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  • If you zoom out into the future and you look back and you ask the

  • question, what was Apple's greatest contribution to mankind, it

  • will be about health.

  • Apple's biggest contribution to the world is they invented the

  • touchscreen smartphone, which is completely upended everything in the

  • last 15 years.

  • But it's a great sales line.

  • You know, the best is still ahead.

  • Apple is on a bit of a health craze.

  • Something big is actually going on.

  • I believe we're at the very beginning of the indispensable role of

  • health tech. I think it enables a whole new network of companies, a slew

  • of startup companies, to be able to capitalize on this data and help

  • improve outcomes. So if there's any technology company today that's well

  • positioned to pull this off and build the trust of health care

  • institutions and consumers, it is Apple.

  • It's an area that has not been incredibly digitized in the past 20 or 30

  • years, like other sectors have been.

  • And there are some very good reasons for the company's move into health

  • care. Health care accounts for about 18 percent of U.S.

  • GDP. That is massive.

  • That is one of the last remaining markets that Apple could actually

  • grow. The App Store created about five hundred billion dollars, so half

  • a trillion dollars worth of economic activity.

  • Absolutely huge. And I think that Apple could create a market that is

  • similar in that size for health care.

  • But while investors are applauding Apple's health focus, physicians are a

  • bit more hesitant. You know, young people who are monitoring themselves

  • with these devices, driving themselves crazy, watching their heart rate,

  • getting these alerts, thinking there's something wrong with them, they

  • come into my office all the time and ninety nine point ninety nine

  • percent of the time what I offer them is just reassurance.

  • We wanted to explore why and how Apple is growing its health care

  • business, as well as the challenges the company faces.

  • Steve Jobs, a rebel, an icon, dead at 56...

  • Tim Cook has talked about in the past, you know, the Apple founder, Steve

  • Jobs, go through cancer and health care system and realizing that they

  • could make a contribution.

  • I think Steve Jobs imprint was all over the company, and the culture is

  • very derivative of Steve.

  • But I think Tim has always been very thoughtful about health.

  • And so I kind of think he views this almost in some ways as his legacy.

  • The Apple Watch is seen as one of Apple's most important introductions

  • into the health sector, but that wasn't its exclusive goal initially.

  • It was supposed to be notifications on your wrist.

  • It was supposed to be fashion.

  • There was a gold one. And over time, the watch has become much more of

  • the health and fitness device, and they've sort of ditched some of these

  • other things because they realized that that was actually the most

  • compelling use case for people.

  • But the Apple Watch isn't the company's only health initiative.

  • Our business has always been about enriching people's lives.

  • And as we've gotten into health care more and more through the watch and

  • through other things that we've created with ResearchKit and CareKit and

  • putting your medical records on the iPhone, this is a huge deal and it's

  • something that is very important for people.

  • We are democratizing.

  • When you look at Apple's spends billions of dollars every year in R&D.

  • Right now, I wouldn't say the health care department or health care team

  • at Apple is the biggest, but they can place a pretty big bet on it.

  • And you can tell they're taking it seriously because the CEO of Apple,

  • Jeff Williams, runs the health team.

  • We are going to keep pushing watch forward.

  • Apple has three areas of focus when it comes to health: hardware like the

  • Apple Watch, software like the Health App and ResearchKit, and services

  • like Fitness+, Apple's newest subscription service.

  • Some people might provide the software, some people might provide the

  • hardware, which is largely generic or medical device maker, but Apple

  • can combine them all and kind of have a better user interface, which I

  • think they see as their main edge.

  • All of these devices and services revolve around the iPhone ecosystem,

  • and while iPhone sales are still the majority of Apple's revenue,

  • wearables and services are picking up steam.

  • iPhone sales have increased an average of about four percent quarter

  • over quarter and about two percent year over year.

  • Since 2017, services have increased an average of about 4.5 percent

  • quarter over quarter and about 22 percent year over year since 2017.

  • And wearable sales have grown the most by far, increasing at an average

  • of almost nine percent quarter over quarter and nearly 35 percent year

  • over year since 2017.

