Seagrove Partners Q&A with Livongo Chief Executive Officer Zane Burke
Livongo Public Relations
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Erik Verhoef: First question -- what was the weirdest or most interesting thing that you experienced during the lockdown either professionally or personally?
Zane Burke: I'm still quarantining. Livongo still works from home and we'll actually stay working from home as the first phase of opening the offices begins. We're going to open our Chicago office on July 20th. But working from home is a first choice, and employees will actually have to opt in to work in the office. So, we'll be working from home for a while. And for me, the last time I was in the office was for a board meeting and it was on March 11th. And I remember it well because literally, that's the same night that President Trump closed the European air travel.
And I said, "You know what? This is very serious." And I literally packed up and I just made a decision to move back to my mom's house. So left my family in Kansas City, which is home for me, and my life is kind of like Back to the Future meets Groundhog Day, which is how I describe it best. I think you understand what I mean by that [Laughs]. My mom's 87. She's in pretty good health, but she lives by herself. Knowing that she's a social creature and we all need human interaction, but she in particular needs it, and it would have been devastating for her health status to not be able to do that.
My mom lives in Hutchinson, Kansas. So that's where I've spent my last 90 plus days while running the company. And actually, you think something like, can you run a company while working remotely? The answer is yes. We were fortunate Livongo had a remote culture to begin with. So, we are based all over and we have over 200 of our associates outside of one of our main locations -- Chicago, Silicon Valley, and also in Denver.
And then a couple things are interesting. We did a convertible debt offering here about four weeks ago, where we raised over a half a billion dollars, and I did that from my mom's house. So, when you think about that, it's kind of a fascinating dynamic of being able to do a roadshow from home, while I'm living my life – which I mentioned is kind of like Back to the Future and Groundhog Day. And I call it the Groundhog Day, because I just get up and it's the same thing every day. You sit in front of your Zoom and go. The coolest part is just what I've seen from an innovation perspective from our teams.
One thing we've done is the Livongo Tutoring Program. So obviously, a number of our [employees who are parents] also became the homeschoolers as part of this. So, we've been thinking about how we can assist our people, much like we do for our Members. How do we empower our Members to live their best and healthiest life? How can we empower our own associates, our own Livongans [Note: Livongans are what Livongo calls its employees] to be as productive and to help them through this time period from home? We offer a variety of programs including office stipends, weekly snack boxes, and Door Dash gift cards to support the local eateries. I'd say the coolest part really is this Livongo Tutors piece and it's really where we asked people if they have a desire to help teach other Livongans’ children school subjects. And so, they literally sign up to teach classes. It creates a nice break for the parents and another connection point for other Livongans. It's a totally different kind of connection when you're inviting people into your home via Zoom and you're letting them talk to your children.
So, I think the connection has really been amazing and I give a lot of credit to our HR team for being really innovative and our CFO for supporting some of the financial things we've done to really make the connections tighter and better. At a time when you could lose culture, I think we're actually enhancing culture. And that is personally very rewarding for me to see and it's coming from the team. Obviously, leadership has to support it, but I love watching it come from the team. That's super gratifying for me.
Erik Verhoef: That's a great story. Thank you.
Erik Verhoef: Our second question is Livongo being a Chicago company, ADA was supposed to be there this year, what did you miss most about not having the live meeting in Chicago?
Zane Burke: Well, I missed the interactions. I mean, the challenge in this time period is even though we can all have virtual interactions, you don't meet new people and have the new connections. And so that's disappointing. With it planned in Chicago, I could have attended and unfortunately, this was going to be my first ADA. Our Chief Medical Officer, Dr. Bimal Shah has presented in the past and would have been presenting this year and had the opportunity to showcase Livongo. Certainly, diabetes management is the center of gravity, as I call it, at Livongo and this would have been an opportunity to showcase the work we're doing there, to meet new friends, and also connect with people we know well.
