In the rapidly evolving landscape of healthcare, digital therapeutics (DTx) have emerged as a groundbreaking third generation of treatment, drawing global attention as a promising sector. These software-based interventions, designed to treat diseases and enhance health much like traditional pharmaceuticals, are increasingly recognized for their potential to fill gaps in healthcare provision, especially in an era of growing patient numbers and dwindling medical professionals.

However, in Korea, the situation is marked by uncertainty about the sustainability of this business. This is due to a regulatory environment that does not consider the uniqueness of digital therapeutics and the lack of insurance coverage.

The situation has recently been highlighted after Aimmed's Somzz, a DTx for treating insomnia, became the first digital therapeutic approved in February last year.

Despite a year passing after the approval of the device, the device is somewhat of an illusion to patients.

For instance, Jung Jun-sung, a 34-year-old office worker who had been fighting with insomnia for the past decade, recently told Korea Biomedical Review that he had sought to receive the help of Somzz after reading about its effects through various outlets in December, only to return empty-handed from a clinic near his home.

He was surprised to learn that local clinics were not yet prescribing it, despite the Ministry of Food and Drug Safety's approval of the device almost a year ago.

It was not until recently that Somzz was actually prescribed at tertiary hospitals such as Seoul National University Hospital and Severance Hospital in January, with Aimmed planning to expand its prescription to other tertiary hospitals.

Complex regulations and reimbursement the biggest hurdles

The limitation of DTx prescriptions to tertiary hospitals underscores a critical concern regarding equitable access to innovative medical treatments, as despite the optimistic market outlook, Korean companies face significant hurdles in developing and deploying digital therapeutics.

According to market research firm Markets&Markets, the digital therapeutics market was valued at $6.1 billion in 2023 and is expected to grow to $21.9 billion by 2028, a 3.6-fold increase over five years.

This growth is attributed to digital therapeutics filling the medical gap caused by the increasing number of patients due to aging and the decreasing number of medical professionals. There is also anticipation for their use in precision medicine through the accumulation of real-life patient data.

However, in Korea, the lengthy process from approval to inclusion in the national health insurance reimbursement list makes it difficult for therapeutics to be widely prescribed.

In Korea, even if a digital therapeutic passes the safety and efficacy tests by the Ministry of Food and Drug Safety, these products must undergo another round of clinical trials for the New Medical Technology Evaluation conducted by the National Evidence-based healthcare Collaborating Agency (NECA).

This duplication of regulatory hurdles is seen by industry stakeholders as a form of redundant regulation, given the similarities in what both the Ministry of Food and Drug Safety and NECA seek to verify.

The slow pace of regulatory approval for digital therapeutics (DTx) in Korea, compared to other countries, is becoming a significant concern within the industry.

This issue is highlighted by the experience of Emocog, a company developing a DTx for mild cognitive impairment, which initiated the approval process simultaneously in Korea and Germany.

While the company is nearing the final stages of temporary registration in Germany, indicating readiness for launch, progress in Korea remains stagnant.

Industry experts argue that while a cautious and stringent approach to various therapies and platforms is understandable, the slow and often overly conservative regulatory environment in Korea is becoming a significant barrier to the growth of the domestic digital healthcare sector.

They point out that such delays in approval and restrictive regulatory discussions not only hinder the introduction of new technologies but also rob them of the critical time needed to establish themselves in the market.

"The case of Samsung's Galaxy Watch receiving medical product approval from the MFDS after its fifth iteration serves as another example of the challenges faced by companies in integrating new technologies into the healthcare market due to regulatory hurdles," an official at an AI-based medical device developer said to Korea Biomedical Review.

The industry also pointed out that the fact this protracted process is followed by a reimbursement process that takes more than a few years significantly hampers the speed at which new and innovative treatments can reach patients.

Medical institutions may prescribe these as non-reimbursable items for three to five years, during which additional clinical data collected can be used to apply for official insurance reimbursement, which alone takes 250 days.

This means that achieving reimbursement listing will at least take four years.

Industry experts stressed that such a sluggish prescription due to reimbursement and duplicative regulatory hurdles will inevitably hurt not only the company's profitability but their competitiveness.

"Digital therapeutics, being software, ultimately boil down to a battle of data," a source at a DTx company told Korea Biomedical Review, wishing to be unnamed due to the sensitivity of the issue. "The more patients that use our device, the more we can improve its efficacy and compete in the global market."

However, under the system, no Korean company will be able to keep up with overseas companies in terms of innovation speed, he added.

Foreign nations stepping efforts to foster DTx industry

The situation in Korea contrasts sharply with approaches in countries like Germany and Japan, which have taken steps to integrate digital therapeutics into their healthcare systems more swiftly and innovatively.

Germany's Digital Health Applications (DiGA) and Japan's accelerated reimbursement pathway for digital therapeutics exemplify proactive measures to embrace digital health solutions, showcasing a balance between innovation, patient access, and market viability.

Consequently, domestic companies developing digital therapeutics are turning their attention to countries like Germany and Japan. To receive approval, digital therapeutics must undergo clinical trials to prove their effectiveness in preventing, managing, or treating specific diseases.

Germany established DiGA in 2019, which includes provisions for temporary reimbursement listing of digital therapeutics with government compensation at the manufacturer's price for one year.

The average health insurance reimbursement for temporarily listed digital therapeutics is around 600,000 won ($450).

If the effectiveness of the therapeutic is proven with clinical data collected during the temporary listing period, formal listing is also possible. Currently, 60 digital therapeutics have been temporarily listed in Germany, with 30 receiving formal listing.

Japan has also focused on speeding up the reimbursement process.

For instance, the smoking cessation digital therapeutic CureApp took a total of 12 months from approval by the Pharmaceuticals and Medical Devices Agency (PMDA) to health insurance reimbursement listing.

Domestic industry insiders note that while some companies strategically choose Germany or Japan, others reluctantly explore overseas expansion. Since small biotech companies typically develop these therapeutics, the timing of reimbursement listing can directly affect the company's survival.

Korea's DTx industry prospects look gloomy

Most recently, the exploration of a sale of management rights for Aimmed has shocked the industry.

According to The Bell, a Korean economic news outlet, Aimmed, the digital healthcare company behind Somzz, was introduced to the M&A market in mid-February.

A significant portion of the company, specifically a 71.51 percent equity stake held by Aimmed's largest shareholder, Medipost, along with other major financial investors (FIs), is reportedly up for sale.

While the specific reasons behind the sale have not been disclosed, industry observers suggest that this move is highly symbolic, reflecting the broader challenges and limitations within Korea's digital therapeutics market.

"The decision to potentially relinquish the title of 'first approval' in the field of DTx—a title not easily earned in any sector—indicates the extent of the difficulties faced by the industry," a DTx industry source said. "This development not only highlights the financial and regulatory hurdles that digital therapeutic companies in Korea are grappling with but also points to a potentially stifling environment for innovation and growth in this emerging field."