Memorandum

Livongo acquires Retrofit, a weight management and diabetes prevention startup; begins offering “Livongo DPP powered by Retrofit” – April 17, 2018

Executive Highlights

  • Livongo announced this morning that it has acquired Retrofit, a Chicago-based weight management and diabetes prevention startup. Retrofit’s CDC-recognized digital DPP will immediately be available, marketed as “Livongo DPP powered by Retrofit.” Retrofit’s weight loss programs consist of 12 months of one-on-one video and text coaching interactions, as well as access to connected activity trackers, wireless scales, and a meal photo-logging app.

  • Retrofit is covered by some big names: Amazon, AMA, American Red Cross, Boeing, CVS/Caremark, Exxon Mobil, Tesla, Visa, Toyota, Google, Ford, Facebook, and more. It has historically been at a premium direct-to-consumer price point: $248-$298 per month for its “Expert 15” and “Expert 10” programs, guaranteeing 15% or 10% weight loss at 12 months, respectively. We assume pricing will change under Livongo.

  • Retrofit CEO Ms. Mary Pigatti joins Livongo’s team and will oversee the Retrofit business. She is formerly VP of J&J’s Wellness and Prevention subsidiary. Livongo also absorbs Retrofit’s 79 other employees, bringing the combined company’s total personnel count to over 300.

  • On average, participants in Retrofit’s studies lost between 6% and 8% of their body weight, depending on the study length. The company had raised nearly $16 million and boasts a respected advisory board including CU Denver’s Dr. Holly Wyatt and Northwestern’s Dr. Robert Kushner. We last covered Retrofit in 2014.

  • With this acquisition, Livongo now offers diabetes management, diabetes prevention/weight loss, and hypertension. As a reminder, it also announced a massive $105 million Series E round last week. Wow! We are impressed with the ambition of this team, and believe that there are many pros associated with horizontal expansion – that said, this is also becoming quite a bit to manage!

This morning, Livongo announced that it has acquired Retrofit, a Chicago-based company offering weight management and disease-prevention programs (including a CDC-recognized DPP). Financial terms for the transaction were not disclosed, but we’d guess it was for <$20 million. This is an ambitious and smart strategic move from Livongo, who now offers diabetes management and prevention, alongside a hypertension offering. This follow last week’s major news of an impressive $105 million in Series E financing. Talk about a busy month!

Effective immediately, Livongo will begin offering Retrofit’s 52-week-long diabetes prevention program (branded as “Livongo DPP powered by Retrofit”), complementing its existing diabetes and hypertension offerings. Retrofit’s programs come with connected activity trackers, wireless scales, and personal coaching from the likes of registered dietitians, exercise physiologists, and behavior coaches. Coaching interactions happen one-on-one through two-to-three video conferences per month, 24/7 messaging on a dashboard that also contains data related to food, activity, sleep, and weight, and weekly classes on topics from nutrition, to exercise and mindset. Enrollees are also given access to the Retrofit Me Mobile app, through which they photo-log food consumption.

Prior to its acquisition, Retrofit had a premium direct-to-consumer pricing model that was tied to outcomes: “Expert 15” cost $298 per month (~$3,600 for the full program) and “Expert 10” cost $248 per month (~$3,000 for the full program) – if customers didn’t lose and keep off 15% or 10% of body weight, depending on the program, then they got a second year for free! We love this risk sharing, though the out-of-pocket expense is quite steep. Retrofit also markets its program to a number of large employers and payers.

Retrofit CEO Ms. Mary Pigatti will join Livongo and continue to oversee the Retrofit business. Ms. Pigatti joined Retrofit in late 2014 (the last time we covered the company) after serving as Senior VP of Limeade (a tech company focused on workplace culture), as well as VP/GM of J&J’s Wellness and Prevention subsidiary (Wellness + Prevention Inc.). Her expertise and connections seem to align very well with Livongo’s business model and mission.

