Identity Crisis

Identity Crisis

In the classic movie Butch Cassidy and the Sundance Kid there’s a segment in the movie when after a failed robbery attempt Butch and Sundance are hunted by a group of lawmen. These lawmen are relentless in their pursuit of Butch and Sundance who keep trying to figure just who’s chasing them. Both Butch and Sundance keep looking at this group wondering aloud; “Who are those guys?”

We felt the same after reading the earnings transcript for FitBit who reported earnings yesterday. Here is some of what the company’s co-founder, President and CEO said last night;

“In addition we continue to gain traction with leading healthcare partners for example we expanded our relationship with the nation’s largest insurer United Healthcare. Last year Fitbit Charge2 became available through a UHC’s Motion program which was built on incentivizing users to move more in order to get cash back on the healthcare premiums. This program has paid out over $19 million in awards to date. Building on that success Fitbit was chosen as the wearable partner for United Healthcare and Dexcom’s diabetes pilot program. The goal of this program is to help seniors with Type 2 diabetes, learn how specific behavior changes can impact their blood glucose levels throughout the day and over longer periods of time ultimately helping them to achieve better health outcomes. As is customary for vendors in the payer market, the pricing structure for this product is expected to be on a per member recurring basis versus an episodic device sale.

Earlier this month we also announced the acquisition of Twine Health which directly supports this concept. Twine Health brings additional medical expertise into Fitbit with the clinically tested and HIPAA compliant platform. It provides an interactive health coaching experience that combines both technology and real time support through a convenient secure mobile application. The platform also provides sophisticated dashboards for workforce health providers and their coaches that they can optimize their efficiency and cost effectiveness. Together with Twine we can help healthcare providers better support their patients beyond the walls of the clinical environment and over time we can also extend the benefits of the Twine platform to more than 25 million users as a paid service.”

Besides working with Dexcom (NASDAQ: DXCM) who reports earnings later this afternoon, FitBit also invested $6 million in a way cool whiz bang non-invasive CGM company. Although the company did not shed any light on the investment many believe the ultimate goal is to integrate CGM into the FitBit device so that users can measure glucose levels along with other metrics. The belief is that the glucose data when combined with other data will help FitBit users better manage their health.

These moves into healthcare are understandable but also problematic on many levels. First, as we consistently point out it’s not that difficult to build a CGM, but it is very difficult to run a commercially viable CGM company. FitBit has an even bigger problem here as while the technology they invested in sure is way cool whiz bang only problem is no one thinks it works. Like so many others in this space the technology looks good on paper but that’s it. Even if by some miracle they can get it to work, getting it through the FDA brings in more issues.

FitBit second problem is they are jumping into a pool that’s very crowded as everyone and we mean everyone has some way cool whiz bang toy combined with coaching looking to help patients better manage their health.

Third, they have a technology problem as their core device is no longer vital to the process. Besides the Apple Watch, which is becoming a valuable health tool, nearly every smartphone can track the user’s activity. Why buy a FitBit device when this information is easily accessible from the user’s smartphone?

The reality is FitBit is not alone with the problems they face. As we keep noting and boy do we feel sorry for that dead cat, but the facts are you can’t swing that dead cat without hitting a wearable device that’s looking to measure glucose along with other data. Swing that dead cat in the other direction and you can’t help but hit a company that offers patient coaching. Yep just as everyone wants to measure glucose everyone also wants to transform all this data into patient relevant patient actionable information.

The problem for all these companies is that none of them, not one, has figured out how to motivate the patient. As we keep noting getting and analyzing the data is pretty easy and getting information back to the patient isn’t that difficult either. The problem then becomes first getting them to act and then keeping them motivated so they continue to act. This is a huge problem for patients with diabetes as there are no immediate or tangible rewards for doing all the heavy lifting involved with diabetes management.

A patient with diabetes does not save time or money when they manage their diabetes properly. In fact, we would argue that proper diabetes management takes time away from more pleasurable pursuits. We would also argue that these patients don’t save money with proper diabetes management that they spend more money. Worst of all they do not receive any immediate or tangible rewards, something they can see, touch or feel.

Yet everyone continues to be focused on the toys in the toy chest. Everyone continues to believe that patients will act on the analyzed data because they will achieve “better” outcomes that they will “feel” better. And just to clue everyone in on a little secret there is no hard evidence to back up these beliefs. Basically, what these companies do is talk with a group of patients, show them lots of cool stuff and then ask them if they want all this cool stuff, which of course they do.

The problem is that all this cool stuff which looks great in a focus group setting does not look so great in the real world. A perfect example are those way cool whiz bang apps which analyze photos of food and determine carbs. Something that is way cool but also not very practical in the real world after the initial coolness factor wears off.

Still the fact that FitBit, yes FitBit is transitioning into a healthcare company shows the identity crisis facing many device makers. Who are these guys?