That's the part that you can't recreate through Zoom, the personal connections. And then our ability to showcase some of the things we've been doing, and we've had a couple of really exciting studies that have been put out. Making the demonstrable difference in people's lives is really what this is about. And we're fortunate to be really different in terms of creating a great healthcare experience. We have net promoter scores in the mid '60s, so people love us. We deliver demonstrable clinical outcomes. And one of the studies shows how we improve diabetes distress scale, improve glycemic control, and really make a difference in how we're approaching the Members’ care. So, the outcomes are critically important and then having a hard financial ROI. So that's part of what we missed. Being able to tell some of that story, make new friends, and connect and showcase what was basically a hometown event. So, we'll have to wait for another year.
Erik Verhoef: Yep. We've had a lot of advancements in MedTech this year and just curious, what is the one piece of technology or service outside of Livongo that you're really excited about when you kind of look outside your organization?
Zane Burke: Well, the thing I'm most excited about is virtual care. And really, the change in healthcare overall. There's a realization that consumers and the healthcare ecosystem are going to embrace the virtual care in a meaningful way. And we saw a huge acceleration in this time period. So, for all the negative parts of the COVID-19 pandemic, what I would say is, I'm most emboldened by what's really happening out there in terms of this move to telehealth as part of the model as we move forward. There is the realization that 99.9% of the time you're outside of the health system. So, how do we embrace the data? How do we learn from those pieces and really integrate that into the healthcare system? It becomes more person-centric than patient-centric, which is a huge change.
Erik Verhoef: Yeah. And that leads perfectly into the next question. We've been doing things virtually for the last three or four months. What's the most positive thing that's resulted from your business having to shift in how we operate? And is that going to be as sustainable going forward?
Zane Burke: It is sustainable in that the pieces that have changed, the reimbursement and the attitudes of the entire health ecosystems, have evolved dramatically. And so, I think that change of knowing the virtual care system is there, that we can operate in that environment, people want it, and it's just a better experience for everybody involved. I think those are durable, mostly because the reimbursement is also wired to change. And I think, Erik you know this, that everybody's said, "We need to change healthcare for a long time, right? We can't keep going down the road we have been. That is unsustainable."
How many times have you heard this in your career, that healthcare, the rate of change in healthcare is unsustainable or that the cost of health care is unsustainable. Or that the model doesn't work, and that we've got to change. But nobody really wants it to change if it's their part of the healthcare chain. What [COVID-19] did was really drive change. The reimbursement got hardwired, consumer expectations got hardwired. And I think that's a dramatic difference as we move forward. In fact, we were fortunate. We added 380 new Clients in the first quarter. We're seeing quite a trend toward not just diabetes management, but kind of a whole person platform perspective where managing across conditions and seeing along those lines.
And we were fortunate to have seen some great trends both with our announcement of GEHA (Government Employees Health Association) which is the second largest government employee plan. And they implemented diabetes management, weight management, and hypertension, which are all the comorbidities together, particularly for people with type two diabetes. And I also believe that trend will continue, which it's not just going to be about pure diabetes management, it's going to be more about the whole person and managing across multiple chronic conditions.
I'm a huge fan of CGMs (Continuous Glucose Monitors), and we have relationships today with Dexcom and Abbott. We'll continue to build relationships with CGM companies because we meet the Member where they are, we need to empower the Member to live their best and healthiest life. It’s just how do we do that? And I think CGMs are a part of the equation for a portion of the population. And to the extent CGM costs continue to come down, reimbursement gets a little bit more rational, and they become easier to insert and wear, they will become more of the standard of care. As that continues to get easier and easier, I see CGMs as a great addition to meeting the Member where they are, in their life, for those percentage of persons with diabetes that can benefit from that technology. And my view is, how do we create relationships where we make it simpler for Members that utilize CGMs to get their data into Livongo and to be able to utilize the real time coaching that we have? Our data science combined with the personal touches when unfortunately, you go get too high or too low -- we just provide a personal touch that's different than the core CGM experience.
