1. A R O C K R E P O R T B Y
BIOSENSING WEARABLES
THE FUTURE OF
2014 JUN 09

2. A R O C K R E P O R T B Y
AUTHORED BY WITH HELP FROM
MALAY GANDHI
@mgxtro
TERESA WANG
@teresawang6
ROCK HEALTH is powering the future of the digital health ecosystem,
bringing together the brightest minds across disciplines to build
better solutions. Rock Health funds and supports startups building
the next generation of technologies transforming healthcare.
ROCK HEALTH partners include Deloitte, GE, Genentech, Harvard
Medical School, Kaiser Permanente, Kleiner Perkins Caufield &
Byers, Mayo Clinic, Mohr Davidow Ventures, Montreux Equity
Partners, Qualcomm Life and UCSF.
LEARN MORE AT rockhealth.com
SONIA HAVELE
@rock_health
HIS HAS BEEN A YEAR MARKED WITH PESSIMISM ABOUT THE
future of biosensing wearables. Put simply: we’re not
buying it. After spending over a year looking at the space—
including evaluating 100+ startups for investment, watching
venture trends, and working with giants from both in and
outside of healthcare—we know interest has never been greater.
However, excitement shouldn’t be mistaken for impact. We
expect biosensing wearables will need to leverage their
consumer learnings and evolve into highly functional and
accurate devices in order to gain adoption in the industry.
The opportunity here is not to be underestimated. A long tail of
evolved biosensing wearables, enabled through platforms, has
the potential to improve health outcomes and lower costs. Only
time will tell if the reality matches the promise—we’re optimistic.
T

3. PRESENTATION © 2014 ROCK HEALTH
Contents
4 Scope of report Definition of biosensing wearables
5 Landscape Companies by type of physiology measured
Venture funding of biosensing wearables
Market catalysts
18 Axes of innovation Evolution of biosensing wearables
Examples of progress
Potential for disruptive innovation
26 Platforms and business models Healthcare industry use cases
Examples of existing biosensing wearable platforms
Role of technology platforms
32 Acknowledgements Contact information
SECTION

4. PRESENTATION © 2014 ROCK HEALTH
Activity trackers Smart watches Smart clothing Patches and
tattoos
Ingestibles and
smart implants
Biosensing wearables allow continuous physiological monitoring
in a wide range of form factors
4
BIOSENSORS WEARABLES
Biosensors are devices
that convert a biological
recognition element into
a signal output
Wearables are on- or in-
body accessories that
enhance the user
experience
e.g. AliveCor,
Scanadu
e.g. Google Glass,
Oculus Rift
FOCUS OF REPORT: BIOSENSING WEARABLES
9:41
..........................................

5. Landscape

6. PRESENTATION © 2014 ROCK HEALTH
A wide range of products have emerged or are being developed in
the category, covering numerous aspects of human physiology
Source: Rock Health review of marketing for 75+ companies
Note: Companies are selected, not comprehensive 6
GROWING LONG TAIL
MOVEMENT HEART RATE SLEEP TEMPERATURE RESPIRATION SKIN
CONDUCTANCE
BRAIN
ACTIVITY
HYDRATION POSTURE GLUCOSE OXYGEN
LEVEL
HEART RATE
VARIABILITY
MUSCLE
ACTIVITY
BLOOD
PRESSURE
EYE-
TRACKING
INGESTION
COMMODITY
ZONE

7. PRESENTATION © 2014 ROCK HEALTH
Smartphones are out, wearables are
next
How wearable tech goes from geek fad
to mega-trend
2014 will be the year that wearables
become a key consumer technology
HOPE
Opinions on the future of the category are decidedly mixed, with
a tremendous amount of hype mixed with failure
Source: News stories, Twitter
As the health-gadget market swells, it’s lights
out for Zeo’s sleep tracker
Nike fires majority of FuelBand team, will stop
making wearable hardware
Are some fitness band trackers ‘digital snake
oil,’ with slick marketing but suspect results?
HYPE
7
“ “
” ”

8. PRESENTATION © 2014 ROCK HEALTH
Various estimates of wearable device sales through 2018
While the activity tracker segment has about 1-2% U.S.
penetration, wearables overall are expected to grow significantly
Note: IDC reported smartphone market size as of 2013
Source: Respective company sites
PICK A NUMBER, ANY NUMBER
8
DATE OF ESTIMATE
Jan ’13 May ’13 Aug ’13 Sep ’13 Oct ’13 Apr ’14 May ’14 Present
$
50.0B
Credit Suisse
Market estimate in 2018
Market estimate in 2013
$5.8B
Transparency Market
Research
$8.0B
ReportsnReports
$8.4B
MarketsAndMarkets
$19.0B
Juniper
$12.6B
BI Intelligence
$6.0B
ABI Research
$20.6B
Institute for
Information
Industry (Taiwan)
$30.2B
BCC Research
$337B
Smartphone
market size

