The political, economic, social and technological drivers promoting the development of digital therapeutics (DTx).
According to EqualOcean's data, many enterprises rushed into the digital therapeutic industry in 2014-2018; the resulting financing rounds were concentrated before Series C. Overall, we may say that China's digital therapeutics industry is generally still in its early stages. A number of factors have influenced this: first, there is no official definition or specific registration regulation for digital therapeutics. DTx companies still need to follow the standard medical devices registration process. Only one NMPA-approved DTx with Class II certification was marked with 'treatment,' and only Takeda's pharmacokinetic dosing software, myPKFiT, received a Class III certificate.
However, even though TDx is a young industry, the whole industry possesses almost unlimited potential. This report is going to use the framework of PEST to describe the external assistance of DTx.
Political, economic, social and technological factors are always part of a given industry's external environmental influencing factors. PEST is the acronym for these four changes, and PEST analysis has been considered a powerful tool for understanding the external macro-environment.
Political – As basic guarantees of people's livelihood and industry are under strict regulation, the release and implementation of policies are crucial to digital therapeutics.
Since the FDA approved the first DTx in 2017, China has also successively released many policies benefiting the 'digital plus healthcare' industry.
In April 2018, the State Council of the People's Republic of China released the Healthy China 2030 Plan and Guiding Opinions on Actively Promoting the 'Internet Plus' Action Plan, with the stated aim of perfecting the 'Internet Plus' healthcare service system and ensuring data security. Other aims: “improving healthcare system management ability, optimizing health resource allocation, innovating service mode, promoting efficiency and reducing costs.”
After the first DTx was approved in China in 2020, relevant review policies and classification standards were gradually improved.
In July 2021, the National Medical Products Administration (NMPA) of China formulated the Guiding Principles for the Classification and Definition of Artificial Intelligence Medical Software Products, which stipulated the specific applicable management categories and management attributes of SaMD. It provided more straightforward guidance for the application and certification of related products.
In December of the same year, the State Council of China issued the Digital Economy Development Plan during the '14th Five-Year Plan', which pointed out that China will further promote the development of the digital economy. DTx is in line with the goals of the Plan and ushered in accelerated development.
In March 2022, the Center for Medical Device Evaluation of NMPA launched the Guiding Principles for the Examination of Network Security Registration of Medical Devices (Revised in 2022), which regulates the technical evaluation of the network security of SaMD. In the meantime, the Guiding Principles for the Registration and Review of Artificial Intelligence Medical Devices were issued to provide explicit review provisions for enterprises applying for the registration of such devices. The document pointed out that no matter what kind of new digital medical technology, software, as its technical basis, can still follow the three basic principles of software characteristics, risk orientation and life-cycle quality control to carry out the corresponding safety and effectiveness evaluation.
In addition to releasing a series of industrial regulatory policies by the central government, the local government also issued relevant policies to support and solicit engagement from the DTx enterprises.
In January 2022, the Hainan Provincial Health Commission issued the Development of Digital Health in Hainan Province during the '14th Five-Year Plan', which states that Hainan will develop DTx research and application centers and encourage companies to cooperate with medical institutions to improve the treatment effect and management capacity. The Plan added that Hainan would create a fast track to accelerate the approval of evidence-based DTx products and promote DTx to be covered by the Hainan health insurance system.
Economy – Slow economic growth and tight medical insurance funds are to be fairly put in place for digital therapeutic development.
Since 2020, due to the impact of the global epidemic, an economic contraction has occurred, and the economic growth of various countries keeps slowing down, with no exception for China. Although China has the world's second-largest economy (after the United States), totaling around CNY 114.4 trillion (USD 17.7 trillion in 2021, when measured by GDP) and its economic development has been growing at high speed compared with other countries since the reform and opening up in 1979, it has not escaped the impact of the epidemic that started in 2020. The economy has suffered a setback; most medical insurance expenditure is used for epidemic prevention and control, and the medical insurance fund is tight. According to the prediction of the China Medical and Health Development Report, China's medical insurance funding gap will reach CNY 735.3 billion in 2024. Under the medical insurance expenditure measures such as centralized purchasing and innovative payment schemes, DTx as a treatment with extremely low marginal cost may develop significantly in the future.
Social – Witnessing shifts in patients' needs.
As China has a large population, digital therapeutic enterprises can obtain a large amount of data to train their advanced algorithms constantly. Furthermore, the National Bureau of Statistics census data shows that the proportion of the population aged 60 and above in China has reached 18.7%. Population aging is an important trend of social development, and it is also likely to be the primary national condition of China for an extended period in the future, which is both a challenge and an opportunity. It means that the demand for chronic disease management will see a boost. In addition, the pandemic has also accelerated the demand for online medical treatment and leaves a window period for TDx companies.
With the increase in per capita disposable income, people's demand for health is also changing. Achieving higher quality of life is a major shift in people's needs. This also means that the decision-making model will change accordingly. The previous health decisions, administrative services, performance evaluation, and allocation of resources based on the average prevalence rate and health problems in a specific region will shift to a highly personalized approach to preventing or treating a disease.
Technology – The development of digital therapeutics needs to rely on the development of science and technology.
Technical factors refers to the technical level, new technology and new product development capability of a country or region. China's '14th Five-Year Plan' and ‘Vision 2035 Plan' put digital technology at the heart of the national strategy. A new round of scientific and technological revolution and industrial reform has been further developed. The essence of digital therapeutics is the digitalization of healthcare services, which involves a large number of digital technologies, such as wireless networks, metaverse, low-code, artificial intelligence, cloud computing and big data, privacy computing, XR technology and so on. The enabling of these digital technologies has laid the foundation for developing digital therapeutic products.