As CGMs get a bit broader into type two diabetes, there'll be other conditions that aren't part of the CGM, such as blood pressure, weight management, behavioral health, some other conditions are not really in their purview. We can bring those other solutions to bear at the same time and integrate the information together to create that whole person view. So, as CGMs get more broadly adopted by people with type two diabetes, the other solutions that we offer, and our insights will really help our Members out in total.
Erik Verhoef: Great. Our next question is, Livongo really seems like it was the poster child for how to cope with the COVID-19 crisis by using technology. What was it like for your team, in the early stages of this crisis? Kind of walk us through what it was like here in March and April and that realization that you're about to become very busy?
Zane Burke: Well it's fascinating because if you think about how we've been scaling for growth pretty significantly. We grew 100 plus percent last year. Our Q1 was 115% growth in terms of revenue. The good news is that from a solution perspective, it's a true SaaS based model. So, it's not a significant lift for us from an implementation perspective. And we've been planning for that kind of growth here, knowing what's coming into the pipeline overall.
From a technology perspective, you and I talked a little bit upfront about our certified diabetes educators all being remote. They're not sitting in some call center somewhere. They were already working from home. And so, the technology we needed was already in place. We are fortunate that we're a younger company with new age technology, both from our own solution sets as well as our infrastructure. And our certified diabetes educators love working with us because they likely came from some sort of old school disease management program where they were doing outreach and calling at times when people probably weren't wanting to answer the phone.
Imagine somebody calling at dinner or you're in the middle of something else, and you have that precious resource, which is a certified diabetes educator, but they're calling at a time when the Member is not really looking to engage in their health. That's the beauty of Livongo, which is literally the moment that somebody pricks their finger or steps on a scale or takes a blood pressure reading, that's the moment they’re most coachable. Because they’ve decided as a consumer, it's time to do this. And that's the moment where they’re available. So, we're running the data science and there’s certified diabetes educators on the other end on an emergency basis or if you want to schedule a coaching session.
So, it's actually an easy transition for us from a technological perspective. Our work is even more rewarding, because we know what a valuable and essential service we provide. Go back to March or April, none of us knew what we should really do, right? We were getting mixed information or limited information because we just don't have a lot of information on the virus.
And yet, this was an area where we could give a little bit of comfort to Members in this time period by saying, "You know, we can help keep you between the lines and keep you away from an ER or that unnecessary outpatient visit. We can limit that exposure and you can do something proactive.”
It is a gratifying sense of engagement. And particularly to think about our certified diabetes educators, where they came from, from old school disease management programs to today where we're doing new age interactions exactly when the Member is looking for that information, and that information is even more meaningful at a time when people are scared and unsure of what to do.
Erik Verhoef: Great. So, we're going to switch gears here to artificial intelligence. I've been really fascinated with what is happening across the board with AI. Walk us through your Applied Health Signals platform and how that works.
Zane Burke: Sure. It starts with the simple part that I talked about earlier, which is how do we meet the Member in their life flow. The most important part is to think of everyone as an individual. And that's what's really truly unique about Livongo is how we architected our artificial intelligence. We use this little play on words, we call it the AI+AI engine. And so that stands for Aggregate, Interpret, Apply, and Iterate.
What does that mean? We aggregate a ton of information from our health devices, claims data, other applications. We've created a number of partnerships. We do that with Fitbit, we do it with Apple. We do it with EMRs. We aggregate that information, and then we interpret it. So, how do we use the artificial intelligence piece of this? We interpret the health signal, run that against our algorithm and then we apply it back into the life flow of the Member. So, that's the next part of the AI+AI engine. We then apply all of that back to the Member at the time that the Member is engaging. And so whether that's through one of our devices, whether it's through one of our coaches, whether it's through text or our mobile application, however the Member wants to receive the data because it's not a one size fits all from Member life flow and journeys. It's how that Member is engaging with their own health. And that's why we're applying insights back on Amazon Alexa devices, Apple Watches, Fitbit or doing it on my phone or doing it on my blood glucose meter. And then the last part of it is we iterate. We coach every single time a Member uses our devices. So, every time you interact with the system, we coach you and give you the next best action, so it's personalized to the Member itself. It’s kind of the same way that Netflix knows that I like sci-fi thrillers and spy movies. Netflix and Amazon know what I like from a consumer perspective. That's just as an important as understanding the clinical insights that we have in our artificial intelligence engine. And so, bringing the consumer and clinical attributes together, then we apply it back, and we iterate, on what we learned. If a Member doesn't take action, then we can learn and say, "You know what? People that look like Zane didn't take action on this piece."
