Successful M&A Exits in the Consumer Healthcare Device Market

Consumer healthcare devices are everywhere. They help people track physical activity, measure caloric intake, and play a vital role in personal health and wellness achievements.  Driven by consumer engagement, technology proliferation and a billion dollar-plus market opportunity – investors are pouring millions of dollars into this market with the hopes of a big return (see examples below).  Public exits (IPOs) are tough, so the path to liquidity for many of these firms will be acquisition.

• $70 million raised by Bluetooth headset maker to enter health monitoring market.
• $50 million raised by mobile consumer focused diabetes management system.
• Best Buy invests in mobile fitness ear bud technology.

Few companies have yet reached a size and adoption threshold to be deemed a success, but as the winners emerge product design, value proposition, access to customers, defensible intellectual properly and ability to integrate will factor into their strategic paths. Here is a check list for the CEOs who are considering an exit in the next 8-10 quarters:

• Competition – Separating from the pack of consumer health device companies is difficult.  There are dozens of credible companies and scores of wannabes (100+ according to our market definition).  While most of companies in this category are below $15 million in annual revenue, the strongest players have venture backing, cash reserves and relevant consumer and healthcare experience sitting on their Board.

• Customer Adoption – Consumers are tough critics and prone to device abandonment.  Winners in this category with figure out how to provide a consumer health device that is easy to use, convenient, and effective.  Also, given that consumer health devices today attract a narrow user based, successful vendors will figure out a way to expand adoption and find a broader audience of which to market and sell its product.

• Distribution – Signing a big distribution deal can be the best way to gain quick, sustainable market exposure. For these vendors it can be a great way to develop a strong, sustainable partnership that could lead to M&A down the road if the partnership is successful. Especially in the consumer market these major distribution channels can make or break a business in the early innings.  Acquirers will look for devices that can be sold effectively through multiple channels. Winners will maintain a broader sales strategy and not become dependent on a single distributor, which makes the business susceptible to channel risk and unattractive for a premium M&A event.

• Finding the Right Business Model – This is the biggest stumbling block for most consumer healthcare device companies.   In most cases, larger companies are less acquisitive when a business cannot demonstrate a scaleable business model.  Many vendors in this space simply want to achieve user adoption at the expense of a longer-term revenue plan, when they should be thinking about keeping customers over a five year (or longer) period.

• Recurring R&D costs – Companies in this market must continuously re-invent themselves with smaller, sleeker devices.  This can be the most taxing aspect of the market and certainly hurts a company’s chances of becoming highly profitable, especially when they are investing in growth.  Manageable cost structures, vertically integrated manufacturing models, web-based user interfaces and other features are all relevant to a complete product experience.

TripleTree has monitored the consumer health devices space for years and we’re bullish about the prospects for continued innovation and growth.  We’re watching the emerging companies address consumerism in thoughtful and innovative ways and look forward to watching the evolving strategic relationships between these innovators and global players.

Let us know if you have additional thoughts on this market or a different perspective.

Michael Boardman

Michael Boardman is an associate at TripleTree covering the healthcare and technology industries, specializing in clinical software solutions.  Follow Michael on Twitter or e-mail him at mboardman@triple-tree.com.

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When Should ‘Blackberry’, ‘iPhone’ and ‘FDA’ Be Used in the Same Sentence?

The FDA classifies a medical device as “…an implementation, product, apparatus or other component or accessory, which is used in the diagnosis, cure, mitigation, treatment, prevention of disease or effects any structure of the body–that could actually include some information technologies and performance technologies–but usually something that is performed on the patient, touches the patient or is performed between physician and patient.”

By this definition, an iPhone or Blackberry loaded with the proper apps or enabling a key medical service becomes a FDA-regulated device. That is an industry with over 5 billion previously unregulated potential medical devices waiting to be enabled by the 17,000 plus increasingly sophisticated wireless health applications in the market and thousands applications more in active development. Wireless and mobile health researchers at strategy consulting firm CSMG estimate industry revenues to top $4.6 billion by 2014, a stunning figure for an industry that didn’t exist just 5 years ago.