According to the press release, Livongo now has >300 employees after adding Retrofit’s 80 to its team. This represents a sizable 36%+ uptick from >220 previously on the Livongo staff. In addition to grandfathered-in customers, a CDC-recognized DPP, Livongo also expects that the acquisition will enhance its data science capabilities (a previously-stated priority) and boost expertise in holistic weight management.

Retrofit hasn’t published any RCTs to our knowledge, but existing retrospective data reflect solid engagement and outcomes. The website notes that 96% of participants complete the program, 88% lose weight, and 78% keep the weight off at 12 months. Retrofit does boast a respected advisory board including CU Denver’s Dr. Holly Wyatt and Northwestern’s Dr. Robert Kushner.  See more on outcomes and publications below.

With this acquisition, Livongo takes a bigger leap into more holistic chronic disease management, ranging from prevention to management – we love this ambition to touch all phases of diabetes, especially in the heavily underinvested prevention area. As we noted last week, Livongo also launched a hypertension service in January, and plans to do the same with dyslipidemia by the end of 2018. A one-stop-shop for chronic disease care makes a lot of sense from the payer/employer perspective, especially if the programs can retain the customer satisfaction Livongo has seen with its Diabetes program. The horizontal integration could reduce administrative hassle, lead to less fragmented care, address co-morbidities together, and lower overall costs – and adding diabetes prevention to the mix could make the package all the more appealing.

Though this acquisition could turn into a huge outcomes driver and revenue source for Livongo, the big question relates to feasibility – how difficult will it be to develop and maintain robust programs for diabetes, hypertension, dyslipidemia, and prevention, all the while scaling the user base and navigating shifting reimbursement landscapes? One thing’s for certain: We are glad to see more companies investing in scaling DPP, which according to Michigan’s Dr. William Herman, has only been completed by one in 10,000 Americans with prediabetes.

Livongo (with Retrofit) Strengths, Weaknesses, Opportunities, Threats (SWOT) Analysis

Strengths

  • Incredible fundraising success, with nearly $250 million raised to date

  • Established diabetes management program, with hypertension and DPP newly added, and dyslipidemia slated for launch by end of 2018

  • Strong and plentiful relationships in the B2B2C category (works with >350 of the country’s largest self-insured employers and the two largest PBMs), and also a direct-to-consumer offering

  • Financial support from impressive tech investors, as well as pharma (Merck GHI)

  • Great user satisfaction (net promoter score of 64)

  • Portfolio of connected devices: BGM, blood pressure cuff, and wireless scale

  • Stellar clinical Advisory Board including Drs. Mark McClellan, Anne Peters, and William Polonsky

Weaknesses

  • Not much data published: one oral and one poster at ADA 2017, with a subsequent publication in JMIR

  • No randomized controlled trials

  • Retrofit model is very high touch and premium – how will it fit in with Livongo?

  • Livongo for Diabetes program requires switching to Livongo cellular meter, or using soon-to-launch (slightly clunky) Diabeto attachment. Will most people do this?

  • Employer channel focus means gradual scaling of the business

  • At the moment, most of Livongo’s behavioral “nudges” are reactive, rather than preventative of out-of-range blood sugar readings

Opportunities

  • Data and revenue from >75,000 members; Likely to surpass 100,000 members soon

  • $60 million in expected 2018 revenue, could double in 2019

  • Huge target market (type 2 and prediabetes exceeds 110 million people in the US alone) and potential cost savings

  • Positioning as a one-stop-shop for multiple chronic conditions management, weight management, and diabetes prevention is compelling and could lead to cost-saving and care-enhancing synergies

  • Diabeto integration (set to roll out next quarter) will provide Bluetooth connectivity to over 40 non-connected BGMs, expanding market opportunity to those who don’t want to switch to Livongo’s meter

Threats/Questions

  • Declining pricing in BGM field overall, even if Livongo offers added value

  • How will Livongo balance de-siloing chronic care but also keep up with the demands of maintaining programs for various disease states? 

