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'Fast, agile' digital direct-to-consumer companies are transforming healthcare

A growing reliance on telehealth and wearable tech during the pandemic has created opportunities for ambitious direct-to-consumer digital health companies looking to take market share from more established healthcare rivals.

SNL ImageRoman Health Ventures' Roman line offers telemedicine appointments for men and ships products like erectile dysfunction medication and hair loss treatments directly to consumers.
Source: Roman Health Ventures Inc.

Direct-to-consumer, or D2C, companies send products directly to consumers instead of through a middleman. According to data firm CB Insights, D2C companies are able to sell products at lower costs than their competitors by controlling the marketing and manufacturing of their products from beginning to end.

Consumer healthcare businesses have typically focused on over-the-counter medications, dental products and skincare, but over the past few years digital health startups have begun adopting the consumer model. The D2C capabilities of these new entrants can span telemedicine, health and fitness watches and, in some cases, even shipping generic medications directly to consumers.

In an article published in medical journal The Lancet Digital Health, researchers found that 21% of digital health companies in Rock Health's Digital Health Funding Database — which collates U.S.-based digital health companies that received $2 million or more in disclosed funding from 2011-2019 — were pursuing a D2C strategy.

"Direct-to-consumer will become increasingly important in healthcare at large, and certainly digital health [is] a great enabler of that," Adam Cohen, health technologies program manager at Johns Hopkins University's Applied Physics Lab and co-author of the report, told S&P Global Market Intelligence.

Cohen and his co-authors reported in the April 2020 article that D2C-focused digital health companies received $7.3 billion in disclosed funding during the period, compared to $13.5 billion received by patient care companies without D2C strategies and $12.2 billion received by companies that did not focus on patient care.

In the wake of the COVID-19 pandemic, some D2C companies received massive investments or went public with huge valuations.

D2C telehealth company Roman Health Ventures Inc., also known as Ro, raised $200 million in Series C funding in July 2020, giving it a valuation of $1.5 billion. GoodRx Holdings Inc., which provides prescription coupons and telehealth services, went public in September 2020 with shares spiking on the first day of trading, and telehealth company Hims & Hers Health Inc. went public via a reverse merger with blank-check company Oaktree Acquisition Corp. in October 2020, forming a $1.6 billion entity.

Cohen said the D2C route is enticing for digital health start-ups as it bypasses "bureaucratic" institutions like large healthcare systems or insurance companies, which typically take a lot of time and money.

"If you can figure out a way to help patients and provide something new in the healthcare market, then you can go direct-to-consumer. It's a pretty attractive way to go, and certainly, there's been a lot of success there," Cohen said.

COVID-19 creates consumer interest

SNL ImageIdoia Hidalgo
Source: Clarkston Consulting

Idoia Hidalgo, consumer healthcare industry lead at Clarkston Consulting, said in a consumer healthcare trends report that 2021 would see growing interest in people tracking their own health data and wellbeing, with the pandemic helping to bolster this trend.

According to Rock Health's Digital Health Consumer Adoption Report 2020, 43% of consumers surveyed had a telemedicine visit in the past year, up 11% from 2019, while 54% said they had tracked at least one health metric.

"You see a lot of companies [where] there are more offerings and more ways to be able to take control of digital health in ways that weren't possible in the past, whether it be in digital wearables or personalized products that companies are coming up with, or even the ability to do allergy tests at home," Hidalgo said in an interview.

Start-ups have been particularly successful at taking away some of the business of traditional healthcare models because they are so consumer-centric, Hidalgo said. Many founders of D2C healthcare companies were responding to problems they had experienced themselves in accessing healthcare, and these entities are therefore often focused on creating an ongoing relationship with the consumer.

"They're fast and agile; they test with the consumer, [and] they get that feedback."

Seeking evidence

But while interest in D2C digital health products may be growing, Cohen noted that regulation of digital health technologies by the U.S. Food and Drug Administration is imperfect, with potential knock-on consequences for consumers.

The FDA issued guidance in April 2020 regarding low-risk, clinically relevant digital health devices such as mental health mobile apps and online behavioral therapy, saying it would not object to the distribution and use of these devices for the remainder of the pandemic, even if they did not fulfill certain regulatory requirements.

Going forward, however, Cohen said the regulator needs to establish a system that makes it clear to consumers how digital health products were tested and who they were tested on. Cohen and his co-authors on the Lancet article suggested a model similar to food labeling that would show patients what a product measures, how it measures it and who the product should be used on.

For instance, Rock Health reported that 51% of wearable owners it surveyed used their product to manage a diagnosed health condition. However, if a wearable device was only tested on one condition, like heart disease, in a certain age cohort, then it may not necessarily be beneficial for all consumers who want to monitor their hearts.

Cohen said he believes companies will continue to differentiate themselves from competitors by making health claims and then attempting to back up these claims themselves. These studies, according to Cohen, would obligate the FDA to actively regulate digital health technologies.

"There's the most opportunity [and] the greatest power to really disrupt and improve medicine by going around the current stakeholders," Cohen said. "And there will be lots of bumps in the road, but the more that companies focus on the evidence-based impact of their product and service, the better position they'll be in to do that."