Connected Healing. Who’s going to heal you; a software-driven-predictive-robot-avatar or your local human doctor?

Who will weave together the best and brightest across industries to tackle the most intractable human healing challenges that permeate our society:  Chronic diseases, diabetes, mental health challenges, the scourge of drug dependency, cancer?

And from an investors perspective, which industries and which companies will lead us on this journey with innovation, aspiration, resolve and optimism?

We envision the hospital of near future populated with seamless interactions across devices, patients, providers, personal virtual avatars, virtual doctors in residence, body implanted sensor chats, etc..  Not just for interactions and communication, but for deep and profound human healing.

As humans, we are at diminishing returns in our ability to heal efficiently and discover breakthrough insights without expanding our capabilities.  We need help.  We will get help in the form of software – more specifically, artificial intelligence – to connect the dots, accelerate our understanding of how we function at the molecular level, accumulate disparate inputs and learnings to accelerate our knowledge base and find cures.

Incumbents in the Health Care Equipment/Device industry – with very few exceptions – are mostly unaware that they are competing in a new race.  A race against challengers that are primarily coding software for sensors, not building hardware for hospitals.

In particular, we observe a fundamental philosophical difference:  incumbents are focused on using the next wave of disruptive technologies as incremental to their current businesses (current methods & current markets).  One does not have to look too far to see the cavalcade of companies that see the opportunity as a disruptive set of tools that will leapfrog incumbents in entirely new markets and with absolutely new methods.

We define ‘disruptive technologies’ to include the emergence of tools such as robotics, artificial intelligence, adaptive manufacturing, big data & analytics, sensing devices & networks, virtual reality, augmented reality, telematics, and blockchain.

In our latest quarterly review of Health Care Equipment/Device companies we found an absence of references to competitive threats coming from non-traditional cross-industry leaders or the myriad of well funded ‘MedTech’ startups and innovations.  Clearly this is because they don’t think that they are anything other than potential collaborators.  [You might also want to read our observations of last year’s 2016 SXSW MedTech conference].

Throughout our coverage of other industries such as Consumer, Home, Insurance, Financials, Industrials sectors, digitization of business processes, products, etc is a prevalent theme, considered both an opportunity and threat.  Sometimes existential, but many times simply as a reality of the new competitive environment.

It is surprising, then, that the Health Care Equipment companies we cover do not perceive this threat.  As always, exceptions exist.  Of the more than 40 S&P listed entities in this category, companies such as Boston Scientific, ResMed, Intuitive Surgical, and even Medtronic are clearly not going to be caught flat footed any time soon.  These companies in particular are more focused than ever in exploring opportunities across sensing devices, virtual reality, analytics and broader partnerships with semiconductor leaders and other technology first.  The recent Qualcomm and ResMed collaboration is a good example.

When one reads a couple of hundred transcripts of quarterly earnings calls across industries every couple of months, it is interesting to reflect on the uniquely different tone, transparency, familiarity of questioners, and, of course, the responses.

In our experience – specific to the Health Care Equipment/Device segment –  the tone is partially defensive but mostly complacent.  Keep in mind that these are the companies that provide the vast majority of hospital equipment [from beds to implants to surgical robots] across the United States, if not the globe.

Complacent is a reflection of the current state of malaise in the Health Care industrial complex.  Prevailing opinion by incumbents:

o   High barriers to entry provides us time to adopt new paradigms as they emerge.  A competitive threat emerging from leaders in other industries is not viable. A reduction of the competitive landscape with larger players that can scale globally is more likely.

o   Disruptive tools/technologies will be adopted as they mature.  They are not disruptive to our business models. We will buy ourselves into any idea that is proven out … MedTech startups are our source of R&D.

o   And finally, why would anyone want to enter such a messy industry as health care, especially if you are making money hand over fist in your own sandbox?

So, from an investor perspective, our key questions and quick answers are as follows:

Ø  Is the current set of health care device manufacturers going to lead us to the future state of connected healing solutions and deliver us a longer, healthier, and higher quality of life?

o   Nope.  In fact, simply writing “health care device …” feels dated.  Don’t be surprised if the S&P sub-industry category for Health Care Equipment disappears entirely and is folded into the Information Technology industry sector.

Ø  Should one even invest in the health care device companies for the medium term?

o   Yes, but only category leaders or up-and-comers.

Ø  Is it probable, even inevitable, that current constraints and myopic view of the art of the possible dooms them to being leap-frogged by others that are not even on the immediate radar?

o   Absolutely.

Ø  Who are those deep-pocketed-laser-focused-new-entrants-and-leaders-in-adjacent-industries that could disrupt and show us the way to connected healing?

o   Broadly speaking, companies innovating in the intersection of .. [healing+software+sensors+analytics]

o   Sharing the following characteristics:

§  harness disruptive technologies for big and audacious goals solving for human scale intractable challenges that have not had a breakthrough in generations.

§  believe passionately in the premise and promise of robotics, artificial intelligence, big data, sensing devices, virtual reality, augmented reality, and predictive self aware networks.

§  embrace these tools as a cornerstone of an entirely new industry that places software above humans in the hierarchy of value.

So, yes,  a software driven super smart robot/avatar will be your best friend.   Someday.  And, your local human doctor will perform the uniquely human duties as required and instructed by the software.  As in most competitive industries – of which this one will become – higher value functions will survive and continuously be challenged by progress.  Lower valued functions will disappear.

For now, at least for this post, the question we are contemplating is how to invest in this new industry ‘world-order’.  Invest in industry leaders and up-and-comers that  grab the controls and drive advances in the “software-driven-predictive-robot-machine-avatar” Connected Healing industry.  Invest in companies that raise the tone, the energy, the ambitions, and the results.

We identified three recommended investment themes.

·        First, incumbents that embrace disruptive technologies as a core strategic imperative across their business functions have a 3 year (maximum) head start.  They have a chance of surviving the oncoming industry tsunami.  From our research and scoring of companies in this sector, there are a few and include Intuitive Surgical, Medtronic, ResMed,  Boston Scientific, Varian Medical.  We update these quarterly.

·        Second, consumer & technology brand leaders share many of the characteristics described above.  They have the opportunity to choose what role to play.  Apple, Google, Samsung, Amazon, Salesforce.com, Dell, IBM, HPQ, even Under Armour, Nike,  Fitbit, and a long list of others are rapidly building assets.  Large scale – truly gargantuan –  cloud services, big data & analytics, access to billions of consumers, wearables/devices, unique information, etc.   It is easy to ponder what impact they would make if it were now directed towards connected healing solutions.  We have discussed in previous podcasts the not-so-crazy thought of Nike – or even Under Armour – evolving into a health care device company.  The value of these brands and their forays into connected fitness is significant and not to be understated. They run circles in knowledge, trust and intimacy that any participant in the health care industrial complex has with the individual.

·        Third, the pillars of progress in this arena are mostly thanks to semiconductors and predictive analytics.  Companies that provide value in this industry either as a provider or integrator should be on the radar.  GE [Predix Platform], IBM [Watson], are obvious participants.

As always, detailed findings and reports on this and other industries including Industrials, Consumer Discretionary, Oil & Gas, Health Care, and Financials are available to Piercing View members.  Join us!

Thank you,

Serge

www.piercingview.com

@PiercingView

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Musing - ConnectedHealing
2017-10-04T18:57:16+00:00 03.6.2017|POV|