Digital Therapeutics After the Reckoning: What Survived the Hype Cycle

A Compelling Premise, an Uneven Result

Digital therapeutics arrived with a genuinely compelling premise: clinically validated software, prescribed like a drug, capable of treating conditions ranging from insomnia to substance use disorder to pediatric ADHD without the side-effect profile or manufacturing complexity of a physical product. Akili Interactive’s EndeavorRx, cleared through the FDA’s De Novo pathway in 2020 as the first prescription video-game treatment for inattentive ADHD, became the category’s proof point — built on evidence from over 600 children across five clinical studies, including a randomized controlled trial published in a major peer-reviewed journal.

That approval genuinely created a new regulatory category, and it is worth being precise about what it did and did not establish. It proved that the FDA was willing, in principle, to clear a piece of software delivered as a video game as a legitimate medical treatment with its own De Novo classification, opening a genuine regulatory pathway that dozens of subsequent companies have since tried to follow. What it did not do, as the subsequent several years demonstrated, was create a reliably repeatable commercial playbook for the dozens of companies that rushed to follow it — regulatory clearance turned out to be a necessary but far from sufficient condition for commercial success in this category.

Two Separate Hurdles, Not One

The core commercial problem the category has spent the past several years working through is that FDA clearance and commercial reimbursement are two entirely separate hurdles, and clearing the first does not guarantee clearing the second. A conventional pharmaceutical company has decades of established precedent, and an entire industry of specialized market-access consultants, for how a newly approved drug moves from FDA clearance to formulary placement and physician prescribing behavior. Digital therapeutics companies, as a genuinely new product category, had no such established precedent to lean on, and many spent years essentially inventing the reimbursement playbook for their category from scratch, in real time, while also trying to build the underlying clinical evidence base.

The regulatory pathway itself has been part of the friction: as one industry commentator put it plainly, the FDA’s clearance process was simply not built for software, and companies developing genuinely low-risk products have frequently opted to market themselves as general wellness apps specifically to avoid a regulatory process designed around fundamentally different product categories, historically built around physical medical devices with fixed hardware specifications rather than software that can be updated weekly. That workaround solves the regulatory friction but creates a new one — a product marketed as general wellness, rather than a cleared medical device, has a much harder time securing the physician prescription and insurance reimbursement that a genuine “digital therapeutic” business model depends on, since most payers require an actual FDA clearance before they will consider reimbursing a product as a medical treatment rather than a consumer wellness expense.

The Reimbursement Infrastructure Slowly Catching Up

Reimbursement infrastructure has been improving, if slowly and unevenly. The Centers for Medicare and Medicaid Services approved new reimbursement codes for digital mental health interventions in November 2024, and expanded those codes specifically to cover ADHD-focused digital therapeutics effective in 2026 — concrete, incremental progress that matters enormously to companies operating in exactly those specific clinical categories, even though the broader reimbursement infrastructure for digital therapeutics as a whole remains considerably less developed than the equivalent infrastructure for conventional pharmaceuticals.

Legislative efforts like the Access to Prescription Digital Therapeutics Act aim to formalize Medicare and Medicaid reimbursement pathways more broadly, addressing the fact that federal payer coverage for this category has, to date, developed in a piecemeal, category-by-category fashion rather than through any single comprehensive reimbursement framework. And in a genuinely creative regulatory experiment, CMS launched a pilot program in early 2026 allowing certain medical professionals to prescribe digital therapeutics before full FDA clearance is complete, with real-world performance data collected during that early-access period feeding back into the eventual clearance decision — a middle-ground approach explicitly designed to address the mismatch between traditional device-review timelines, which can take years, and how quickly software products actually need to iterate to remain clinically and commercially competitive.

Sizing the Correction

The market-sizing picture reflects a category that has been meaningfully re-based rather than one still growing at its earlier, more speculative pace. Current estimates put the global digital therapeutics market at somewhere between $3.5 and $4.5 billion in the 2025-2026 period, with growth projections in the high-teens percentage range annually through the early 2030s — a solid, durable growth rate, but a considerably more sober one than the figures circulating during the category’s 2020-2021 funding peak, when digital-health valuations broadly assumed a faster and more linear path to mainstream clinical adoption than has actually materialized.

That re-basing is, on balance, a healthy development rather than a worrying one. A market growing at a genuine, evidence-supported high-teens percentage rate, off a smaller but more realistic base, is a considerably more investable proposition than one still trading on the inflated, largely unfounded growth assumptions that characterized the category’s earlier funding peak — the correction removed the speculative excess without removing the underlying clinical and commercial logic that made the category interesting in the first place.

What Actually Survived

What survived the correction is instructive about where durable value in this category actually sits. Click Therapeutics received FDA marketing authorization in 2025 for the first prescription digital therapeutic specifically for preventive treatment of episodic migraine, a genuinely differentiated clinical indication rather than a crowded category like general anxiety or insomnia where dozens of competing products chase the same reimbursement codes — migraine prevention is a large, underserved therapeutic area where existing pharmaceutical options carry meaningful side-effect burdens, making a genuinely effective non-pharmaceutical alternative a real clinical value proposition rather than merely a differentiated marketing angle.

Big Health raised $23.7 million from Gilde Healthcare in February 2026 specifically to accelerate commercialization of its already-FDA-cleared products through expanded provider partnerships — growth capital directed at commercial execution for an already-validated product, a materially different and lower-risk investment profile than funding a company still working toward its first clearance. That distinction, between growth-stage capital for a commercially validated product and earlier-stage capital for a product still seeking its first regulatory clearance, is itself a useful marker of the category’s overall maturation: the investable opportunities have increasingly bifurcated into these two genuinely distinct risk categories, rather than blending together the way they often did during the earlier funding boom.

The Pattern Beneath the Survivors

The pattern across both examples is the same: durable digital therapeutics companies are the ones that identified a genuinely underserved clinical indication with a clear reimbursement pathway, rather than the ones that built a well-designed consumer app and hoped regulatory and reimbursement infrastructure would eventually catch up to meet it. That is a meaningfully higher bar than the category’s earliest wave of companies were held to, and it is the correct bar — a prescription product needs a prescriber, a payer, and a patient population specific enough that all three align, not merely an engaged user base, which is a fundamentally different, and considerably harder, thing to build than a well-designed consumer application with strong retention metrics.

The Diligence Bar Going Forward

For venture underwriting going forward, the discipline this category now demands is treating regulatory and reimbursement pathway clarity as a gating diligence item from the earliest stage, not a problem to solve after clinical validation is complete. A digital therapeutic with a narrow, well-defined clinical indication, a credible route to an existing or plausible reimbursement code, and genuine randomized clinical evidence behind it is a fundamentally different and more investable proposition than a well-designed wellness app with aspirations toward eventual medical claims — and distinguishing clearly between the two, at the term sheet stage, is most of the diligence work this category actually requires now, considerably more than evaluating the underlying software’s design quality or user-engagement metrics, which were the primary diligence focus during the category’s earlier, more speculative funding cycle.