Recognizing the potential regulatory bombshell, the FDA and the FCC convened last July for a meeting on “Converged Communications and Healthcare Devices Impact on Regulation to address the current state of wireless health, innovator perspective, and investor perspective. The agencies’ stated motivation for the meeting was to “clarify and delineate the respective areas of expertise and jurisdiction between the agencies” given the increasing convergence of communications and wireless technologies and medical devices. Emerging from the meeting was a joint FDA-FCC memorandum of understanding to promote collaboration and eventually refine and improve the regulatory processes applicable to wireless-enabled medical devices (and conversely wireless devices with medical applications). While an admirable step towards normalizing government oversight over the mHealth market, neither agency has issued concrete guidance or a path to regulatory approval to date.

The FDA’s lack of clarity is causing uncertainty amongst entrepreneurs and investors. Just last month, the agency finally announced it would issue guidance on mobile medical applications later this year, settling an issue that has had many industry investors cautiously observing from the sidelines and developers nervously eying their own business plans.

Given the day’s current political environment of overregulation, it’s possible that the decision could have severe ramifications on growth in an industry in the midst of considerable upswing.

With the number of mobile subscribers worldwide passing the 5.3 billion mark at the end of the year, over 75% of the global population has a mobile device, and that number is expected to grow thanks to increasing penetration in developing countries and the growing presence of tablet computing.

We are optimistic that the FDA will adjust its need for regulation in harmony with the industry’s need for innovation, creating a set of guidelines that will attract investors and entrepreneurs while protecting the security of consumers and medical data.

Have a great week!

Marc Baudry

Marc Baudry is an analyst at TripleTree covering the healthcare industry specializing in population health management and healthcare informatics. Follow Marc on Twitter or email him at mbaudry@triple-tree.com.

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Wanted: Smart investors, smart developers & smart policy makers

Ahead of his keynote address at the upcoming Wireless-Life Sciences Alliance Convergence Summit in San Diego next month, Bill McGuire, M.D., recently sat with mobihealthnews (MHN) editor Brian Dolan for an interview on the efficacy of technology in healthcare and the road ahead.

(MHN) How do you characterize the opportunity for wireless health? Could you also provide us with some sense of the current investment climate — a lot of activity? A lot of interest but not a lot of activity?

I like to position it as: How can we build products, services, and systems that facilitate the eventual appropriate health and wellbeing for the people in this country and elsewhere. In pursuit of that and in consideration of all that has been done — both good and bad — and all that is yet to be done, which is significant and formidable, I think the whole area of technology enabled healthcare or mHealth or any term you’d like to apply, offers significant opportunity to meet that end. It still remains to be seen obviously what the most appropriate areas and most beneficial areas will be to accomplishing that. When it comes to investments, of course, there will be a lot of investments in things that don’t make any difference or are not contributory to the kind of outcomes I am describing.

(MHN) What kind of things?

If you look at what has happened in last several years particularly with reform: These huge expenditures that have been directed at technology applications in healthcare. I’m afraid we will see that we have spent an enormous amount of money for marginal or no gain. It’s very indiscriminate. That’s classic healthcare, though and classic investing: ‘Let’s just throw money at things.’

You have the whole idea of applications on cell phones for example. Embedded among [the thousands] of health apps out there are probably a few that will make a difference in the lives of some people. Those apps should theoretically lower costs and improve outcomes, but most of these apps exist because we happen to like apps, it’s a nice story, so we chase them. Discerning what is ultimately going to make a difference and result in the kind of outcomes we are looking for, which is differentiated from just investing money, is the critical issue. The smart investors, smart developers, smart policy makers and so on will benefit from that. The land grab that is going on right now — just throwing money at it — is a little bit misguided.

