Issue 073

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Digital health research from Brian Dolan.

Welcome to E&O.

Last week I wrote about what investors look for in digital therapeutics startups, why Proteus failed (according to its two founders) and more. Here’s what’s happening this week:

• Juicy rumor: UnitedHealth is reportedly eyeing an acquisition of Amwell (nee American Well), according to financial services firm Jefferies. The bear case is that Amwell just went public, meaning it likely explored the M&A route already prior to its stock market debut. Still, United/Optum needs to play catch-up with Teladongo.
• Meanwhile, Livongo is moving into chronic kidney disease care via a big partnership with one of the established CKD companies, Fresenius. E&O readers (and others who analyzed the Teladongo deal closely) have known about Livongo’s plans to move into CKD since August.
• Billionaire Chamath Palihapitiya is taking Medicare Advantage startup Clover Health public via a SPAC (“blank check company”) merger that would value Clover Health at about $3.7 billion.
• Lark Technologies, which started out as a sleep-focused wearable company and now offers a suite of preventive and chronic care programs, raised $55 million. It also announced an expanded relationship with Anthem.
• This CNBC report digs into how Talkspace is preparing its network of therapists for the end of CMS’ state license waiver, which has allowed virtual care providers to operate across state lines during the pandemic.
• Virta Health, which has focused on reversing Type II diabetes via a keto diet-based coaching program, announced plans to move into diabetes prevention and obesity.
• One more thing… The most interesting government filing I read this week was from Google-backed Elly Health, a startup that has developed a companion app for people with cancer. Elly was created by the founder of Canceraid and the founder of HotDoc, a popular virtual care company in Australia. The filing includes its investor deck (page 48) and lots of other info about the startup, which just got going in May.

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Germany reveals first two digital therapeutics to receive nationwide reimbursement via DiGa (or “apps on prescription”) program

This week marked the long-awaited launch of Germany’s pioneering reimbursement program for prescribable digital therapeutics (Issue 010). (In September, I noted at least 15 of the startups looking to get their digital products into the directory.)

So far, only two are listed. Both are Germany-based companies: GAIA and mynoise.

Tinnitus

Kalmeda from mynoise is an Android or iOS app-based digital therapeutic that treats ringing in the ears, or tinnitus: “The structured program is supplemented by relaxation instructions, soothing nature and background noises and a knowledge section. The behavioral therapy program, which lasts several months, consists of 5 levels with 9 stages each and shows patients step-by-step how to deal with tinnitus in a self-determined manner and to reduce the burden of tinnitus.”

Mynoise has set the price of Kalmeda at 116.97€ ($138.15) for 90 days, and the prescription can be renewed three additional times at that same rate for a total of 467.88€ ($552.59).

Interestingly, Kalmeda is only “temporarily admitted” to the directory for a 12-month period while it builds up its evidence base. It has the option to extend that for twelve more months if it needs more time.

GAD, panic disorder, social anxiety disorder

Meanwhile, GAIA‘s velibra is “permanently admitted” to the directory, because the
“manufacturer has already proven with valid data when submitting the application that the DiGA produce the specified positive care effect(s) for the patient.”

Velibra is a web-based application intended for patients with generalized anxiety disorder, panic disorder with or without agoraphobia, or social anxiety disorder. The digital therapeutic teaches established methods and exercises of cognitive behavioral therapy and is intended as a supplement to otherwise usual treatment from a family doctor.

Velibra is priced at €476 ($562.27) for a one-time license that allows use for 90 days. An additional fee is required for another 90 days of use, which would assumedly double the price above.

The DiGa directory has a lot of information (in German) about these two digital therapeutics. You can click through the various sections here.

Five pharma companies weigh in on pricing strategies for digital therapeutics

Below is an excerpt from a panel at the DTx East virtual conference. This one is a conversation between five digital health leads at big pharma companies. Read the full transcript of the panel over at the E&O site here, or read on for an excerpt of the conversation that focused on what the pharma company representatives thought about how digital therapeutics should be priced:

Since the cost of developing and maintaining a software-driven DTx is less than — or are arguably less than — traditional drugs. What are the panel’s thoughts on the ability for software-only DTx to get reimbursed in the US with sustainable unit economics in the way that drugs have?

Michael Latauska, Director, Digital Health, Boehringer Ingelheim: The jury is still out on how much these actually do cost. In the end, they will prove to be much more expensive than we originally would intuit. The clinical evidence costs are very similar. The development itself is not as quick or as painless as one might imagine. I would just caution that while they should be less expensive than putting out a major vaccine or something like that, they will end up being orders of magnitude more expensive than most people imagine. Should they be worth as much from a reimbursement point of view? I don’t know but I think that we shouldn’t assume that they are cheap for the pharma company.