  • The revenue for wearables is already more than 50 percent more than iPod

  • was at its peak. The danger to Apple is that next year a Samsung or a

  • Huawai or Oppo comes out with something that really captures the

  • consumer's imagination and they stop buying iPhones.

  • That's a danger and really investing in this health lessons that because

  • if these features, you know, really catch on and people need them, then

  • they stick with Apple. Let's discuss hardware first.

  • The Apple Watch is a standout among the companies health initiatives.

  • Not only does the most recent watch offer ECG recording and heart rate

  • monitoring, it also includes blood oxygen monitoring, which is very

  • medically-minded and not a huge selling point for the average consumer.

  • Apple does not report revenue made from the Apple Watch alone, but

  • wearables, a category that includes Apple Watch, along with products

  • like iPods, contributed about six point five dollars billion in revenue

  • in quarter three of 2020.

  • The estimates of watches that have been sold are, you know, 60 million

  • over the years, 70 million over the years, and if the average selling

  • price is around 300, 400 dollars, that's a lot of money.

  • That's substantial. That's, you know, that could be its own company.

  • The tagline is, The future of health is on your wrist.

  • And so I think they're being very intentional about saying that this

  • device is not just a wearable, it is really about health.

  • Some of the biggest names in medical equipment include Abbott, Johnson

  • and Johnson and GE Healthcare.

  • But Apple is not really competing with these companies right now.

  • It's way outside of their wheelhouse.

  • It's basically an entire new kind of business.

  • There's a lot of regulation there.

  • Innovation is much slower for obvious reasons, because we have to ensure

  • safety at each step of the way.

  • And so I think that Apple is very, very unlikely to be making a

  • pacemaker anytime soon.

  • Apple also provides software solutions like HealthKit, which was

  • announced back in 2014, and ResearchKit, which helps health care

  • professionals use data from Apple devices for medical research.

  • Their devices are used widely in hospitals, for example, nurses

  • frequently use iPhones or iPads to track medication administration.

  • I use my iPhone on rounds to look up patient data.

  • When it comes to medical records, right now that market is completely

  • dominated by Epic, one company based out of Wisconsin.

  • There's a lack of inter compatibility.

  • It's very difficult and expensive to switch systems.

  • And so because of that, there really just hasn't been much competition

  • and innovation. That's where Apple comes in.

  • Apple has a reputation of innovating a stale market, and the company has

  • already struck deals with some of the biggest health care institutions

  • to get health records on the Health app.

  • Well, I think the hardware ecosystem that they've created with the

  • iPhone, with the watch, and I think ultimately with AirPods as well, are

  • the tools that will allow them to kind of collect health data for

  • patients and then build those tools for developers to create unique

  • applications that help treat patients in new ways.

  • And that's what's really exciting to us, is the combination of all

  • three. Most recently, Apple announced Fitness+, a subscription workout

  • service that will join Apple's lineup of other plus services like Apple

  • TV+ and News+.

  • Fitness+ is taking on competitors in the health and wellness category

  • like Peloton and other at-home fitness programs, and with the pandemic

  • keeping so many people at home, it was an ideal time to strike.

  • But Peloton does have a leg up on Apple.

  • Peloton has created devices that Apple hasn't created.

  • They've got the connected treadmill, they've got the bike, and so there

  • are some limitations, I think, in terms of how much Apple can really

  • provide in terms of the level of experience that Peloton has created.

  • There are some unique challenges in the health care space.

  • For example, Apple has regularly complied with the FCC for all of its

  • wireless products, but devices that deal with your health have to answer

  • to another federal entity.

  • Looming over the horizon is the Food and Drug Administration.

  • And if you do certain things like test glucose for diabetes testing, you

  • will be regulated as a medical device and for good reason.

  • If you get the glucose meter wrong, you can kill people.

  • Apple has many electrical engineers that can explain why this is

  • completely compliant with FCC rules, whereas the medical people, you

  • know, they have to hire, they're building that team.

  • It's a totally different ballgame. The company has flown under the radar

  • of major regulations, thanks in part to its classification as a fitness

  • and wellness device manufacturer, not a medical device manufacturer.

  • In fact, the Apple Watch has a De Novo classification under the FDA,

  • meaning it is a medical device for which general controls alone, or

  • general and special controls provide reasonable assurance of safety and

  • effectiveness for the intended use, but for which there is no legally

  • marketed predicate device.

