- The $13.9 billion takeover of Livongo brought attention to its rival Omada.
- Omada helped pioneer digital health and is older than Livongo.
- Now Omada is facing pressure to make moves as it weighs its future direction.
- See more stories on Insider’s business page.
The deal was the largest among digital health startups and a victory for Livongo. It cemented for investors the idea that virtual care can go mainstream and offered hope for some that the expensive, antiquated healthcare industry could change, or at the very least become more tech-friendly.
It also focused more than a few eyes on Sean Duffy, the CEO of Omada, a digital-health company that’s Livongo’s biggest rival.
Omada is older than Livongo, and it helped pioneer the digital-health industry by proving that tech tools could improve patient care, then persuading insurers and employers to pay for them. Both companies focus on diabetes, though they’ve expanded to care for patients with other diseases. Yet as record cash floods into the digital-health industry and some startups cash out via SPACs or IPOs, Omada has so far remained on the sidelines.
“They helped create something that didn’t exist before,” Bill Evans, CEO of Rock Health, a longtime investor in Omada, told Insider. “There just weren’t tech-based companies that were taken seriously in healthcare. You forget that now.”
A record year for digital health
A deal like Teladoc-Livongo can create a rising tide for similar startups. But one person close to Duffy told Insider that it’s put some pressure on the 37-year-old founder. Duffy said he prefers to think of it as raising the bar.
“It’s hugely beneficial to Omada that they were successful,” Duffy said.
“There are not many scaled companies in our space, so no doubt it pulled more attention and a stronger spotlight our way,” he added.
The trade-off, Duffy said, is that when he walks into rooms, he’s now known only as the Livongo competitor.
“And I’m like, I’m Sean, let me describe our business,” he said, laughing.
Last year saw digital-health startups bring in record funding, with $14 billion invested across 440 deals, per Rock Health. They raised $6.7 billion in the first quarter of 2021, another record.
Omada last raised funds in May 2020, mainly using the proceeds to acquire a physical-therapy startup, according to CNBC. It declined to provide its current valuation. It’s raised more than $260 million since its 2011 founding.
“It’s been 10 years,” said Matthew Holt, a health-technology consultant. “Those early investors are probably getting a bit bored.”
Suitors have approached Omada
While both companies focus on diabetes care, Livongo mainly helps people who have the disease, while Omada focuses on prevention. Seeing Omada’s success in that area, Livongo met with Omada in 2018 to discuss acquiring it, a former Livongo employee told Insider.
The talks broke down, but the two companies got a sense of each other’s plans before announcing expansions into mental health within weeks of each other. The former employee was not authorized to speak to the media.
Teladoc did not respond to a request for comment on the discussions. Omada declined to comment.
Health plans, providers, and telehealth companies have expressed interest in buying Omada as recently as last year, a person with direct knowledge of the matter told Insider. Amwell, Teladoc’s main telehealth rival, approached the company last fall, Exits & Outcomes reported.
Another person said Omada is also getting calls from SPACs and bankers seeking to arrange a deal or an IPO.
“At Omada we regularly receive interest from investors or others looking to bolster their strategic direction,” a spokesperson told Insider. “It’s a sign that this space is really heating up.”
Omada said it evaluates opportunities like acquisitions, partnerships, and mergers according to whether they will help it transform chronic-care treatment.
Omada finished last year with 1,400 employer partners, up from 360 in 2018. It has more than 450,000 members, according to the company, and works in areas like pre-diabetes, diabetes, weight management, musculoskeletal conditions, hypertension, and behavioral health.
It’s roughly the same size as Livongo, which had 442,000 enrolled members and 1,402 clients as of the third quarter of 2020, before the Teladoc deal closed.
Omada wants to fill the gaps in primary care without becoming primary care
Omada was dreamed up by Duffy and fellow cofounder Adrian James, who happened to sit close to each other while working at the Bay Area design company Ideo in 2010. James was the lead on medical products, and Duffy was doing an internship, as part of his joint MD-MBA program at Harvard.
Dennis Boyle, a founding member of Ideo, heard that Duffy had an entrepreneurial spirit and carved out a budget for him and James to explore digital health, Duffy said. They took to PubMed and found a recurring theme: Type 2 diabetes, which affects more than 30 million Americans, is preventable. Yet patients and doctors often weren’t able to intervene in a proactive way.