  • Competitors, such as Omada/Noom in prevention, Virta in “reversal,” and larger players such as Medtronic, Onduo, and Roche/mySugr in disease prevention and management

  • How scalable is Livongo’s current model of coaching, even if it is mixed in with automated messaging?

  • How ready are employers and payers to pay for prevention?

  • Will digital DPP secure Medicare coverage?

  • Cheaper, smaller, more usable CGMs – Livongo’s diabetes service currently relies on cellular-enabled BGM

  • Glycemic-dependent type 2 drugs being investigated in prediabetes and going generic

More on Retrofit

  • Nearly a year ago, Retrofit published a study in JMIR with authors from University of Colorado, Northwestern University, and Seattle’s Swedish Medical Center. In the retrospective analysis (n=2,113) of a six-month version of the intervention, participants lost a mean ~6% of their baseline weight, with ~52% losing at least 5% of body weight. Though it was just a six-month program (compare to the one-year DPP), only ~18% (388/2,113) of participants lost ≥10% of their body weight. The analysis pulled from six Retrofit programs: Expert 10 (12 months), Expert 15 (12 months), Advisor Weight-Loss program (12 months), Jump Start Program (three months), and Sustain Program (12 months). We’re not sure how many were enrolled in the Expert programs, but considering that the first six months are focused on weight loss and the latter six months on maintenance, this study does not indicate that most people reached their 10% and 15% weight loss goals at 12 months – meaning Retrofit would’ve had to offer another year of membership for free.

  • Retrofit is covered by a slew of prominent organizations and payers, including: Amazon, American Medical Association, American Red Cross, Boeing, Cambia, CVS/Caremark, Exxon Mobil, Yum! Brands, Tesla, Visa, Toyota, Google, Ford, Facebook, and the list goes on. Livongo already works with >350 of the country’s largest self-insured employers, but this added breadth will be an asset.

  • Prior to its acquisition, Retrofit had raised just under $16 million, according to Crunchbase. $2.7 million came in a Venture Round in March 2012, $8 million came in a Series A later that year, and an additional $5 million came in Series B financing in 2013 led by Cambia Health Solutions (who notably just established a collaboration with Livongo last week and runs Livongo Investor Echo Health Ventures).

  • Retrofit boasts a very high-powered and well-respected advisory board. Perhaps most well-known is Dr. Holly Wyatt, who has served as National Program Director for the Centers for Obesity Research and Education. Ms. Dawn Jackson Blatner (registered dietitian and author of The Flexitarian Diet), Dr. James Hill (Director, Center for Human Nutrition; On the expert panel that developed the NIH guidelines for management of overweight and obesity), and Northwestern’s Dr. Robert Kushner also serve on the Board. Dr. Kushner’s contributions were critical to the development of Retrofit’s “proprietary lifestyle factor segmentation,” which helps tailor care and interventions to individuals’ needs.

Competitive Landscape

  • Livongo now offers both diabetes prevention and management, a major step forward and a move we hope to see more companies undertake. Historically, payment models have long been device-centric, rewarding companies financially for manufacturing great consumable products. However, as healthcare companies take on more patient care and share in cost savings, there will hopefully be more incentive to start thinking about secondary and tertiary prevention. Livongo now has the unique opportunity to approach payers and employers with diabetes management, hypertension management, and diabetes prevention. Perhaps they could propose tiers of payment, with greater financial incentives established for preventing progression to diabetes? Last October, One Drop’s “Revive” DPP received pending recognition from the CDC and was expected to launch in 1Q18 (the company tweeted in January that launch would be coming soon, but we haven’t heard anything since). Roche is the only company that comes to mind offering anything else close, as they have (from what we understand) piloted the Accu-Chek View prevention program and presented positive results at ATTD. Then again, on the diabetes management side to date, Roche’s model has been largely BGM- and pump-centric, though this seems to be shifting (at least in its corporate symposia).