  • Apple really wants to say, "this is your health buddy.

  • It's basically a medical device.

  • You know, you need this to track your vital signs." But legally, they

  • got to be like, "this is about wellness.

  • This is about, you know, fitness.

  • This is about health as opposed to medicine."

  • So Apple's relationship with the FDA is growing more complex as it adds

  • more medically focused sensors, but some physicians are not convinced

  • that all their patients need the information coming from these sensors.

  • There are definitely situations where, as a doctor, I appreciate and

  • value the data coming in from an Apple Watch.

  • It's when the watch is driving the disease rather than the other way

  • around that things get into trouble.

  • If you look at the the distribution of ages that own an Apple Watch and

  • the distribution of ages that have atrial fibrillation, they are

  • inverse. So, the people who have Apple Watches are the ones who are

  • least in need of continuous monitoring for atrial fibrillation and vice

  • versa. Privacy is also a concern as health data is incredibly sensitive.

  • Luckily, Apple has a good track record when it comes to privacy.

  • Because the business model involves selling hardware, they can make the

  • argument more coherently that it's not actually in their interest to

  • sell your health information to a third party.

  • Because if that were uncovered that they were doing that, then it would

  • be a massive blow to that primary source of income, which is the

  • hardware side. I don't think anybody's going to trust Facebook medical

  • records anytime soon.

  • The future of Apple's health initiatives look positive.

  • Having control of that end to end experience lets them do things that

  • other device makers can't do.

  • And I think that's why they are so well positioned in digital health, is

  • they can collect that data, they can create seamless experiences for the

  • consumer, and they can also let that data be leveraged by those third

  • party app developers that ultimately, I think power kind of the next

  • wave of digital health with Apple.

  • The company has already tackled heart rate, electrocartiography, blood

  • oxygen levels, but there is so much more that can be developed.

  • Blood glucose monitoring is something Apple has discussed, which is also

  • been on the radar of some other companies.

  • This would be a huge breakthrough for people with chronic conditions like

  • diabetes. It would be an immense story kind of overnight.

  • I don't necessarily believe that it's possible because these are such

  • challenging things to do from just a technical and scientific

  • standpoint. This stuff is half.

  • This stuff is really hard, you know, taking sensors that really exist,

  • you know, and miniaturizing them and making 10 million of them all work.

  • Whether there's any actual benefit for non-diabetic people monitoring

  • their sugar continuously is totally unknown.

  • Unfortunately, that's not going to stop devices from being introduced to

  • the consumer market to do precisely that.

  • And already there are several in the pipeline.

  • Products like iPods might find usefulness in Apple's health and wellness

  • line-up, too. I think over the long term, what Apple's device actually

  • becomes is a medical device that sort of delivers treatment to patients,

  • which is, I think, really the coolest thing that they could do with

  • their ecosystem. And so an example might be somebody that might have

  • depression or chronic pain, they could wear an earpieceit could even

  • be an AirPodthat delivers a very small stimulation to the brain and

  • it actually helps treat the underlying disease.

  • Now, Apple is not alone in its pursuit of those health care dollars.

  • Google began organizing its health initiatives under the name Google

  • Health in 2018, and now it boasts over 500 employees.

  • Amazon bought PillPack, a prescription medication delivery service in

  • 2018 among other health initiatives.

  • This is three and a half trillion dollar market just in the U.S.

  • A third of that is wasted spend and it's that wasted spend that

  • technology companies are going after.

  • And it won't just be one technology company that disrupts, it will

  • likely be many.

  • But Apple is trying hard to become a global leader in health.

  • The company recently partnered with its first country to prove that

  • point. Singapore is now willing to reward people for achieving certain

  • healthy behaviors and meeting their goals by giving them money.

  • Apple announced it would partner with the Singaporean government to give

  • resident Apple Watch users up to 380 Singapore dollars after two years

  • of better health practices like meditating, exercising and maybe even

  • taking a Covid-19 vaccine when it becomes available.

  • There is clearly a lot that can be achieved in the health care sector.

  • It's a really big area.

  • Yep, we're just getting started I think.