Rachel Sha, Vice President, Digital Business Development, Sanofi: I totally agree. It would be a lost opportunity to anchor price on the engineering portion of the development effort for these therapeutics. We should look at the outcomes it generated, the value it demonstrated in terms of improvement I disease, quality of life, all the same measures that we would use on a therapeutic that is chemical or biological in nature. We should use the same ones in this case of supporting the pricing for the therapy. That said, I think the public would have a riot if we applied gene therapy prices to DTx products, so there is some sort of calibration that does need to occur, but at the same time I don’t see why we couldn’t use the same tools to demonstrate the benefit that these therapies offer to support reasonable prices.

Paul Upham, Head, Smart Devices, Roche / Genentech: To emphasize your points about costs, and Rachel’s point that this is not just about the development costs, it is probably going to take longer than we might be thinking if we are thinking from a consumer technology mindset of quickly building an app and getting it onto the AppStore. We haven’t worked out what it cost to commercialize. Especially, globally. We don’t understand how we have to change the traditional pharma commercialization model to be successful with digital therapeutics. If you look at some of the digital health companies that have been the most successful, they come from a service orientation, where the leadership maybe has experience in selling IT solutions into healthcare ecosystems. That isn’t something that a lot of pharma have much or any experience with, but it is probably essential to the successful commercialization of these digital solutions that are complementary to a pharmaceutical or standalone.

Lauren Li, Head of Digital Health, Ipsen: I agree. Sometimes when digital therapeutics companies approach pharma, the thinking is to leverage pharma’s field force, co-promote, etc. Unfortunately, that is not very realistic. A traditional in-person detailing of a drug product is quite different when you are explaining how a digital therapeutic will work. It will require a different commercialization model, and pharma’s current model will not be exactly carried over.

Joris van Dam, Executive Director, Head of Digital Therapeutics, Novartis: There is another opportunity that is unique to digital therapeutics. If you look at the lifecycle for drugs, it takes a lot of time and costs a lot of money, then you can recuperate that investment and create shareholder value while you have patent protection and then when the patent expires the molecule becomes a little bit different, but by and large, if you want to introduce a successor product, you go back to the drawing board. Then, you are looking at another 10 years to get to another billion dollars. It doesn’t have to be like that in digital therapeutics and it shouldn’t be.

Van Dam (continued): Digital therapeutics should definitely be priced based on value because then you can invest in improving it. Every digital therapeutics vendor on this call knows exactly how every patient is doing. You can pull it up on a dashboard and look at your database. None of the pharma people on this call know exactly how our patients are doing on our drug. We would have to start a study. We would have to start a patient registry. We would have to at least start a survey. The incremental cost of data acquisition for pharma is super high. The incremental cost for data acquisition for a digital therapeutic company is zero. Use that. You don’t have patent protection – well, you have some patent protection, but not as strong as we have for new chemical entities – so, invest in using the data to improve your product. That’s the way to stay ahead of the competition. Maybe you find something that is so big and new that you do have to do another data submission to the agency and go back, but the lines of what you are allowed to do without going back for a new submission are under discussion. There is a great opportunity to get better and better with each patient you treat. That is something we don’t have in pharma. Use that. Invest in that. And use that to jack up your price. Quite honestly, if you are creating better outcomes, why not? It should be outcomes-driven.

Quick links: E&O research reports and databases

The links below aim to make it easier for paying subscribers to find the long-form research reports and databases on the E&O site:

The Virgin Pulse Report (Subscribers-only Link)
The Evidation Health Report (Subscribers-only Link)
Database: Rx-only Digital Therapeutics Pipeline of Pipelines (Subscribers-only Link)
Database: Online Diabetes Prevention Program Companies (Subscribers-only Link)
Database: Digital Health PPP Loans (Open Access)
The Proteus Digital Health Report (Subscribers-only Link)
The Hinge Health Report (Subscribers-only Link)
The Digital Health Enrollment Report (Subscribers-only Link)
The Omada Health Report (Subscribers-only Link)
The Google Health Report (Subscribers-only Link)
The Pear Therapeutics Report (Subscribers-only Link)
The AliveCor Report (Subscribers-only Link)
Apple’s Healthcare Work Experience (Subscribers-only Link)
Approximating Livongo’s S-1 (Subscribers-only Link)

That’s a wrap on Issue 073 of E&O.