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How Technology Titans are Tackling a 3 Trillion Dollar Opportunity – Google, Amazon, and Apple Move into U.S. Healthcare

By Pierre-Georges Roy 06 Oct 2017

Having transformed the way in which we humans connect, shop and entertain ourselves, Alphabet (parent company of Google), Amazon, and Apple are now making big bets on bringing transformative technology to another key aspect of our lives, health.

The three technology giants are well on their way to gaining a significant foothold in the $3 trillion US healthcare market. All three companies have existing healthcare infrastructure and have started activating this infrastructure to invest and acquire in certain high growth healthcare subsectors.

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Digital Health Investment Overview

Broadly speaking, the healthcare sectors receiving the most attention from the three technology behemoths are data aggregation, data analytics, telemedicine, and sensors. While political discord continues to dominate healthcare reform, investors have been unfazed and are in fact increasing their stakes, with $3.5 billion invested in 188 digital health deals in the first half of 2017. If we look again at what the three large players are working on, it is highly likely that today’s funding will lead to tomorrow’s acquisitions by Alphabet, Amazon, and Apple, as these three continue to develop core capabilities in the aforementioned healthcare sectors.

Data Aggregation

For decades, care givers have struggled to consolidate patient data into one centralized location. Data is currently scattered among various primary care physicians, clinical trial databases, mobile health devices, third-party labs, and specialists. Having all of this information in disparate locations has created gaps that often lead to missed or incorrect diagnoses. This issue of interoperability, has garnered the attention of Apple in recent years. By turning the iPhone into a tool that aggregates, stores, and shares medical information, Apple seeks to address the interoperability crisis by making patients the center for health data. Apple started working towards this goal in 2016 when it acquired Gliimpse, a personal health data aggregator. Since the Gliimpse acquisition, Apple has continued its efforts to coalesce medical data through a partnership with Health Gorilla that brings diagnostic information to the iPhone. With the Health Gorilla partnership and Gliimpse acquisition under its belt, Apple is currently pursuing cloud hosting companies as acquisition targets to help the iPhone become an aggregator and disseminator of health data. Companies with data collection service offerings should be encouraged by the fact that Apple is not the only multinational technology company that sees growth opportunities in the space. Amazon is also starting to get involved in the process of uniting disparate streams of health information. 1492 has identified drawing health data from electronic health records as one of its focus areas. 1492 is still in its infancy, but with a great deal of cash on their balance sheets, we can expect both Amazon and Apple to develop their data aggregation capabilities via investments and acquisitions.

Data Analytics

The shift from fee for service to value-based care, has made care givers as well as healthcare technology companies focus on proactively improving patient health outcomes. Amazon and Alphabet have been very active in terms of using data analytics to proactively ensure that patients are healthy. Google is currently leveraging its machine learning capabilities to mine health data and anticipate when people will become ill. GV, Alphabet’s investment arm, has also entered the data analytics sphere by participating in Freenome’s $65 million Series A round in February 2017. Freenome is a data-driven company that uses machine learning to determine what biomarkers are the most important in spotting cancer and autoimmune diseases. Alphabet’s life sciences arm, Verily, has also made a separate investment in Freenome. Freenome is a direct competitor to Grail, a data science company that received an investment from Amazon as part of the company’s $973 million Series B in February 2017. Like Freenome, Grail uses high intensity sequencing to detect early signs of cancer while it is in the blood and still treatable. The tension created by having two technology giants investing in competing data analytics companies and racing to develop the best competencies will create opportunities for other data-driven companies looking to raise capital or exit.

Telemedicine

While the rise of telemedicine is typically associated with companies like Teladoc and Doctor on Demand, there has been increased interest in the space from new entrants Alphabet and Amazon. At this point, we can only speculate what Amazon’s telemedicine goals are. We know that 1492 wants to build a telemedicine platform, however it is unclear whether Amazon will approach this by becoming an online pharmacy or by using its Echo devices to develop tools for remote patient monitoring. One hurdle Amazon will need to address to pursue the latter option in earnest is making Echo and other Alexa devices HIPAA-compliant. Once Amazon demonstrates that it can safely store patient information, we can expect Amazon to be more active in telemedicine. In contrast to Amazon’s vague telemedicine ambitions, Alphabet has made concrete steps into telehealth through GV’s participation in Science 37’s $29 million Series C round. Science 37 aims to provide a site-less solution for clinical trials by serving patients in their home in an effort to make it easier for patients to participate in clinical trials. As GV continues to pay attention to telemedicine, and Amazon solidifies its ambitions, the telehealth industry will likely continue its trend of growing through acquisitions.

Sensors/Wearables

Since Fitbit came onto the scene, sensors and wearables have been appealing healthcare subsectors. It has become evident that Alphabet and Apple share the sentiment that there are excellent growth opportunities in the realm of sensors and wearables. Patents are admittedly not the best source when it comes to determining a company’s goals, however it is worth noting Apple’s new patent detailing how the iPhone could be used as an electrocardiogram (ECG) reader as well as a sensor that tracks blood pressure, body fat, pulse rate, and other health data. Although most iPhone users do not need an ECG, if Apple does develop this capability, it could lead to M&A activity, as companies like Fitbit, Philips, and GE would feel the pressure to rapidly find competing solutions. The idea that Apple plans to develop the iPhone into an all-encompassing health sensor is bolstered by the company’s acquisition of Beddit, a company that uses sensors to track sleep data including heart rate, sleep time, and number of breaths per minute. Alphabet has also spent time addressing sensors and wearables, however Alphabet has approached these themes through the lens of medical research. Verily’s Study Watch, has been used to study PTSD and tracks heart rate, electrical conductance of skin, and record ECGs. The watch is not for sale and is only used for clinical trials. Verily plans to scale the Study Watch rapidly as they use it for more studies. San Francisco-based AliveCor, a mobile ECG solution provider, could be an interesting acquisition target for Alphabet and Apple as they explore wearable strategic growth options for medical research and consumers respectively.

Summary

The healthcare industry is at an inflection point, with Alphabet, Amazon, and Apple building up their health technology capabilities by focusing primarily on data aggregation, data analytics, telemedicine, and sensors. Alphabet and Apple have played the largest role in health technology so far, as is demonstrated by the FDA announcing that Verily and Apple were selected as two of the nine companies in the FDA’s pre-certification program pilot. In contrast, Amazon has been more covert in its pursuits in the healthcare sector. When Alphabet, Amazon, and Apple pay attention to an issue, the rest of the world usually follows suit and becomes attentive. This phenomenon can be expected in healthcare as well. The big three’s interest in certain subsectors will likely incite the healthcare industry’s largest players to acquire in the same areas for fear that they will be left behind. As a byproduct of Alphabet, Amazon and Apple’s attention, companies in the healthcare subsectors discussed can therefore expect M&A opportunities from the likes of IBM, Microsoft, Allscripts, Telus, Roper Technologies, and other companies that are the most active digital health acquirers.

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Pierre-Georges Roy

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