What exactly are digital therapeutics?

Digital therapeutics are software-based medical interventions designed to treat, manage, or prevent conditions just like traditional medicines. Unlike basic health apps, these are clinically validated, often require prescriptions, and many have FDA clearance. They can include prescription mobile apps, platforms for chronic disease management, and software that delivers cognitive behavioral therapy.

How do these companies make money?

Digital therapeutics companies generate revenue through several channels. Many use subscription models where patients or healthcare providers pay regularly for access. Others secure reimbursement from insurance companies, similar to traditional medications. Some partner with pharmaceutical companies to complement drug treatments, while others sell directly to healthcare systems looking to improve patient outcomes and reduce costs.

What is FDA clearance and why does it matter for these stocks?

FDA clearance is official recognition that a medical device (including software) is safe and effective for its intended use. For digital therapeutics companies, FDA clearance adds legitimacy, enables marketing claims about treating specific conditions, and is often required for insurance reimbursement. Companies that achieve this milestone typically gain significant competitive advantages and open pathways to larger markets and revenues.

What are some tailwinds driving growth in this sector?

Several factors are accelerating growth in digital therapeutics: increasing insurance coverage decisions that unlock revenue streams; growing acceptance from healthcare providers and patients; rising healthcare costs creating demand for scalable, cost-effective solutions; the global shortage of healthcare professionals; and technology advancements in mobile devices, AI, and data analytics. Additionally, the COVID-19 pandemic accelerated adoption of digital health solutions.

How risky are investments in digital therapeutics?

Digital therapeutics investments typically carry higher risks than established healthcare companies. Many firms are still developing their products, securing regulatory approvals, or building reimbursement pathways. The sector faces challenges including uncertain regulation, adoption barriers, competition, and the need for clinical validation. However, successful companies could transform healthcare delivery and potentially deliver significant returns as the sector matures.

15 handpicked stocks

Digital Therapeutics

Software that works like medicine. These companies are creating clinically validated digital tools that treat and manage diseases just like traditional pharmaceuticals, but with the scalability of technology. Professional investors see enormous potential in this rapidly evolving healthcare frontier.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17