Owning Apple Inc. (AAPL 0.20%) stock can be trying at times as the company is so secretive that shareholders never have a sense of what new product may be coming next. That secrecy is a key component of Apple’s culture and for competitive reasons may give Apple an advantage. Shareholders must be willing to take the slings and arrows of market pundits who say the company no longer innovates and is living off its smartphone franchise.
CEO Tim Cook discussed the topic of secrecy and innovation during an interview last August.
I think it’s harder to keep secrets than it’s ever been, and that it has gotten increasingly more difficult with time. Every year is harder than the year before. That’s partly because there’s more sophisticated digging going on, partly because we’re larger and we’ve got more and more people that know about different things. All that makes it more difficult, but I think the reason to try is still there. And we have things today that no one has talked about, and that no one knows about . . .
Let’s look at a story that came out a few weeks ago which would indicate Apple might be looking to solve a healthcare problem that would literally change people’s lives and open a completely new business for the company. It was a secret that may become a surprise.
Image source: Apple.
Apple works on glucose monitoring
In mid-April CNBC Silicon Valley based healthcare reporter and award winning journalist, Christina Farr, reported that Apple had 30 people working on a non-invasive and continuous glucose monitoring system at an off-campus site in Palo Alto. She stated she had heard rumors of this effort for years and now has three sources for her story.
The implications for Apple, if it can successfully introduce a product, would be enormous. It would bring the company into an entirely new sphere of business. As Christina Farr points out if the monitoring system were incorporated into the Apple watch the product would become a must own piece of hardware for anyone with diabetes.
Today a person who uses insulin (type 1 diabetes) and glucose self-monitoring pays about $750 per year for the cost of the tests, which is about 25% of the overall cost to treat the disease. The cost for non-insulin using diabetics (type 2 diabetes) to do glucose testing is approximately $100 per year. If Apple could eliminate the need for the test supplies and pharmacy costs, along with the discomfort in doing the test, that alone would be a major change in healthcare costs and patient quality of life. The additional factors of having continuous monitoring of glucose levels with the potential of having data stored in the cloud with alert capability to the patient and physician access to the information would make this solution a tremendous innovation for the medical industry.
The market opportunity for Apple
The total cost of pre-diabetes and diabetes in the United States alone is over $322 billion per year according to The American Diabetes Association. The disease effects 29 million Americans and 86 million have what is known as pre-diabetic conditions.
On a worldwide basis, a World Health Organization 2014 study, estimates 422 million people are diabetic and overall costs are a staggering $827 billion. The Center of Disease Control estimates that 90% of the cases among adults are considered type 2.
In the United States alone the cost of glucose monitoring can be estimated as more than $4.5 billion per year and on a world-wide basis over $40 billion annually.
Apple’s revenue for last year was $215 billion as a point of comparison.
Apple does not release statistics on the sale of its watch which was introduced in 2015. Research firm Canalys estimates Apple sold 11.9 million Apple Watches in 2016. This is a drop in the bucket if one considers there are 422 million diabetics. The product would become a necessity for anyone with diabetes who could afford it if continuous glucose monitoring was added to its capability.
Apple can still innovate
There is little doubt that Apple can still innovate. The fact that the company keeps its cards close to the vest for competitive reasons should be of little concern to stockholders. If the company succeeds with non-invasive glucose monitoring we may see the next big thing in healthcare innovation as well as the next big business segment for the company. Apple could create an entire ecosystem around monitoring patient glucose levels, sending notifications when predetermined levels are exceeded, and supplying doctors with valuable data for patient diagnosis.
I am keeping my fingers crossed and hoping for a surprise. This is technology I will use if it becomes available as a product.
