Say again please

Yesterday was an unusual day with Livongo actually going up while the markets were going down. Is this the long anticipated dead cat bounce or is this the start of climb back up? Only time will tell but one thing became very apparent yesterday the company’s CEO Glen Tullman is clueless to the situation and seems to care less that he and his team are destroying shareholder value.

As we noted Glen rather than running the company has embarked on a series of fireside chats, yesterday’s coming in New York where he said:

“Being the first IPO in our space has its challenges because people don’t know how to categorize us and we continue to educate the investor community on how to understand our model.”

Now before we go on here, we have to admit that’s a pretty slick explanation as to why since it’s IPO Livongo shares have fallen almost 50% whipping out nearly $3 Billion off the company’s market cap. Basically what Glenn is saying is his company which has shown an uncanny ability to lose money is doing just fine and it’s the investment community fault that the stock has tanked. That when properly educated the community which has been selling shares with reckless abandon will reserve course and start buying shares which will drive shares higher.

As Momma Kliff used to say if you believe that one, I have a very nice bridge in Brooklyn that’s for sale.

The problem isn’t that the investment community is uneducated, the problem is the community understands that a company cannot continually lose money. That at some point they need to make money. The community also understands how difficult it is to make money when the sandbox you play in is full of competitors who will drive costs lower making it even more difficult to make money.

A sandbox which just became more crowded, check out this announcement from LifeScan;

“LifeScan, a world leader in blood glucose monitoring and maker of the iconic OneTouch® brand, today announced a new engagement with leading global advisory, broking and solutions company Willis Towers Watson to expand the adoption of OneTouch Reveal® Plus, the digital diabetes therapeutic powered by Welldoc’s award-winning BlueStar® platform.”

The plan here is … wait for it … to support self-insured employers in helping their employees and dependents manage diabetes. Per a post on the Drug Delivery Business News web site;

“The OneTouch Reveal Plus is indicated for use with adult patients who have Type 2 diabetes. The device is designed to provide patients with individualized, real-time feedback and virtual coaching, based on a specific treatment plan. It also offers weekly challenges, meal planning tools, an insulin calculator, connectivity with popular fitness trackers and a comprehensive smart visit report for sharing with a healthcare team.”

If that sounds familiar it should because it’s almost identical to what Livongo is doing. Now LifeScan did not reveal how they planned to make money with this new platform, but they have several options. They could follow the Livongo model charging a per patient per month fee, they could make money on the continual sale of test strips, or in a bold move they could make money on the back end only getting paid for improvements in patient outcomes. The bottom line here is no matter which revenue model they choose Livongo has yet another well healed competitor to deal with and this one has long well-established history in diabetes combined with recognizable brand name.

Glen can tap dance all he wants around what is an inconvenient truth, Livongo isn’t making money, competition is intensifying which will drive prices lower, what they are doing is hardly unique and as the LifeScan announcement makes crystal clear very easy to replicate. Just as every other aspect of the diabetes market is commoditizing patient coaching is not immune to this phenomenon.

The surprising thing to us isn’t that the investment community doesn’t get it, rather that Glen doesn’t get it. Listen Glen is many things but stupid is not among them, this is one very smart guy. One would think he could come up with a better explanation for destroying shareholder value than the investment community doesn’t get it. At minimum you would think he would understand that it doesn’t look good that while his company’s stock is tanking that he’s out on the lecture circuit.

The harsh reality here is that Glen has forgotten one of the oldest adages there is; better to be thought a fool than open your mouth and remove all doubt.