Introducing Dr Download – how to profit from wireless medical technology

MoneyWeek cover illustrationNeed to see a doctor? Or get treatment? Very soon, there’ll be an app for that, says Matthew Partridge.

One of the most important technology stories of the last two decades has been the rapid spread of wireless technology.

As late as 2000, only half of the UK population had a mobile phone. Now virtually everyone does, with around seven in ten people owning smartphones, which allow access to the internet and other online services.

The way we access the internet has also been transformed, with ‘Wi-Fi’ networks – which enable most devices to hook up to the internet remotely – now a standard service in restaurants, hotels and other public spaces. Wi-Fi is also becoming a feature of most homes – Cisco Systems estimates that by 2016, 86% of the households around the world that now have broadband will also have wireless access.

However, while wireless technology has changed the way we work, shop and chat to our friends, it hasn’t so far made much of an impact on health care, despite the wide range of potential uses in monitoring our health, and administering medication.

One big barrier is managing the wireless spectrum. Ironically, the proliferation of smartphones means that mobile-phone signals may end up blocking those sent out by wireless medical devices – so this is clearly a major hurdle to relying on wireless technology to tackle anything potentially life-threatening. The other problem is organisation. Medicine is a conservative profession, with established ways of doing things, and these will need to change quite radically if the gains from wireless technology are to be realised.

The good news is that serious progress is being made towards solving both these problems. Regulatory bodies are working on carving out a specific part of the telecoms spectrum for the sole use of medical devices and related networks. This has encouraged medical device companies to start to integrate wireless technology into existing devices and design new products that take advantage of it. Meanwhile, hospitals are rethinking their working practices, with the medical profession starting to look at new ways in which to deliver health care.

For investors, there are three particularly interesting trends. The first is the use of wireless technology to reduce the size of medical devices. This enables them to be used in parts of the body where it was previously impractical to do so. Secondly, more and more devices can communicate with third parties. This allows patients to be monitored remotely, both inside and outside the hospital. Thirdly, companies are working on smart devices that can automatically adjust themselves to detect and take account of changing conditions within the user’s body – which leads to more sophisticated methods of drug delivery, for example. Taken together, these three trends could cut global health-care costs by around $36bn, according to Jupiter Research – a key part of the appeal of wireless to overloaded health-care systems around the world.

A benevolent Big Brother

One big challenge for hospitals is to ensure that the conditions of their patients don’t suddenly deteriorate.

As a result, the most critical patients are usually hooked up to monitors that measure key variables, such as blood pressure, oxygen levels and heart rate. Effective monitoring has a dramatic impact on survival rates. The Institute for Healthcare Improvement, a US think tank, suggests that proper monitoring increases the chances of a hospital patient surviving a further heart attack from around one in 20 to one in two.

Clearly, that’s a vast difference. However, these machines are often large and involve being hooked up to intrusive wires, so they are not suitable for all patients – even in America, only around half of all patients are mechanically monitored. A further problem is that when these monitors are triggered, they usually set off a localised alarm, or at best send a signal only as far the nearest nursing station. So unless a doctor or nurse is nearby, the alarm can go unheeded. This is a big problem in hospitals where patients are in a private room, rather than on a ward.

The good news is that hospitals are now moving towards ‘medical body area networks’ (MBANs) where no wires are needed. Instead, sensors attached to the body send information to monitoring devices over a wireless network. These networks are less intrusive, give patients more freedom of movement (there are no wires accidentally to pull out) and reduce clutter. They also reduce the chances of infection spreading. Data from these sensors can be sent direct to devices held by staff, alerting them instantly whenever there is a problem.

The benefits of this approach do not stop at the hospital door. Doctors are already experimenting with attaching monitors to heart patients who have been sent home, to notify them of new problems. In one trial, run by the University of Ottawa Heart Institute, patients were given monitoring devices that enabled them to send daily snapshots to the institute of their weight, blood pressure and other factors. These were then analysed by experts for evidence that heart problems were about to reoccur. This system resulted in hospital readmissions falling by more than half. Other recent trials in both the US and the UK have produced similar results.