Another issue is the lack of interactivity among these technology applications. The fragmentation and silos continue. Rather than determining how to piece a number of necessary components together, we have a lot of independent efforts out there to chase after something. We ask for electronic medical records (EMRs) but we don’t necessarily put out standards of performance and interactivity between them. So when someone comes along and asks to gather data or information we know that we can’t get it from each and every one of them.

(MHN) So EMR efforts are misguided?

The amount of money that is being thrown at this stuff relative to the value that it is going to return to us is ridiculous and it will not prove to offer up the kind of end gains that we are touting. Those are health outcomes gains and financial gains in terms of lowering costs. I see nothing that suggests this is going to dramatically improve outcomes, improve access to care for people who had heretofore not had access to care and certainly nothing that suggests that it is going to lower the costs of healthcare in America. People are rushing to do various EMRs simply because the government says we will pay you to install it. If you talk to people who try to extract data from various EMRs they would tell you that there is no consistency in the expectation to do it from many different systems and yet we are spending billions of dollars on this.

(MHN) Let’s switch gears back to wireless health. Are any companies on the right path? If you aren’t comfortable naming companies, what are some specific use cases that you think are promising?

I will be necessarily cautious about the specifics because I don’t want to come across as endorsing or refuting things that I know relatively little about specifically. Let’s start with a concept. What I think we are talking about in some way parallels what we are seeing from efforts in education. As we confront challenges around resource availability and the spacial relationship between the users (the someone in need) and the resource. The ability to take content out to individuals — which is what mHealth or various mobile technologies have done — becomes a substitution for asking those people to go to the content source in a different way.

It’s sort of like: If the cost of gas goes up and bus costs go up, how do we really expect kids to learn about the arts when they used to get on a bus and go on a field trip to a museum? Museums are beginning to take their content to the students where they live. The Metropolitan Opera says we can’t expect everyone to come to the Met, but opera is an important cultural element for society. So they started filming it and showing it at theaters around the country, which has been wildly successful. In these cases we are looking for ways to bring content out to touch people when we can’t in essence do it physically.

In healthcare the same principle exists. People who live in remote sites do not have access to care — primary care to say nothing of secondary or specialized care. How do we help them manage their health and wellness and help deliver services that might be beneficial to acute but relatively everyday problems? That is the kind of application opportunity that the technology provides. Whether that includes telehealth, applications, gaming… that’s the huge opportunity.

(MHN) Any closing thoughts?

I think healthcare might be unique in that it is a space where technological advance has not positively influenced efficiency or cost reduction. Just across the aboard it has not happened. Costs keep going up year after year after year. Why is that? The discussion we hope to have at the WLSA Summit is around how the companies presenting are in fact going to accomplish the needs of both enhancing efficiencies and lowering costs while achieving improved health outcomes for people. I expect it will be a lively discussion about disruption and how mobile will play into that.

Dr. McGuire is widely respected for his uncensored clarity about what has, hasn’t and can work relative to advancing the health of our nation.  This interview offers a sneak peak at the keynote remarks he will deliver during the WLSA Convergence Summit on May 11, 2011.  Click here to register.

Bill McGuire, M.D. is the former CEO of UnitedHealth Group and current Vice Chairman of TripleTree Holding Company.

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Health2.0 Event Supports Conversation on Healthcare Consumerism

Last week, my colleague, Ryan Stewart participated as a keynote presenter for a regional Health 2.0 event.  As leading resources for innovative healthcare technology organizations, TripleTree and Health 2.0 are aligned in their belief that the growth of user-generated healthcare will foster a wave of consumerism across the industry. TripleTree has identified “consumerism” as critical for engaging consumers to take a greater degree of control in their own health and breaking down the traditional roadblocks that have caused a disconnect between payers, providers and consumers within our healthcare system.

TripleTree continues its active role in the mHealth (mobile and wireless health) arena and closely follows dozens of innovators who enable a free flow of healthcare information between various systems.  Ryan’s presentation outlines several macro-trends where mHealth is supporting this information flow and facilitating patient access to care information through greater patient participation in health-related decisions. You can view the presentation here.