  • Livongo joins 86 other organizations offering at-least-partially online DPPs that are recognized by CDC – only Arizona’s Cappa Health, Tennessee’s Hope 80 20, and Noom have achieved full recognition, while Canary Health, Omada Health, and others have received preliminary recognition. (Note: DPPs go from Pending to Preliminary to Full recognition upon achieving milestones; see pages 9-16 for more details.) Livongo also remains in a growing landscape of related diabetes care/coaching offerings – see below for a summary of some we’ve been following. We recognize all of these are not comparable!

    • Onduo (Verily/Sanofi): launched in February

    • mySugr Bundle (with Roche) – Launched in US as DTC, available via payers in Germany. See ATTD update from Roche.

    • One Drop – “Revive” DPP should launch soon, in addition to in-app Experts coaching program and unlimited strips subscription (Premium).

    • Virta – Raised $45 million in April, very strong one-year results came out in February

    • Medtronic’s Turning Point Program – A compelling ATTD 2017 poster combining a Bluetooth-enabled BGM, a patient mobile app, a one-on-one health coach, clinical decision support for PCPs, and as-needed iPro2 professional CGM.

    • Dexcom/UnitedHealthcare – Type 2 diabetes pilot ramping up with CGM and coaching, per JPM 2018.

    • Glooko/Fit4D – Partnered last April to combine CDE coaching with data management platform and Population Tracker

  • It will be fascinating to watch how these separate fields evolve and, we’d bet, converge. How will players who remain dedicated to just prevention or just management stack up to those who choose to dive into both? For context, Omada is listed on Glassdoor.com as having 201-500 employees, and as of June 2017, had enrolled over 100,000 participants in its digital DPP since founding. Livongo now has 300 employees presumably divided amongst the Diabetes, DPP/weight, and Hypertension programs. On the one hand, having a stake in both disease prevention and management could simplify administrative procedures, better align incentives, synergize care effects, and lower overall costs (a “network effect” of sorts); but on the other hand, companies like Omada can bring laser-focus on one aspect of care, and also see their specialized programs deployed in the bundles of larger organizations with global reach. In our view, it’s too early at this point to say which approach will prevail in which contexts.

Close Concerns Questions

Q: What were the financial terms of this deal?

Q: Of all the different weight management/prevention companies floating around, what sets Retrofit apart in Livongo’s mind?

Q: What is Retrofit’s user base? How many clients does it serve?

Q: How much will Livongo charge employers/payers for the Retrofit DPP? Will Livongo still market these programs direct-to-consumers? If so, will Expert 15 still cost $298/month and Expert 10 $248/month? Will pricing be at all based on outcomes or shared cost savings?

Q: Will Livongo maintain the Retrofit metabolic syndrome, healthy weight, and healthy living programs?

Q: How many coaches does Retrofit have on staff? Livongo? 

Q: Will Retrofit services be sold as completely separate products, or will consumers be able to navigate to a Retrofit landing page within Livongo for Diabetes/Hypertension?

Q: How much will Livongo’s “nudge”-style coaching crossover into the DPP? How much will Retrofit’s holistic weight management-style coaching merge into Livongo for Diabetes/Hypertension?

Q: How ready are employers and payers to pay for chronic disease prevention vs. management?

Q: How many of Livongo’s customers moving forward will offer members both prevention and management programs? How many will offer one without the other?

Q: What does Livongo’s expansion into prevention mean for strictly prevention or strictly diabetes management companies? Will Livongo achieve greater market share/penetration simply by offering a more comprehensive product suite? Will other companies move in this direction (as One Drop also has)? 

Q: How much share of revenue will Retrofit and Livongo each contribute in the next three years? In 10 years? Will we see customers utilize the DPP more as time goes on? 

Q: Where will Livongo draw the line between recommending that someone partake in a DPP vs. in Livongo for Hypertension or Livongo for Diabetes?

Q: How will Livongo navigate incentives and pricing for diabetes prevention vs. management? If someone cannot prevent diabetes with Livongo’s DPP, will it offer a discount on its diabetes program?  

See last week’s interview with CEO Mr. Glen Tullman for more relevant Q&A!

 

-- by Brian Levine, Adam Brown, and Kelly Close