Prospectus Summary
PROSPECTUS SUMMARY This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “Livongo,” “the company,” “we,” “us,” and “our” in this prospectus refer to Livongo Health, Inc. and its consolidated subsidiaries.LIVONGO HEALTH, INC.
Overview
Our mission is to empower people with chronic conditions to live better and healthier lives. The advancement of technology and data science has transformed nearly every industry except healthcare to create new, consumer-first experiences that are both personalized and empowering. Livongo is pioneering a new category in healthcare, called Applied Health Signals, which is transforming the management of chronic conditions.
In 2014, 147 million adults in the United States had a chronic condition and over 40% had two or more chronic conditions. However, the current U.S. healthcare system is not designed to continually care for people with chronic conditions. People are left to manage these conditions on their own with limited guidance. While new digital health devices may assist with tracking and gathering data on their condition, they fail to provide actionable feedback. As a result of receiving ineffective care, many people are unhappy, feel alone and disconnected, and are not getting healthier, resulting in higher costs for employers, people with chronic conditions, and the people who pay for their care.
Enter Livongo. We started with diabetes, which impacts more than 30 million Americans and hundreds of millions of people worldwide. Many people with diabetes are asked to check their blood glucose regularly, and while they gather this information, they don’t have any context to interpret the data. They often receive minimal guidance, counseling, or affirmation of how they are doing. This is just one part of a process that makes having diabetes confusing, complex, and costly. With Livongo for Diabetes, the experience is wholly different. Members 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 (24x7x365). When they track their blood glucose, they receive a highly personalized message about what to do that very moment, which we call a Health Nudge. Today, we have created a unified platform that provides smart, cellular-connected devices, supplies, informed coaching, data science-enabled insights and facilitates access to medications to help our members live better and healthier lives.
Our platform, which leverages data science and technology, creates a new kind of personalized experience for people with chronic conditions (our members). It is powered by a proprietary engine (we call it AI+AI), which Aggregates data from multiple sources, Interprets that data to separate signal from noise, Applies it at just the right time on the right surface to our members and Iterates to build improvements based on what we learn. This empowers our members to make sustainable behavior changes that lead to better outcomes and lower costs. The Livongo experience makes it easier for our members to stay healthy. We fit into the way our members live, put them in control of managing their condition, and give them an experience that they don’t just like, but love (evidenced by our average member Net Promoter Score, or NPS, of +64). An experience our members love, improved health results that are measurable and sustainable, and lower costs. That’s revolutionary in healthcare.
While Livongo began with a focus on diabetes, our vision was always about the health of the whole person. We knew that the tools we were developing in our early days would be applicable across many chronic conditions, and that our members and clients wanted a seamless, easy-to-use experience, whether they had one or multiple chronic conditions. We recently introduced additional solutions: Livongo for Hypertension, Livongo for Prediabetes and Weight Management, and Livongo for Behavioral Health by myStrength. We create consumer-first experiences with high member satisfaction, measurable, sustainable health outcomes, and more cost-effective care for our members and our clients.
Our business is based on a recurring revenue model. This results in a highly predictable revenue stream, which helps us plan for growth and scale. Our clients are employers, health plans, government entities, and labor unions, which understand the importance of offering an effective platform for consistent management of chronic conditions. We have developed a go-to-market approach that allows us to roll out our platform to thousands of members in a short time and to launch multiple clients quickly. Our new client subscriptions typically have a term of one to three years, and we have aligned our incentives with those of our clients by only charging on a per participant per month basis. We have also aligned the incentives of each stakeholder in the member’s health journey by designing our solutions with a clear path for clinical and financial outcomes. As of March 31, 2019, we had 679 clients and over 164,000 Livongo for Diabetes members. In addition, we have a growing number of members enrolled in our hypertension, prediabetes and weight management, and behavioral health solutions.
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.
Chronic Conditions Are on the Rise
The prevalence of chronic conditions has reached immense proportions and is expected to continue rapidly growing. As of 2014, approximately 60% of all U.S. adults lived with one or more chronic conditions, and over 40% had two or more chronic conditions. It is prohibitively expensive in the current U.S. healthcare system to manage patients with chronic and behavioral health conditions, which in 2014 represented 90% of U.S. healthcare spend. In terms of public insurance, management of chronic conditions comprises an even larger proportion of spending: the National Association of Chronic Disease Directors estimates this cost at approximately $0.96 per dollar for Medicare and $0.83 per dollar for Medicaid. According to a 2018 Milken Institute study, chronic conditions collectively cost the U.S. economy approximately $1.1 trillion in direct healthcare costs, with an additional $2.6 trillion lost from reduced economic productivity in the same year.
There is a myth in healthcare that more is better—more devices, more applications, more medications, more physician visits, and more health data. Despite the vast increase in the amount of healthcare data and number of devices, applications, and medications that our system has delivered in recent decades, the epidemic of chronic conditions has only expanded. This is because most existing “solutions” are designed to provide people with generalized information and treatments rather than providing tailored insights to fundamentally empower them to live better and healthier lives.
