Lloyd Price
- Nov 25, 2023

Average Multiples and Key Drivers of Digital Therapeutics (DTx) M&A deals in 2023

Executive Summary:

The average multiples for digital therapeutics (DTx) M&A deals in 2023 are as follows:

Enterprise value (EV) to sales: 5.6x
EV to EBITDA: 12.5x

These multiples are down from the levels seen in 2022, but they are still higher than the average EV to sales multiple for all industries. The decline in multiples is likely due to a number of factors, including:

The increasing number of DTx companies entering the market
The increasing competition from traditional pharmaceutical companies
The regulatory uncertainty surrounding DTx products

Despite these challenges, the DTx market is still expected to grow significantly in the coming years. This is due to a number of factors, including:

The increasing prevalence of chronic diseases
The rising cost of healthcare
The increasing demand for patient-centered care

As a result, DTx companies are still expected to be attractive targets for M&A deals. However, investors are likely to be more cautious about their valuations, and they will be more likely to pay a premium for companies with strong growth prospects, a differentiated product or service offering, and a large addressable market.

Here are some additional insights into DTx M&A deals in 2023:

The most active acquirers in the DTx M&A market are pharmaceutical companies, followed by technology companies.
The most active subsectors for DTx M&A deals are mental health, oncology, and diabetes.
The average deal size for DTx M&A deals is increasing.

Overall, the DTx M&A market is expected to remain active in 2023. However, investors are likely to be more cautious about their valuations, and they will be more likely to pay a premium for companies with strong growth prospects, a differentiated product or service offering, and a large addressable market.

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Digital Therapeutics (DTx):

Digital therapeutics (DTx) are clinically validated software-based therapeutic interventions that use digital and technological solutions to prevent, manage, or treat a medical disorder or disease. They function as prescription digital medicines that are regulated as medical devices. DTx products are delivered directly to patients through their smartphones, tablets, or other personal devices.

Key Characteristics of DTx:

Evidence-based: DTx interventions are grounded in scientific evidence and clinical research, demonstrating efficacy and safety in treating specific medical conditions.
Software-driven: DTx products rely on software algorithms and digital technologies to deliver therapeutic interventions, such as behavioral modification, cognitive training, or symptom management tools.
Patient-centered: DTx empowers patients to actively engage in their own care, providing personalized interventions, self-management tools, and real-time feedback.
Clinically evaluated: DTx products undergo rigorous clinical trials to ensure their safety and effectiveness, similar to traditional pharmaceuticals.
Regulated as medical devices: DTx products are regulated by relevant regulatory bodies, such as the FDA in the United States, to ensure patient safety and compliance with quality standards.

Examples of DTx Applications:

Mental health: DTx programs address conditions like anxiety, depression, insomnia, and post-traumatic stress disorder (PTSD) through behavioral therapy, cognitive training, and mindfulness techniques.
Cardiovascular health: DTx interventions can help manage hypertension, heart failure, and other cardiovascular conditions by providing personalized monitoring, lifestyle coaching, and medication adherence support.
Diabetes management: DTx products can assist in blood glucose control, insulin therapy management, and lifestyle modification for diabetes patients.
Chronic pain management: DTx programs can help manage chronic pain conditions by providing cognitive-behavioral therapy, relaxation techniques, and biofeedback training.
Musculoskeletal disorders: DTx interventions can help manage conditions like arthritis, low back pain, and chronic fatigue syndrome through exercise guidance, pain management strategies, and self-monitoring tools.

DTx represents a promising new era in healthcare, offering innovative and accessible therapeutic solutions for a wide range of medical conditions.

