U.S. Markets close in 4 hrs 41 mins

IBM Launches Watson Health Unit, Buys Health Tech Startups - Analyst Blog

Zacks Equity Research

IBM Corporation IBM recently launched its new health unit — Watson Health — to consolidate information from a number of devices and providers in the cloud and offer insights to pharmaceutical companies. The new business unit should aid IBM’s collaboration with Apple Inc. AAPL in the healthcare space and associated Apple apps such as the HealthKit and the newly launched ResearchKit.

IBM confirmed that the new unit will be headquartered in Boston with 2,000 employees, including 75 medical practitioners. To further expand this unit, IBM acquired two health technology startups — Explorys and Phytel. While Explorys offers a cloud service for processing various types of data, business intelligence and predictive analytics, Phytel provides cloud software for storing various types of health data and offering insight into groups of patients for hospitals. However, financial terms of both deals remain under the wraps.

In addition to acquisitions, IBM is partnering with healthcare giants such as Johnson & Johnson JNJ and Medtronic plc MDT to pick up some share in the fast-growing healthcare analytics space. While Medtronic will utilize IBM’s Watson Health insights and develop personalized care plans for diabetes patients, Johnson & Johnson will work with the company on mobile-based coaching systems to help pre- or post-surgery patients and launch new health apps to address chronic conditions.

According to researchandmarkets.com, the global healthcare analytics market is expected to reach $23.8 billion by 2020-end, with an estimated CAGR of 23.9%. Hence, this represents a significant boom for IT companies striving to gain a foothold in this emerging business.

While companies such as Athenahealth, ZocDoc, Health Catalyst and Practice Fusion have seen good growth as successful software startups in the healthcare IT sector, it remains an underserved market for mainstream IT companies, which can improve the quality of care and also offer a software-as-a-service (SaaS) model. The SaaS model helps lower the cost of IT so it is accessible to more people/organizations.

Further, it is expected that innovations in the health technology sphere by IT companies like IBM can help the market improve its cost structure by cutting labor expenses (which accounts for over 50% of health care cost) and lower administrative costs. Increased adoption of digital insurance and mobile applications will reduce paper work and therefore, staffing issues in the industry and result in price transparency.

Whether these initiatives can help IBM gain significant share of the healthcare cloud services market through a SaaS model remains to be seen. But the market is wide open and it seems like the right time for a tech heavyweight like IBM to jump in. 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
INTL BUS MACH (IBM): Free Stock Analysis Report
MEDTRONIC (MDT): Free Stock Analysis Report
APPLE INC (AAPL): Free Stock Analysis Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research