People with Chronic Conditions Are Unhappy with the Current System
People living with chronic conditions are faced with a myriad of challenges. The current U.S. healthcare system is confusing, complex, and costly. It begins with their diagnoses, as they find themselves feeling overwhelmed. Managing their condition is not any easier, as they face a system not designed for chronic conditions. With care given primarily at hospitals or clinics, the existing healthcare service model does not accommodate people who live with their condition 24x7x365. Rather than intermittent and expensive visits to their doctor or the hospital, these individuals can benefit from small, readily accessible interventions. Additionally, people living with a chronic condition want a way to streamline their interactions so that they can focus their time and energy on the rest of their lives, instead of on managing their care.
Financial Stakeholders Are Unhappy with the Current System
According to the Center for Disease Control, or CDC, close to $3.5 trillion was spent on U.S. healthcare in 2017, an increase of approximately $2 trillion from the year 2000. In 2014, approximately 90% of United States healthcare spend was attributable to people with chronic and behavioral health conditions. Diabetes alone is a massive problem, and in the United States, over 30 million people are living with diabetes. The cost of diabetes to the U.S. healthcare system, including direct costs to employers, exceeded $237 billion in 2017. These increasing costs have not translated to better outcomes for employers or payors. Additionally, sufficient financial incentives are not in place for physicians or health systems to spend the necessary time monitoring and managing patients with chronic conditions.
We Focus on Personal Empowerment
We are witnessing a transformational shift in consumers taking control of their own health as they have done in almost every other aspect of their lives. In industry after industry, new disruptors such as Amazon, Netflix, Airbnb, and Uber have used technology to transform the consumer experience. These disruptors deliver services that offer robust data and device platforms working together to deliver satisfying technology experiences—where the consumer is at the center and in control. These experiences are personalized, improve with feedback, and lead to vastly superior consumer experiences. People love the experiences that these companies create. They are empowering experiences, putting the consumer in charge, and enabling users to see and feel value.
We believe this means healthcare is finally ripe for a technology-driven, consumer-first transformation. We have been able to make a sophisticated technology easy to use for our member base, which averages 53 years of age, through a simple and intuitive user experience. While many organizations in healthcare are trying to “engage” patients, we are fundamentally different in that we “empower” our members with information, access, and tools that they find useful to stay healthy. Feedback powered by our AI+AI engine delivers tailored Health Nudges that make it easier for people to take actions that allow them to stay healthy. Health Nudges are small, readily accessible interventions, which can include hundreds of different behavior or lifestyle adjustments that can alter clinical outcomes for people with a chronic condition, such as diet advice, medication information, or suggestions for increases in physical activity. People simply want to live their lives, not be constantly reminded they are living with a condition. We believe our solution fits into the daily routine of our members and allows them to continue what they are already doing on a regular basis (such as checking their blood glucose, blood pressure or weight). By using our engine to “empower” people, which implies action, rather than “engage” people, which implies participation, we believe it becomes much easier to improve their health on their own terms, creating an environment for positive, sustainable behavior change.
We Pioneered the Category of Applied Health Signals to Empower Our Members
We are pioneering a new category in healthcare that sits at the intersection of data science, behavior enablement, and clinical impact with the technologies and capabilities to make the experience simpler and easier for people living with chronic conditions. With Applied Health Signals, we ensure that every time a member contributes information, they receive tailored, actionable guidance in return. For example, when a member with diabetes checks their blood glucose via our cellular-connected blood glucose meter, the member receives a Health Nudge that empowers that member to manage their condition right at the time of natural engagement.
This also creates a feedback loop in which we can improve each Health Nudge, based on real member data, for the benefit of our entire member base.
Investment in Actionable Data Science Creates Sustainable Competitive Advantage: Our AI+AI Engine
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.
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.
We Address the Whole Person
We started with diabetes, one of the fastest-growing chronic conditions in the world, yet also one that is very manageable, provided that people have the right tools and continued motivation to manage it well. Diabetes is a chronic condition with the potential for very costly acute episodes requiring attention if not managed correctly day-to-day, and very costly longer-term debilitating effects, such as heart attacks and strokes, or kidney and eye disease. Given the significant amount of overlap across chronic conditions, we realized that in order to help people be as healthy and happy as possible and to achieve cost savings critically important to our clients, we need to address all of the chronic conditions a person is dealing with, such as high blood pressure (according to the CDC, in 2014, 70% of U.S. adults with diabetes also had high blood pressure). We believe that we have the ability to leverage our technology across multiple chronic conditions to truly focus on the whole person.