9. PRESENTATION © 2014 ROCK HEALTH
Venture capitalists are also betting on the space, with venture
funding up over 5X since 2011
Source: Rock Health funding database
Note: Does not include Jawbone financing events 9
$0M
$75M
$150M
$225M
$300M
2011 2012 2013
Biosensing Wearables
Biosensors
$20M
$29M
$58M
$54M
$229M
$53M
NOTABLE
DEALS
• Norwest Venture Partners
• Founders Fund
• Khosla Ventures
• Qualcomm Ventures
• Felicis Ventures
MOST ACTIVE INVESTORS
Total venture funding for biosensing wearables (2011-2013)
WEAR IT’S AT

10. PRESENTATION © 2014 ROCK HEALTH
The scale and utility of smartphones, in addition to a dramatic
shift in healthcare, has catalyzed the space
Sources: Smartphone penetration from Comscore as of March 2014; MEMS
accelerometer pricing from supply chain sources; ACO penetration from Leavitt Partners
OFFLOADING COMMODITIZATION VALUE-BASED HEALTHCARE
10
• Wearables can offload the display (through
software apps), the computing, and internet
connectivity to a smartphone
• Bluetooth Low Energy (BLE) has enabled
energy efficient data transfer between devices
and smartphones
2008 2013
$0.50
$2.00
MEMS accelerometer price per unit
• Due to inclusion in smartphones, many
popular sensors are now fully commoditized
• Prices for most sensors are dropping at >3%
per quarter
• Commoditization forces vendors to develop
novel sensors, creating a virtuous cycle of
innovation
• Following the ACA, healthcare has an increased
focus on value-based delivery and preventive care
• Health plans and employers are experimenting
with wearables as “source of truth” for incentives
• B2B has become one of the fastest growing
components of Fitbit’s business
69%
U.S. SMARTPHONE
PENETRATION
0M
5M
10M
15M
20M
2011 2012 2013 2014
Accountable care lives

11. “The ground has to be fertile for the seeds to
grow—innovative technology in wearables and
biosensors can be both economically- and
functionally-sound because it leverages the
trillions of dollars that have already gone into
that space.
Once the technology lines up, utility will come
from people knowing how to use the devices.
Healthcare is the biggest and most persistent
opportunity and will ultimately define the
market.”
AMAR KENDALE
VP of Marketing
MC10‘s technology
platform is a unique
combination of
conventional electronics
and novel mechanics
that enable a new
generation of thin,
conformal electronic
systems.

12. PRESENTATION © 2014 ROCK HEALTH
Biosensing wearable products being created today could not
have existed even three years ago
Source: Product and app rendering courtesy of Spire, Inc.
Note: Spire product is launching June 17th, 2014 12
Bluetooth Low Energy radio
First device to implement BLE
was the iPhone 4S in 2011
MEMS accelerometer
Price has fallen 4X in the last
five years
Wireless charging coil
Qi standards-based products
first hit market in 2013
Offloaded computation
Signal processing from sensors
is handled in cloud via iPhone

13. PRESENTATION © 2014 ROCK HEALTH
Rate of sustained activity tracker use over months of ownership
Despite such advancement, wearable products today fail to
engage users over meaningful periods of time
ENDEAVOUR PARTNERS SURVEY
(n = “thousands of internet-
connected Americans”)
THE TRUTH ABOUT WEARABLES
13
0%
25%
50%
75%
100%
0 3 6 9 12 15 18 21 24
Rate of decline is steepest
during the first 6 months
of ownership Rate of engagement
drops below 50%
before 18 months
PROPORTION OF
INDIVIDUALS
CONTINUING TO
USE AN ACTIVITY
TRACKER
MONTHS
ROCK HEALTH “SURVEY”
(n = 10 Rock Health staff)
Note: We sincerely appreciate and respect the Endeavour Partners work;
however we would be surprised if the survey could be replicated

14. PRESENTATION © 2014 ROCK HEALTH
The generic marketing language of most devices leaves use cases
to the purchaser's imagination
Source: Market share from NPD point-of-sale data (January 2013-January 2014);
marketing copy from company websites (May 2014) 14
97%
THE TOP 3 WEARABLE
ACTIVITY TRACKERS
REPRESENT
OF THE MARKET
“It’s the motivation you
need to get out and be
more active.”
“It celebrates milestones
and challenges you to
make each day better.”
“The smart, simple, and
fun way to get more
active.”

