From consumer gadgets to medical devices

The distinction between consumer and healthcare devices is becoming less pronounced in light of a recent trend whereby more consumers are using medically-proven health monitoring tools, and more non-patients are using medical devices. Investors in this market should be aware of how competition is developing.

MedTech becomes mainstream

The first MedTech companies, which stands for medical technology companies, are now crossing over to the consumer side, becoming more widely available and commonplace. One example is Masimo¹ - a market leader in pulse oximetry, which is a non-invasive technology that is used to measure all sorts of vital signs like heart rhythm and oxygen levels within the blood and is used in most emergency rooms around the world to constantly monitor patients. At the start of 2022, the company announced the acquisition of Sound United¹, a consumer electronics company focused on high-end loudspeakers and wireless headsets. Following the acquisition, Masimo says it wants to follow the patient from the hospital to the home and introduce new quantified self-devices like smart watches and over-the-counter hearing aids, which will soon be available to US consumers without the need to consult an audiologist.

The move from Masimo proved quite a shock for its MedTech investors as it lost 40% of its market capitalisation in the days following the announcement.  Sound United cost Masimo roughly USD 1 billion and the company has lost more than USD 5 billion in market capitalisation, despite the fact that the deal looks financially sound, with an expected 8-10% return on invested capital and more than 20% accretion to their earnings per share. Investors were simply shocked and seemingly unable to grasp that quantified self has outgrown the hype and has become a real trend and Masimo is ready to take on Apple, Garmin, Fitbit and Samsung.

Apple takes a bite

Measuring health conditions is no longer the exclusive remit of the doctor or hospital. Consumer products are making inroads into the medical technology space. The seventh version of the Apple Watch¹ has the capacity to warn about abnormal heart rates, detect falls, do electrocardiogram (ECG) readings and track blood oxygen levels. This first functionality, to warn about abnormal heart rates and detect a condition called atrial fibrillation, has been approved by Food and Drug Administration (FDA) in the US, as has the ability to monitor Parkinson’s disease. With FDA approval, smart watches - still seen by most as just consumer gadgets - have made the first step into becoming an official medical device.

In addition to getting health monitors medically approved, Apple also got FDA approval in 2019 to store electronic health records (EHR) on iPhones. Apple claims this will enable the company to centralise all health data in one place - the personal smart phone of a patient - instead of having incomplete files spread across different healthcare providers, payers and suppliers. Of course, Apple would like to combine these official medical records with the all the monitoring data collected by their smart watch in order to become a one-stop digital lifestyle coach.  Knowing that this digital coach also has access to your GPS data, future alerts might not only be on the need to exercise more often, but also on the need to skip a weekly stop by a beloved fast-food restaurant.

Big Tech

We expect other Big Tech companies to try to follow the Apple lead. Particularly Alphabet¹, the company behind search engine Google and the Android operating system for smart phones.  Alphabet acquired the company Fitbit1 in 2020 and recently announced a partnership with Electronic Health Record (EHR) vendor Meditech, a major player in the hospital software space. The company has also launched a booking tool for healthcare appointments, with healthcare providers like CVS MinuteClinic.

Our Global HealthTech strategy harnesses the quantified-self trend through its focus on companies digitalising the healthcaresector to make it more efficient, connected and focused on prevention.

To find out more about the quantified self and the investment implications, read the full paper: ‘Quantified Self: from hype to trend’.

Source.

[1] Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document

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