The Future of Smart Drugs: FDA’s New Guidance on Digital Therapeutics Could Revolutionize Pharma and Patient Care
Randall Stanicky, Contributing Editor of Finance and Digital Therapeutics Dr. Martin Alexander Gershon, Editor-in-Chief, Endeavor Venture Funds Partnering for BetterHealth Newsletter
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In this week’s article we are featuring Contributing Editor Randall Stanicky, the Chief Financial Officer of Click Therapeutics, and a prominent voice in healthcare, finance, and digital technologies.
In this article, Randall Stanicky explores the potential for prescription digital therapeutics* to revolutionize healthcare by combining digital and traditional drug treatments into "smart drugs", providing patients with advanced tools for disease management, support, and information with exceptional consistency. New FDA guidance could pave the way for these innovations by integrating digital components into drug labeling and efficacy claims, potentially transforming the pharmaceutical industry. These interventions not only enhance clinical care by offering comprehensive support for managing complex and often challenging conditions but also empower patients to take an active role in their health journey. By combining cutting-edge technology with personalized care, digital therapeutics represent the future of customized healthcare delivery and signify a significant evolution in treatment approaches.
As we look ahead, the insights and leadership of thought leaders like Randall Stanicky illuminate the path, urging us to reconsider how healthcare can be delivered and experienced.
The Next Big Theme in Healthcare You Might Not Have Heard of (Yet)
Innovation in healthcare can take time. Electronic medical records have long been obvious. Biosimilars were always around the corner for the last 20 years until they finally weren’t. And like other advances in healthcare, the roll-out of prescription digital therapeutics (PDTs) has been messy.
These Food and Drug Administration (FDA) cleared, evidence-based treatments have (so far) been over-hyped and have under-delivered. The sharp stock price declines in the early Special Purpose Acquisition Company (SPAC) backed entrants put an exclamation mark on those struggles. But like many new innovations, the failure of early movers has informed on the path forward. Specifically, what didn’t work in the first wave of digital therapeutic companies: subpar data.
Let me frame it another way. We learned that if your ‘digital drug’ cannot produce drug-like outcomes using drug-like endpoints, then you simply do not have a medicine that will be prescribed and paid for. Lesson learned. So it’s really no wonder that the early market enthusiasm for PDTs is as low as it is.
FDA's New Guidance: Paving the Way for 'Smart Drugs'
But that is about to change. A new generation of PDTs that can potentially deliver ‘real’ drug-like outcomes by combining neurological, cognitive, and behavioral interventions with personalized patient journeys based on artificial intelligence (AI) are near. And what if these effective digital treatments could combine with traditional drugs to create superior ‘smart drugs’ that could take therapeutic care to a whole new level?
The FDA appears to see that with the introduction of new industry guidance. In that new guidance, we believe the Agency has effectively provided industry with a roadmap for how to create this new class of ‘smart’ drugs. It may not seem obvious now, but it is very possible, if not likely, that the FDA has just changed the future drug landscape as we know it.
Unlocking the Future of Smart Drugs: Understanding the FDA's New PDURS Draft Guidance
The Prescription Drug Use Related Software (PDURS) draft guidance introduced by FDA in September of 2023 is still largely under the radar. What is it and why could it be the next big theme in healthcare that doesn’t involve a GLP-1 (well, it probably will)?
The PDURS draft guidance provides a path for digital drugs that have the clinical rigor of Software as a Medical Device (SaMD) to combine with new or existing traditional drug treatments to create “combination” smart drugs. In the most basic terms, the guidance states that when Software as a Medical Device in combination with a drug demonstrates additional clinically meaningful benefit beyond that of the drug alone, that added benefit may be included on the drug label, directly in the package insert1. The Agency specifies that the added benefit must be supported by one or more adequate and well-controlled clinical studies2. The FDA further clarifies that companion apps should not go into the drug label and instead only be referenced in marketing materials3 .
So what does all that mean? It means that the FDA has effectively created a new class of smart drugs that could lead to the broad digitization of pharma pipelines across the therapeutic spectrum. And by including the data from this new drug class directly into the drug package insert, FDA is looking to make sure that benefit is clear to prescribers and patients.