Both General Electric and Philips have developed wireless hospital monitors and telemedicine systems: PatientNet in the case of General Electric, and IntelliVue in the case of Philips. Philips has also developed the Electronic Intensive Care Unit Program (eICU), trialled last year at Guy’s and St Thomas’s hospital. This allows data from eICU to be sent to a central monitoring unit. This unit is staffed by a team of doctors and nurses who scrutinise the data, which are displayed on computer screens around the clock. This team act like an ‘eye in the sky’, picking up on problems that bedside staff have overlooked.

The need for pinpoint accuracy means these systems are still expensive. As a result, their use is limited to members of groups who are at risk. But scaled-down versions may soon be more widely available. Tech giant Apple has been working on non-invasive ways to monitor heartbeat and blood pressure, and recently attempted to patent a device that could detect the changes in blood flow that may precede a heart attack. Industry analysts believe this could be one of the apps for its rumoured iWatch, which is thought to be launching later this year.

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Smaller, smarter devices

Another obvious benefit of removing wires is that the size of medical devices can be dramatically reduced. Since the 1950s, pacemakers, which regulate a patient’s heartbeat, have become increasingly widely used, with nearly 200,000 inserted each year in America alone. At the moment they have to be inserted in a patient’s chest, then connected to the heart via wires. This involves complex surgery, with attendant risks. Not only that, but the wires can break, which means another major operation to put things right. Patients also have to refrain from activities that could damage the device.

But now that could change. Medical device group Medtronic has produced a wireless pacemaker, the Micra Transcatheter Pacing System. The removal of wires means it’s been able to shrink the size of the device by 90%. As a result, it can be inserted without surgery directly into the heart, using a catheter, in a procedure that takes ten minutes. It’s currently undergoing a global trial. The first UK procedure took place earlier this month at Southampton General Hospital.

Wireless technology could also transform other treatments. Cochlear implants are increasingly common for people with severe hearing loss. Again, these currently involve using an external microphone and a power source that is attached to the patient’s head. This bulky and highly visible apparatus understandably affects the patient’s quality of life. But researchers at US university MIT have come up with a design for a much smaller device that is implanted inside the ear and recharged wirelessly. This produces a better quality of sound, while being invisible to other people.

Pathway Software has developed a wireless, implantable device (ActiGait), which helps stroke patients who have suffered damage to the nerves controlling their ankles and toes, making walking difficult. ActiGait helps by stimulating the patients’ nerves from the time they lift their foot above the ground until it returns to the ground. While the device is expensive (around £20,000 for five years), trials show that it cuts the risk of falls and enables patients to walk normally without the need for a brace.

Going even further towards ‘smart’ wireless medical applications, we’re now seeing devices that can both monitor and carry out treatments. Building on research conducted at MIT, a company called MicroCHIPS has developed a microchip that, once implanted in the body, can gradually release an osteoporosis drug into the patient over a period of several months. The device also contains sensors that monitor the patients’ blood, wirelessly communicating this information back to their doctor. This enables the doctor to remotely adjust the dosage accordingly. A trial in 2012 showed that the system was safe.

The next step is to produce semi-automatic, or even automatic, systems that monitor the body and then adjust the treatment with minimal human input. Diabetes is one condition that could be helped greatly by this trend. For instance, Medtronic has developed a system (MiniMed 530G) that combines wireless blood sensors and an insulin pump. These communicate with each other to help patients manage their blood sugar levels. The system allows for a lot more flexibility in terms of lifestyle, and does away with the need for multiple regular injections each day (around 120 injections a month).