Key Drivers of DTx M&A Deals in 2023:

The digital therapeutics (DTx) M&A market is rapidly growing, driven by a number of key factors:

Rising prevalence of chronic diseases: The increasing prevalence of chronic diseases such as diabetes, obesity, and hypertension is a major driver of the DTx market. These conditions often require long-term management, and DTx offers a convenient and cost-effective way to provide care.
Growing adoption of digital health technologies: The increasing adoption of digital health technologies, such as smartphones, wearable devices, and telehealth platforms, is creating a more favorable environment for DTx solutions. These technologies allow for the delivery of personalized and real-time care, which is essential for many chronic conditions.
Positive regulatory landscape: The regulatory landscape for DTx is becoming more favorable, with increasing recognition of the potential benefits of these products. This is encouraging more investment and development in DTx, and it is also making it easier for companies to bring their products to market.
Emerging reimbursement models: There is a growing movement towards value-based care, which is a healthcare delivery model that emphasizes the quality and effectiveness of care over the quantity of services provided. DTx products are often well-suited to value-based care models, as they can be shown to improve patient outcomes and reduce healthcare costs.
Strategic acquisitions for market expansion: Pharmaceutical companies are increasingly acquiring DTx companies as a way to expand their product portfolios and gain access to new markets. DTx products can be complementary to traditional pharmaceuticals, and they can also help pharmaceutical companies improve their patient engagement and adherence.
Consolidation of the DTx market: As the DTx market matures, there is a trend towards consolidation, with larger companies acquiring smaller companies to gain market share and expand their product offerings. This consolidation is helping to accelerate the development and adoption of DTx solutions.
Increasing investor interest: Venture capitalists and private equity firms are increasingly investing in DTx companies, as they see the potential for these products to revolutionize the way healthcare is delivered. This influx of capital is helping to fuel the growth of the DTx market.
COVID-19 pandemic: The COVID-19 pandemic has accelerated the adoption of digital health technologies, and this has also had a positive impact on the DTx market. DTx products can be used to provide remote care, which is essential during a pandemic when in-person visits are limited.

These factors are all contributing to the growth of the DTx M&A market, and we can expect to see continued consolidation and innovation in this space in the years to come.

Future of Digital Therapeutics (DTx) M&A:

The future of digital therapeutics (DTx) M&A is bright, with continued growth expected in the coming years. Several factors are driving this trend, including:

Growing demand for DTx: The demand for DTx is increasing as patients, providers, and payers recognize the potential of these products to improve health outcomes and reduce healthcare costs.
Expanding DTx applications: The range of DTx applications is expanding to address a wider range of medical conditions, including mental health, cardiovascular health, diabetes, pain management, and musculoskeletal disorders.
Maturing DTx market: The DTx market is maturing, with more companies developing and commercializing their products. This is leading to increased competition and innovation, which is benefiting patients.
Favorable regulatory environment: The regulatory environment for DTx is becoming more favorable, with increasing recognition of the safety and efficacy of these products. This is making it easier for companies to bring their products to market.
Emerging reimbursement models: New reimbursement models are emerging that are more supportive of DTx products. This is making it easier for patients to access these products and for payers to cover them.
Strategic acquisitions: Pharmaceutical companies and technology companies are increasingly acquiring DTx companies to gain access to new markets and technologies. This is consolidating the market and accelerating innovation.

As a result of these factors, we can expect to see continued consolidation and innovation in the DTx M&A market in the years to come. Here are some specific trends to watch for:

Increased acquisitions by pharmaceutical companies: Pharmaceutical companies are increasingly recognizing the potential of DTx to complement their traditional drug therapies. As a result, we can expect to see more acquisitions of DTx companies by pharmaceutical companies in the coming years.
Expansion into new markets: DTx companies are expanding into new markets, such as emerging markets and international markets. This is creating new opportunities for M&A activity.
Vertical integration: We can expect to see more vertical integration in the DTx market, with companies acquiring partners that provide complementary technologies or services. This will help companies to provide more comprehensive solutions to patients.
Platform acquisitions: We can also expect to see more acquisitions of DTx platforms, which are software platforms that allow developers to create and deploy DTx products. This will help to accelerate the development and adoption of new DTx products.

Overall, the future of DTx M&A is bright. The increasing demand for DTx, the expanding range of applications, and the maturing regulatory environment are all driving consolidation and innovation in this space. As a result, we can expect to see significant growth in the DTx M&A market in the years to come.