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Fitbit and Medtronic's New Partnership: Revolutionizing Healthcare?

By Bradley Seth McNew - Dec 17, 2016 at 11:42AM

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This deal could be one of the most important stories of the year for Fitbit and Medtronic, and could be the start of a changing healthcare system.

Image source: Fitbit.

Fitbit (FIT) and Medtronic (MDT 0.07%) recently announced a deal that includes Fitbit devices integrating into a digital platform to help patients with type 2 diabetes better manage their activity and overall care. This deal is far more important than just a partnership to help patients track steps -- and could be a major win for the future of wearables and integrated healthcare.

Medtronic and Fitbit's new partnership

The announcement for the deal says that the companies' partnership will use Medtronic's' continuous glucose monitors (CGMs) as well as Fitbit's activity trackers as an integrated solution for simplified type 2 diabetes management. A new mobile app, called "iPro 2 myLog" collects data form the CGMs and trackers, and gives meaningful data and insights about how different levels of activity can affect the wearer's glucose levels throughout the day.

The iPro myLog 2 app. Image source: Medtronic.

There are 29 million patients living with type 2 diabetes in the United States. "By creating a connection between physical activity and glucose levels, our iPro2 myLog mobile app solution provides new tools and insights, so that physicians can optimize therapy and patients can better understand how to manage their diabetes," said Medtronic VP Laura Stoltenberg in the announcement release.

The ability to track daily activity and understand how different exercise regimens or levels of activity will affect glucose levels could be a life-altering level of detail for many diabetes patients. Additionally, many patients are forced to manually log their activity to report to their doctor, which could lead to increased errors. The activity trackers allow the patients to have their data collected passively, continuously, and sent immediately to their healthcare team.

The future of wearables and healthcare

"We believe the integration of wearable technology with professional diagnostic tools can provide a more accurate and actionable view of a patient's physical activity," said Fitbit VP Adam Pellegrini in the release. For years, analysts have speculated how wearables could revolutionize the healthcare system by providing accurate and more in-depth information to doctors, while allowing patients to get much more insight into their own health needs.

This partnership is one of the first times we are seeing this kind of true medical device integration at a broad level. However, there have been other encouraging partnerships recently in which healthcare providers have been willing to use fitness wearables to track users' activity levels and provide insurance rate cuts or health savings plan increases for users that meet a certain goal. For Medtronic, which "aims to transform diabetes care by expanding access, integrating care and improving outcomes," this is a new opportunity to take the lead of the changing healthcare system in which data and accuracy could be incredibly valuable.

What this could mean for Fitbit's future

For Fitbit, partnering with healthcare providers is a massive market opportunity, and one that couldn't come at a much better time as the stock has been hammered so far in 2016 (down around 75% year to date) on concerns about what, if anything, might power Fitbit to continue growing revenue and earnings. The company's sales growth has slowed from over 200% year over year in the second quarter of 2015 to just 23% year over year in the most recent quarter.

The market hasn't given Fitbit much credit following this slowing sales growth, pushing its price to earnings down to just 19x. Fitbit is still the market leader in terms of units shipped, and has actually increased its market share to 23% in the most recent quarter, up from 21.5% in Q3 2015. This kind of healthcare partnership could drive higher future sales as healthcare providers adopt devices, and could fuel Wall Street to get more excited about Fitbit and help elevate its stock price.

Fitbit isn't the only one going after this market. Apple (AAPL -0.14%) is also a contender to make moves in this space with its Apple Watch, which also offers activity and heart rate tracking, along with allowing third party apps to operate on it. Companies might choose it over Fitbit or other basic wearables so that patients could have specific tracking apps right on their wearable. Some of the limited potential of the Apple Watch is its cost -- $369 for the low end of the Series 2 compared with $149 for a Fitbit that includes heart rate monitoring -- as well as only working with iPhones, which disregards all patients with non-Apple phones where as Fitbit's lower price and open platform is much more mass-market oriented.

There are many hurdles to this wearable device strategy becoming a mainstream component of healthcare management. The accuracy of the trackers is still disputed, and the need for information security and medical record privacy present new challenges for sending data between wearables and doctors. Still, this new partnership between Medtronic and Fitbit looks like one of the first big steps in what could be a healthcare consumer device revolution.

Seth McNew owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Fitbit. The Motley Fool owns shares of Medtronic and has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. 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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