Joe Long

Joe Long is an analyst at TripleTree covering the healthcare sector, with a focus on the approaches and technologies surrounding health insurance exchanges.  You can email him at jlong@triple-tree.com.

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Consumer Centric Social Tools Are Impacting Healthcare

A growing number of healthcare industry leaders are using social media tools to support their brand, enhance advertising campaigns, improve consumer communications and proactively address public perceptions.

The social networking landscape is fragmented and confusing for many healthcare organizations.  Just two years ago the vast majority of health plans, pharmaceutical, hospitals and government entities didn’t include social tools or platforms on their marketing roadmap.  In fact many viewed it as likely ineffective and difficult to measure, much less being fraught with legal and regulatory issues.

Things have changed in 2011. A growing number of these firms are now leveraging approaches to social technology and below we’ve posed a few examples:

Health Plans

• Example: Blue Cross Blue Shield (BCBS) of Western New York uses Twitter to advise and coach members interested in healthier lifestyles – the topics range from helping members quit smoking to maintaining work out regiments and nutrition.

• Social media tools for health plans are still in the early stages of adoption and most large / regional health plans have a meager 200 to 800 followers on Twitter.  These enterprising health plans seek to steer their population towards healthier behavior and a properly utilized online social presence can be part of the solution.  But for health plans social tools are not only about coaching and health advice. One major health plan is using social tools to advertise its online care service and recruit new members to sign up online to take advantage of the service.  Health plans can also get instant consumer feedback and address complaints at their source by communicating with members who are unhappy with or don’t understand care options or billing issues.

Pharmaceutical and Life Sciences Companies

• Example: Pfizer, the global drug manufacturer, has dozens of Twitter accounts, organized by country and region to deliver targeted news to specific groups. Pfizer also has Twitter accounts for activist causes such as Pfizer_Beef, which has a stated goal to “…share our passion for animal health and the productivity of livestock”.

• Rather than fueling the perception that drug companies are just out to sell the next pill, Pfizer is aiming to use social media to soften its image and become more visible to consumers for the right reasons, while providing helpful and targeted information across different subject matters, geographies, and languages.

Hospitals and Other Providers

• Example: The VA Maryland Health Care System launched its Facebook page in April 2010 and in less than one year boasts nearly 1,000 Facebook fans. According to its website, being a fan will allow users to share experiences, give “shout outs” to favorite doctors and nurses, and react to and be part of a discussion about topics posted on the fan page.

• Hospitals and other providers are beginning to see that social media tools are an alternative channel to provide quick and easy access to the latest news, telephone numbers, and other important information. These social media tools can provide tangible value to the hospital by facilitating collaboration between themselves and patients, volunteers, family members, and friends. Such a benefit should not be overlooked and could mean a more positive relationship with its surrounding community and more traffic through its doors.

Government

• Example: The Centers for Disease Control (CDC) launched a website called eHealth Metrics Dashboard to provide civilians with up-to-date facts on everything from flu season to salmonella warnings.  CDC disseminates its information through a variety of social channels including YouTube, Facebook and Twitter.

• According to Federal Computer Week, the CDC is seeing some serious traction. Mobile views of CDC social media and websites nearly doubled month-over-month to 263,000 last February and the agency has over 1 million Twitter followers. The CDC’s success serves as a shining example of how the government can improve communication and access to information to benefit the health of our national as a whole.

As the number of healthcare organizations who are establishing an online social presence grows, the positive benefits around real-time feedback and product / service improvements will be hard to ignore.

A focus on social media is impacting our research agenda for 2011, and has a unique role in the agenda for our upcoming Summit www.wlsa2011.com on mHealth in May.  We’ll keep an eye on the range of legal and regulatory issues being discussed in the market as private health information and data management disciplines mesh around social media, marketing, sales and service.

We welcome your feedback on this topic.

