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May 16, 2019

Wearable Technology

MHT Partners  | Healthcare Investment Bank

An estimated 51.9 million Americans (20.3% of the U.S. population) owned wearable technology (“wearables”) as of 2018 and that number is only expected to grow over the next several years.(1) The category spans AI-enabled glucose monitors to augmented reality glasses, but fitness trackers and smart watches are by far the most popular wearables, representing over half of the market. As wearables’ penetration continues to grow, so will the volume of data on individuals who adopt the technology—from physical activity, to sleep patterns, to heart rates. This level of data availability represents a major opportunity for technology-savvy companies who are able to effectively analyze the information and provide their customers actionable insights or valuable services.

Some of the most compelling opportunities to leverage wearables data lie in proactive and preventative care. Opportunities in these fields are two-fold. First, identifying conditions and risk factors early provides individuals the opportunity to seek care and adopt habits that mitigate risks associated with their conditions. For example, the Apple Watch Series 4 includes an EKG feature that can detect cardiac arrhythmias. This feature can both save lives and provide patients and physicians a tool to monitor the condition and track improvement. Second, firms can economically incentivize customers to adopt healthy habits. John Hancock, for example, now exclusively offers wearable-enabled life insurance policies.(2) That is, individuals with life insurance policies from John Hancock have the ability to opt-in to a program in which they are given a free FitBit (they can also purchase another approved fitness tracker of their choosing) and receive discounts according to their ability to meet certain wellness requirements. This arrangement represents a win-win for companies and their customers in that it provides individuals well-defined incentives to take ownership of their health, and it provides insurers a cohort of customers who will statistically live longer and generate fewer claims.

While wearables present many opportunities, they are not without limitations. The industry has come a long way from clip-on pedometers, but the wearable devices on the market lack the accuracy of clinical devices. The data collected via an Apple Watch’s EKG, for example, is inferior to that collected by a ten-electrode clinical EKG. What many wearables lack in data precision, however, they make up for in data quantity, and where there is quantity, there are opportunities to leverage cutting-edge analysis techniques like machine learning to find signal in the noise. Vijay Pande, General Partner at Andreessen Horowitz, explains:

“Our lives are not determined by single data points. Consider your heart health today: you likely had a ton of variation from minute to minute, depending on whether you were catching the train, working out, or getting excited about some news. Sitting in the cardiologist’s office, one gets one clinical measurement (albeit a very proper one) of an anecdotal nature capturing just that one moment in time… New [data analysis] methods such as semi-supervised machine learning allows large but somewhat noisy datasets, combined with much smaller but much more accurate datasets (i.e., a few of the people also get full clinical tests). Together these allow for the simpler measurements to yield predictions comparable to the full tests. As long as one has some patients with those more accurate tests — such as in studies run by research teams — the knowledge gained from wearables can then be connected to data from more accurate measurements.”(3)

Wearables, then, represent powerful tools that have the potential to shift patient evaluations from discrete snapshots to analyses based on extensive data sets, but they remain heavily dependent on data generated by traditional clinical tools. The companies that ultimately set themselves apart in this developing field will be those that are able to access and effectively analyze the vast amount of data generated by wearables while effectively handicapping the technologies’ limitations. To date, everyone from large insurers with massive actuarial departments to lean entrepreneurial teams with biostatistics degrees have distinguished themselves, but no clear leader has emerged. The industry remains in its very early innings.

MHT Partners, a leading healthcare services investment bank, will continue to follow trends in the space with great interest as leaders emerge and change care for the better.

[1] Source: Emarketer – Wearables 2019
[2] Source: The Verge – What happens when life insurance companies track fitness data?
[3] Source: Andreessen Horowitz – Cardiogram

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