The potential to improve how we treat patients with chronic diseases, including diabetes, is a massive market opportunity for wearable-technology companies including Fitbit (NYSE:FIT) Apple (NASDAQ:AAPL), and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and collaborations with leading healthcare companies, including Medtronic (NYSE:MDT), suggest that work is already under way to create wearable technology for patients.

In this episode of The Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes and contributor Todd Campbell discuss the market potential of wearables in healthcare and the challenges facing developers of this technology.

A full transcript follows the video.

This video was recorded on May 10, 2017.

Kristine Harjes: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today is May 10, and I'm your Healthcare show host, Kristine Harjes. I'm here at Fool HQ just outside of Washington D.C., and I have Motley Fool healthcare contributor Todd Campbell calling in from New Hampshire. Todd, welcome. What is the most interesting thing you've written since the last time we talked?

Todd Campbell:
I don't know what the most interesting thing I have written is. I like to think all of what I write is interesting, and all of what you can find on The Motley Fool is fascinating. [laughs] But I think today's show is going to be absolutely interesting.

Harjes:
Yeah, I hope so. We've talked on the show before about the intersection between technology and healthcare. One show that comes to mind in particular was when I had Motley Fool analyst Simon Erickson come on while he was at South by Southwest, which is a tech conference, but with each passing year it seems like there's more more interest in healthcare from the tech world. So today, we wanted to dive in to one particular area where tech companies are working in the healthcare space, and that is diabetes.

Campbell:
This is going to be a very interesting show, because we're going to be talking about the future, or what the future could look like, in treating diseases like diabetes using wearables, things that we have on our wrists every day already.

Harjes:
Exactly. This is an enormous opportunity, which is why the tech world is so interested in it. If you look at America, one-third of people in the United States are obese, and 9.3% of them have diabetes already. And this is a problem that's only getting bigger.

Campbell:
No pun intended, right?

Harjes:
Yeah, that was no pun intended at all.

Campbell:
 One-point-nine billion adults over 18 are overweight. Six hundred million adults obese. Thirteen percent of the adult population, obese. The prevalence of obesity has more than doubled between 1980 and 2014. Clearly, there's a need for things that help us get moving and help us monitor how good of a job we're doing in getting the exercise we need every day to prevent diseases. That's really why we're talking about it on a Healthcare show. We're not talking about companies like Fitbit because we're interested, necessarily, from the technology standpoint. We're also interested in how these devices can be used to change clinical outcomes. Diabetes and obesity, there is a link.

Harjes:
The way that I see it, there are two different sides to this story. You have the obesity side, where if you can get yourself living a more healthy lifestyle, you lower your risk of diabetes, or you can better manage your disease. Then, there's also the blood sugar level monitoring, which, if you already have diabetes, is absolutely key. So you see a lot of partnerships and a lot of work being done between healthcare companies and tech companies that are trying to combine data from both of those different sides of this puzzle, to see what is the relationship between activity levels and glucose levels and management of disease.

Campbell:
What's interesting is that the sensors we're developing now, we have a much better understanding how the body works. The body is such an amazing, incredibly sophisticated system, and we can actually determine how our bodies are doing, as far as their normal processes, by evaluating things like blood sugar in the blood, or evaluating changes in what we excrete through our sweat. Sensors are becoming more and more sensitive, and as a result, they're being able to be used in increasingly more helpful ways. But taking that one step further, these sensors are now getting to a point where they're getting smaller, less intrusive, more easily used by patients. So we're not talking about this big, bulky thing you have to lug around with us anymore.

Harjes:
Right, and that's important not just because it makes patients' lives easier, but because in theory, that could boost compliance.

Campbell:
Compliance, let's admit it, it's a big deal. Let's just look at Fitbit. Fitbit has been around for 10 years, and they've sold 63 million devices. There's so many of these devices around, and maybe many of our listeners are wearing them right now. But what's intriguing to me is, as I was researching for today's show, only one in 10 are wearing them on a daily basis,

Harjes:
Yeah, I believe it. I think Fitbit in general is struggling with not so much initial adoption, but actually sticking with their product. But if they want to really dive into being able to integrate their wearables tracker with something like a continuous glucose monitor, which is something they're working on with Medtronic regularly. You can just tell the people who were just sitting there shaking up and down all day long and counting that as steps. And that's fine if you're doing something like a step competition with your friends -- well, it's not fine, it's not great, but it doesn't have the consequences that it would if somebody is using it in a medical way. And that's not to say that people are trying to cheat their medical data. But even something as simple as brushing your teeth, people sometimes log that as steps, and that's problematic when your doctor is looking at that data.