15. PRESENTATION © 2014 ROCK HEALTH
Trade-offs between mass market and personalized products
All companies face product marketing challenges when making
the trade-off between mass and niche markets
PARADOXICAL PRODUCTS
15
ADDRESSABLE
MARKET
(NUMBER OF
INDIVIDUALS)
UTILITY PER USER
SPECIAL PURPOSE DEVICESGENERAL PURPOSE DEVICES
Products in this area are
marketed towards large
audiences but fail to gain
widespread adoption due
to a lack of usefulness
Products in this area
are highly valued by
niche segments,
giving a feeling of
personalization
Products in this area are the ideal,
balancing the marketing of mass
market core utility with some level of
specialization for narrower segments

16. PRESENTATION © 2014 ROCK HEALTH
The pathway to reaching large markets for companies today
For most activity trackers, the lack of utility and failure of product
marketing have made it difficult to scale and meaningfully engage
Source: Reviews from Amazon.com and Reebok website
PARADOXICAL WEARABLES
16
ADDRESSABLE
MARKET
(NUMBER OF
INDIVIDUALS)
UTILITY PER USER
SPECIAL PURPOSE DEVICESGENERAL PURPOSE DEVICES
Activity
trackers
Single
purpose
wearables
“Piece of mind protection for a parent!”
“Great product. It works as
advertised and helps correct bad
habits.”
Strategic approach:
• Improve software/insights
• Add more sensors/features
Strategic approach:
• Create family of segment-
specific devices
REEBOK
CHECKLIGHT
LUMOBACK

17. “Innovation for use case is important. Right now,
everyone is just using off-the-shelf technology
so they can only go after things that are
obvious, like counting steps and heart beats.
In order to provide something more meaningful,
it’s important to design a product that has a
specific utility. Then you can stand behind it
and say to somebody, ‘This is how I’m going to
help you.’”
DAVID O’REILLY
Chief Product Officer
Proteus’s vision is to
integrate medicines that
treat chronic conditions
with mobile technology –
via our ingestible
sensor– to make
healthcare more
accessible, manageable
and innovative.

18. Axes of innovation

19. PRESENTATION © 2014 ROCK HEALTH
FUNCTIONALITY RELIABILITY CONVENIENCE
• Collecting physiological factors with the
potential to be of value to individuals or
healthcare professionals
• Building software that makes physiology
meaningful and can close the loop with
actions (answering the question “So what?”)
• Measuring physiology with accuracy and
validity (or using software and algorithms to
correct for validity)
• Achieving accepted clinical standards and
receiving FDA (or other regulatory) clearance
or approval
• Packaging sensors in form factors that are
passive, comfortable, and provide positive
reinforcement to the user
• Managing battery life and various charging
issues
• Synchronizing data between wearable device,
smartphone, and cloud
In order to scale beyond early adopters, biosensing wearables
will need to innovate along three axes
19
High value segments will emerge at narrow use case intersections along these three axes

20. PRESENTATION © 2014 ROCK HEALTH
Functionality determines a biosensing wearable’s potential utility
to an end user, whether a consumer or healthcare professional
Source: Company website
• Novel measurement—monitors
your posture and coaches you to
improve throughout the day
20
• Provides consistent reminders to
maintain healthy posture
• Track progress over time as well
as daily activities (walking,
running, sitting, standing, and
sleeping)
FUNCTIONALITY
WHY IT MATTERS Without core
functionality, utility to the user
is highly limited.
WHAT IT REQUIRES Measuring
meaningful physiology and
closing the loop with users by
delivering insights.
WHY IT’S HARD Need to be
exceptional at hardware and
software.
EXAMPLE: LUMOBACK

21. PRESENTATION © 2014 ROCK HEALTH
Reliability influences the addressable segments due to the unique
constraints of operating in a healthcare environment
Source: Company website, fda.gov 21
• Single use patch
• 510(k) clearance—proven to
capture arrhythmias for earlier
diagnosis
• Interpretation designated for
healthcare professionals
• Report summarizes findings
based on FDA-cleared proprietary
algorithm to incorporate final
diagnosis
EXAMPLE: ZIO PATCHRELIABILITY
WHY IT MATTERS Healthcare
customers demand valid data
to inform clinical decisions.
WHAT IT REQUIRES For clinical
markets, a regulatory (e.g., FDA)
clearance or approval.
WHY IT’S HARD Signal processing
to overcome accuracy issues;
Few in the category have a FDA
clearance or approval.