Michael Boardman

Michael Boardman is an associate at TripleTree covering the healthcare and technology industries, specializing in clinical software solutions.  Follow Michael on Twitter or e-mail him at mboardman@triple-tree.com.

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Wireless & Mobile Health Taking Center Stage as Reform & Consumer Preferences Converge

As we enter 2011, the topic of wireless and mobile healthcare and its growing public acceptance should be top of mind for every healthcare professional or investor.

According to TripleTree’s most recent mHealth survey, over 43% of healthcare professionals are working with mHealth devices or applications on a daily or weekly basis.  Additionally, over 70% of healthcare professionals surveyed are knowledgeable of their applications and uses.

Physician use of mHealth applications may spur greater adoption amongst the general populace – the “if my doctor does it, it must be a good idea” phenomenon.   Many industry watchers agree that well north of 500,000 physicians are already using iPads (in the U.S.) and this number is growing by the hour!

For patients, increased tablet use may spur them to investigate health monitoring apps for for their phones. And the good news is that they will find over 7,000 apps across the Android and iPhone app markets.  Indeed, over 3 million downloads have been logged for these apps in 2010 on Android alone.

Even if every download of a mHealth app was to a separate user, the mHealth application market of over 33 million users is at most 10% penetrated.

Expect a surge of health and fitness applications in 2011 as developers (and retailers) realize that this market may be poised for a growth surge, barring any regulatory hurdles.

There may be potential roadblocks in adoption, however.  HIPPA overshadows everything health-related in the US, and the mHealth market is no different. Data leaks and the sensitivity of the data recorded may lead some consumers to doubt the security and privacy of mHealth apps. However, once large players such as Google, Microsoft, or Apple enter the market (or endorse applications) consumer doubt will ease.

These market trends are foundational as we approach our sixth annual Convergence Summit to advance the discussion of wireless and mobile innovations in healthcare.  Compliance, seniors and chronic illness and improving access to care are just a few of the topics we’ll assess and discuss.  To learn more click here.

Rob McCray

Rob is the CEO of the Wireless-Life Sciences Alliance and senior advisor to TripleTree.  Follow Rob on Twitter, or email him at rmccray@wirelesslifesciences.org.

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Far Reaching Implications Likely With FTC’s “Do Not Track” Proposal

The FTC’s recently proposed “Do Not Track” initiative is example of a larger movement within the regulatory space. The increase in regulation – be it the recent push for a web privacy “Bill of Rights”, the FTC becoming every involved in net neutrality, the oversight of the FDA on new mHealth applications, or HIPAA’s increased relevance as we move to universal electronic medical records (EMRs) in the coming years – is being followed by a subsequent explosion in governance, risk, and compliance (GRC) activity.

There are two themes to take away from this:

• The GRC and security sectors will become more popular amongst investors
• The old adage, “knowledge is power” is even more true now that user-centric data is paramount to business analytics, business intelligence, and a key competitive advantage for firms

The effects of these themes are beginning to unfold in the market already, even before some of this potential regulation is signed into law.

User-centric data accumulates quickly and must be stored in large data warehouses. This leads to investors oftentimes branding companies like 3Par (with complex data storage programs) as “marketplace darlings”. Data storage is a building block for cloud computing and vendors offering these solutions will increasingly be seen as valued assets; consider the following:

• Dell just acquired Compellent for $960m or 6.5x revenue, a move that again underscores strong valuations for storage software firms
• A recent PCWorld articled noted that data center server capacity is more than doubling every 24 months

In addition, security is a top concern for user-centric data storage. Market growth and opportunity among security focused vendors is equally robust:

• Intel’s purchase of McAfee for $6.8 billion or 3.4x revenue shows potentially high multiples for security companies
• Social sites like Facebook are increasing security controls for user data in the wake of exposed data leaks
• Because of WikiLeaks, the US Department of Defense banned users from possessing flash drives and CDs while on premise in secured network facilities

The growing emphasis by vendors on verticals solutions makes this an even bigger topic – a single failure point or overlooked compliance metric can lead to massive sector-centric data leaks, as the very recent attack against entertainment website Gawker shows (millions of users personal information was exposed to the web).

