Can Digital Therapeutics Deliver Drug-Level Efficacy at a Fraction of the Cost?

Entrepreneurs are betting on applications designed to improve upon or replace prescription drugs. What would happen if apps could replace medication? This is the central question behind the emerging trend of “digital therapeutics.” The concept of digital therapeutics involves developing software that can enhance human health similarly to pharmaceuticals, but with different costs and side effect profiles.

Digital therapeutics, sometimes referred to as “digiceuticals,” have become a focal point in certain circles within Silicon Valley, as investors recognize the opportunity to deliver treatments via smartphones. This suggests that digital therapeutics will replace current chemical and protein-based drugs, while also eliminating the need for hundreds of millions of dollars in marketing expenditures.

Vijay Pande, who heads an award-winning distributed computing laboratory, also co-founded Globavir Biosciences and serves as a consultant to numerous IT companies and emerging biotech firms. He has a strong interest in “digital therapeutics.” In his view, if the first phase of drug development was characterized by small-molecule agents administered via intravenous injection, and the second phase was led by biotechnology companies such as Genentech with protein-based biologics, then the third phase is digital therapeutics.

Venture capital firm Andreessen Horowitz also predicts that digital therapeutics will become the “third phase” of pharmaceutical development. The allure of medicine seems to lie in its almost magical effect: take a pill, wait a short while, and you are cured. However, drugs are not omnipotent; their efficacy is limited, particularly for conditions such as depression, post-traumatic stress disorder (PTSD), smoking cessation, type 2 diabetes, insomnia, and other behavior-mediated disorders.

Vijay Pande wrote in his investment firm’s blog, “If our solution is merely dispensing medications, that would seem like a step backward, or even a primitive approach.” He argues that digital therapeutics involve using behavioral interventions to address genuine behavioral issues, thereby illustrating what digital therapeutics can achieve.

He cited a pertinent example: “Suppose I have severe type 2 diabetes. I could pay someone $100,000 to $200,000 to follow me around like a personal trainer, 24/7, making me do push-ups to build muscle and slapping the donut out of my hand every time I fail to control my eating. This approach would certainly be effective, but it is prohibitively expensive for most of us. Behavioral therapy, by contrast, leverages tools such as health coaches, text messaging, and social networks to deliver similar motivation and coordination. It retains a touch of human interaction while achieving scalability and low cost. Existing methods in this field have demonstrated considerable efficacy, but they remain relatively expensive and have not yet achieved scale.”

Stanford University’s sleep clinic and pediatric obesity clinic serve as prime examples; they deliver exceptional care but at a high cost, serving only a small number of patients each year (typically those from privileged backgrounds). However, it is important to recognize that millions of people suffer from type 2 diabetes, which has become an epidemic.

Digital therapeutics enable the scaling and cost reduction of these successful treatments. They are non-toxic and free of side effects, making them highly attractive from a pharmaceutical perspective. Pande stated that his reluctance to invest in traditional biotechnology stems from concerns over risks associated with side effects and additional regulatory issues.

Yet defining precisely what constitutes digital therapeutics remains as elusive as discovering the fabled Holy Grail. “It is still a fluid field, with everyone trying to categorize it,” said Peter Hames, a British national and CEO of the startup Big Health. Big Health offers an online therapeutic program called Sleepio for insomnia patients, which claims to replace “pills or potions” with visualized training.

Hames stated that digital therapeutics fall into two categories, which he termed “medication augmentation” and “medication substitution.” He classified sleep.io as the latter, as it effectively renders hypnotic medications unnecessary. “Through multiple peer-reviewed studies, we have been able to demonstrate that its efficacy surpasses that of pharmaceuticals,” he said.

The term “digital therapeutics” began to gain traction around 2013, largely thanks to Sean Duffy, CEO of Omada Health. He initially used the term in conferences and the company’s marketing materials to describe its online coaching software, which helps individuals with prediabetes prevent disease progression through increased physical activity and weight loss.

Currently, there are about a dozen startups that call themselves digital therapeutic providers and claim to be distinctly different from the digital health market for activity monitors, smart scales, and sleep trackers.