So, we do it at a population basis and we do it on an individual level. That's what's really important. So that when you talk about this, Aggregate, Interpret, Apply and Iterate, it's all in the context of the life flow of the Member and highly personalized to them. And I think that's what's so unique about what we do, because there are people that do elements of this very well, but they don't do the whole thing and apply it back into the life flow. And that is what I think we do uniquely well.
Erik Verhoef: Great. And Livongo at least according to your website shows about $2,000 in savings per Member per year when someone gets on the program. I'm just curious to know kind of where does that savings come from with the services that you're offering? And how do you see that changing, if at all over the next five years?
Zane Burke: So, we've done over 100 studies on ROI. And we've had a number of them published. The simplest version is that we're looking at medical expenses and pharmacy spending and matching up similar people and creating cohorts. And saying people that used Livongo or didn't use Livongo that look the same. It's called a difference in methodology that we've also had Milliman validate.
The just under $2,000 in costs savings, is in year one. So, that's also something unique. In healthcare, you rarely see a year one savings in any kind of model. And we have a year one savings, which is really through fewer ER visits and fewer outpatient visits. And it's beyond the outlier that you would think of. We actually see a heavy return even on the mostly well managed group of persons with diabetes. That's a fascinating dynamic because we're able to keep you between the lines, if you will. And so typically what we'll see in a study is, guess what? Pharmacy costs go up, which at first you say, "Oh, pharmacy costs go up?" That's because we saw better mediation adherence. And so, we're actually seeing better adherence, which guess what? Creates better clinical outcomes on the backside and we can help adjust along the way. So, the savings is in the form of mostly ER visits and outpatient visits.
Erik Verhoef: We recently featured a number of disease management companies in this publication that we put out every year called our Blue Book, which is a 500-slide compilation of everything we've done over the year. And the number of disease management companies really seem to be growing exponentially. What do you think is going to set Livongo apart from these other companies as we look forward?
Zane Burke: First off -- the Member experience, our net promoter scores are in the mid-60s, and we create a great consumer experience. And unfortunately, there are few great health care experiences. That is where you start, which is our focus on the Member and empowering the Member in their journey and managing their chronic condition. We do it really well and we're just super hyper focused around that mission to create a great experience. Then, it is about having demonstrable clinical outcomes. Last but certainly not least, is the Financial ROI for whoever the sponsor is.
So that alignment with our Clients is what I call our virtuous business model with the sponsors, whether it's the health plan or whether it's the large self-insured employer. Their challenge has been they pay a lot of money, but what do they get back in terms of quality or cost savings? And the answer is they haven't. That's why what we offer is uniquely different. And then we do it in a fashion where people love it. And again, not a typical thing in healthcare. Our biggest competition today is inertia. We didn't discover that diabetes is a really expensive thing or hard to manage. We didn't discover that or that hypertension is a really expensive and hard to manage. We just figured out how to do it better and create that great experience that leads to desired outcomes both financially and clinically. And there's lots of people that are trying, but our biggest competition is inertia, in that there is already a disease management program at that health plan or that large self-insured employer, so how do we get you to see that what you've been doing isn't going to get you to where you want to go to? And so, the success we've had has led to others having success.
Our connections into the ecosystem have been really meaningful. Creating all our partner relationships, which are not easy to replicate, and our artificial intelligence engine where we've got over half a billion unique data points in our system today. So, we just continue to learn and get smarter and smarter both clinically and in behavioral science. Those have been a really important part, because think about where we are. We're in 30% of Fortune 500 companies today and 17 out of the top 25 health plans, but there's so much more to go. We are at 328,000 Members and unfortunately there's 34 million Americans living with diabetes today. So, we have a lot of room to grow, but I like our start a lot.
