Free is still better

We’re not sure who said it but there’s an old saying why pay for the cow when you can drink the milk for free. This saying wasn’t directed at our wacky world but when it comes to all the way cool whiz bang apps/coaching platforms free is better. We thought of this today when we learned that Roche has teamed up with the Boots pharmacy chain promoting free access to their way cool whiz bang app MySugr.

Per a story posted on the FirecePharma website;

“Roche has struck a deal with popular pharmacy and retailer Boots in a campaign to promote free access to its mySugr diabetes management app in the U.K.

With the COVID-19 pandemic straining healthcare resources, Roche opened up the premium version of the app, mySugr Pro, to all users in late April. Users can sign up through the end of September for a free year of the app that normally sells for €20.99 for an annual subscription.

The new Boots partnership is meant to push wider awareness and promote the app on the retailer’s website and social media platforms, a Roche spokesperson said. Boots will also promote mySugr through partner site Alphega’s network of independent pharmacies.”

For those unfamiliar with MySugr it’s one of the many apps that collects patient data and then using data analytics helps the patient more effectively manage their diabetes. In other words it does the same thing that OneDrop, Onduo, WellDoc and Livongo does. (Yes we know there are more way cool whiz bang apps that do this exact same thing, but these are the more well known.)

While we are not surprised by this move it does come just as Livongo is announcing higher than anticipated revenue which has sent their shares to the moon. The week is just three days old and shares of Livongo headed into today’s session are up over 29%. Shares took off like a rocket when the company pre-announced better than expected earnings on Tuesday and haven’t looked back since. It’s astonishing that it wasn’t that long ago Livongo had a market cap of under $3 Billion which thanks to this wild ride has risen to almost $9.5 Billion.

What’s just as astonishing is this rise and better than expected earnings comes not just during COVID but just as competition for the diabetes patient is intensifying. There is no question that investors and analysts have fallen in love with Livongo’s per patient per month reoccurring revenue model. A model we see being threatened as Livongo competitors begin to give away their platforms for FREE only being paid when they produce verifiable improvements in patient outcomes.

MySugr may not be a direct threat but it is another option for patients. Simply put the employers who are now signing deals with Livongo might all of sudden realize that they are paying for something their employees can get for FREE. Yes we know that Livongo offers more than diabetes management, but this segment of their platform is still top dog driving growth. Which begs the question just how long will employers continue to sign up with Livongo when they have multiple options available which are either FREE or come with a deferred cost based on actual outcomes.

We should note right here something we have stated before but bears repeating; when it comes to diabetes management the Livongo platform is not unique and very easy to replicate. Livongo can talk all they want about their way cool whiz bang AI+AI but this is just old-fashioned disease management using new technology. The fact is while all these platforms promote the myth that diabetes management is more complex than finding a cure for COVID, the truth is diabetes management for the vast majority of patients isn’t all that complex.

As we have noted many times it’s pretty easy to provide the patient with the how to manage their diabetes, the hard part the part which none of these platforms have figured out just yet is how to provide the patient with the WANT to manage their diabetes. There is no question these platforms are helping as they do take away much of the heavy lifting, but it is still up to the patient to execute on the advice these platforms are giving them. Remember you can lead a thirsty horse to water but you can’t make them drink it.

Also largely overlooked is how often the patient interacts with the platform. In Livongo’s case they get paid when the member performs any interaction with the platform. The simple act of testing of their glucose level even it’s just once creates a billable event for Livongo. What no one looks at and what Livongo doesn’t talk about much is what happens when the member stops using the platform or converts to one of these FREE platforms. We see this attrition rate as a critical metric and will be paying close attention to see what Livongo says on this subject when they have their second quarter earnings call.

Our sources tell us that the companies who have contracted with Livongo aren’t overly thrilled with the platform. Now that more competitors are coming it will be interesting to see whether Livongo can retain these clients. This is one reason Livongo has to their credit been so aggressive in signing up new clients. They know competition is coming and they know some of these competitors will give away their platform for FREE. Simply put they have a limited window of opportunity which again to their credit they are taking full advantage of.

The real question we have now that the company is valued at almost $10 Billion making an acquisition unrealistic, how high can the share price go. Will it hit the $200 level as some think it might? Or will the coming quarters bring bad news which will drive shares lower? For the moment we don’t see too much near term risk and given how hot the digital health sector is we can see shares moving even higher. But as we look to the third and fourth quarters when more data is known is when this ship moving today at warp speed slows down to impulse power.

As we watch all of this we are reminded of that scene in the movie Wall Street when the old sage Lou Mannheim says to the young rising star Bud Fox, “Kid, you’re on a roll. Enjoy it while it lasts, ’cause it never does”