To distinguish themselves from certain “wellness” gadgets, digital therapeutic companies tend to conduct clinical trials and sometimes seek regulatory approval. For instance, WellDoc offers a prescription-only diabetes management solution available exclusively as the BlueStar mobile app, which has been touted as “the first FDA-approved mobile prescription therapy.” However, unlike pharmaceuticals, digital therapeutics typically do not require approval from the U.S. Food and Drug Administration (FDA), as they often merely facilitate lifestyle or dietary changes that generally pose very low risks.

If digital therapeutics involve tracking sensors or coaching applications, the primary concern is whether they deliver clear, measurable medical benefits. Virta Health, a San Francisco-based startup that identifies itself as a “digital therapeutics” company, raised $37 million in March. Its goal is to leverage online coaching to guide individuals toward a high-fat, low-carbohydrate dietary approach, aiming to genuinely “reverse” diabetes without relying on medications or surgery. The company conducted a study at Indiana State University involving 262 patients with type 2 diabetes, approximately half of whom participated in a 10-week trial. The results demonstrated that these patients’ blood glucose levels could be reduced to the non-diabetic range.

Steve Kraus, an investor at Bessemer Venture Partners, stated that he believes digital therapeutics will become “a reality—I truly believe so.” However, he added that it remains unclear how many people can be freed from disease through this lifestyle-intervention approach in the long term. Yet the “combination” of digital therapeutics with pharmaceuticals may enable patients to function better, which could be the most effective aspect of this concept.

Currently, some digital technology companies have partnered with pharmaceutical firms. For instance, Propeller Health has reached an agreement with GlaxoSmithKline to establish a “digital guided therapy” platform. This approach combines Glaxo’s asthma medications with sensors manufactured by Propeller, enabling monitoring of patients’ inhaler usage. Patients who receive feedback through the Propeller app often end up using less medication.

To achieve widespread adoption, digital therapeutics companies have been striving to emulate the practices and standards of the pharmaceutical industry. Big Health, headquartered in San Francisco, even tested a placebo version of its insomnia app. One group of patients with insomnia received an online visualization training that sounded plausible but was essentially sham; the other group received actual cognitive behavioral therapy, which Big Health has validated as effective. “Digital therapeutics can absolutely outperform placebos,” said Hames.

He believes that, in terms of evidence, digital therapeutics companies may even surpass pharmaceutical companies in the future. “We are a digital company, so we will have vast amounts of data,” said Hames. Once clinical trials are completed, pharmaceutical companies do not always track the real-world outcomes of their drugs. In contrast, digital therapeutics companies can easily obtain such data. He stated, “It is not in the best interest of pharmaceutical companies to do so, as they have already sold their medications. Meanwhile, insurance companies will ask us, ‘You have the data; why don’t you share it with us?’”

Some pharmaceutical executives remain skeptical of this technology. When asked about its significance, Robert Plenge, Vice President of Merck’s Research Laboratories, had to take a closer look at “digital therapeutics.” “I’m not entirely sure what you mean,” he said. “It might just be your answer in itself.” Plenge does not believe that the concept of digital therapeutics will have a major impact on drug development and questions whether digital health companies can demonstrate that their products offer good value for money.

In reality, some digital therapeutics are already significantly cheaper than conventional medications. Big Health charges users of its insomnia software $400 per year, or approximately $33 per month. By comparison, a six-tablet supply of Ambien—enough for six nights’ sleep—costs $73.

A notable existing difference is that insurance companies often cover the majority of medication costs, yet they are still adapting to digital therapeutics. Employers and insurers plan to pay Omada Health $140 per month for the first four months, followed by $20 per month thereafter. Another breakthrough occurred in 2016, when health insurers agreed to reimburse costs for its digital diabetes prevention program.

Ambar Bhattacharyya of Maverick Ventures stated that he believes insurers are already preparing to more broadly explore digital therapeutics. “This is an imminent issue, and I anticipate it will be resolved within a year,” he said. “If the outcome is positive, this sector will experience explosive growth.”