Will Apple's New Health Care Push Pay Off?

Apple and Google are both making inroads into the healthcare arena.

Jun 15, 2014 at 9:59AM

In pursuit of the general idea that anything that can be Apple (NASDAQ:AAPL) or Google (NASDAQ:GOOG)(NASDAQ:GOOGL) should be Apple or Google, both of these tech giants are getting increasingly serious about their efforts to develop products targeting the medical device space. A recent Freedom Of Information Act request from AppleToolbox revealed details of a meeting between Apple and FDA officials that suggests a pretty high level of interest on the part of Apple in determining what they can, and cannot do, in relation to the marriage of consumer electronics, technology, and health.

Apps simply an appetizer
There have been numerous health care apps available through the the Apple and Google Android ecosystem for some time now. Most of these apps are designed around self-reporting or self-tracking, helping users keep track of their calorie intake, activity levels, and so on.

Apple unveiled an incremental step forward at its recent WWDC with its HealthKit. At first glance, this isn't a game-changer, as it basically offers a framework for users to track metrics like calories consumed/burned, weight, sleep, and so on. One of the important features is the ability to link with various wearables that track heart rate and activity, but that may not be the most important feature over the long term.

The framework appears to facilitate the collection and storage of more sophisticated and technical medical information, including allergies/reactions, current medications, and even prior lab test or imaging results. That could ultimately facilitate a process where smartphones become a portable, personal, touch-secured electronic medical record that could integrate and interface with service providers (whether a person's regular physician or, say, an emergency room/urgent care physician at a vacation destination). That could significantly reduce delays and medical errors, not mention send a shot across the bow of large health care enterprise IT vendors like Cerner and Allscripts.

Devices for the dinner?
The more interesting (to me) part of the FDA's response to the FOIA request was the extent to which it seems to reveal an interest on Apple's part in developing/making use of sensors to track health care metrics. Back in December of 2013, Apple got a patent for heart rate monitors built into mobile devices.  Based upon the FDA FOIA response, the company also asked about the regulatory treatment of a glucose sensor.

Apple isn't the first consumer tech company to move in this direction. Google has previously announced that it is working on a "smart" contact lens that can monitor glucose by measuring the glucose content of tears. While I'm not sure that such a lens would be wearable overnight, a painless non-invasive (and most importantly, accurate) glucose sensor would be a direct threat to the monitoring businesses of Medtronic (NYSE:MDT), Johnson & Johnson, and DexCom.

In the case of Apple, it's less clear what sort of approach the company is considering. Companies have tried (largely unsuccessfully) to develop non-invasive glucose monitors that used methods like spectroscopy to measure glucose. Many of these efforts were led by underfunded, if not outright shady, companies but Apple can bring a level of R&D capital and credibility to the table that potentially has never been seen before. In other words, if it can be done, I'd give Apple pretty good odds on figuring it out.

Importantly, the FDA made it clear to Apple that how they regulate potential new sensors/devices is dependent upon how Apple intends to market them. A device marketed with diagnostic intent (blood glucose levels for use in managing diabetes) would require FDA approval, while a device designed to generate information about glucose for use in "managing nutrition" could fall outside their regulatory framework.

While that gives Apple some room to maneuver, it also creates potentially bothersome ambiguity – consider the difference between the AncestryDNA genomics service, which claims to only offer information about genealogy and 23andme whose test offered genealogy information, but also referred to potential genetics-based health risks and was pulled off the market by the FDA as a result.

The risks of indigestion
There is a lot that Apple could do in med-tech. Developing a Holter monitor (a noninvasive wearable device that continuously monitors the electrical activity of the heart) wouldn't seem out of reach. Further, if Apple is willing to go into invasive approaches, a multibillion-dollar world of diagnostics and monitoring opens up – perhaps even going so far as to compete with companies like Medtronic (with its new Reveal LINQ insertable cardiac monitor) even more directly.

Obviously it's not going to be just that easy. Medical devices require FDA review (and often clinical trials) and Apple isn't exactly familiar with a business model predicated on them asking others what they're allowed to sell. Nevertheless, Apple has more than enough cash to fund extensive R&D and clinical development, provided management has the patience to work within the regulatory confines of the FDA.

The bottom line
Investors likely need no reminder that there is a big difference between what Apple may do and what Apple does do (iTV, anyone?). Nevertheless, it's not hard to see the potential in turning smartphones into portable personal electronic health records, nor in using smart devices to monitor or track health information. Whether Apple develops an actual glucose sensor or looks to engage with monitoring companies like Medtronic and DexCom (perhaps integrating their invasive sensor readings into a more comprehensive medical recording/reporting system), there's a lot of opportunity out there if Apple wishes to invest the time and money.

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Stephen D. Simpson, CFA has no position in any stocks mentioned. The Motley Fool recommends Apple, Johnson & Johnson, and Google (C shares). The Motley Fool owns shares of Apple, Johnson & Johnson, Google (C shares), and Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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