Why Does This Matter?
Pharmaceutical companies now have tools to potentially improve the efficacy (and possibly safety) in the label of nearly every drug on the market and in development by adding an SaMD digital component. And that could be a big win for patients and a giant step forward towards the goal of truly personalized medicine.
The AI-driven functionality has potential to improve efficacy the longer a patient remains on drug. In the future the data generated could have a profound impact on our understanding of how to best treat patients in the future. Over time, it is not unreasonable to expect that traditional drug therapy could pair with digital components that could be turned on to address patient-specific co-morbidities and secondary symptoms without added safety concerns.
According to Dr. Ted A. James, MD, MHCM, FACS, medical director and chief of breast surgical oncology at Beth Israel Deaconess Medical Center,
“I think digital innovation will fundamentally transform the face of health care, allowing for individualization in a way that will truly benefit our most important stakeholders: our patients. Digital health will be the driving force behind putting health care in the hands of patients … improving access, efficiency, and convenience while also empowering patients for self-care
Enhancing Medication Adherence and Outcomes: The Benefits of Combining Digital and Traditional Therapies
In the more immediate term and putting aside the resulting better efficacy, the digital alliance with both patients and physicians could keep patients on drugs longer and with greater personal engagement from their doctors. “Poor medication adherence takes the lives of 125,000 Americans annually and costs the healthcare system as much as $300 billion a year in additional medical appointments, emergency department visits, and hospitalizations.” 4
So a new “combo” drug/digital class of drugs could be a big win for patients. And better outcomes for patients mean lower costs for payers and the broader healthcare system. When you layer on the better efficacy these ‘smart’ drugs would bring, the benefits may be immeasurable.
The Pharma Impact: How PDURS Guidance Could Revolutionize Drug Differentiation and Innovation
The PDURS guidance establishes a path to theoretically deliver better drugs both on efficacy and potentially safety as well. That could add material differentiation among drugs within crowded therapeutic drug classes. As an example, think about migraine differentiation within a class of CGRP drugs where a greater reduction in migraine days per month could have huge implications. Or alternatively it could address the harsh secondary conditions related to diseases like cancer, by addressing pain or fatigue, or even identifying preferred patient-specific drug regimens that could ultimately improve overall survival.
That “added benefit” could potentially improve formulary positioning within the existing reimbursement structure and drive higher market share to smart drugs that provide greater efficacy. And while keeping patients on therapy for longer—where appropriate—could drive better outcomes, for some disease states the hope would be that these smart drugs could enable patients to achieve remission early and no longer need further drug treatment at all.
AI-Enhanced 'Smart' Drugs: Shifting Pharma Innovation and Improving Patient Outcomes
Finally, with a new “combo” product would come new inventive treatments and a digital component that constantly improves on the back of its AI-driven personalization. This could create incentive for pharma to continuously innovate, leveraging AI and longitudinal data, with the end result of shifting the traditional pharma model to one where ‘smart’ drugs are being made smarter, constantly.
I considered this back in 2020 when I wrote a research report as a sell-side analyst posing the question “Can digital therapeutics save the blockbuster?5” Specifically, I asked “…we do think a relevant question (that we have been asking on recent earnings calls) is whether a digital therapeutics strategy could in a way become ‘the new 505(b)(2) strategy6’. The contrast I was making at the time was that instead of trying to use that pathway to re-brand products with incremental patient benefit (if any), the pathway could be used to combine digital medicine with traditional drugs targeting ‘the opportunity to show better patient outcomes.7’ With what we know today I would update that to say materially better patient outcomes.
Why Isn’t Pharma Racing to Embrace PDURS? Understanding the Delays and Opportunities Ahead
This is a good question to explore. To be clear, some pharmaceutical companies have certainly embraced digital as the future and have made significant early investments. And many others are allocating a growing amount of resources towards the opportunity. So there is clear evidence that we are moving in that direction. But the former sell-side drug analyst in me is asking, ‘Why wouldn’t every pharmaceutical company CEO be immediately reviewing every on-market and pipeline drug for PDURS combination plays?’
