Fitbit Inc (NASDAQ:FIT) confirmed that it has made its first investment in a startup, in an effort to beat Apple Inc.’s (NASDAQ:AAPL) Apple Watch. The Fitbit investment is in a company called Sano, which aims to develop a wearable, coin-sized blood sugar monitor for diabetics. The Sano patch would feed this data into a wearable for display — presumably the Fitbit Ionic smartwatch (or its successor).
FIT stock popped on the news on Friday morning, but is now down 2.5% shortly after the bell Monday morning.
The Fitbit Investment In Sano
CNBC broke the news on Friday that Fitbit was investing $6 million in Sano, a startup focused on developing a blood glucose monitoring patch.
Speaking about the Fitbit investment, CEO James Park told CNBC:
“This fits into our strategy of looking beyond the device and thinking more about (health) solutions. I think the complete solution comes in the form of having some monitoring solution that is coupled with a display, and a wearable that can give you the interventions at the right moment.”
According to the report, the Sano patch won’t be ready to ship for about a year. It’s not non-invasive tech — it uses needles that penetrate the skin. Sano claims, however, that their needles don’t penetrate as far as current solutions, making it “painless.” The Sano patch will also be less expensive and much smaller than currently available blood glucose monitoring technology.
Why The Fascination With Blood Glucose Monitoring?
This Fitbit investment is driven by the current trend toward health and fitness for smartwatch sales. With the first wave of early smartwatch adopters in the rear view mirror, people concerned with health and fitness tracking are the next big market. Apple noted this, then switched the focus of its smartwatch and was rewarded with surging Apple Watch sales.
Apple’s move hit Fitbit, which was focused on wearables but lacked a true smartwatch. Since the Apple Watch was released, Fitbit has been in a slump — FIT stock is down nearly 88% since its 2015 heights.
Apple sees the health market as the key to drive Apple Watch sales to an entirely new level. And diabetes monitoring is a potential gold mine. Hundreds of millions of people worldwide suffer from diabetes. The World Health Organization (WHO) says that in 2015, 8.5% of adults 18 or older were diabetic. WHO is also predicting that globally, the disease will be the 7th leading cause of death by 2030.
Effective blood glucose monitoring is key to managing diabetes. Currently, this means frequent and painful pricks with a needle to draw and then test blood.
It’s no secret that Apple has been hard at work on a non-invasive blood sugar monitor that would feed into the Apple Watch. If consumers turn to Apple to monitor their diabetes, that could drive massive Apple Watch sales, with health insurance companies potentially footing the bill.
Potential Upside for FIT Stock
The Fitbit investment in Sano is an attempt to take advantage of that massive market for diabetes management. And while the Sano patch does involve needles — as opposed to the optical sensor solution Apple is reportedly working toward — it appears to be further along in development than anything Apple has.
Fitbit recently announced its trackers had been chosen for use in the National Institute of Health’s “All of Us” program. And both Fitbit and Apple already partner with a number of existing companies offering blood glucose monitoring technology, including DexCom, Inc, (NASDAQ:DXCM). But these existing monitors are relatively bulky and expensive.
If the Fitbit investment in Sano pays off, Fitbit would have a coin-sized, wearable blood sugar monitor that feeds data to the Fitbit Ionic smartwatch. And the impact of beating Apple to such a huge potential market is going to have a significant upside for FIT stock.
That explains the pop, but why the drop in FIT stock?
The Sano patch is still a year out, and a lot can happen in that time. Realization that the patch still requires needles may also have scared off some investors.
With their investment in Sano, however, Fitbit has made it clear it has no intention of letting the Apple Watch take over the developing market for health wearables the same way it steamrolled the smartwatch market.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.