On April 30, 2019, Capsule Tech announced that it is acquiring Bernoulli Health for an undisclosed amount. This acquisition combines two market leaders in the medical IoT, IoMT, biomedical medical device integration (BMDI), medical device data system (MDDS), medical device connectivity, or whatever you call this market.
Medical devices are by far the greatest source of data in health care. For many years the vast majority of medical device data simply scrolled off the screen, never reaching clinicians for analysis and alerting. Capturing this data and using it to better diagnose, treat and monitor patients is finally transitioning from automating paperwork (clinical documentation into the EMR) to directly supporting clinical care with use cases like alarm notification, detecting patients with a deteriorating clinical condition, ventilator weaning and more.
This combination of Capsule and Bernoulli will impact buyers and competitors in multiple markets targeting the point of care, such as medical devices, health care messaging and orchestration, remote surveillance and clinical decision support. The acquisition will likely cause a certain amount of reordering of buyer preferences and vendor reactions as adjustments are made in response.
In this post we will discuss below how this transaction is going to impact a number of point of care markets in the acute care space. First we will look at Capsule and Bernoulli and then dig into the implications for various market segments and the industry as a whole.
These two companies are among the most established of medical device connectivity vendors. Their backgrounds and histories speak to the clinical value of connectivity, this acquisition and the broader medical IoT and clinical decision support market in general.
Capsule Tech Profile
Capsule Technologie S.A. was founded in 1997 and was originally headquartered in Paris, France with an additional office in Andover, Massachusetts. Over the years, the company's sales focus has shifted from providing OEM solutions to medical device manufacturers and HIT vendors to selling big ticket enterprise BMDI solutions to health care providers, mostly hospitals.
Today, Capsule Technologies Inc., provides medical device connectivity solutions for hospitals worldwide. It offers a vendor-neutral, enterprise device connectivity solution via acquisition modules and medical device software that manages the data and communication between medical devices and destination clinical information systems. Capsule also sells the Neuron, a touch-screen platform to manage patient context, medical device data collection and device connectivity at the bedside, and related hardware components.
Like many startups, Capsule started out with lower cost point or departmental solutions connecting devices in the operating room to support anesthesia information systems and later connected medical devices in the ICU. Many of Capsule's initial device drivers to parse proprietary medical device data protocols came from Picis.
In 2007 to 2008, Capsule started to shift from departmental to enterprise-wide solutions, when connectivity extended into lower acuity units were most hospital patients are located. The company got a big bump in growth with the advent of the HITECH Act in 2009, which drove rapid adoption of the clinical documentation use case where vital signs (and sometimes, other medical device data) was automatically placed into the patient's EMR record. By 2011, Capsule's revenue was $38.6M and in 2012 it had grown to $44.3M.
In July 2012, JMI Equity bought out Capsule’s previous investor/owners for just over $70 million. The optimistic strategy was to build Capsule’s revenue up to $100 million and flip the company at a substantial profit. By 2014, Capsule was the second largest MDDS vendor (after Philips) and the MDDS market totaled about $326M; Capsule's revenues were about $52M. Capsule continued to focus on spot data collection (rather than high fidelity real-time data acquisition).
In the same 2011 to 2012 time frame, Bernoulli founder Jim Biondi (then called Cardiopulmonary Corp.) raised $50+ million in a bid to acquire Capsule Tech. His offer was rebuffed by Arnaud Houette, then CEO of Capsule as he felt (correctly) that he could get more value from a mid cap equity investor.
To further their clinical documentation solution, Capsule developed the Neuron as a bedside user interface for establishing patient context and the review and validation of acquired data before it is sent to the EMR. The Neuron proved to be a sustainable competitive advantage in many accounts. In 2015 Capsule brought to market a vital signs monitor, SmartLinx, based on the Neuron hardware to provide better workflow and commoditize established vital signs monitors from Welch Allyn, Philips, GE and others.
In the meantime, other vendors (e.g., Bernoulli, Excel Medical, True Process) moved farther up the value chain offering alarm notification, remote surveillance or data aggregation based on their own MDDS functionality. In retrospect it seems that Capsule management did not want to take resources from growing the clinical documentation business to invest in developing clinical decision support, alarm notification or some other higher value solution that leverages medical device data.
Capsule was acquired by Qualcomm Life on September 14, 2015 from JMI Equity for an undisclosed amount. Much like Intel's foray into health care, Qualcomm created Qualcomm Life in 2011 to build a health care tech business. Qualcomm Life mistakenly came to see Capsule's connectivity solution as an important piece of their health care puzzle. At the time Capsule had more than 1,930 hospital clients in 38 countries. Paris-based Capsule became a wholly owned subsidiary of Qualcomm Life. Capsule was added to a preexisting mobile health effort targeting the ambulatory market. Qualcomm Life's chief product was 2Net, a gateway/hub and cloud service for connecting wireless sensors to the Internet in patient homes and other ambulatory settings (here's a teardown of the 2Net hub).
