Oliver Wyman Health (OWH): At the close of Livongo’s first day post-Initial Public Offering (IPO), shares were 36 percent above initial pricing. Obviously, there is excitement, anticipation, and trust in what Livongo is doing – what, specifically, do you think investors and consumers are so positive about? What greater “signal” are we, in the healthcare universe, getting from the market?
Glen Tullman (GT): Let me start off by saying that Livongo’s IPO was a great day for our employees, clients, investors, and most importantly for our members living with chronic conditions. The market is clearly ready for a consumer-first solution that makes it easier for people with chronic conditions to stay healthy. Our investors were excited because we’ve created an entirely new category, like Google did in content, Facebook did in community, and Amazon did in commerce. Livongo’s new care category called Applied Health Solutions applies data to understand people’s unique health signals and provide personalized guidance that makes their lives better.
Warren Buffet said, "We want products where people feel like kissing you instead of slapping you." Livongo’s adoption rates are 10 times what’s common for wellness or employee assistance programs and more than five times the rates for telehealth, a service I personally use and love. Livongo’s member acquisition, utilization, and retention are above 90 percent. That’s amazing.
Our members trust us because they know what we do comes from the heart. A third of our employees have a chronic condition and another third have a family member or close relation to someone who does. The level of commitment, energy, and what we get and give is off the charts and a true differentiator. For us, this is not just a business, but a true mission.
Now let’s talk about the challenge of being public in a new category we’ve created. Our job is to help the market understand that some of our business aspects differ from other companies they’ve seen. From an outsider’s perspective, Livongo’s business model is similar to some of the top Software as a Service (SaaS) companies in today’s market, like Salesforce or Workday. But since we’re a consumer digital health company, there are additional considerations and nuances in how our employer and health plan clients deploy our solutions. In fact, last week, we had our first earnings call as a public company. We reported revenue growth up 156 percent year over year and total contract value up by 200 percent. Our member count grew to over 190,000 and we even raised our guidance.
Despite our performance, which exceeded stock analysts’ consensus, the market had even greater expectations for faster growth. This led us to realize that as a new kind of consumer digital health company, we needed to better explain how our sales turn into revenue and how this is different from many of the companies they normally follow.
Let me give you an example. First, we close a sale, then we launch enrollment, and then we build our member base. We sell and implement all year long, and launches vary depending on the client type and the time of year when the sale occurs. When we sell to large self-insured employers, they can launch Livongo in a matter of months, but when we’re contracting with a large payer, pharmacy benefit manager, or the government, they typically have a predetermined start date, often at the beginning of the year following the sale. Therefore, we recognize the revenue at time of launch. It typically takes up to nine months to reach full enrollment and fully recognize that revenue. That is something we need to reinforce with investors.
"Unlike other consumer markets, in healthcare, you sell to one group and typically that buyer is not the user of the service."
OWH: It seems like there’s been a burst of digital health IPOs over the past few months. Will this trend continue?
GT: We believe there will be more digital health IPOs over the next few years. That said, these new entrants will need to demonstrate what makes their solution both different and better, the same way Livongo did when we embarked on our IPO. One example is our AI+AI platform, an area where we invested tens of millions of dollars. This platform allows us to aggregate information from a variety of sources, like electronic health records, pharmacy records, continuous glucose monitors, watches, and virtually every other data source, and pair it with our own unique data. This platform also helps us interpret what it means to someone on a personalized basis, apply it back to their unique situation at just the right time, and then finally iterate to see if a particular message (an insight or “Health Nudge” as we call them) worked and how people used it to change their behavior.
This is just what Amazon does when they say, “People like you also liked this book”. Or what Netflix does when they say, “If you liked this movie, you will also like this one”. We’re applying that same data science to help people stay healthier, but it takes a significant investment in data scientists and lots of data – so scale matters. And when we add 38,000 members like we did last quarter, we keep learning and getting better at helping our members.
OWH: Given that digital health companies must work and coordinate across so many different constituents – payers, providers, and consumers – what new challenges do you expect to arise as digital health companies grow in number, popularity, and usage? What are some business challenges and benefits specific to digital health companies?
GT: What you’ve identified is one of healthcare’s great challenges. Unlike other consumer markets, in healthcare, you sell to one group and typically that buyer is not the user of the service. At Livongo, we’ve combined the consumer-first technology that made Silicon Valley so unique, with a deep understanding of how the healthcare ecosystem works, and finally, because of our direct experience with chronic conditions, empathy, and understanding of what it’s really like to have a chronic condition. So, we used technology to enable an experience that makes it easier to stay healthy. But our goal is to reduce the hassles consumers face in sustaining health using technology. And we work with the most innovative payers, health services companies, pharmacy benefit managers, and self-insured employers so we’re making the system operate better for our members and more cost-effective as well.
OWH: Livongo focuses on chronic condition management. Is there a similar significant appetite for digital health solutions targeting individuals without chronic conditions? For instance, consumers just looking to facilitate a healthy, prevention-focused lifestyle.
GT: Livongo focuses on people with chronic conditions because we believe it is society’s most pressing issue today. Sixty percent of US adults live with one or more chronic conditions, and over 40 percent have two or more chronic conditions. In addition, people with chronic conditions account for about 90 percent of our overall healthcare spend, or more than 1.1 trillion dollars annually. We’re not a health and wellness company, and while I have nothing against those companies, we’re squarely focused on providing valuable solutions for people with chronic conditions or other health challenges where we can show improved member satisfaction, measurable and sustainable health outcomes, and a solid return on investment. That’s why Livongo is growing so quickly, because members love the experience we create for them (we can’t make their condition disappear but we can make it easier to manage), and their employers and health plans (our clients) see a business case for keeping their people happier, healthier, and it actually costs less. Imagine a situation where someone managing a chronic condition was told that there are no co-pays for certain medications or supplies, and they would have round-the-clock access to knowledgeable, caring health professionals whenever and wherever they needed them. That would be pretty magical. It’s the future of health and care.