Our Success Is Defined by Three Objectives
We believe our success depends on achieving three objectives: our members have to love the experience, our products have to produce measurable and sustainable clinical outcomes, and we have to help our clients manage their costs. We deliver results that matter:
We Have Built an Efficient and Innovative Go-To-Market Model
As of March 31, 2019, we had 679 clients and over 164,000 Livongo for Diabetes members. In addition, we have a growing number of members enrolled in our hypertension, prediabetes and weight management, and behavioral health solutions. We have a highly efficient go-to-market model with a focus on employers, payors, health plans, government entities, and labor unions. Our solutions appeal to a broad cross-section of sectors, and our current clients represent over 20% of the 2018 Fortune 500 Companies. Our representative clients that generated more than $100,000 in revenue in 2018 include AECOM Technology Corporation, American Foreign Service Protective Association, the Board of Pensions of Presbyterian Church (U.S.A.), Citigroup Inc., Compass Group USA, Cox Enterprises, Inc., Dean Foods Company, Delta Air Lines, Inc., Fortune Brands Home & Security, Inc., the Harris Health System, Hyatt Hotels Corporation, Thomas Jefferson University Hospitals Inc., Lowe’s Companies, Inc., Merck & Co., Inc., Microsoft Corporation, Michigan State University, PepsiCo, Inc., SAP SE, Target Corporation, UMass Memorial Health Care, US Foods Holding Corp, and WEA Insurance Corporation. Our clients also include five of the seven largest health plans and two leading pharmacy benefit managers. We sell to our clients through our direct sales force and with our channel partners.
Our Market Opportunity
We are focused on changing the way chronic conditions are treated. As of 2014, 147 million adults in the United States had a chronic condition and over 40% had two or more chronic conditions. Our initial solution is focused on, and the vast majority of our historical sales have come from, the management of diabetes, one of the fastest-growing chronic conditions in the world. Over 30 million Americans are living with diabetes. The American Diabetes Association estimated that costs associated with diabetes, including reduced productivity, were $327 billion in 2017 in the United States alone. We believe we have demonstrated that diabetes can be managed in a far more effective and cost-efficient way while empowering people to live better, healthier lives. Based on our estimates of the percentage of people receiving healthcare coverage from their employer, the prevalence of diabetes within this subgroup, and our average solution costs, we believe the immediately addressable market size for employees of self- and fully-insured employers with diabetes in the United States is approximately $12.3 billion. Over the longer term we see an additional $15.9 billion opportunity for adults with diabetes receiving healthcare coverage from Medicare or Medicaid. These estimates assume that the prevalence of diabetes between fully-insured and self-insured employer populations is the same.
Other chronic conditions also impose a significant financial cost on the healthcare system and broader economy. According to a 2018 Milken Institute study, chronic conditions collectively cost the U.S. economy $3.7 trillion. Approximately $2.6 trillion of this amount represents lost economic productivity in the same year. We offer a solution to address hypertension, or high blood pressure, which currently impacts approximately 76.6 million U.S. adults. Based on our estimates of the prevalence of hypertension among adults in the United States, the percentage of the population receiving healthcare coverage from employers, Medicare or Medicaid, and our average solutions costs, excluding people who also have diabetes, we believe this represents a $18.5 billion opportunity. As we continue expanding into other chronic conditions with our Livongo for Prediabetes and Weight Management, Livongo for Behavioral Health by myStrength, and other future products, we believe we will be able to serve millions of additional potential members. To provide consistent and comparable data across both chronic conditions and population groups, the estimates of our market opportunity for adults with diabetes or hypertension rely on prevalence rates and population estimates of 2015 due to limitations on the availability of more recent data for all measures. If any of these estimates have significantly changed, our calculations would be correspondingly affected either positively or negatively. Additionally, using the annualized PPPM for our solutions to determine the potential revenue we could realize if we fully penetrated these markets assumes that we will not change the pricing for our solutions. These estimates also assume that prevalence rates do not vary by geography and assume that the prevalence of diabetes between fully-insured and self-insured employer populations is the same.
The Livongo Solution
Our goal is to eliminate the confusion, complexity, and excessive costs prevalent today in the healthcare industry. Our team of data scientists aggregates health data and information to create actionable, personalized, and timely health recommendations, and we deliver them when people need it most. We empower our members and improve outcomes by leveraging technology-driven solutions, with a human touch.
We offer an integrated suite of solutions to promote sustainable health behavior change based on easy, real-time data capture supported by intuitive devices; insights driven by data science; and a human touch when the member needs it. Our suite of solutions shares a common product architecture and data structure, and is delivered through a common user interface, multi-channel applications for management, and a cross-condition integrated coaching model. Each solution can be used alone or in conjunction with others and enables members to share results with family, friends, or healthcare providers.
We currently offer the following solutions:
Our Competitive Advantage
Our competitive success is driven by our ability to provide superior solutions and a strong value proposition for all stakeholders in the member’s health journey. We compete successfully for the following reasons:
We Provide Meaningful Value to Our Members
We put members at the center of our design and have redefined the entire experience, reducing the confusion, complexity, and cost of having a chronic condition and ensuring members are never alone in their experience. Members love the experience we create, we make our members healthier, and we save our members money. Given the significant amount of overlap across chronic conditions, we realized that in order to help people be as healthy and happy as possible, and to achieve cost savings critically important to our clients, we need to address all of the chronic conditions a person is dealing with.
We Provide Measurable Value to Our Clients
Our clients want their employees and dependents to be healthy. They want programs that people will opt-in to, in significant numbers, that they will like and not complain to the benefits or support team about, and that are budget neutral or will save them money. We address each of their concerns by providing client and member satisfaction, high quality care for members, strong cost management, savings, and return on investment, or ROI, and a source of innovation and increased revenue.