Erik Verhoef: Good. Yeah, the number of customers you're signing up is really growing at a nice clip and we just did a survey with 80 health plans. These were pharmacy and medical directors at large plans, regional blues plans, IDNs, those types of organizations. And we asked them about their disease management programs and whether they've contracted with anybody like Livongo and it just seemed to me like their answers were really basic or the programs they had in place were really basic. We asked them, “what's your intent to partner” -- I think half of them really wanted to and then the other half were kind of happy with what you said, the inertia that they've got. Just in terms of these new customers you're signing up, does it tend to be more employers than these payers, or is it kind of an equal mix?
Zane Burke: It's both. I mean, we started with the large self-insured employers because they're more financially motivated and they can move a little bit quicker in that regard. On the health plan side, we really got into the ASO side of the business first because we were starting to take out the diabetes benefit from the ASO side of the business and so that's how we got started on the health plan side. And then as the health plans get more and more of their own data running through, they're seeing the return on investment and outcomes overall, and that's generating more of the fully insured Clients.
We've actually seen quite a nice pickup in our fully insured business. And we've talked publicly about a couple of those -- Blue Cross and Blue Shied of Kansas City (Blue KC) is one of those we've talked a lot about. GEHA, which I mentioned. The Federal Employees Health Benefits Program (FEHBP), which is our largest federal Client, that's a covered benefit, right in the fully insured book of business. It's right out of the gate on both of those two. So, to me, that's one of the more fascinating elements where people are starting to see the value so much so that they're going straight to contract on the fully insured side of the house. That's when I kind of know we're getting there, if you will, but we're not there yet, which is the challenge but it’s also the good news for us as we think about growth overall.
Erik Verhoef: Yeah. For sure. Great. And last question, I used to cover Cerner as a sell side analyst and McKesson and SMS and all those companies. And you of course, were the president of the company. What were the learnings that you brought from Cerner over to Livongo?
Zane Burke: Well, as you know, learning means you've made some mistakes along the way. And certainly, I've made my share. I've seen some things that have been successful. And so, I was fortunate to be part of a company that saw a 20% compounded annual growth rate over a 20-year time period. So, I've seen both growth and how to scale an organization, and that's part of what we're doing at Livongo. I can bring some of the positive side, but I can also bring some of the negative side. The vision of Cerner was always the person at the center, but the execution was never the person at the center.
And I think that's the part that for me has been so energizing about Livongo. It is clear. It's part of the mission, it’s part of who we are, it’s really about the person at the center of what we do. None of us actually want to be a patient, and we all want to be treated as a person. And so, keeping the focus at the Member and at the person level, and thinking about what that means in all attributes to that is one that unfortunately we didn't get to deliver in the past.
With EMR’s, I think we lost sight of who would benefit from the solution at the end of the day. It was going to be the clinician and frankly, the person at the center of everything. I think those two things were kind of lost in the journey on the healthcare side. And I think that the important part here is to remember -- hey, listen, we've got a sponsor, whoever has the financial risk for that Client. We've got to go deliver value for that entity. So, whether that's the large self-insured employer or the health plan we've got to deliver real value and outcomes. And on the flip side, we have a Member and a person on the other end of that, and we need to deliver a great experience. And so, let's keep our focus on that great experience and the value for our sponsors. And I think that's a little bit where the EMR companies might have lost their way on that journey.
The information presented here is for informational purposes only and is not intended to support an investment decision with respect to Livongo Health, Inc. This information is not a forecast of future results for Livongo and actual results of Livongo may differ materially from those referred to here. Please see the risk factors detailed in Livongo’s filings with the Securities and Exchange Commission for factors that could cause actual results, performance or achievement to differ materially and adversely from those anticipated or implied in the statements.