Perspective on the digital therapeutics market

7 min readNov 17, 2024

This article and the views expressed herein are solely my own and do not necessarily reflect the views of my employer.

The case for digital therapeutics

We are currently experiencing a rise in mental health challenges globally. In 2019, prior to the COVID pandemic, the WHO estimated that 970 million people globally lived with a mental disorder [1], resulting in costs of $1 trillion each year. Driven by the adverse mental health impact of COVID, these staggering numbers have worsened. For instance, the WHO estimates that the prevalence of anxiety and depressive disorders rose by 25–30% due to the pandemic in 2020 [1]. These figures are supported by Gallup data, suggesting that the share of US adults currently living with depression has increased by over 40% from 12.5% in 2019 to 17.8% in 2023 [2].

Gallup data on lifetime and current depression rates among US adults

While a range of effective care approaches such as medication and behavioral therapy exist, over half of US adults affected by mental disorders do not receive treatment according to Mental Health America (MHA) [3]. MHA indicates that key barriers to mental health care include high cost of care, limited accessibility, insufficient mental health literacy, and stigma. One driver underlying barriers like cost of care is a shortage of mental healthcare providers, with 56% of practitioners reporting they have no capacity for new patients according to the American Psychological Association (APA) 2023 Practitioner Pulse Survey [4].

One potential solution for lowering barriers to care and the shortage of healthcare professionals are digital therapeutics (DTx), software-based mental health interventions, as pointed out by the APA [5]. Firstly, DTx solutions are inherently scalable due to their digital nature, enabling an easier matching of supply and demand for care. In addition, as DTx are available through digital channels, they are constantly accessible, independent of patient location, increasing access to care. Finally, DTx solutions have been shown to be more cost-effective than traditional treatment approaches and patients perceive them to be less stigmatizing.

Given the potential of DTx to help address the mental health crisis, this piece further explores DTx by defining the concept, mapping the DTx provider landscape, and sharing an overview of potential enablers to drive broader adoption of the technology.

DTx definition

The APA defines digital therapeutics as follows [5]:

“Digital therapeutics (DTx) use software programs to deliver evidence-based and validated interventions to treat mental and behavioral health disorders.”

Besides providing solutions for mental health conditions, DTx also cater to a range of other therapeutic areas, including diabetes, oncology, and cardiology. DTx are considered medical devices under many jurisdictions [6]. In the US, for instance, DTx are regulated as software as a medical device (SaMD) by the FDA, differentiating the offerings from broadly available mental wellbeing consumer applications. A further characteristic of DTx is that they can be used both individually and in combination with other interventions such as cognitive behavioral therapy or medication.

A concrete example of a digital therapeutics solution is SleepioRx by Big Health. The offering recently received the prescription digital therapeutic (PDT) status through FDA clearance and can now be prescribed by healthcare providers [7]. SleepioRx is a software application for treatment of insomnia, delivering self-directed cognitive behavioral therapy accessed by patient’s through a mobile device or laptop. After initial onboarding through a sleep self-assessment and the definition of patient-specific goals, the treatment consists of 6 weekly sessions, guiding the user through a set of tailored cognitive behavioral therapy techniques while tracking patient sleep progress through a sleep diary [8, 9, 10]. The solution was tested in over 20 clinical trials and has been shown to shorten time to fall asleep by over 50%.

Example: Sleepio sessions, goal-setting, and sleep report

DTx provider landscape

Given the potential of DTx, a large number of pharmaceutical industry incumbents have entered the market over the past years to bring new offerings to market or complement existing treatments in their portfolio. Entry modes include strategic investments, acquisitions, and commercialization partnerships.

Selected examples:

Novartis entered into a distribution partnership with Pear Therapeutics as early as 2018 [11], which, however, was already ended in 2019 [12]. Subsequently, Novartis closed an agreement with Biofourmis to distribute its DTx platform for heart failure patients [13] and later acquired DTx provider Amblyotech [14].
Bayer made a strategic investment in One Drop, a DTx provider focused on diabetes and heart diseases in 2020 [15], followed by the launch of a new business unit focused on digital health consumer products [16] and the announcement of a distribution agreement to commercialize offerings of PDT provider Mahana [17] in 2023
Pfizer entered into a strategic partnership with DTx provider Sidekick Health to bring a DTx solution to market [18].
Sanofi partnered with DTx provider Happify to deliver an app aimed at addressing depression and anxiety in MS patients [19] and more recently entered into a $30M distribution agreement with DTx player Dario Health [20].

Focusing on new market entrants, US digital health funding declined significantly from 2021 levels in 2022 and 2023, in line with a market-wide slowdown in venture capital funding. Nonetheless, there continues to be significant investor interest in funding digital health startups with ~$10.7B invested in 2023, up >30% from 2019 pre-COVID levels, according to digital health investor Rock Health [21].

Among venture-backed digital health companies, there are several DTx providers which have acquired significant funding volumes to date. According to data by Dealroom [22] and Crunchbase, the largest DTx players by equity funding raised are Click Therapeutics (~$870M raised), Hinge Health (~$830M raised), and Noom (~$660M raised).

Top 10 digital therapeutics startups by funding raised to date

Looking further into the distribution of DTx VC investment across therapeutical areas, behavioral and mental health and diabetes and dietary solution providers acquired the largest share of funding in the recent past (~22% of total funding, respectively), followed by muscoskeletal health (~16% of total) and Oncology (~12% of total) [23].

Combined VC funding in digital therapeutic startups by selected therapeutic areas

Conclusion and outlook

Overall, digital therapeutics are a promising innovation for driving improved health outcomes. Within mental health in particular, the technology has the potential to address a range of barriers to care, helping alleviate the global mental health crisis.

While DTx continues to experience tailwinds, including advancements like the inclusion of digital health solution coverage in the proposed 2025 Medicare Physician Fee Schedule [24], further initiatives are required to make the technology more broadly available. Specifically, investors, operators, and regulators highlight the following requirements to accelerate DTx uptake:

Healthcare professional engagement: Given the proliferation of prescription digital therapeutics offerings (e.g., SleepioRx described above), providers will become an increasingly important distribution channel for DTx. Thus, educating healthcare professionals on the availability and efficacy of DTx offerings and ensuring complementarity of solutions with existing provider processes the will become key for increasing DTx adoption [25, 26].
Patient education and enablement: Nearly 90% of US adults struggle with health literacy [27], potentially limiting awareness of DTx offerings and their health benefits. In addition, lack of digital literacy can aggravate solution uptake once providers prescribe DTx treatments. As a result, DTx providers need to drive enhanced awareness among patients and ensure applications are easy to adopt and use. In this context, collaborating with providers to ensure patients are onboarded adequately and supported throughout the treatment journey is a further important enabling element [25, 28].
Regulatory harmonization: Given the high pace of innovation around digital health, regulatory bodies have faced difficulties introducing harmonized frameworks governing DTx, resulting in a lack of transparency for solution providers. In the EU, for instance, member states interpret the EU Medical Device Regulations governing DTx differently, making the navigation of approval processes more complex [29]. Therefore, broader adoption of harmonized regulatory approaches around DTx, for instance in the form of the US FDA software pre-cert program, the German DiGA framework, and the UK NICE framework are important steps towards broad-based DTx adoption [25, 26].