Of course, even Medtronic’s system needs occasional adjustment. The insulin pump is also worn externally, which patients may find inconvenient. But now scientists are close to producing an artificial pancreas for Type 1 diabetics (the form of the disease with a genetic factor). While teams from around the world are studying the problem, the most promising solution has been developed by researchers at Boston University and Massachusetts General Hospital, which uses sensors to check blood-sugar levels. This data is relayed to a miniature pump below the skin, which automatically adds insulin to the body as needed.

While not perfect, the patients who tested the artificial pancreas all preferred it to the traditional methods of insulin management. The device cut down on the number of medical interventions needed as a result of improper insulin dosage by nearly 40%. It also reduced the number of cases of hypoglycaemia (a dramatic and potentially dangerous drop in the levels of blood sugar in the body), especially in teenage users. Overall levels of blood sugar were also greatly improved. As for the users, they were glad to be rid of the stress and hassle of constant monitoring and regular injections – and also liked the fact that they could check both their blood sugar levels and the pump’s operation on their iPhones.

The five stocks to buy now

Medtronic (NYSE: MDT) is a medical devices company. It has a wide range of wireless products, including the world’s smallest pacemaker (see above) and diabetes treatments. In a move it believes will save about $850m over the next three years, it has just agreed to buy Irish medical supplies firm Covidien (which also has the helpful side-effect of cutting the company’s tax bill).

As well as benefiting from economies of scale, the Covidien deal will help Medtronic expand in the surgical-tools sector. Earlier this year Medtronic also bought Corventis, a start-up with several interesting wireless products, including the Nuvant Mobile Cardiac Telemetry System, a heart monitor. Medtronic – which is a favourite of Dr Mike Tubbs, writer of the Research Investments newsletter, trades at a forward price/earnings (p/e) ratio of under 16.

Another speciality medical devices company working on interesting wireless products is St Jude Medical (NYSE: STJ). Like Medtronic, it also offers a wireless pacemaker (larger than the Medtronic one), which is currently being trialled at St Bartholomew’s Hospital. It also has a wireless heart-monitoring system that has a proven record of reducing the number of hospital admissions required.

Analysts BTIG Research think the system has the potential to get “the highest level of adoption we’ve seen with any device”. St Jude is on a 2015 p/e of 16.3.

If you’d prefer to invest in London-listed stocks, take a look at Toumaz (Aim: TMZ). It’s a semiconductor company, headquartered in the UK, which focuses on audio technology and wireless health care through its subsidiary Sensium Healthcare. Sensium’s flagship product is SensiumVitals.This is a low-power wireless ‘patch’ that can take snapshots of a patient’s vital signs every two minutes for as long as five days. The product received approval from regulators in both Europe and the US last year, and is currently being trialled in several UK hospitals. While it hasn’t made a consistent profit as yet, turnover at the company has shot up from £2.7m in 2010 to nearly £50m in 2015. It’s up about 20% since we last tipped it in January this year, and currently trades at a premium of 35% to the book value of its assets.

While multinational Philips (NYSE: PHG) is perhaps best known for its expertise in the fast-growing area of LED lighting, a third of its sales, and the majority of its profits, come from its health-care division. The company has been aggressively positioning itself to take advantage of the wireless revolution in health care, developing a range of remote measurement and monitoring products, including the IntelliVue system (mentioned above). It currently pays a dividend yield of around 3.6% and is on a 2015 p/e of 12.3.

Clearly, Philips is a ‘blue-chip’ play on this sector. Those looking for riskier stocks could consider AmbiCom (OTC: ABHI). AmbiCom makes hardware and software that adds Wi-Fi and Bluetooth connectivity to medical devices produced by larger firms, such as Siemens and Philips. While it is still a small firm, with a market cap of only $9m, it has started to receive some large orders, including one for a wireless card to be used in a glucose meter. Earlier this year it announced an improved, lighter card that uses less power. As a result, revenues more than doubled last year. Bear in mind that AmbiCom is traded over the counter, so you may have to use a specialist broker.

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