22. PRESENTATION © 2014 ROCK HEALTH
CONVENIENCE
Finally, convenience plays a significant role in engagement with
biosensing wearables, particularly at the onset of use
Source: Company website 22
• Eschews charging with watch battery
that lasts up to a single year
• Background syncing handled through
Bluetooth Low Energy
• Waterproof and can be used while
swimming or showering
• Form factor is jewelry-like with
multiple ways to wear or display
EXAMPLE: SHINE
WHY IT MATTERS Without
convenience, user engagement
falls off a cliff.
WHAT IT REQUIRES Limiting the
number of actions required by
the user, covering everything
from unboxing through syncing.
WHY IT’S HARD Requires expertise
in packaging, industrial design
and user experience.

23. PRESENTATION © 2014 ROCK HEALTH23
FUNCTIONALITY RELIABILITY CONVENIENCE USE CASES
• Directly measures ingestion
event along with activity
and heart rate
• Provides information to
healthcare professional or
caregiver
• Binary state of reliability for
ingestion event
• Received FDA approval
(ingestible event monitor)
and clearance (patch)
• User wears disposable
patch and takes medicine as
usual
• No charging
• No additional tracking
required
• Medication adherence in
key therapeutic areas
including heart failure, CNS,
and transplant
• Measures respiration and
activity
• Software allows user to be
informed about state of
mind (e.g., focus) and take
clear action
• Respiration sensor is
comparable to clinical
standard spirometer
• Developed into a compact
form factor that can be
worn in multiple places
• Supports wireless charging
• Customized styles for users
• Health and performance of
knowledge workers
• Respiratory condition
monitoring
First products from Proteus and Spire demonstrate how
innovating along all three axes leads to high utility
PROTEUS HELIUS
SPIRE
Source: Proteus website; Spire product rendering courtesy of Spire, Inc.

24. PRESENTATION © 2014 ROCK HEALTH
Disruptive potential of biosensing wearables over time
Biosensing wearables that evolve along the three key axes have
the potential to disrupt large healthcare markets
A LITTLE MORE DISRUPTION, PLEASE
24
Note: We strongly object to the overuse of the phrase “disruptive innovation”; however, we feel
that it describes both the market dynamics as well as popular backlash against the category
PRODUCT
PERFORMANCE
TIME
as defined by
FUNCTIONALITY
RELIABILITY
CONVENIENCE
Performance
demanded by
healthcare markets
Driven primarily by
functionality and
reliability
Performance demanded
by consumer markets
Driven primarily by
convenience and price
SUSTAINING TECHNOLOGY
BIOSENSING
W
EARABLES
MEDICAL
DEVICES
REMOTE
PATIENT
MONITORING
CLINICAL
DATA
CAPTURE
EMPLOYER
WELLNESS
$100-125B $10B $6B $6B
Our arch competitor will not be
Boston Scientific, or St. Jude
Medical or Covidien or
HeartWare. It will be Google.
STEPHEN N. OESTERLE, M.D.
SVP, Medicine and Technology
Medtronic

25. “AgaMatrix was medical, medical, medical for 7-8
years. What we realized was that we had so
much difficulty trying to rapidly update our
apps. With Misfit, we thought we would go to
the consumer first, test, learn a lot, iterate over
and over again, and then hit the healthcare
market.”
SRIDHAR IYENGAR
Co-founder and CTO
Misfit invents and
manufactures great
wearable computing
products.

26. Platforms and business models

27. PRESENTATION © 2014 ROCK HEALTH
Critical use cases for the industry and biosensing wearables
Evolved biosensing wearables will solve significant problems for
the healthcare industry
AND THE QUEST FOR THE HOLY GRAIL
27
PAYERS PROVIDERS BIOPHARMA
IDEALIZED USE
CASES
• Consumer behavior change
• Early diagnosis and intervention
• Source of truth for biometric-based
incentive programs
• Remote patient monitoring
• Support for telemedicine services
• Clinical data capture for executing
adaptive clinical trials
• Collection of post-market and real world
effectiveness data
• Combination device and drug products
PERFORMANCE
REQUIREMENTS
• Functionality has to focus on making
physiological data highly meaningful and
actionable to the end user
• Convenience is paramount as consumers
are highly likely to abandon devices that
cause any type of engagement friction
• Functionality has to focus on data
transport and integration into clinical
workflow
• Requires high reliability (e.g. regulatory
clearance) if healthcare professionals are
dependent on data for healthcare delivery
• Functionality must focus on the clinical
endpoints tied to specific therapeutic
areas
• Reliability has to pass compliance with
existing regulation—data collection as
part of a clinical trial must be 21 CFR Part
11 compliant (U.S.)

