■ Overview of the business of Sumedo <4263>.

2. DTx product business.

In the DTx product business, they are developing therapeutic apps (including diagnostic apps). A therapeutic app is a new form of digital therapy where treatment is provided not through the use of drugs or medical devices (such as drug therapy, chemotherapy, surgery), but through an application downloaded to the patient's smartphone.

It may not be applicable to all disease areas, but the purpose of utilizing therapeutic apps is to change the patient's daily lifestyle and achieve therapeutic effects in disease areas where concerns about side effects in drug therapy, such as lifestyle diseases, mental illnesses, and chronic diseases, arise. Unlike remote or telemedicine through a screen with a doctor, the app itself performs treatment (optimal individual treatment intervention based on medical knowledge-based algorithms), replacing the doctor. It also provides patient data to healthcare professionals to facilitate more appropriate diagnosis and treatment interventions.

Unlike general health care apps that anyone can use (such as diet apps, pedometer apps), the development of therapeutic apps presents certain hurdles because it requires obtaining approval from regulatory authorities as medical devices under the Pharmaceutical and Medical Device Law based on medical evidence of efficacy and safety confirmed through clinical trials. In addition, unlike health care apps, they can only be used by patients who have been issued account information from medical institutions following diagnosis and prescription by a doctor. Therefore, the target of marketing is not general consumers, but doctors or medical institutions.

The revenue comes from receiving fees determined based on the number of prescriptions from medical institutions that have received medical fees (70% covered by insurance, 30% self-payment) for treatment with approved therapeutic apps. For the company, the basic strategy is to enter into contracts for joint development and sales after product launch with pharmaceutical companies. The pharmaceutical companies that have entered into contracts conduct sales and marketing to medical institutions and receive fees based on the number of prescriptions. The company, on the other hand, earns income in the form of contract lump sum payments, milestone income based on the development stage, and royalty income based on sales after product launch.

For example, in the area of insomnia, drug therapy using sleeping pills is common, but there are concerns about side effects, dependency, and resistance to taking sleeping pills. Cognitive behavioral therapy (a therapeutic method that improves the pathology by working on a person's cognition and behavior) has been gaining attention in recent years, and it is recommended as the first choice for the treatment of insomnia by the National Institutes of Health in the United States. It has been announced by research teams such as the University of Tokyo that cognitive behavioral therapy is the most effective for initial treatment of insomnia. However, in Japan, the lack of medical resources to implement cognitive behavioral therapy is recognized as a challenge, and drug therapy remains the mainstay of treatment. In response to these challenges, therapeutic apps have the potential to provide a treatment method that can offer cognitive behavioral therapy to patients without the side effects and dependency concerns associated with drug therapy, regardless of the scarcity of medical resources.

For doctors, the benefit of using therapeutic apps is that it not only enables them to increase the number of patients they can handle by eliminating the need for direct involvement, but also allows them to demonstrate appropriate treatment strategies for patients by utilizing the accumulated data. For patients, therapeutic apps can provide appropriate support during the "treatment gap" time between hospital visits. This is expected to contribute to solving issues specific to the treatment of chronic diseases, such as high treatment discontinuation rates and the inability to receive appropriate, timely, and adequate treatment interventions, resulting in prolonged recovery.

Overseas, the approval of treatment apps has been progressing relatively early. In 2010, the first diabetes treatment app from WellDoc, Inc. in the USA obtained approval from the FDA (Food and Drug Administration), and recently in June 2020, in the United Kingdom, OVIVA UK LIMITED's type 2 diabetes treatment app, in October of the same year in Germany, mementor DE GmbH's insomnia treatment app, in November of the same year in the USA, NightWare, Inc.'s app for sleep disorders related to nightmares from PTSD, and in December of the same year in Germany, an app for migraines have been approved. Furthermore, in the insomnia treatment area that the company is advancing, the National Institute for Health and Care Excellence (NICE) in the UK recommends treatment with treatment apps instead of sleeping pills, and revisions have been made to the European treatment guidelines to make cognitive behavioral therapy, including digital therapy, the first choice of treatment, not just face-to-face.

In Japan, the development and approval of treatment apps are lagging behind compared to overseas, but the Ministry of Health, Labour and Welfare has formulated guidelines taking into account factors such as controlling medical expenses, promoting the development, introduction, and industrialization of advanced medical devices, and reforming the working styles of healthcare professionals. It has shown a policy to promote the establishment of an approval environment for the spread of program medical devices (including standalone software) using apps and AI. In 2014, Japan's first standalone software app, Alm Corporation's app for stroke treatment support, was approved, and in December 2020, CureApp Inc.'s app for nicotine addiction treatment and CO checker became the first approved treatment apps covered by insurance in the country. In September 2022, CureApp's app for hypertension treatment assistance became eligible for insurance.

The process leading to the approval and insurance coverage of treatment apps, from research and development to exploratory trials to confirmatory trials to approval application to approval to insurance listing, is almost the same as the process of developing new drugs (basic research, non-clinical trials, clinical trials, approval application, insurance listing). However, the general development period for treatment apps is generally around 5-6 years (around 6 months for app development, about 36 months for exploratory and confirmatory trials, about 24 months for approval application), which is about half the time compared to new drug development for medicines, which can sometimes take more than 10 years. Therefore, development costs are kept low and relatively lower risks compared to drug development.

(Authored by FISCO guest analyst Masanobu Mizuta)