In early 2019, Qualcomm Life was spun off from Qualcomm when they were acquired by Francisco Partners. Francisco Partner's growth strategy appears to focus mainly on acquisitions, rather than organic growth. Less then 6 months after the Francisco Partners acquisition, Capsule moved to acquire Bernoulli Health.
On May7, 2019, Capsule announced the appointment of a new CEO, Hemant Goel. Goel joins Capsule after 4 years as COO and then President of clinical communications and collaboration vendor, Spok. Prior to Spok, Goel held management positions at Siemens and Cerner.
Bernoulli Health Profile
Bernoulli, originally named Cardiopulmonary Corp., was founded in 1988 in Milford, CT. Founded by Dr. Jim Biondi, the company's first system was a central station for ventilators called the Bernoulli system. Cardiopulmonary's system was very innovative on two fronts, alarm normalization and alarm notification.
Two common types of alarm normalization are explained here:
The most advanced alarm notification feature is the decision support system (DSS). The DSS feature can provide alarm normalization across different manufacturer’s devices; this can be particularly useful with ventilators. Another form of DSS-generated alarm normalization captures alarms produced from different medical devices attached to the same patient that result from the same physiological change. These seemingly separate alarms are actually duplicates resulting from the same physiological change in the patient, and the duplication of these alarms can contribute to alarm fatigue.Reducing Alarm Hazards: Selection and Implementation of Alarm Notification Systems
The monitored parameters and alarms on ventilators vary, sometimes considerably, from one manufacturer to another. The different approaches to ventilation allow clinicians to select a ventilator that best matches the clinical needs of an individual patient. Consequently, most hospitals have ventilators from more than one vendor. This has limited hospital device standardization to patient monitors and infusion pumps.
Years ago, patients on ventilators were all located in ICUs. Ventilators are life support devices and having ventilated patients in one unit made it easy to provide the specialized vigilance and care ventilated patients require. Over time, this standard of care was changed, and ventilated patients were kept on their service units. At this point, respiratory therapists had to go to different units to provide care to ventilated patients, and those patient's caregivers had to assume additional nursing vigilance responsibilities for their ventilated patients.
This move to disperse ventilated patients throughout hospital nursing units resulted in an increase in ventilator acquired pneumonia and other complications, that in 2005 resulted in the designation of ventilator acquired pneumonia as a hospital acquired condition for which CMS would not reimburse hospitals.
Cardiopulmonary Corp. saw an opportunity to offer a system that provided centralized surveillance of ventilated patients in the respiratory therapy department. Such a system also had to normalize parameters and alarms across different manufacturer's ventilators and provide remote alarm notification. Cardiopulmonary worked with the FDA to gain premarket clearance for these features (following the De Novo regulatory path), an industry first. This system was called the Bernoulli system after Swiss mathematician and physicist Daniel Bernoulli who discovered Bernoulli's principal for fluid dynamics.
The Bernoulli system included 1) medical device connectivity, 2) remote surveillance (including near-real time waveforms), 3) alarm notification, and 4) clinical decision support to normalize parameters and alarms across different ventilators. These 4 components became the bedrock for Cardiopulmonary's growth and longevity as a company.
Besides selling to hospitals, Cardiopulmonary also OEM'd technology to other manufacturers. For example, Cerner OEM'd technology from Cardiopulmonary for their medical device connectivity and remote ICU solution, starting in 2007.
A new CEO, Janet Dillione, replaced Jim Biondi in 2014. and around 2015 the company was rebranded as Bernoulli Health. Bernoulli acquired Nuvon on August 31, 2015. Nuvon brought to the table a different product architecture impacting data acquisition and management capabilities, and a greater focus on advanced clinical decision support use cases.
Under Dillione's leadership, Bernoulli has established itself as a leading remote ICU and clinical decision support vendor that includes the medical device data acquisition and management required for a complete solution.
Bernoulli's 2018 revenue is estimated at about $6M. Since Dillione joining the company, Bernoulli's investors, Javelin Investment Partners (who also invested in Nuvon) and Elliott Management, were looking for a more aggressive growth strategy or an exit.
The advent of the HITECH Act of 2009 kicked medical device connectivity growth into high gear. Clinical documentation into the EMR quickly became the dominant use case — so much so that many forgot that there were other clinically significant connectivity use cases beyond clinical documentation.
Now that funding from the HITECH Act to reimburse providers to adopt EMRs is gone, we have entered what is styled as the post-EMR period. The connectivity use cases dominating this new period are remote surveillance and clinical decision support. Alarm notification is another important use case as we will see below.
For some time, Capsule was using partners to offer clinical decision support capabilities to complement their medical device connectivity solution. Capsule's partner most impacted by this acquisition is Houston based Medical Informatics Corporation, who was a frequent partner offered by Capsule.
