In 2020, there’s an app for everything—even medical treatment. In the first three quarters of 2019 alone, more than $850 million went to mobile and digital health startups building software that claims to help users improve their health, according to a report from PitchBook. The third quarter was the most recent 2019 data PitchBook had available.
Mobile and digital health is an expansive category, including everything from fitness trackers and wellness tools to prescription digital therapeutics. Notably, digital therapeutics, which use software like apps to help patients prevent, manage or treat diseases, aim to augment—and in some cases, even replace—drugs or standard therapies.
“We’re seeing a lot of interesting activity there,” Frederick said of digital therapeutics. While PitchBook didn’t break out data on the digital therapeutics sector alone, a separate report from CB Insights, another company that analyzes data on venture capital, found that digital therapeutics startups raised a collective $513 million in the first three quarters of 2019.
Frederick said he expects to see startups in this area continue to emerge in 2020.
That’s even though digital therapeutics, unlike more general consumer wellness products, face a significant hurdle: regulation.
“Digital health we think is quite exciting,” said David Blumberg, founder and managing partner at venture-capital firm Blumberg Capital. He sees promise in investing in startups that help users manage health conditions, but for Blumberg Capital—which focuses on enterprise software—startups that require oversight from the Food and Drug Administration pose a challenge.
“We do still stay away from the things that are very FDA-intensive,” he said, though there are some exceptions. “It just takes too long, and it’s too capital-intensive.”
That means digital therapeutics startups are often limited to working with investors that are already active in digital therapeutics—a relatively new and niche space—or tasked with convincing venture-capital firms it’s worth the risk of expanding into a possibly unknown area.
The intersection between healthcare, pharmaceuticals and technology is part of what makes digital therapeutics interesting, but that “convergence tends to make most investors somewhat uncomfortable,” acknowledged Dr. Corey McCann, CEO of Pear Therapeutics, a developer of prescription digital therapeutics.
Pear, which has received FDA clearance for app-based products that help treat substance and opioid use disorders, seeks investments from venture-capital firms across the board—in biotech, medtech, pharma and technology, McCann said. It can be a daunting task: Tech investors are often spooked by regulation, while healthcare investors might not always understand the intricacies of software.
When the company first launched in 2013, it was challenging to find investors with baseline knowledge about both software development and healthcare regulation, said McCann, who previously worked as a venture-capital investor. It’s become easier over time, and Pear has raised $134 million to date.
Even when there’s interest, many investors see digital therapeutics as a more long-term consideration, given that it’s a somewhat nascent field.
“Digital therapeutics is probably a medium- to long-term play, because we still have to see how that market plays out,” said Joshua Mark, a healthcare analyst at CB Insights. Pear one of the first startups in the digital therapeutics arena, received its first FDA clearance in 2017.