Finally at long last the S-1 for Livongo has arrived and judging by the press coverage the company is receiving one just might think this is somehow a watershed event. Listen digital health as we’ve been saying is hotter than Georgia asphalt, so we aren’t surprised. Nor does it hurt any that Livongo’s primary target are patients with diabetes a chronic disease state that is growing at epidemic rates. Not like we need to add gas to a raging forest fire but it sure as hell doesn’t hurt either that patients with poor controlled diabetes are costing our healthcare system and their employers a small fortune.
Now we hate to keep doing this but since we have lots of gray hair and have seen a few things over the last 20 plus years we must as this is not the first time we’ve seen this kind of hype. Again not to be redundant but what Livongo is doing is hardly new nor innovative it is as we keep saying an old idea in a shiny new box. Those of us who’ve been around before the advent of the iPhone remember something called disease management. Back in the day disease management was all the rage, a rage which quickly fizzled out when people finally figured out that these companies as way cool and whiz bang as they were couldn’t turn a profit.
Like their disease management predecessors Livongo is also finding it very difficult to make money. Per the S-1
“We have experienced significant growth since our inception. Our revenue was $30.9 million and $68.4 million for the years ended December 31, 2017 and 2018, respectively, representing a year-over-year growth rate of 122%. Our revenue increased from $12.5 million for the three months ended March 31, 2018 to $32.1 million for the three months ended March 31, 2019, representing a year-over-year growth rate of 157%. We have incurred net losses of $16.9 million and $33.4 million for the years ended December 31, 2017 and 2018, respectively. Our net loss also increased from $4.2 million for the three months ended March 31, 2018 to $15.0 million for the three months ended March 31, 2019. As of March 31, 2019, we had an accumulated deficit of $128.6 million.”
Ok we get it Livongo is a small, yet growing company and losses happen until scale is achieved. The problem we have is how they will achieve enough scale so they can eventually make money. Will they run into the same problems all the disease management companies had back in the day when they too were losing money but never achieved adequate scale. It’s this point we’d like to examine further as the number that stood out to us in the S-1 was this;
“As of March 31, 2019, we had 679 clients and over 164,000 Livongo for Diabetes members.”
This may sound impressive until you consider that there are 30 million patients in the US with diabetes. Ok we didn’t expect Livongo to reach the masses but with 679 clients one would think they would have more than 164,000 members and remember not all the members come from these clients as the company had existing members before they had these clients. We find it interesting that the company did not disclose how many members came from these clients.
Now we know this won’t matter all that much to investors who are going to eat this IPO up. Investors who just love the toys in the toy chest. Investors who are impressed by way cool whiz bang. Just how way cool take a gander at this passage from the S-1:
“Our multidisciplinary team has built a flexible and robust technology engine capable of processing data from our devices as well as other data sources and turning that information into valuable Health Signals. At the heart of our platform is a core set of four capabilities which we call AI+AI: Aggregate, Interpret, Apply, and Iterate.
• Aggregate: We collect data from a variety of sources, including devices gathering information from our members in real time or near real time, third-party applications, medical claims, pharmacy claims, member preference surveys, and third-party partners.
• Interpret: We sift through this vast trove of health and consumer data and identify relevant Health Signals to develop actionable, personalized, and timely insights tailored to a specific person.
• Apply: We deliver specific Health Nudges directly to our members, based on each member’s chronic condition and specific needs at exactly the right time in the right format and context.
• Iterate: We iterate and continuously tailor a member’s experience based on his or her behavior, preferences, feedback, and results, in much the same way Netflix makes entertainment recommendations based on your preferences.
We believe our approach has created a unique experience for people with chronic conditions, delivering an experience people love, with measurable and sustainable clinical outcomes, and quantifiable cost savings. To do this, we have reimagined the member onboarding process, the physical devices, the digital feedback, the automatic delivery of supplies, and the coaching experience. Our team applies the concepts of AI+AI to best serve our clients and our members, both by using pre-enrollment information to optimize enrollment and create a seamless welcome and onboarding experience, as well as individually tailoring our data-driven feedback, monitoring, and coaching to each current member’s preferences and needs.”
Damn that sure sounds impressive and it’s just the kind of stuff investors go gaga over.
Listen we have no doubt whatsoever the IPO will be successful. Nor do we have much doubt that at some point Livongo will eventually be acquired. Then once acquired the folks who built Livongo will move on and it will be the acquiring company who finds out that as way cool and whiz bang as Livongo looked the business model just doesn’t work. This is exactly what happened when disease management was all the rage.
If there is one thing, we can count on in our wacky world is that history is destined to repeat itself. That there is nothing like a hot sector to drive investor interest. Investors who like so many in this wacky world either aren’t old enough to remember past mistakes or fail to perform even the slightest due diligence.
As Momma Kliff used to say, “History is the greatest teacher unfortunately the students think they are smarter than their older wiser teacher.”