28. PRESENTATION © 2014 ROCK HEALTH
INDIVIDUAL
WELLNESS
CORPORATE
WELLNESS
REMOTE PATIENT
MANAGEMENT
CONSUMER ENGAGEMENT
AND ANALYTICS
DATA NORMALIZATION
AND TRANSPORT
Consumers Payers Providers Payers, biopharma Agnostic (API)
Attempts at consumer/industry platforms for integrating biosensing wearables
Multiple companies have emerged in an attempt to enable these
use cases, although none are close to becoming scaled platforms
Note: Devices and platforms are selected, not comprehensive
COMPLETELY FRAGGED
28
EXAMPLE
PLATFORMS
USE CASE
TARGET
CUSTOMER
BIOSENSING
WEARABLES

29. PRESENTATION © 2014 ROCK HEALTH
CORE SOFTWARE
S Health Health
PLATFORM
Samsung Architecture
Multimodal Interactions
(S.A.M.I.)
HealthKit
ENABLING DEVICES
Galaxy S-series
Simband
(reference platform)
iPhone
?
Activity
trackers and
watches
Smart
clothing
Patches and
tattoos
Ingestibles
and smart
implants
Non-wearable
biosensors
Wearable makers and end customers are both heavily platform
shopping, limiting scale and leaving an opening for tech giants
Note: Yes, we expect Apple to release an enabling biosensing wearable device.
We do not know what the release date, form factor, or underlying product story will be. 29
..........................................
............................
9:41
HARDWARE ECOSYSTEM SOFTWARE ECOSYSTEM
Mobile apps
Data transport
and liquidity to/
from the
industry

30. PRESENTATION © 2014 ROCK HEALTH
VIRTUOUS CYCLE
Starting from a scaled platform could catalyze a virtuous cycle,
enabling new business models for wearable companies
PLATFORM SOLVES
30
HARDWARE
ECOSYSTEM
SOFTWARE
ECOSYSTEM
PLATFORM
ENABLING
DEVICES
CORE
SOFTWARE
1
2
3
1 Scale for everyone
A massively scaled consumer platform
attracts industry and developers, seeding an
ecosystem within the healthcare industry.
2
3
Software: challenges of fragmentation
Pure software players, including the industry,
can define valuable use cases and no longer
worry about choosing a specific type of
biosensing wearable—maximizing flexibility
and consumer choice.
Hardware: missing integration
Device companies can build once (for defined
use cases) and connect to multiple endpoints
(inclusive of both consumers and the industry)
through a scaled platform, eliminating the
current challenge of having to be a “full stack”
company (hardware, software, integration).
SUBSCRIPTION SOFTWARE
ADD ON SERVICES
(E.G., COACHING)
DISPOSABLES
HIGH GROSS MARGIN
(VALUE-BASED PRICING)
NEW BUSINESS MODELS

31. Characteristics of disruptive
businesses, at least in their initial
stages, can include: lower gross
margins, smaller target markets, and
simpler products and services that
may not appear as attractive as
existing solutions when compared
against traditional performance
metrics.
“
”PROF. CLAYTON CHRISTENSEN
We’re at the beginning of a long journey
with biosensing wearables

32. ACKNOWLEDGEMENTS
We are indebted to our industry partners who not only
support our work every day but provided invaluable
feedback on an early draft of this report.
A number of industry, startup and venture folks also
offered their expertise. Special thanks to Aaron Duran,
Ingo Elfering, Sridhar Iyengar, Amar Kendale, David
O’Reilly, Jonathan Palley, and Sundeep Peechu for
their time and insights.
Finally, we are fortunate to work with the most
talented (and fun) team in digital health. Thanks to
Halle Tecco and Mollie McDowell for reviewing our
final drafts and providing edits.
research@rockhealth.org
@rock_health
PRESENTATION © 2014 ROCK HEALTH