Vendor neutrality is an important characteristic for companies with solutions that sit between other vendor's products. The medical IoT is a classic example where medical device and EMR vendors will only partner with a company who will not directly benefit a competitor. Vendor neutrality can be impacted by an acquisition. With this acquisition, both companies retain their vendor neutrality with medical device manufacturers, EMR vendors and other software vendors. This contrasts with the acquisition of Emergin by Philips in 2007; Emergin lost vendor neutrality with medical device manufacturers and became a proprietary solution for Philips medical devices.
Since both Capsule and Bernoulli offer connectivity, there is some overlap between the two companies offerings. Each companies solutions are optimized for their preferred use cases. Capsule is focused on periodic data acquisition for clinical documentation. Their large library of medical device drivers and the Neuron and SmartLinx vital signs monitor are strong competitive advantages.
Bernoulli's advanced clinical use cases (alarm notification, remote ICU, clinical decision support, high fidelity data acquisition) are a strong compliment to Capsules solution. Bernoulli also has FDA clearances that compliment Capsule such as alarm notification and support for derived parameters (remember those ventilators with different parameters).
With the combination of the two companies, Capsule brings considerable value to Bernoulli through their installed base of almost 3,000 hospitals, over 1,900 in the US — that's a huge customer base that can be upsold to Bernoulli's advanced clinical use cases.
Medical device connectivity competitors can be divided between those that offer connectivity as a solution to health care providers and/or OEMs and those that included connectivity as an essential part of a broader solution. Prior to the acquisition, Capsule was the largest of the connectivity-only group of vendors (e.g., Bridge-Tech Medical, Iatric Systems and Nant Health). With Bernoullli, Capsule has solutions that go beyond connectivity. Capsule's new peer competitors include Ascom, Cerner, Excel Medical, and Hill-Rom.
An advantage that Capsule will now have in the clinical decision support market is an end-to-end solution. Vendors like AlertWatch, Ambient Clinical Analytics, Decisio Health and Medical Informatics Corp lack the ability to directly acquire, store and manage high fidelity medical device data. Expect some of these clinical decision support vendors to develop their own connectivity software or look for acquisitions.
Alarm notification is an important capability to acute care buyers. And those messaging vendors who don't want to be FDA regulated, and thus look for third parties to provide alarm notification may have one less vendor to partner with after this acquisition. ConnexAll and Medical Informatics Corp are about the only options that come to mind. Perhaps Excel Medical will also offer alarm notification. Certainly this could spur more than one middleware or clinical communications and collaboration vendor to bite the bullet and create their own alarm notification feature. Likewise, some other connectivity vendors may step up to offer alarm notification.
Providers will likely welcome this acquisition as it potentially reduces the number of vendors required to realize broader solutions like clinical decision support. Acute care providers like fewer vendors rather than more, and solutions rather than tools that must be assembled and configured.
For vendors, one thing that this acquisition highlights is that go-to-market partners are both a benefit and a risk. Partners can quickly fill feature gaps in a broader solution, reducing time to market and development costs for small companies. Partners can also become effective indirect distribution channels. In the long term though, partners are a crapshoot — they can be acquired, go out of business or change strategic direction, sometimes with little warning. Ultimately, a company must own and control their end-to-end solution to maximize value and better ensure success.
The question we have yet to ask is what's next? Francisco Partners and Capsule could go in a number of different directions to drive further growth through acquisitions.
A messaging solution and a strong mobile app would be an important addition to the Capsule/Bernoulli solution set. The ability to control the presentation of alarms, remote surveillance and clinical decision support messages to mobile clinicians would greatly impact patient safety and outcomes, not to mention staff satisfaction. The workflow orchestration available through a messaging system would also complement alarm notification, remote monitoring/surveillance and clinical decision support.
Capsule's use of the Neuron hardware and off-the-shelf physiological sensors to create the SmartLinx vital signs monitor is very innovative, and that same model could be applied to other acute care patient care devices. This has the potential for substantial organic growth. Control of the medical devices acquiring patient data would enable Capsule to offer unique clinical and patient safety features through tight integration with Bernoulli software.
The medical device market has not been disrupted since analog circuits were replaced by digital embedded system devices almost 50 years ago. One can see signs of impending disruption in this market, but we have yet to see a solid move in that direction. Capsule is credible a source of this disruption as any other vendor.
What is Francisco's exit? If an IPO is unlikely, what kind of company would value the new Capsule the most? Is it a vendor who would void Capsule's vendor neutrality to transform Capsule into a proprietary solution, like Hill-Rom and Voalte, or one who would value and retain that neutrality like an EMR vendor or a health care vendor that's not in the medical device business? Finally, there is the longshot of a health care outsider like Amazon or Apple. In a few years, maybe Qualcomm will change their mind about health care...