During Day 2 of the Digital Therapeutics Alliance's annual conference in Washington, D.C., industry stakeholders addressed the reality of the digital therapeutics market and offered advice to DTx companies looking to be acquired, find revenue streams and contract with health plans.
Here are three takeaways:
- Stakeholders expect mergers and acquisitions of digital therapeutics companies to pick up in the fall and say the market is ripe with opportunity, though it might seem down and out.
- Companies are finding creative ways to create revenue by working with established players like the Department of Veterans Affairs and school systems.
- Health plans are in "a sea of opportunity" with digital health — and that's not necessarily a good thing.
M&A in digital therapeutics
Industry stakeholders expect mergers and acquisitions in the digital therapeutics market to pick up in the second half of 2024.
Omar Manejwala, chief medical officer at DarioHealth, and Susa Monacelli, general manager at Propeller Health/ResMed, said though the DTx market may look slightly down and out after the hardships of the last two years, the time is ripe for companies to make moves in M&A and hire new personnel.
Wayne Janke, senior associate at Arnold & Porter, said their clients have been assessing companies to begin acquisitions in the coming months.
“I think there's a lot of activity in the private market, market scanning, that's going on on our end, and we've had a pretty steady flow, like I said earlier, in terms of doing acquisitions,” Monacelli said. “I would not be surprised if (M&A) starts to pick up in the third and fourth quarter, not just for us as a company, but for others as well.”
Monacelli said she has noticed a strategic shift for DTx companies that have traditionally focused on DME to build out capabilities to access other channels like direct-to-payer contracting opportunities and direct-to health system relationships.
“First of all, this is a precious moment,” Manejwala said. “I know people have been looking at this as (a hard time for the industry) … In my view, it's the opposite. These were the kinds of moments that Google was born in, that Amazon was born in. If you look at the charts, this is the time properties are on sale. There's amazing talent that's floating out there. I mean, I think if you wait when things are running high then you're missing the opportunity.”
The experienced panel resoundingly said that the most important aspect of successful M&A is the ability for personnel to work well together. There should also be similarities in business models, goals or priorities.
If looking for an acquisition deal, Monacelli said founders should be proactive in reaching out to executives of companies they think their business would work well with.
Revenue pathways for digital therapeutics
As digital therapeutics is still an emerging market, companies are finding creative ways to create revenue, while reimbursement for digital therapeutics as a standalone category remains elusive from the Centers for Medicare and Medicaid Services (CMS) and other national payers.
The three companies represented on the panel – MedRhythms, Floreo and JOGO Health – all had different revenue streams, but a key similarity between them was working within established networks: the Department of Veterans Affairs, school systems and health systems.
Owen McCarthy, CEO and co-founder of MedRhythms, said the company decided to work within the construct of durable medical equipment, which has an established regulatory pathway through the Food and Drug Administration (FDA) and CMS. It has been approved as DME and works with DME suppliers in states for distribution.
MedRhythms has also found the Department of Veterans Affairs to be a partner open to innovations in medical treatment. It has contracted with the VA to offer its products.
McCarthy also advised that breaking into the direct-to-consumer space is not as costly as executives may believe. He said companies could also take the route of using a miscellaneous code with payers in the process to create a unique code for the product.
Siva Nadarajah, president of JOGO Health, said JOGO’s revenue strategy was to become a brick-and-mortar healthcare provider. JOGO partners with established health systems like Mayo Clinic and Mount Sinai who refer their patients to the DTx provider for treatment. Nadarajah said the service industry is profitable. He shared that within 18 months of being stood up, the clinics had generated $1 million.
Because of the success the company had with its clinics, Nadarajah said health systems gained interest in licensing the technology to use themselves. Licensing can generate much higher revenues, he said.
Nadarajah advised that DTx companies partner with regional patient advocacy groups to build trust and buy-in with the product.
April Marrone, advisor to the FDA’s Total Product Lifecycle Advisory Program, helps medical devices with FDA Breakthrough status achieve successful commercialization. Marrone suggested that DTx companies consider pathways to payment as they develop their regulatory strategy and the level of evidence needed for each pathway.
Vijay Ravindran, CEO of Floreo, said the company has tapped into an established market by doing equipment rentals to autism therapy clinics and licensing the product to school systems. Both have helped the company obtain a firm grasp on revenue within the uncertain DTx market.
Collaboration with health plans
Health plans are in "a sea of opportunity" with digital health — and that's not necessarily a good thing.
Meg Barron, managing director of engagement and outreach at the Peterson Health Technology Institute, says plans are dealing with an overwhelming landscape of digital health products. Most want to get down to brass tacks and find out if a given digital health solution will actually work for them and their members compared to the status quo of care.
PHTI’s goal as an independent assessor of digital health technologies is to help stakeholders cut through the noise of the digital health industry and help proven products scale faster.
Monica Frederick, senior vice president of strategic accounts at Freespira, says companies need to fit into the processes of health plans.
When Freespira goes to pitch a health plan, it comes armed with a rigorous implementation plan so the payer can easily see how the therapy could be rolled out across their membership. Frederick says DTx companies have to be ready to do the heavy lifting of implementation.
They also must look at the health plan as a partner. Freespira always comes armed with co-branded marketing materials and works with the health plan to tailor outreach to their members, Frederick noted.
Moreover, Frederick said digital therapeutics companies have to understand the risk and responsibility the plans are taking on when they implement a new product. The plan member will look to the plan if something goes wrong with the device, she said, not the DTx company.
Cody Midlam, director at Willis Towers Watson's healthcare practice, says plans want to contract with technology vendors that can offer better care to their patients. Employer-sponsored health plans aim to improve the health of their employees, he said, and drive employee retention. Even if implementing a digital therapeutic would increase costs for the plan, it could still be worth it if, for example, the therapy was meeting an unmet need for members.
Midlam said employers are focused on three major health concerns — obesity, oncology and autoimmune conditions. Many employers want to keep the costs of GLP-1s to a minimum and thus prefer products that offer tech wraparound services along with the drugs. Midlam said he thinks there’s opportunities for clinical innovation in oncology and immunology.
He continued saying one of the most important things for a digital therapeutics company to do is plug their solution into the messiness of the healthcare system in a way that does not make operations more difficult.
Shirley Moncada, director of program management at Kaiser Permanente, said DTx companies need to include subject matter experts in their conversations with health plans. When in conversation with a health plan, DTx companies also need to think about how they are increasing the quality of care, how they will implement their solution and how they will bring down overall costs for providers and payers. Companies should also think about how they will support health plans if problems arise with their software.
Jonathan Schremp, director of digital health engagement at Banner Health, explained that the company often looks for solutions in the areas where it has the most claims. He said the company might hold a meeting to discuss the conditions with the highest claims volume in the last month and may look for digital solutions in that area. He also said Banner’s uptake of new solutions depends on the year and the health system's financial margins at that time.
Patients trust their providers first and foremost in their clinical care, Schremp noted, so having a provider recommend the product to the patient is the best way to gain adoption. He also pointed out the discrepancy between physicians’ priorities to “do no harm” and tech’s tendency to “go fast and break things.” DTx companies need to thread that needle, he said.