Campbell:
Yeah. I was reading one study, Kristine, where a care provider, a hospital system provided a bunch of older patients, I think they were in their 80s, with devices that could be used to measure how much activity they were doing and their heart rate and all of this stuff, and frankly, most of them forgot that they were even wearing them within a few days of wearing them, and forgot to put them on. We have to, obviously, be able to develop systems that are sensitive and give us new insights into, for example, blood sugar levels, so that people can stay within their desired range more frequently throughout the day. But we also have to make it so it becomes something like your watch, where you're actually looking at it every once in awhile. Again, I suppose watches aren't being worn as much as they used to be anyway, because now we have smartphones. How often are you checking your watch? It's going to be like a text message; you're going to have to actually pick up the phone and look at your texts and say, "I moved this many feet, and my heart rate is this, but what do I do with this information?" I think that's part of what Medtronic is trying to accomplish in its push here, is to take all the information it has, from being a huge player in medical devices, especially in diabetes, and be able to marry that with the information that's being collected by the user who's wearing the device, and then being able to take that one step further and actually provide actionable insight that either the caregiver, be it the primary physician or the patient, can use to actually improve their lifestyle, or something.

Harjes:
Yeah, you're absolutely correct. Medtronic right now is staring down a mountain of data and looking at it and saying, "We have so much information; how do we derive useful conclusions out of it?" They have a partnership with IBM that was announced in April of 2015 that will leverage the artificial-intelligence powers of Watson, which is the supercomputer that won Jeopardy! With Watson, they're going to analyze all these electronic medical record data, I think it's 10,000 EMRs, and they're going to use this population information to develop a real-time personalized care. Todd, as you were saying, it's going to need to come from an app or your phone or something telling you, "You're showing abnormal patterns," or, "We've noticed this." That's exactly what they're trying to develop. They created something called Sugar IQ, which is a personalized assistant that can detect patterns of behavior, and it can protect diabetic events hours before they happen, which is really pretty incredible. And it seems to me like they're only getting started with this.

Campbell:
You know what's interesting, too, is that Massachusetts General Hospital did something where they gave pedometers to patients, and they linked that up with a text-messaging system that would basically say, "Here's how you're doing; here's some tips." They actually look at the weather, all sorts of things that they put together to try to figure out the best way to make it relevant to the patients. Sure enough, the patients who are receiving these daily tips did better overall in achieving whatever their goal was for their blood sugar levels. So yes, we have all of this information out there, all of this data. On the healthcare side of things, we have companies like Medtronic that have tons of experience in creating medical devices. Then we have the consumer-electronics companies, who have tons of experience generating devices that people want to use. Then, we have healthcare providers who are trying to figure out how can they take all of this, marry it together, and make it into something they can actually use to reduce these rates of obesity, to keep people who are pre-diabetic -- because there are over 80 million Americans who are pre-diabetic -- to keep those from becoming full-blown cases of diabetes and ultimately make it to the cardiovascular disease is no longer the No. 1 killer worldwide.

Harjes: This is a multi-faceted problem, which is why it's so interesting to see different types of companies coming at it from all of their angles of expertise.

All right, let's turn to a company that I don't think we've mentioned yet on the show but is working in the space, and that's Apple.

Campbell:
Apple is obviously on the cutting edge when it comes to developing easy-to-use consumer electronics that resonate with people. That's the whole thing, the whole experience. So we were talking before the break, being able to figure out, we want to marry healthcare outcomes with technology with the information we've collected -- how do we do that in a way that really resonates with consumers? And one of the ways that Apple is trying to do that is through its Apple Watch.

Harjes:
Right. The Apple Watch is a really interesting product, but right now it's kind of a luxury product. And I think if they're able to find a way to make it a must-have for diabetics, that's going to be a game-changer for this product.

Campbell:
You have apps that tie into both your Apple phone, your Watch. Some of those are healthcare related. You have access to things like heart rate through these devices, being able to track those things. But wouldn't it be great, Kristine, if you could be wearing your Apple Watch and, at the same time that you're wearing it, it's measuring your blood glucose level?

Harjes:
Absolutely, yeah. One of the big step changes with this project -- which, by the way, Apple is working on this. Despite Apple being shrouded in secrecy about what's next sometimes, a very credible journalist from CNBC reports that they are working in this area. So the step change that I see in this project is that they're looking at a non-invasive continuous glucose monitor sensor. When you talk about reading your glucose levels, it always involves some sort of prick to the finger, or something that is invasive to the body, What they're trying to do is figure out how the Apple Watch could incorporate an optical sensor to read glucose levels just by shining light through the skins, and integrating that with the data that you have on your Apple Watch.

