What happens when the wheels fall off?
Digital health and by extension digital diabetes remains a hot topic. This is one reason we’re headed back to CES at the start of the new year and why this year’s edition of the J P Morgan Healthcare conference the following week should be more interesting than usual. Deals are being made, companies are accessing the capital markets and by the look of things this trend is far from over. Everyone and we do mean everyone is jumping on the digital health/digital diabetes bandwagon.
Livongo may have been the first company to go public but they certainly won’t be the last. Now that Sanofi has stepped away from Onduo it’s possible Verily will take Onduo public. Waiting in the wings are companies like Omada Health and OneDrop. The fact is just about every diabetes company has some sort of digital solution. While each solution goes about solving the problem in a slightly different way, they all do basically the same thing in very similar fashion.
Driving the digital bus are the claims being made by these digital companies that they are saving employers money. We have read many studies, claims analysis, etc. all of which show that not only are patients achieving better outcomes, but employers are saving money. Livongo claims they are saving employers around $2,000 per patient while Omada Health recently published a claims analysis stating they save employers nearly $1,800.
Now we won’t say that these studies use fuzzy math to reach their conclusions let’s just say the math is interesting. We are by no means claiming these companies are intentionally deceiving anyone however we are very familiar with how studies are constructed, and the design of a study can yield the desired outcome before the study is even concluded. Keep in mind that these studies are not like clinical trials rather statistical analysis that can be manipulated by which data sets are included or excluded.
Be that as it may there is another issue that goes largely unnoticed or should we say unspoken about, how or whether these digital companies are making money. Now that Livongo is publicly traded we know that for all their bluster the only thing the company has been really good at is losing money. We also know that their method for calculating revenue is interesting. Again we aren’t saying that Livongo is doing anything illegal, but they are very extraordinarily liberal with how they report revenue.
The other issue here is the very short history with digital health and digital diabetes. Almost every study or analysis we have seen has taken place over the last two years. Again these are not clinical trials which can run for several years and go through several stages before reaching their conclusions. The studies and analysis by the digital companies imply sustained long-term results based on short term data sets. Sure it’s great to see short term improvements in outcomes but for a chronic disease like diabetes it’s critical that these results are sustainable over the long term.
Folks thanks to our age and many gray hairs we have been down this road before with disease management companies. Like the digital companies these companies showed very promising results over the short-term results that unfortunately were not sustainable. Like the digital diabetes companies these disease management companies had some interesting accounting methods for reporting revenue. The fact is and no one wants to admit this likely because its true but digital diabetes is just disease management using new technology.
But let’s say we are all wrong here and that digital diabetes isn’t just disease management in a shiny new box. That these short-term results are sustainable and that these revenue “projections” turn into real money. With so many companies all battling for the same client what happens next? Competition is what happens and that will drive prices down which makes making money even more difficult. It won’t be long before one of these companies perhaps Onduo will be the first to go 100% at risk only getting paid for producing verifiable improvement in outcomes.
Competition isn’t the only problem coming, new technology will make these programs offered by digital diabetes companies obsolete and unneeded. Let’s start with the low hanging fruit and increasing usage of GLP-1’s. Besides the current crop of once weekly options we now have an oral version and soon the Intarcia exenatide micropump will be here. GLP-1 therapy is very compelling offering good control few adverse events and are very patient friendly in terms of compliance. The Intracia micropump all but eliminates any compliance concerns as once its implanted compliance is guaranteed.
Next we have all the new hybrid closed loop insulin delivery systems. The Control IQ is just the first of what will be a major advancement in insulin pump therapy. The insulin dosing algorithms used with these systems continue to improve and it won’t be long before an insulin pump patient can forget about counting carbs. Put simply these systems continue to get smarter doing more and more of the heavy lifting for the patient.
Then we have the coming of Tyler which like the hybrid closed insulin delivery systems will take away much of the heavy lifting performed by patients following multiple daily injection (MDI) therapy. We’ve said it before and will say it again because its true in five years perhaps sooner insulin therapy whether it’s delivered by an insulin pump or connected insulin pen will be easier than ever.
With each of these advancements in technology it eliminates patients who need coaching. The technology will do what the coach does. That leaves a large but tough of group of patients to connect with, patients either on orals alone or orals plus insulin. So far about the only company in the digital space that has targeted this tough group is Onduo. A job which really boils down to one simple but undeniable fact, getting these patients to take their meds as prescribed.
Making this job even harder is that these patients are the least engaged with their diabetes management. They as we have said for years want to live their lives with diabetes and not for their diabetes. Yes, they do respond to coaching over the short term however we have yet to find any program which converts these short-term results into long term improvements. As we noted previously this is why attrition rates are a critical metric to pay close attention to. Not to pick on Livongo but since they are now a publicly traded company, they are one of the few to report attrition rates which as we noted with their latest offering is nearly 25%.
Now we don’t know what all this adds up to for the many believers in digital diabetes but what it adds up to for us is that the wheels are going to come off the digital bus. This is exactly what happened when disease management was all the rage and what will happen to digital diabetes. No this won’t happen overnight, but it will happen. Hence the reason why a company like Livongo so desperately wants to bet on the greater fool theory and get acquired. An event they hope happens before the wheels start coming off.
Folks we are not trying to be Debbie downer here as there is some value in digital diabetes. However that value is not in the stratosphere where it is today. Digital diabetes to us is just another tool in the toolbox. Just one more toy in the toy chest. So when it comes to digital diabetes we would proceed with extreme caution as there are just too many warning signs.