When Livongo (NASDAQ: LVGO) completed its IPO in July, it demonstrated that Wall Street is once again hungry for digital-health startups. The Silicon Valley developer of devices and software for managing diabetes upsized its pricing from an initial range of $20-$23 per share to finally list at $28, raising over $355 million and earning a valuation around $2.5 billion.
After blistering ahead to as high as $45.68 on the fifth day of trading, the wheels started coming off and Livongo has since skidded back to its initial pricing range and headed below $20. The culprits in the plunge for the health-monitoring device maker were a mixed earnings report and soft guidance.
During Q2, Livongo reported revenue surging 156% from the year prior quarter to $40.9 million. That beat the $39.8 million Wall Street expected. GAAP net loss for the quarter came in at $14.2 million, or $0.76 per share, far more than the consensus for a loss of $0.60 per share.
An upstart losing money certainly isn’t news. After all, it is the opportunity that Livongo is addressing that has Wall Street’s attention. As LVGO CEO Zane Burke commented during the quarterly call, the company has “barely scratched the surface,” with less than 1% of the addressable market in the U.S.
That also means that there is a lot of market out there for others to join the mix and capture share.
Livongo is a consumer-centric company addressing chronic diseases, starting with diabetes and moving into hypertension, weight management, pre-diabetes and behavioral health. Members using Livongo for Diabetes receive a smart, cellular-connected meter, automatically-delivered testing materials, real-time coaching and monitoring 24 hours a day, seven days a week, 365 days a year. When members track their blood glucose, they receive a personalized message about what to do that very moment, which Livongo calls a “health nudge.”
According to Livongo’s prospectus filed with the SEC, “Our competitors include both enterprise companies who are focused on or may enter the healthcare industry, including initiatives and partnerships launched by these large companies, and from private companies that offer point solutions for a single chronic condition. These companies, which may offer their solutions at lower prices, are continuing to develop additional products and becoming more sophisticated and effective.”
Reading the prospectus provides all the legal boilerplate stuff about why Livongo could fail. This, of course, includes competition. The odd thing is, though, that Livongo doesn’t mention “public” companies. In fact, all the brands actually named - Virta Health Corp., Omada Health, Inc., Glooko, Inc., Hello Heart Inc., Lyra Health, Inc., Onduo LLC, and Ginger.io, Inc. – are private entities.
No public companies are competition?
While much smaller in valuation with a $10.5 million market capitalization, ALRT certainly thinks it is competition. The Virginia-based company has developed the ALRT Diabetes Solution. The technology is a comprehensive approach to diabetes care that includes:
- an FDA-cleared and HIPAA compliant diabetes management system that collects data directly from blood glucose meters and continuous glucose monitoring devices;
- a patent pending Predictive A1C to track treatment success between lab reports;
- FDA-cleared Insulin Dosing Adjustment that suggests insulin dosing changes per evidence-based guidelines to optimize insulin therapy;
- performance tracking to ensure best practices are followed;
- automated patient management; and
- a Health Care Provider (HCP)-centric system, which is novel compared to Livongo and similar platforms that are consumer-centric
As with Livongo, ALRT is initially focused on diabetes with intentions to expand into other chronic diseases anchored by verifiable data.
Certainly sounds like potential competition.
Why Diabetes First?
Livongo and ALRT are both tackling diabetes first because of the immense size of the opportunity. Owing largely to aging and overweight populations, diabetes has reached epidemic proportions worldwide. According to the World Health Organization, the number of people with diabetes has risen from 108 million in 1980 to 422 million in 2014. If current trends do not change, the figure is expected to rise to 642 million people living with diabetes worldwide by 2040.
In the U.S., data from the American Diabetes Association shows 30 million people have diabetes and 84 million have prediabetes. That’s 1 in 3 Americans coping with the disease or serious threat of it. The total cost of diagnosed diabetes is staggering at $327 billion annually ($237 billion in direct medical costs and $90 billion in reduced productivity), putting serious drag on an already strained healthcare system.
On average, medical expenditures for an American with diabetes is $16,752 per year, of which $9,601 is attributed to the disease.
Taking a broader view, the global cost of diabetes was estimated at a whopping $825 billion annually in 2016.
Livongo vs. ALRT
In fairness, an analyst would likely not make an apples-to-apples comparison between Livongo and ALR Technologies. Without question, Livongo is much larger, better capitalized, generating growing revenues and has a diverse product offering. Livongo is now a whole-health company, whereas ALRT is a comprehensive diabetes management company that includes medical treatment tools.
However, there is certainly a case to be made that ALRT is in a good position with its technology, as it is more treatment-centric for HCPs and insurers, and less of a consumer app than Livongo’s broad spectrum technology.
ALRT’s approach to delivering diabetes treatment has global application rather than just the U.S. consumer market. This will allow the company to grow expeditiously with the right worldwide strategic partners. According to ALRT management, their system is being evaluated and launched in several countries.
On the surface, there are similarities in the systems of Livongo and ALRT in that they both aim to improve patient outcomes. How they achieve this, though, is quite different.
As mentioned, Livongo is consumer-centric. Members receive Livongo-branded blood glucose meters as part of a kit that includes Livongo-branded test strips, lancets, lancing device and case. In other words, all the medical devices diabetics use regularly. Additional strips are provided at no cost when needed. The system is a closed, proprietary system that doesn’t operate on iOS or Android.
