Over the past year, the once hushed murmurs that DTx are in trouble, have grown to more sinister tones, with questions of ‘Are DTx Dead?‘. These questions are not without reasoning; suboptimal clinical evaluations, reduced investments, and crucially, minimal payor coverage, have meant the industry has fallen short of some early expectations that by 2025, digitally-delivered therapies will be part of our regular healthcare experience. But let’s take a moment; were these expectations ever fair, or even realistic? Primarily set in the throes and the direct aftermath of a global pandemic, when in-person care delivery became compromised and digital health investments soared, it is easy to understand the excitement and accelerated innovation, as well as to proclaim in hindsight that this was premature. Instead, let’s explore the nuances that have led to this juncture, and adjust expectations of this relatively new industry—virtually non-existent just six years ago—in line with historical trends in healthcare. 

Tracing the Origins of the Misaligned Expectations

Although difficult to pinpoint the origins of DTx, the 40% year-on-year increase in investments in the U.S. between 2011 and 2018 set the groundwork for a new approach to therapeutic intervention. As with any emerging industry, be it healthcare or another sector, innovators—from digital health startups to biopharmaceutical firms—actively pursued investment opportunities, resulting in a wave of entrants into the DTx space. Amidst the COVID-19 pandemic and increasing acceptance of digital innovation, DTx funding surged by 133% between 2020 and 2021, reaching $3.4 billion. U.S. regulators drove innovation; regulating incumbent DTx as SaMD under 510(k) and De Novo pathways; enacting temporary policies to allow access to low-risk, unregulated devices during a public health emergency; granting Breakthrough Device status to recognize the potential of these devices in improving standard care. Althewhile, this ‘evidence-based’ software continued to build evidence, in the path to reimbursement. Why wouldn’t expectations be high? 

The Downfalls That Shifted the Tone

And then, just 10 years after the company’s inception, the market leader and manufacturer of three FDA-cleared prescription digital therapeutics, Pear Therapeutics, filed for bankruptcy. Within a year, 2 more dominant U.S. players shuttered operations. The postmortem; payor reluctance to reimburse software priced like a drug, is compounded by limited HCP and patient adoption even in the face of reimbursement or lower direct-to-consumer price points. Their subsequent shortfall in cash could not be mitigated by lowering operating expenses or pivoting business models, and so, operations ceased. This prompted the question; are all DTx in this market designed to the same fate? 

The Trail Not Blazed

Raising the question overlooks the nuances behind these failures, particularly around misaligned expectations. As trailblazers in the U.S., these incumbents invested heavily to convince certain stakeholders of their value, with the natural expectation that this trail was the best route. In the absence of reimbursement guidelines, they conducted extensive clinical research, hopeful it would meet payor demands. They increased headcount to drive adoption before securing widespread payor coverage. They developed product pipelines before the initial product achieved commercial viability. Some priced their software like a drug, reducing consumer purchasing power. Although understandable, these strategies resulted in substantial costs that their cash reserves simply could not sustain. Having received massive investments on the assumption that the ‘trail’ would lead to reimbursement, companies faced inflated capital and unachievable market expectations when coverage failed to materialize. The blazed trail proved problematic. However, to view this as an exceptional failure is to dismiss other healthcare markets that emerged from the setbacks of others.

Many Healthcare Industries are Built on the Failures of their Earliest Innovators

Time will tell if the departure of initial pioneers is the inevitable step toward a more advanced era for DTx, but such transitions are not uncommon in healthcare. Fields like gene therapy, biologics, even robotic surgery, and companion diagnostics have all faced adversity and saw early market entrants fail. However, these challenges ultimately paved the way for a stronger and more informed presence, guided by lessons learned. Gene therapy, for instance, experienced initial excitement, investment, and regulatory attention in the 1990s, before encountering major and tragic setbacks in 1999 and the 2000s that impeded progress. Innovators nonetheless persisted, albeit with more contained expectations and with stricter regulatory oversight. As research has advanced, gene therapy has entered into a new and more promising era. Despite ongoing scalability and regulatory challenges, this progress highlights the importance of patience and perseverance—sentiments that should also guide expectations for DTx. It also means that we should value the contributions of early DTx pioneers. While their downfall may cast a lingering shadow of pessimism, their costly efforts have unveiled additional aspects of the journey ahead, revealing that it may be longer and more iterative than initially expected.

So What Now?

The above call for patience doesn't ease the current difficulties faced by DTx companies navigating complex market conditions. Several market trends are emerging amidst these dynamics. Consolidation is reducing the number of players, a typical feature of maturing markets, and is uncovering new market leaders. Many leaders are expanding their portfolios and service offerings, creating more comprehensive and patient-centric platforms, Some are deepening pharmaceutical partnerships to benefit from longer revenue cycles. Meanwhile, other companies are enhancing their telehealth and virtual care services to diversify revenue streams, while some are shifting away from the challenging prescription model. Instead, they are opting for direct-to-consumer sales or partnerships with employers to bypass payer-related and HCP adoption issues, with the aim of hastening revenue generation. Across these strategies, DTx pricing remains a critical challenge. Companies, having invested considerable time and resources to demonstrate clinical and cost-effectiveness, must strike a balance between setting a profitable price and ensuring patient accessibility, all while collecting long-term economic data to eventually meet payer demands. As a result, price expectations are once again adjusting downward from initial projections.

With Realigned Expectations, Let us Embrace New Efforts and Evolving Policies with Optimism

As these challenges are navigated, we should anticipate further market iterations, but remain optimistic about evolving conditions. In the U.S., upcoming regulatory changes, such as the PDURS guidance and CMS’ 2025 Physician Fee Schedule Rule, may trigger greater pharma involvement with longer revenue cycles, and foster a more favorable environment for reimbursement. While the U.S. market is undoubtedly appealing, establishing a strong presence in Europe before making significant advances in the U.S. could be strategic, much like what played out in biologics. Despite challenges, the more advanced European reimbursement frameworks are being refined to address market specifics like pricing. Efforts to harmonize regulatory oversight across member states, and promote digital innovation through data-sharing initiatives, may also foster a more supportive environment for DTx. In Asia, increasing acceptance of DTx in countries like South Korea and Singapore could help accumulate the long-term data necessary to persuade U.S. payors of the value of DTx. 

As we adapt to these new expectations, let’s remain enthusiastic and supportive of the opportunities ahead as the new DTx leaders try to chart a more sustainable path forward.