The decision may have been made to avoid regulation by the FDA, according to BuzzFeed.

"Advanced biotracking sensors would have made the Apple Watch less of a multipurpose consumer device and more of a medical device used to diagnose diseases or track chronic conditions — which could have opened the watch up to regulation by the U.S. Food and Drug Administration.

'I don’t think Apple wants to be a health-monitoring device maker,' said Harry Wang, director of health and mobile product research at Parks Associates. 'They do want to leverage their popularity on the iPhone as a device platform, integrating all health data that can be collected for different devices.'" 

From the article "The Apple Watch Is Scaling Back Its Health Features" by Ian Servantes.

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