Well, there are likely a few reasons. First, the PDURS guidance from the FDA is still relatively new and not yet broadly understood. That will change. Second, as discussed, we have seen several disappointments among early digital therapeutics companies on the back of uncompelling data, standalone commercialization challenges, and inability to raise money in the market downturn of the last couple of years (amplified by SPAC market challenges). So validation in the form of data generation is still needed. That is coming.
Third, like any new modality or technological advancement within pharma, the industry is slow to adopt. But once fuller validation arrives, pharma will aggressively fast-follow. We have seen this time and time again. Look at Gene Therapy. The first gene therapy approval from the FDA came on August 30, 2017, for Novartis’ Kymriah, a CAR T-cell therapy for the treatment of acute lymphoblastic leukemia (ALL)8. According to Tufts Medical Center, there are currently 18 approved gene and cell therapy products approved by the FDA covering 25 indications. Notably, only five of those 18 approvals came before 2022.
From Partnerships to M&A: The Evolution of Pharma's Engagement with Digital Therapeutics
But as those approvals—and thus validation—started to ramp up, so too did the M&A activity in the space, from what had been primarily a partnership strategy (the path favored by pharma for digital therapeutic exposure today). Cell and gene therapy accounted for $40.5 billion of M&A deal value between 2015-2018 before jumping to $156.2 billion in 2019 9. That jump came on the back of the first handful of gene therapy approvals. In other words, pharma chased deals in gene therapy after the new modality found validation through initial FDA approvals.
We saw a similar partner-first dynamic with biosimilars as well. The digital therapeutics evolution is likely to take a similar path. There are currently several large global partnerships moving towards commercialization. As that happens and, importantly, validation and launch uptake are observed, it is fair to expect that the rest of the pharmaceutical industry will push hard to make a similar move here.
Could Big Tech Break Into Digital Therapeutics? Exploring the Potential and Challenges Ahead
So far big tech has been slow to tap into the $4.5 trillion in annual US healthcare spend, or 17.3% of GDP 10. But could combination PDTs be a backdoor way for big tech to tap into what IQVIA expects to be a $2.3 trillion global pharmaceutical sales opportunity by 202811? Maybe. It could also importantly maybe be a logical way to access digital connectivity to patients around the world and all of the longitudinal data that would come with that. But healthcare is complicated. So too has big tech’s relationship with healthcare been given complexity, privacy concerns and the breadth of regulation. There is a lot of literature opining about why big tech has failed to penetrate the healthcare market in a big way. Fast Company shared a theme we hear a lot. “Big tech companies have failed because they have either attempted to change healthcare from the outside in, or they have tried to force their solutions upon the many players and systems within the space 12.” Combination digital drugs could theoretically allow pharma to enter from the inside. That could potentially offer a way to tap into a scalable part of the data-rich healthcare market while minimizing clinical and regulatory risk. And with end-to-end connectivity to the patient. It may seem logical, but as all things in healthcare, just because it is logical doesn’t mean it will happen.
The broader point is that there is a ton of white space and room for disruption ahead on the back of combination digital therapeutics and this new class of ‘smart’ drugs. Going back to the research report that I authored almost four years ago, one of my predictions for what could serve as a “major disruptive surprise” at the convergence of healthcare and technology was the combination of digital therapeutics and traditional drugs in a 505(b)(2)-like way. It’s the reason I joined Click Therapeutics after 20-years on Wall Street. My view was that it was just a matter of time. With the new FDA PDURS draft guidance now out, my view is that the time is now.
*Background on Digital Therapeutics
Digital Therapeutics: Transformative Tools that Could Impact 130 Americans
Digital therapeutics are specialized, technology-driven interventions that leverage advanced software to address, manage, or prevent various physical, mental, and behavioral health conditions. These interventions are recognized as legitimate software-based treatments for health issues, having undergone rigorous approval processes.
In a country where more than 130 million individuals are affected by at least one chronic condition, digital therapeutics have emerged as transformative tools, offering significant support for patients in managing their conditions while seamlessly integrating with their current healthcare frameworks. They provide crucial supplementary clinical treatment support.
Digital therapeutics are typically developed and implemented by healthcare providers, often with the collaboration of in-house or external software developers.
