The Teladoc-Livongo Merger: Life Science Manufacturers’ Darwinian Moment

2020 has been a prolific year of venture financing in the digital health industry, with eight IPO’s launched and $5.4 billion raised in funding. The recent merger of Teledoc and Livongo (Teladongo, as RockHealth termed it) into a $38 billion titan proves that the market sees opportunity in health tech. The marriage, while synergistic for the companies, also creates value for other stakeholders. Consumers benefit from less fragmented care with fewer touchpoints. Purchasers can offer new services to their patients or members. Clinical teams can gain rich data without costly integrations. Could this be an inflection point in our race towards a digital-first care model, or is this an experiment ahead of its time? We believe this merger spells the end of one-size-fits-all, in-person healthcare. Further, we believe that manufacturers risk losing access, control and relevance in a virtual-first model, but there are opportunities for them to pivot and win in this digital future.

Poor consumer experiences with in-person care have primed it for disruption

The Teladongo merger is aimed at solving our broken chronic care system. As it currently sits, the average male aged 18 to 40 doesn’t have a primary care doctor, and even with access, the average appointment wait time is 22 days. Once in the door, time-strapped primary care doctors can’t focus on whole-person care and the system promises further wait times and shorter visits for those who need specialist care. This untimely, uncoordinated care is the hallmark of the current analog model, and it’s increasingly at odds with patients who have “one-click purchase,” “next-day delivery” expectations. Digital care can shrug off geographic limitations and deliver same-day or next-day primary care appointments. It can also coordinate seamlessly with virtual specialists and digitize communication and patient data between providers for better outcomes.

We believe there’s a progressive sliding scale of “virtualizability” depending upon disease acuity, with 40 to 55% of ambulatory visits being primed for virtualization. This includes low-acuity (family medicine, pediatrics, behavioral health), many medium-acuity (diabetes , immunology, OB, dermatology and PT), and some high-acuity conditions (heart-failure, COPD). This amounts to approximately 300 million visits or almost 30 to 35% of total ambulatory visits in the US going virtual over the next five to seven years. So who will win the greatest share of those 300 million virtual visits? Like all good battles there are two opposing philosophies: On the one side are patient-focused digital natives, which include integrated end-to-end virtual solutions like Teladongo as well as virtual point solutions like Hims & Hers and Roman. On the other side are the old-guard, provider-focused analog natives which constitute almost the entirety of current physician and hospital networks. This is going to be a one-sided war because the only way incumbent care systems can win is by adopting digital tools which are native to the other side. We expect new players who operate like Teladongo, will capture around 45 to 65% of the virtual market share in five to seven years. Manufacturers have yet to comprehend what implications this will have to their business models when such a significant volume of the market moves to a digital-first-channel.

How might digital health affect manufacturers?

In a recent panel discussion at the Rock Health Summit, cofounder and president of Evidation Health, Christine Lemke, observed that when technology first enters an industry, it feels like a toy. But then one day, those who didn’t take it seriously look around and realize that they no longer recognize their industry. It’s a dangerous position for any incumbent. Most manufacturers, life sciences and medical device companies are focused on dealing with the immediate crisis of COVID-19. While virtual care is top of mind, most are skeptical and taking a wait-and-see approach. Some don’t expect immediate material business impact and so largely avoid near-term action. This is a major concern as manufacturers risk losing a seat at the table to help shape or even meaningfully participate in the value creation potential of virtual care. Here are three implications:

1. There will be access restrictions. Manufacturers have had a predictable approach to educating and promoting to patients: “talk to a doctor” messaging, access support and in-person interactions with HCPs. With integrated virtual care models, in-person access of pharma sales reps will be limited and, in many cases, eliminated. Similarly, patients will be less likely to respond to a drug commercial or use services from a manufacturer and more likely to respond to recommendations made and services provided within the familiar virtual model they trust.
   
2. Expect less control over referrals. Virtual care will either refer within preferred networks or limit referrals. Clinicians in these networks will practice at the upper end of their license and prescribe and manage most specialty therapies. This coordinated care approach is a key cost-reduction lever for these models and its value prop to payers. Manufacturers’ specialty-focused business model will struggle under such controls.
   
3. Care providers will become the new product experts. New insights- and evidence-based decisions, patient risk scores, diagnoses, prescription decisions and treatment protocols will be measured and constantly improved. Virtual providers can already update protocols to improve quality in a matter of days, which is unheard of in traditional models. These providers usually have an information advantage because of real-world evidence and clinical insight. They can know more about the performance of products than the manufacturers themselves.