Campbell:
Which is pretty amazing. I guess the question would be, will that be shining continuously and measuring it continuously? Or will that only be shining at specific intervals? And how often will those intervals be? And that's going to create all sorts of design problems, because you're going to have to figure out, how do you make the battery lights last long enough to be able to do that, potentially?

Harjes:
What happens when you're charging?

Campbell:
Yeah. If we go back in time for a second, we've already made huge advances in doing this, as far as, you have companies like Medtronic that now have an artificial pancreas where you have continuous glucose monitoring occurring from a small sensor that is inserted underneath the skin, that you wear in a pump that's delivering blood glucose on demand as it needs to. You have other companies like Dexcom (NASDAQ:DXCM) that are out there that are making huge advances in sensor technology, that are providing real-time, truly continuous readings that people are able to use to chart up and down their blood glucose levels to help them better figure out when they might be crashing, when they might need insulin or not need insulin, or whatever.

So Apple, I think you're right, it's a fascinating concept to be able to just use light, and be able to evaluate blood glucose. But it's not as simple as just saying, "Yeah, we're going to do this." I suppose that's why they haven't rolled it out yet, and why they're being so secretive. Supposedly, they're in the initial test phases of this to try to see whether or not this makes sense. They went out a couple years ago and bought a company that was working on sensors for healthcare to try and give them a little bit more experience in that area. It's hard for me to imagine, honestly, Kristine, that we get, 10, 20 years from now, and it's almost like going to be like we're having our doctor with us on demand. We're going to have so much information, so much data, that we're going to be able to collect just from the clothes we're wearing -- you can buy compression shirts and sleeves now that do a lot of these evaluations, too. They're looking at various different disease indications, being able to measure levels of certain proteins in your sweat to be able to see how your kidneys are performing, all sorts of interesting things that theoretically we could discover and be able to track over the course of the next 10 or 20 years. I think what Apple is saying is, "We want to make sure we don't get left behind in that movement."

Harjes:
Exactly. Here's another crazy one: Novartis is working with Alphabet's Google's Verily, which was formerly Google Life Sciences, on a smart contact lens that you put in your eye like a normal contact, and it measures blood sugar levels from your tears. So what they're hoping to do is have it change color if the levels aren't within normal range. That's straight sci-fi right there.

Campbell:
That is crazy. That is fascinating. And then, of course, you have Verily, which is part of Alphabet/Google, however you want to refer to them. Verily is working on a program with Dexcom to create sensors that peel off like little Band-Aids. Obviously, this is going to become a much, like you said, less invasive way of being able to track a disease and provide more information, and then hopefully that information can be used by the patient to at least delay disease progression so that they're not ending up with cardiac risk and risk of death later on in life.

Harjes:
Right. This is another example of a tech specialist, Google, working with a healthcare-device specialist, which is Dexcom. Dexcom, in case you're not familiar with them, are a continuous glucose monitor, CGM, specialist. Dexcom has all these awesome CGMs that they've already developed, and now they see this tremendous advantage in being able to harness Google's analytic capabilities to make this better. They're working with Verily on developing a CGM that's no bigger than a Band-Aid. There would still be some insertion, because their system is based on a wire, but they're looking at ways other than a needle to insert it, which would not just be a better experience, but hopefully take the cost down.

Campbell:
You know what's fascinating to me, Google is always on the cutting edge, in the way that they're doing research and discovering new ways a new approaches. They're not just a search engine. A few years ago, they came out with Google Glass. I don't know if our listeners remember Google Glass. Maybe some of them still have them kicking around. It's a head-up display that you attach to your glasses that allows you to access the internet, access information, and communicate with, say, your computer or PC. There are companies out there today that are still using Google Glass to improve healthcare. For example, there's a small company out in California called Augmentix. Augmentix works with physicians. Physicians will walk in to a primary care appointment wearing Google Glass; they'll be able to, through a scribe back at Augmentix HQ, be able to communicate and spend more time with the patient and spend less time on the paperwork. So basically, the scribe is writing down what's occurring, or taking care of the EHR, or electronic [health] medical record component of a physician's job, via the use of Google Glass. There's all sorts of ways that we're not even contemplating that wearables, be it from Google or Fitbit or Apple, or even [Amazon.com], could impact and change healthcare over the course of the coming decades.