Our ongoing research and advisory work across the GRC and data storage spaces allows us to keep abreast of market movements and trends to provide thoughtful insight to our clients. If you’re interested in learning more, or have some perspectives to offer – we’d love to hear from you.

Have a great week.

Adam Link

Adam Link is an analyst at TripleTree covering healthcare delivery models, specializing in software and wireless health.  Follow Adam on Twitter at AdamJLink or email him at alink@triple-tree.com.

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Member to Consumer: CRM Disciplines Will Shine A New Light on Consumerism in Healthcare – 06/21/10

With the passage of healthcare reform, payers need automated tools and best practices to find, nurture and optimize member relationships cutting across online sales and marketing, enrollment, and billing.

Our latest research effort is focusing on traditional customer relationship management strategies that could help health plans address member acquisition, retention, health and care management, and service.  In addition, we’ll consider features that integrate social media sites into the overall member experience as social networks, blogs and online communities enable people to connect easily and quickly with like-minded individuals and groups to share interests.

Health plans are already assuming a “retailer” mindset as they come to grips with their evolving relationships with members and try to learn more about building loyalty by engaging their tech-forward members through surveys and other scoring mechanisms.

If you’re working through similar issues, we’d like to know what you’re finding.

A few other news stories we’re watching:

• Federally organized team looking at healthcare privacy and security issues emanating from HITECH

• New Harris poll shows that consumer adoption of EMR solutions won’t likely improve without consumer education

• GE Centricity Advance enters marketplace as yet another solution

Take a look at our most recent research on Healthcare Compliance and mHealth, and if you’d like to learn more about the web cast we facilitated last week at AHIP regarding tech-enabled Care Management strategies, please contact us at 952-253-5300.

Have a great week!

Chris Hoffmann

Chris Hoffmann is Research Director at TripleTree covering Cloud, SaaS and enterprise applications and specializes in CRM, loyalty and collaboration solutions across numerous industries. Follow Chris on Twitter or e-mail him at choffmann@triple-tree.com.

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Uncommon Clarity – 05/24/10

Following our co-hosting of last weeks’ fifth annual Wireless-Life Sciences Investor Day & Summit with our partners Qualcomm and Johnson & Johnson, we couldn’t be more bullish about the healthcare innovations on display.

The recurring theme of the event was improving healthcare access, quality and affordability – which was echoed by presenter Dr. Hyung Kim, MD; Vice President of Research for Ascension Health as he talked through Ascension’s key initiatives including:

• Operating more effectively in terms of cost and quality
• Remaining focused on serving the poorest and most vulnerable people in the communities they serve
• Getting physicians closer their patients
• Managing the uncertainty of reform

Here are some news stories we’re watching this week:

• CMS awards $73.2mn web optimization contract to CGI Federal in effort to improve online communication channels:  more here

• California Telemedine and eHealth Center launches telehealth initiative:  more here

• Software M&A is on a tear…in addition to IBM’s acquisitions of Sterling Commerce and Cast Iron Systems; SAP acquired Sybase, HP acquired Palm, and Oracle made a smaller but meaningful acquisition, (in healthcare/life sciences  software) by picking up PhaseForward.

• Early peak at upcoming SaaS/Cloud earnings picture?  Salesforce.com reports early and disappoints:  more here

• Economist Larry Kudlow likes the rising US Dollar as harbinger of price stability amid concerns about Euro:  more here

Read our most recent research on Healthcare Compliance and mHealth, and if your schedule aligns catch up with us next week at AHIP in Las Vegas.

To learn more, contact us at 952-253-5300…have a great week!

Chris Hoffmann

Chris Hoffmann is Research Director at TripleTree covering Cloud, SaaS and enterprise applications and specializes in CRM, loyalty and collaboration solutions across numerous industries. Follow Chris on Twitter or e-mail him at choffmann@triple-tree.com.

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