The Digital Therapeutics Alliance, in partnership with experts and healthcare professionals in the digital health domain, has delineated five principal functions of digital therapeutics:
Enhancement and Support of Existing Medical Treatments
Provision of New Therapeutic Options for Unmet Medical Needs for patients, providers, and payers
Functioning Independently or in Conjunction with Other Therapies
Reduction of Dependence on Certain Pharmaceuticals or Other Treatments
Integration with Medical Guidelines and Best Practices
To satisfy regulatory criteria and be deemed suitable for clinical application, each digital therapeutic must fulfill at least one of these functions. Within these parameters, digital therapeutics have evolved to support the treatment, management, prevention, and overall care of a wide array of health conditions.
“Digital healthcare plays a critical role in advancing the four pillars shaping the future of healthcare: patient experience, quality, affordability, clinician well-being, and perhaps its greatest potential, personalized care and patient engagement.”
Digital therapeutics are a vital part of digital health, offering patients consistent disease care, support, and management while empowering them to actively participate in their healthcare journey. They represent the pinnacle of tech-based, customized healthcare delivery, providing increased assistance for managing difficult conditions and affirming patients' roles as active participants in their own care.
About the Author
Randall Stanicky, Contributing Editor of Finance and Digital Technology, Endeavor Venture Funds Partnering for BetterHealth Newsletter and CFO at Click Therapeutics
Randall Stanicky is a Contributing Editor of Finance and Digital Technology at Endeavor Venture Funds and the Chief Financial Officer at Click Therapeutics. He is has a successful track record over several decades for advising, scaling and financing public and private companies from pre-revenue to growth stage with 20 years of experience on Wall Street at leading firms like Goldman Sachs and RBC Capital Markets.
About the Editor-in-Chief
Dr. Martin Alexander Gershon Managing Partner and CIO, Endeavor Venture Funds Editor-in-Chief, Endeavor Venture Funds Partnering for BetterHealth Newsletter
Dr. Martin Alexander Gershon, MD, JD, MPH is the Managing Partner of Endeavor Life Science Venture Funds, Senior Executive Investor-in-Residence for Healthcare at Techstars, and Advisor to the White House Moonshot CancerX Accelerator Program, and Fortune 500 Companies, and recognized by Linkedin as a “Top Voice” in Venture Capital and Entrepreneurship.
He has been honored by S&P as a designated Top 100 “Healthcare Industry Leader”, and has been featured on CNBC and in numerous conferences and publications as one of the leading healthcare investors, strategists, and futurists in the commercialization of healthcare innovation, always “skating to where the puck is going, not where it is.”
Over the past 24 years, he has served as Senior Strategic Advisor for McKinsey, Goldman Sachs, Bain Capital, BlackRock, American Express, Tiger Global, GlaxoSmithKline, Bristol-Myers Squibb, Pfizer, Novartis, and the Federal Reserve Board of Governors. Dr. Gershon is the architect of Endeavor's thriving ecosystem of partnerships and thought leaders. This advisory group’s strength is in using real world experience to make prescient, future facing investments and advising clients about how to prepare now for the future ahead.
Footnotes
1 FDA. Guidance for Industry. Regulatory Considerations for Prescription Drug Use-Related Software. Draft; 18 September 2023.
2 Id.
3 Id.
4 CDC Weekly / November 17, 2017 / 66(45)
5 RBC Capital Markets: Imagine 2025, Digital Health – hitting fast forward, Accelerating towards the convergence of tech and healthcare, November 12, 2020, Randall Stanicky et al.
6 Id.
7 Id.
8 FDA
9 Deloitte analysis of Thomson One Research Data, Deloitte Insights – Cell and gene therapies: Delivering scientific innovations requires operating model innovation, Hussain Mooraj, Omkar Kawalekar, Leena Gupta, and Sonal Shah
10 CMS.gov Centers for Medicare & Medicaid Services 2022 National Health Expenditure
11 IQVIA Institute for Human Data Science “Global Use of Medicines 2024: Outlook to 2028”, January 2024
12 Fast Company “Here’s why big tech has failed to disrupt healthcare”, Olivr Kharraz, December 16. 2022