Wrong, Cramer! Livongo Rival Omada Health’s Physera Buy Aims At $200B Opportunity

The Covid-19 pandemic has vastly expanded the number of employees who work from home (WFH). Since health care providers are so focused on treating Covid-19 patients, employees with other ailments need alternatives to in-person doctor visits.

Digital health care providers have stepped into the breach. Among the most successful is Livongo Health, a digital service to help people with diabetes and hypertension, which has enjoyed a 174% pop in its shares since going public in July 2019 as revenues in the latest quarter rose 115%.

Jim Cramer claims that Livongo has no competition, according to TheStreet.com. But I beg to differ.

The size of the pie — the digital health sector overall is expected to be worth more than $500 billion by 2025, according to CNBC — is a powerful lure for large and small companies alike.

One privately-held rival, San Francisco-based Omada Health, recently chose to expand from digital diabetes and mental health services to a surprising new health care vertical market — digital physical therapy.

Livongo — whose shares have fallen 10% from their all time high — is planning to report results for its second quarter in early August. I would wait for that report before deciding whether to buy the stock.

(I have no financial interest in the securities mentioned in this post).

What Is Livongo And Why Is Cramer Bullish On It?

Livongo’s mobile app collects health data — blood pressure, blood glucose levels, weight, insurance claims, and food and beverage logs — from patients with diabetes. The app analyzes the data, recommends ways they can improve, and refers them to virtual coaches.

Livongo is free for patients — who receive meters, test strips, and lancets (blood-sampling devices) that are shipped to them at no charge. Livongo makes money by charging the organizations — such as pharmacy benefit managers, employers, health plans, government entities, and labor unions — that track the patients’ diabetes status. Livongo cuts annual diabetes patient health care costs by at least $1,908 for its clients, according to SeekingAlpha.

Livongo’s most recent results were strong. In the first quarter of 2020, Livongo’s paid client count rose 44% from the previous quarter to 1,252; revenues jumped 115% from the year before to about $69 million; and the number of patients using its Livongo for Diabetes platform more than doubled to 328,000, according to its first quarter 2020 financial report.

Cramer is bullish on the company. As he said, Livongo has “come of age during the pandemic. On July 7, Livongo pre-announced better than expected earnings [which exceeded its revenue expectations for the second quarter of 2020 and raised its original guidance by 15%].”

Cramer thinks of Livongo as a digital health advisor. As he said, “I consider Livongo a sophisticated, personal life coach for those with diabetes and with hypertension. They call their wonder platform Applied Health Signals but I consider it a service that manages lifetime illnesses for patients, especially illnesses that we now regard as preconditions to Covid-19 complications,” according to TheStreet.com.

Privately Held Omada Health Is Challenging Livongo

Livongo certainly faces competition.

One such rival is Omada Health which has raised over $250 million, “making it one of the most highly valued digital health companies. When it raised its previous round in 2019, the company was valued at $600 million. It currently competes with Livongo, which went public in 2019 and is reporting major growth since the beginning of the pandemic,” reported CNBC.

The company has been around since 2011, when CEO, Sean Duffy, a Harvard MD/MBA program dropout, started the platform that coaches people with diabetes 2, hypertension, anxiety, and depression between doctor visits.

Last year, the company had raised $200 million and had a significant number of users and payers. As he told me in a July 2019 interview, the company then served over 250,000 employees of client companies. Omada contracted with 600 employers and health plans in 50 states including Cigna
, Kaiser Permanente, Health Care Services Corporation (HCSC), and Blue Cross Blue Shield Minnesota.

By July 2020, Omada had more than doubled the number of employer customers — to 1,200, Duffy told me in a July 8 interview; broadened its service offerings; and boosted its capital base by over 25%. CNBC reported that the company raised $57 million in May 2020 — using $30 million of the funds to acquire Physera, which specializes in virtual physical therapy.

Now Omada offers a digital care and coaching program for managing chronic disease, with a specific focus on Type 2 diabetes management, hypertension, behavioral health and following the acquisition of Physera, musculoskeletal (MSK) issues, according to Fierce Healthcare.

Why Omada Branched Out Into Physical Therapy

Physera offers access to physical therapists and digital coaching. It offers video access to a nationwide network of licensed physical therapists for diagnosis and treatment and “in-application animations, voice prompts, and digital exercise therapy to help patients reduce MSKl pain,” Fierce Healthcare reported.

Omada added physical therapy to its suite of services because customers asked for it and it’s a big market. As Duffy told me, “This is a fascinating moment for health care it is moving to the cloud. Covid-19 has created the need for an option B for employee health care delivery based on outcomes and customer experience. There is no going back. We have accelerated the future and are expanding our care capability. Customers told us there is an MSK care gap [in the services we offer].”

Omada chose not to partner with Hinge Health — which has raised $126 million — and instead acquired Physera — which raised $10.8 million. The reason seems in part that the two companies have a shared vision and strategy.

As Duffy explained, “Omada and Physera have similar approaches to product development, investing in clinical expertise and building evidence-based programs, going to market — [we’ve established] similar channel partnerships and billing infrastructure, [and we share] an unshakable belief that even when care moves online, it must retain its human face and human touch.”

Omada previously served very large markets and MSK services represent a much bigger opportunity. As Duffy said, “It is an enormous market — $14 billion for mental health $200 billion MSK — which helps avoid major surgery in 20% to 30% of the cases. We offer same day or next day appointments. 80% of the patients complete the course in 65 days versus waiting one to two months. Physera enables the course of therapy efficiently and connecting with physical therapists.”

Omada says that customers choose its services because they are integrated — rather than solving just one problem. “We support customer and participants holistically. We are integrated instead of a point solution. We asked customers and they said they wanted integration of services to treat hypertension, mental health, and MSK. It is offered to all employees. It is an integrated, thoughtful bundle of treatment for type 2 diabetes, depression, and MSK,” Duffy argued.

Physera also offers payers and patients compelling health and economic benefits. As Daniel Rubinstein, Physera CEO, said in a July 8 interview, “Physical therapy is reimbursed when you show up. It can’t be self-administered and it only works if the exercise is done diligently. We provide remote monitoring and help that’s low cost or free to the patient. The benefit to the employer is that we prevent surgery and opioid prescriptions.”

Rubinstein saw a surge in demand as the pandemic grew but decided Physera could reach more patients by partnering with Omada. As he told Fierce Healthcare, “People are canceling their appointments and clinics aren’t seeing patients, and yet the need still exists for them to be treated. [I was] starting to hear from outside investors before making the decision to sell. We decided [selling ourselves] was the right move when we asked the question of how can we reach the most patients.”

Buy Livongo?

Though the stock is down 10% from its high, I think the competition in this large market could make it hard for Livongo to exceed its raised expectations when it reports second quarter results. No rush to buy Livongo stock.

— to www.forbes.com

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