This is NUTS!
Momma Kliff used to say that if you live long enough nothing much will shock you. Once again Mom was spot on for it looks as though Livongo has hired Morgan Stanley, Goldman Sachs Group and JP Morgan Chase to underwrite an IPO which, and we’d recommend sitting down for this one, would value the company in excess of $1 Billion.
According to a story in today’s Wall Street Journal the company has privately raised roughly $240 million at a valuation of $800 million. So it makes perfect sense their IPO should value the company at over a Billion bucks.
Livongo is just one of the many way cool whiz bang cloud enabled companies offering interconnected diabetes management. To their credit the company has also moved into the cardiovascular, weight-loss and mental health space, yet their core competency is diabetes.
As the article correctly notes the underwriters will use the size and epidemic growth rate of diabetes as a major selling point. This is standard operating procedure when pawning off IPO’s on investors who fail to perform much if any due diligence. For if these investors did their due diligence here is what they would find;
1. As whiz bang and way cool as this technology is, it’s already outdated and will soon be replaced by even more whiz-bang cooler technology. Keep in mind at time when CGM is becoming the standard for glucose measurement Livongo still uses an old fashioned BGM as the centerpiece of their platform.
2. Insulin dosing algorithms combined with CGM can and will do what Livongo does, do it better, faster and cheaper.
3. There are a host of high-tech cash rich companies also in this space who are working on the exact same thing using current CGM technology, OnDuo the Verily/Sanofi partnership quickly comes to mind. And let’s not forget that Dexcom owns TypeZero who just happens to have the best insulin dosing algorithm on the planet and is working on an algorithm for non-insulin using patients.
4. Apple continues to sniff around this space and Amazon has already begun the deep dive. Yep it won’t be long before snarky Alexa not only orders more Tide but also becomes the patient’s diabetes coach. Can Siri far behind?
5. Did we mention Livongo isn’t making money? Yes, we know this is not unusual for start-ups but with all the competition prices for the services they offer will be going DOWN not up.
Listen we have nothing against the good people at Livongo and given the way money is being thrown around these days they’ll likely get the outrageous valuation their underwriters are seeking. Which is not just good news for Livongo but a host of other diabetes start-ups. Given the focus on driving cost out of the system, the fact diabetes is growing at epidemic rates and the fact that even with all the toys in the toy chest and drugs in the medicine cabinet outcomes still aren’t improving selling this IPO shouldn’t be a problem.
Yet Livongo isn’t the only diabetes start-up going public, attempting to sell themselves or looking for more money. Recently we’ve had discussions with some investment bankers asking about a certain “smart” pen company, sorry we cannot disclose who but since there are only 15 or so “smart” pen companies it shouldn’t be too hard to narrow it down. Anyway, the numbers being thrown around as its value, think Powerball Jackpot like numbers, are … well just a little nuts. Mind you it’s a great company with a promising future but seriously the valuation is over the top.
But why stop there and take a look at some publicly traded companies. Tandem after being on deaths doorstep now has a market cap approaching $4 Billion, Dexcom as great as they are has a market cap approaching $14 Billion with Insulet coming in with a market cap of $5.5 Billion. Which proves Mom was correct when she said that something is worth whatever someone else is willing to pay for it.
It’s also the reason we have avoided placing valuations on any company as by any conventional measure these valuations are just nuts. Listen we have nothing against any of these companies yet with money being thrown around as it is these days you can throw all the traditional valuations metrics out the window. Heck when the OnDuo partnership is valued at $2 Billion you know conventional metrics just don’t apply anymore.
Just by way of comparison Senseonics carries a market cap of slightly above $520 million, this company has a real future yet Livongo if they are successful with their IPO is worth twice as much? Someone please explain that and do it slowly as honestly it makes no sense whatsoever.
Going back to Tandem for a moment, another company with a bright future, don’t we all know that this company which could have been bought for less than $500 million not that long ago will likely be bought for $5 or $6 Billion.
Ok we have to say it because it’s true doesn’t the Livongo IPO and all these crazy valuations make JNJ look like the biggest idiots ever for not being able to sell Animas. We have long felt that Sanofi and Roche were two companies great at turning a large fortune into a small one. Yet JNJ now joins them in the let’s turn gold into sand Hall of Fame.
Have a great weekend everyone and don’t forget to Spring forward.