Digital Therapeutics: What on Earth Is This New HealthTech Buzzword, Especially For Investors?

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Digital therapeutics (DTx) – currently the buzzword within the HealthTech industry. But what on earth is it, and how does this affect investors?

The latest Q3 2019 HealthTech report by Galen Growth Asia defines DTx as evidence-based therapeutic interventions that are enabled by data and cognitive computing to prevent, manage, or treat a medical disorder or disease. 

What it does is to empower patients, healthcare providers, and payers with intelligent and accessible tools for addressing a wide range of conditions through high quality, safe, and effective data-driven interventions. 

Take It Back A Notch

In the report, it shared that the Q3 2019 cumulative deal volume was down 40% YoY, the decrease was further accentuated by the average deal size falling to US$5.2M from US$18.2M at the end of H1 2019. 

This resulted in the total investment in digital health in APAC in Q3 2019 to close at US$330M – down 81% YoY, taking the YTD cumulative to a total of US$3.4B.

As the report shared, some of the key contributors to this slide included: 

  • China: Total funding in Q3 closed at US$213M which is the country’s lowest since 2015. Funding volume is 61% lower compared to Q3 2018;
  • India: After a stronger Q2, investment in digital health slumped, closing at US$38M, down 87% vs Q3 2018 with deal count down 45% vs Q3 2018;
  • SE Asia: Continuing the trend this year, the region witnessed an uptick of ~US$30M, almost doubling Q3 2018 funding by value, with deal volume down 28% vs Q3 2018;
  • NE Asia: This cluster of countries (JP, TW, SKR & HK) closed at US$49M, down 33% vs Q3 2018 with deal count down 6% vs Q3 2018;

Furthermore, Galen Growth Asia recorded no mega-deals nor IPOs in Q3 2019 within the region.

The global Digital Therapeutic market was valued at USD 0.17 Billion in 2018 and is expected to reach USD 0.89 Billion by year 2026.

But… Is It About to Change?

HealthTech is rapidly becoming a significant share of total APAC venture capital assets, with funding increasingly tied to macro-economic cycles. 

“If and when capital becomes harder to secure, HealthTech ventures will need to continue to prove that their solutions and business models are sustainable,” said the report.

Bringing us back to DTx, digital companions and replacement therapies are the two principal and distinct segments emerging in this fast-developing field of digital health. 

And while “only 7% of the Asia digital health ecosystem can be categorized as a digital therapeutic”, it is not deterring investors despite its constraining deal volume.

In fact, the global Digital Therapeutic market was valued at USD 0.17 Billion in 2018 and is expected to reach USD 0.89 Billion by year 2026, at a CAGR of 21.6 % – based on a recent study by Reports and Data.

On that note, we can look forward to DTx to:

  • Increasingly influence the way healthcare is delivered and consumed across Asia;
  • Become a distinct category within the now broad HealthTech, aka digital health, taxonomy;
  • Represent a significant opportunity to address disease areas that are poorly served in Asia today;
  • Address the affordability challenge which exists in developing Asia;
  • Face numerous obstacles in the way of this promising category, making a positive impact on health outcomes.

What Does It Mean For Interested Investors?

With DTx companies needing to go through a comprehensive approval journey with multiple testings and extensive evidence based research, it is important for interested investors to look for applications that have a high probability of completing these steps.

As Roy Saar, partner at Mangrove Capital Partners mentioned in Venture Beat: “The need for scientific based theories, clinical tests, and standards’ based operations are often not in the DNA of many digital health companies and many are just trying to ride the excitement in DTx.”

“Without the necessary regulatory body approval, DTx will struggle to prove validity. But for those companies that do manage to overcome these initial hurdles, major drug companies appear to be ready to partner for the rest of the ride.”

Written by

Cheryl Toh

Last updated on

October 4th 2019, 9:41 am

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