In 2016, digital health is straddling two paradigms as it sells technology from tomorrow to institutions from yesterday. This split-leg stance seems awkward (and it is) but it’s actually just our industry attempting to take a big step forward. Over the last decade, we’ve been witnessed a seismic shift in healthcare technology:
Competing on Widgets → Competing on Data → Competing on Outcomes
One of my favorite things about digital health is that it’s a relatively nascent industry that arrived at the party at a unique time. When Validic’s infamous diagram hit the ground in 2012, it sent seismic shocks through the industry. All of a sudden, it was clear that devices were becoming a commodity—a mere means to data-acquisition ends. The last few years have been turbulent, driven by breakneck progress in analytics and data science, and by historic shifts towards value-based reimbursement.
It goes without saying that the speed of progress is nowhere near where it needs to be. We’re facing a long road ahead, but we’re starting to see digital health companies compete on outcomes.
Device commoditization is happening
It’s tough to compete on hardware over the long term. Smartphones are a prime example: They’re expensive to produce at scale, yet they’re ripe targets for third parties to copy. Ultimately they become reduced to temporary vessels for cloud-based apps and data. Even Apple can’t seem to keep interest from plateauing. In theory, medical devices will head down this road as well: the internet of things (IOT) revolution is lowering the bar to compete in the medical device space.
One example from this summer is OneDrop, a connected glucometer+app+coach platform in the mold of Livongo. They’ve effectively staked their entire future on a class II FDA clearance that hasn’t happened yet. On one hand, fundraising and marketing before a flagship product has gotten regulatory approval is risky business; on the other hand, the FDA has cleared over 500 similar glucometers over the last eight years.
As Yogi Berra might’ve said, “The more devices hit the market, the more devices hit the market.”
This is not to say you should bet on the Medtronics or J&Js rolling over by the end of the decade. Rather, it’s to say that we’re moving towards a data economy: better patient care and self-management are a result of the data themselves—more importantly, the insights and predictions extracted from those data. Devices are just a way to get us there.
Devices are necessary but not sufficient
The ongoing shift toward a data-driven strategy was on full display at the Qualcomm Life Ecosystem Conference last week. Qualcomm and Boehringer Ingelheim announced a new partnership, in which the former will create and license a reference design to build smart BI inhalers. Qualcomm announced a similar partnership with Novartis earlier this year.
On an analyst call following the show, Rick Valencia, president of Qualcomm Life, pointed out how competition has moved well beyond the device piece itself: “Boehringer knows they’re not going to differentiate from Novartis based on the connectivity piece – they’re going to differentiate based on outcomes.”
This raises the question: If a smart device is simply a means to an end, how else can digital health companies compete in such a crowded market?
You don’t have to look very far for the answer: back in March, Boehringer announced a commercial partnership with Propeller Health, a startup that uses a combination of sensors and software to create a personal analytics platform for respiratory patients and their caregivers. Under their new partnership, groups of patients with Boehringer’s Respimat inhalers will have access to the Propeller Health platform.
Last month, I had a chance to meet Chris Hogg, Propeller’s COO, at their San Francisco office – he enthusiastically pointed out that the smart respirator itself is just a means to activate patients through the app – the data, education, and other personalized engagement is the not-so-secret sauce. By maximizing both sides of the value chain: their hardware work has helped win them key pharma partnerships with the likes of BI and GlaxoSmithKline, while also giving them the data edge that will cement their long-term value for payers and providers.
Partnering to compete on outcomes
One key takeaway from this summer’s activity is that digital health companies big and small won’t be going to market alone.
Qualcomm announced another large partner in Royal Philips. The partnership will use Qualcomm’s 2net platform as the connectivity solution for Philips’ HealthSuite ecosystem. It also enables non-exclusive data hosting on Philips’ platform (which will be powered by Amazon Web Services), such that end-users of HealthSuite will be able to build new applications powered with device data.
Philip’s healthcare CEO Jeroen Tas has publicly stated he wants to move his company away from being a box shop, and towards “owning the disease” as a solutions provider. While both Philips and Qualcomm have their own respective footprints of hospital customers around the world, it’s not hard to imagine future partnerships where an MD Anderson (a QualComm customer) might look to Philips HealthSuite to pilot a beyond-the-walls styled program for total engagement, similar to the deal that Memorial Sloan Kettering inked with HealthLoop last month.
Partnership strategy is on full display in the diabetes space, one of the most device-driven segments in the industry. Remote monitoring startup iHealth Labs seems to have fully embraced their fate in the commoditization process; their cheap, consumer-friendly meters are now packaged up with would-be competitors like Tactio and mySugr. And just a few days ago, Google and Sanofi made news with their new joint venture, OnDuo.
Glooko is another great example: The startup’s sync cable takes advantage of the fact that most meters and insulin pumps are interchangeable for large customers. On the business side, their agnostic approach has made them an attractive partner to remote monitoring plays like AMC Health. On the technology side, their focus on data management and analytics, including a launch of an algorithm-driven personal advisor tool for clinicians and patients, makes them a valuable partner for supply-side manufacturers like Insulet, a large insulin pump manufacturer. This has all culminated in Glooko’s merger this week with DiaSend, which will boost their global presence, particularly in the EU market.
Progress lies in programs
While it is true that many things will look different in a decade, it’s also true that many things will look the same a year from today. And today, “stuff” still carries cachet with customers. Corporate customers in particular seem to be more attracted to the off-the-shelf, all-in-one packaged solutions than one off software packages or wearables. They want to buy things that their employees can just take out of the box and start using.
Despite the costs of hardware, plenty of digital health startups who package a physical device as part of their offerings are gaining traction in the market. Omada’s prevention program sends employees a nicely packaged Bluetooth scale preconfigured to their app. Slick, consumer-friendly glucometers from Livongo and OneDrop illustrate how “the Apple Effect” still impacts consumers – and enterprise customers. Omada has even gone so far as to implement outcomes-based pricing – a sign of competitive strategy that may be just around the corner.
Payers have begun shifting to outcomes-based reimbursement, and some parts of the pharmaceutical industry are seemingly ready to follow suit. At the startup level, young digital health companies realize that customer acquisition and scalability are nearly impossible to achieve alone. With the summer nearing its end and the business year gearing up moving into Q4, we can expect to see a new spate of digital health announcements and partnerships; if the market is truly moving forward, more of these deals with be focused on outcomes.
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