Harjes: Right. It does feel incredibly nascent right now. One company that I want to mention, because you just reminded me that we haven't mentioned them yet, is Amazon. They, right now, have this diabetes challenge, which is specifically the name of the Echo woman, the voice, I've been told by our listeners that we shouldn't say that during the podcast, because saying her voice will trigger her, and it'll stop what you're doing and wait for a new command. So hopefully you know the girl's name that's I'm talking about. The Echo woman. Anyway, Amazon is partnered with Merck, and they have challenged developers to create an Echo-powered solution to help type 2 diabetics. They are, in July of this year, going to announce the five finalists, then throw them into this virtual accelerator to try to develop the best thing that they can. The winner will end up with $125,000, and that will be announced in September. So, definitely looking forward to seeing what they come up with. 

Campbell:
The Innovation that's going on in these contests, who knows how we'll use our Echo, how Echo and some of these other consumer devices that we wouldn't think of as healthcare devices are going to reshape. The things that we're going to have to remember, remind all of our listeners, because obviously we're coming across as pretty excited about the future of this space, right, Kristine, is that there are some concerns. We have the accuracy of the data. There are some concerns that some of these devices, the information they're collecting, isn't healthcare-quality accurate. We have security and privacy concerns, the sharing of information, who gets to see it, who doesn't get to see it. And then, of course, as we touched on previously, that whole patient adherence component of it, are they going to have that wearable on them all the time or enough of the time to be able to come to good conclusions?

Harjes:
Yes, and even patient willingness, particularly as it concerns their security and their privacy. There's a whole 'nother level of attachment to your healthcare information that you don't have to, say, how many steps you took in a day. You might be willing to share that across your friend network on the Fitbit app. But do you really want to share it as it pertains to your medical status?

Campbell:
Kristine, forget about pre-existing conditions. We're talking about previous to existing conditions.

Harjes:
Yeah, exactly. It'll be interesting. It's definitely a very early stage market. Looking at this from an investing standpoint, it seems to me like all these tech companies that we talked about, most of them are great stocks, but I wouldn't necessarily invest money in them because of their healthcare initiatives, because they're too small at this point. They could be huge opportunities downstream, but I think it's going to be a long time before, say, Apple's healthcare initiatives end up being a meaningful contributor to the business.

Campbell: 
We don't know who the winners or losers will be. It's just way too early, as you said. We know who, so far, the market share leaders are in some of these wearables, Fitbit and Apple being No. 1 and No. 3.

Harjes:
Yeah, there's actually a pretty big Chinese company that's in the mix, too.

Campbell:
Yeah, No. 2. Funny thing is, and this shows you -- I'm up in New Hampshire and I don't get out very often -- I had never even heard of the company prior to doing the research on this.

Harjes:
Actually, I hadn't, either, but I think that's just because they don't really have a big lodging in the U.S. But they're huge in Asia, and they're actually really cheap devices.

Campbell:
Yeah, they're a private Chinese company called Xiaomi.

Harjes:
Yeah. So it'll be interesting to keep an eye on. Todd, any final thoughts before I close out?

Campbell:
No. I think, like you said, we're an investing show, and I think the investing takeaway is, stay tuned. I don't think you can go out and buy any of these stocks based on what we just discussed today. But I think it's definitely worth tracking how this industry is progressing, paying attention to the news flow on it, because at some point, this is going to become very big business for somebody.

Harjes:
Yeah. And it is really interesting to me to see how these different sectors overlap. Even just in a portfolio allocation sense, if I have my money in, say, Alphabet, and all of a sudden healthcare becomes half of their business, does that change how I think about that investment? I don't know. Remains to be seen. But like I said, we are just in the early stages, so stay tuned. That will just about do it for today's show. If anyone has questions or comments for the team, we love hearing from our listeners. You can reach us at industryfocus@fool.com, also in the Motley Fool Podcasts Facebook group or at Twitter, @MFIndustryFocus. 

As always, people on the program may have interests in the stocks that they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. For Todd Campbell, I'm Kristine Harjes. Thanks a bunch to our producer, Austin Morgan, who proved himself today to be a champion knockerballer, and it was awesome. Congrats, Austin, and Fool on, everyone!

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Kristine Harjes owns shares of Apple. Todd Campbell owns shares of Amazon, Apple, Facebook, and Twitter. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, Fitbit, and Twitter. The Motley Fool owns shares of Medtronic. The Motley Fool has a disclosure policy.