiac, neurologic, metabolic, and respiratory diseases. Luke Marshall’s (CEO Vitalflo) recent interview (podcast) explains his company moved into this phase. Publishing in peer-reviewed journals about the safety and effectiveness of their products and services will significantly help their marketing effort. Almost all digital therapeutic apps will have cloud-based data storage and analytics. The analytics and predictive machine learning models will change over time. This is distinctly different from drug discovery and represents both opportunity and risk. This uncertainty is especially problematic for potential investors who are more familiar with drug discovery risks. Consumer technology models for successful social media apps require continuous innovation in analytics and predictive models to support core business models such as advertising and data sharing. Again, this is distinctly different from FDA approved digital therapeutics apps given HIPAA privacy regulations. HIPAA compliance, cybersecurity, and patient consent models are critical to the next phase of development. It will likely require $5 million dollars of additional investment to reach product phase.

Early Market Phase: At this point in product development, the digital therapeutic app should be deployed in at least two different environments outside of the original solution site. Engagement of early customers is difficult and without it, increases the risk of failure. It is recommended that early customers have executive sponsorship for the project, pay 10-20% of market value for service (skin in the game), and include technically flexible frontline employees. There are a number of communities that have a track record of successful health information exchange (HIE), significant external investment in the form of awards or grants, and well-identified community needs. Even in these situations, it can be challenging to sustain workflow change and evolve adequate payment models with insurance companies and employers. It is important to learn from device and drug discovery models how to justify payment for a new service. This phase will likely require $10 million dollars of investment.

Ongoing Market Phase: It is important to move into more mainstream less innovative customers with your product and service. At this point in product development, the charge for the product and service should be as close to retail price as the market will allow. Increasingly, revenue streams from existing customers are critical for the next wave of investment and re-investment. The marketing of the product should be established and leverage reference accounts, peer-reviewed publications, and industry resources. This phase provides more opportunity to standardize your offering to support profit. At this point, your product should not require major software development. The focus is on marketing, sales, and service. Depending on the expectations for growth, this phase could require an additional $20 million dollars of investment.

Market Acceptance: The investment community needs to understand the investment requirements, the time needed for development, and potential rewards so that a blockbuster product can be developed and become a household name.

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