With the aim of taking a new approach to preventing diabetes, they formed Omada, and the company was spun out of Ideo in 2011. Duffy deferred going back to Harvard for the maximum two years before he had to drop out. He broke the news to his parents at Christmas in 2013.
Omada makes money by charging its customers, typically large companies, a monthly fee based on how many employees are actively using Omada. Omada sells its services mostly on the promise that preventing diabetes can help those companies lower their healthcare costs over time.
Patients using Omada track their progress with devices like scales and glucose meters that connect to a mobile app. Coaches, like certified diabetes specialists, can see the person’s data and talk to them, providing support and advice. The program can reduce people’s blood sugar, preventing and delaying diabetes-related complications. Recently the company has added doctor visits as well.
Omada owes its success to its hard-fought past
In 2011, after separating from Ideo, Omada landed in the inaugural group of startups in Rock Health’s incubator program.
But Rock Health, a healthcare venture fund, was also just finding its footing in 2011, Evans said. It had just signed the lease on a new office space in San Francisco’s Chinatown. To save money, the firm asked the group of founders for help. Duffy and James showed up, painting parts of the office in Rock Health’s signature green shade.
“They’re really good painters,” Evans said.
Both companies had a long way to go. Rock Health said it’s the first venture fund dedicated to digital health. But at the time, startups like Omada were swimming upstream.
“We couldn’t exist if companies like Omada hadn’t forged the path and changed the narrative for technology and the power of technology to transform healthcare,” Evans said.
For one, the government wouldn’t reimburse providers for virtual visits, which meant that many health plans didn’t, either. Omada lost an early battle on that front when the Centers for Medicare and Medicaid Services decided in 2016 that Medicare should cover only in-person diabetes-prevention programs. Omada had lobbied the government for years to pay for virtual ones.
The startup brought in Chris Sharon, who’s now the vice president of operations and care delivery, to oversee growth in 2016.
Sharon started to focus on selling Omada to other companies and their health plans. There were two big points to prove, he said: that digital approaches to a single area of healthcare actually worked and that investing in them saved money.
“My job was really, how do you convince the market it’s worth their time?” Sharon told Insider.
A few early believers started to trickle in. The retailer Costco signed up, leading companies like Disney and DaVita to take a chance on Omada, too, he said. The company was taking on risk, a rare arrangement in healthcare, getting paid based on whether people got healthier.
Other firms started asking their health plans to offer Omada, which led to partnerships. In 2017, the major health insurer Cigna led Omada’s $50 million funding round and, two years later, rolled out its services to national employer customers. This month, Cigna said Omada saved it $989 annually per member on average, in the second year that people used the program.
Omada’s future lies in an expansion strategy
Despite setbacks – Omada laid off 20 employees shortly after the $50 million raise – the digital-health market was starting to change and was attracting more private financing than ever. In 2018, digital-health funding hit a then-record $8.1 billion. Rock Health analysts assured readers that it wasn’t a bubble.
A new group of digital-health companies were pursuing broader services, prompting Omada to look beyond diabetes prevention for growth.
It launched programs for active diabetes and hypertension in 2018 and tackled mental health the following year. In 2020, it bought Physera to launch physical-therapy services. In April, Omada added a care team of physicians to help folks with diabetes and hypertension in more ways, like more closely monitoring their medication and prescribing as needed.
Vijay Pande, a general partner at Andreessen Horowitz, an early backer of Omada, has high hopes for the strategy to transform US healthcare.
“We’ll be able to actually make a huge company by healing people before they get sick rather than monetizing the sickness,” he said.
About a quarter of the startups’ contracts in the last quarter of 2020 were for multiple Omada products, and the company expects 2021 enrollment growth for the new offerings to triple year over year.
The pandemic made the market more receptive, Duffy said. Now doctors are more open to having their patients’ medications adjusted by a digital clinic, for example. A decade ago that was extremely controversial.
“I’m in this fun moment where I almost feel giddy about what’s happening to healthcare,” he said. “Because it’s like the dreams you have are now more possible because the world has been shaken.”