When members test their blood glucose, the Livongo meter automatically uploads the data to the user’s online account and makes a recommendation what to do at that moment. For instance, the “nudge” might indicate that the person’s blood glucose level is typically higher at that particular time of the day and ask if they would like to reach out to a “coach.” If the glucose level is out of range, the coach will provide advice about how to get back into range. Authorized parties (relative, friend, etc.) can also be sent text messages about readings to provide oversight and keep up to speed with glucose levels.
ALRT is HCP-centric, agnostic and proactive. It operates on iOS, Android, Windows and MacOS systems and includes a branded meter. Just like the Livongo system, ALRT’s technology collects all the blood glucose data, uploads it to a secure account and ships additional test strips as required. The data is aggregated to a Predictive A1C value for a comprehensive view of the treatment plan and patient adherence to the plan, with the data available (and messaged) to authorized people.
A tremendous difference between ALRT and Livongo is what happens next.
Livongo members need to take the initiative and reach out to a coach if readings are outside the pre-defined acceptable range. ALRT’s system initiates the dialogue with all authorized parties and also includes treatment adjustment suggestions for the HCP when appropriate.
By contacting the HCP, the ALRT system drills down on what is called “clinical inertia” and the problems associated with it. Clinical inertia is defined as a failure to intensify therapy appropriately when treatment goals have not been met. With diabetes, failure to respond to higher A1C (hemoglobin A1c – an average level of blood sugar, also called HbA1c) with treatment intensification puts the patient at risk for complications and diabetes-associated co-morbidities.
Common complications of diabetes include cardiovascular disease, nerve damage, renal problems and blindness, to name a few.
How Important is Clinical Inertia? Check This Out
A team at Cleveland Clinic examined historical electronic medical record data of more than 7,300 patients with type 2 diabetes and concluded that there is a pervasiveness of clinical inertia for the management of type 2 diabetes in real-world clinical practice settings.
The selected patients had an A1C value of > 7 percent on a stable regimen of two oral anti-diabetic agents for at least 6 months (from 2005-2016). The median time to treatment intensification after HbA1C was above target, was longer than one year. For patients with an A1C of > 9 percent, therapy was not intensified in 44 percent of patients.
According to lead study author Dr Kevin Pantalone of Cleveland Clinic’s Endocrinology & Metabolism Institute, “Short of a patient reporting non-adherence to their existing regimen of diabetes therapies, it is hard to imagine a reason why treatment intensification was not observed more frequently, when indicated, particularly in patients with an A1C > 9 percent. In general, if intensification does not occur, the A1C can be expected to stay the same or get worse, it is not magically going to get better.” (emphasis added)
In short, the ALRT system aggressively initiates intervention by notifying the HCP of out of range results and does not directly relying on the patient. In Canada, some pharmacists are reimbursed for titrating medications and the ALRT Diabetes Solution provides the notifications and audit trail needed for achieving best practice results. This market is an interesting one for ALRT and could have applications throughout the world where clinical inertia can be addressed at a local level.
ALRT Diabetes Solution Features
Predictive A1C is a patent-pending unique feature for monitoring the effectiveness of care plans. This technology utilizes data diagnostics to compare targeted A1C with indicated results. Weekly patient blood glucose data is evaluated, and HCPs are notified as needed for care plan review when blood glucose values exceed parameters set by the HCPs.
Predictive A1C is a feature of the ALRT Diabetes Solution designed to assist HCPs in addressing clinical inertia in diabetes care.
Insulin Dose Adjustment
Insulin Dose Adjustment is an FDA cleared feature that makes optimal insulin adjustment suggestions to HCPs based on dosing guidelines, when required.
ALRT’s system focuses on therapy optimization and insulin manufacturers could be interested in working with ALRT because of the impact this approach has on pharmaceutical sales volumes. The insulin market is dominated by three major players – Eli Lilly (NYSE: LLY), Sanofi (NASDAQ: SNY) and Novo Nordisk (NYSE: NVO). Being part of a complete care system that focuses on timely intensification could help a participating manufacturer increase its portion of the overall insulin market.
There are 10 more pharmaceutical companies of non-insulin diabetes therapies that also may be interested in working with ALRT to expand use of this functionality.
Leveraging Clinical Data
While remaining complaint with all HIPAA guidelines, ALRT is also in the clinical data business to create a new standard of care for diabetes and ultimately other chronic diseases. The data collection is valuable to payers when addressing a significant problem, patient non-adherence. Data-driven best practices are key to containing exploding complication rates and co-morbidity costs.
A payer (government-sponsored medical care, private insurance company, employer-paid self-insured plan, etc.) is incentivized to use the ALRT system because they can track patient adherence to best practices by both the HCPs and patients.
Livongo does not provide the data analysis functionality that ALRT does, which inefficiently puts the burden on HCPs to analyze.
According to ALRT, it expects to bring its product to market at a substantial discount (>50%) compared to Livongo. With all the additional medical treatment features, clinical data, and qualities that provide meaningful value to payers, it’s hard to believe that Livongo didn’t recognize ALR Technologies as a competitor in its primary field – diabetes – because it certainly looks like it could be.
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