The future of digital care needs digitally engaged manufacturers

But all hope is not lost. Manufacturers can not only adapt but thrive in a virtual care environment. Commercial and medical leaders need to spend the next one or two years aggressively defining and executing a strategy for transforming their business models to win in virtual care.

Digitize your marketing and patient service engagement. Life sciences’ customer engagement models must embrace virtual methods. Virtual care platforms, like Teladongo, will be open to manufacturers if mutual interests align around increasing patient satisfaction and care efficiency. For example, some pharma brands are partnering with platforms to help patients directly access specialists via a brand website. By providing disease and product education, brands can help improve patient readiness for treatment and create efficiencies for these platforms as well. Manufacturers must develop a modular patient services infrastructure that’s customizable and easily integrated with a digital practice’s workflow. These platforms won’t allow fragmented user experiences that affect retention. For example, prior authorization services that rely on forms and phone calls won’t work and will create friction. Manufacturers must be serious about upscaling their own services or else cede such engagements to digital practices.

Fix your operating model between medical and commercial. Digital platforms will need meaningful clinical services. Digital practices aggregate considerable data and engage multiple times a week with patients. Manufacturers must find ways to partner and develop new clinical services leveraging data rich platforms: risk screening algorithms, deploying home diagnostics and providing digital patient education for home injectables are a few such examples that address unmet needs of providers and patients on these platforms. Similarly, virtual access to medical and clinical experts from manufacturers will need to be a seamless, technology-enabled workflow that integrates with these platforms. For example, an intelligent, asynchronous chatbot can more effectively help digital practice physicians choose a prescription than having to find and reach a medical service liaison over the phone. Manufacturers need to transform their engagement models with these digital practices. It will require close collaboration between medical teams and key account management (KAM). KAMs must engage with digital business leaders similar to how B-to-B software companies engage with customers: less promotional and more focused on customer success. They should help partners innovate their virtual delivery models and develop new success measures for these models such as care quality, user churn and lifetime value per member.

Pair your product with a virtual care companion. Phase IIIb and IV studies will be increasingly critical. It won’t be enough to launch a drug with controlled clinical studies alone. Each drug or device will need to be studied in the real world. To aid in this, manufacturers will need to create a companion virtual care model that integrates digital biomarkers, disease progression monitoring and co-morbidity management protocols. Such innovations will also improve outcomes, practice efficiency and total cost of care. Because digital practices can maintain control over an entire care episode, they operate as risk-bearing, value-based care entities. They will expect manufacturers to work within these bounds. Digital practices may demand that manufacturers develop “virtual care companion APIs” that can be “called on” when a drug or device is prescribed on their platform. Such features are already being contemplated for digital platforms, for example the ability to prescribe a personalized, companion digital therapeutic when a drug is prescribed. Manufacturers that embrace real-world studies and design virtual care companions for therapies will benefit from preferred formulary status on these platforms.

Today, virtual care is predominantly a video call between a physician and a patient, but as the Teladoc/Livongo deal has brought to light, the future of virtual care will be much more than what we see today. Virtual care will drive toward integrated digital practices. If manufacturers want to win in this new environment, they’ll need an enterprise level strategy and commitment to act in the next year or two. COVID-19 has presented an extreme test case for U.S. healthcare. It has triggered a fast and lasting transformation to virtual care. Life science manufacturers need to take advantage of this moment and begin their own journey. Now is the time to plug into this new future.

Vijesh Unnikrishnan is a principal in ZS's digital and connected health (DCH) practice. Ganesh Vedarajan leads ZS’s strategy and transformation practice. 

References

1. “5.4 billion dollars invested and eight IPOs launched to-date,” https://rockhealth.com/reports/2020-midyear-digital-health-market-update-unprecedented-funding-in-an-unprecedented-time/​
2. https://www.commonwealthfund.org/publications/2020/apr/impact-covid-19-outpatient-visits​
3. ZS Covid-19 patient and physician pulse research.
4. https://teladochealthlivongo.transactionannouncement.com/wp-content/uploads/2020/08/2020-08-05-TDOC-LVGO-presentation.pdf​
5. Meritt Hawkins Survey of Physician Wait Times and Medicare and Medicad Acceptance Rates, 2017, https://www.merritthawkins.com/news-and-insights/thought-leadership/survey/survey-of-physician-appointment-wait-times/​
6. CDC National Ambulatory Medical Care Survey (NAMCS), 2016 National Summary Tables, https://www.cdc.gov/nchs/data/ahcd/namcs_summary/2016_namcs_web_tables.pdf?source=post_page---------------------------​