How Teladoc's blockbuster deal could impact the entire virtual care landscape

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The combination of two of the largest publicly traded virtual care companies creates a health technology giant as the demand for virtual care soars. (Teladoc)

Teladoc's move to acquire Livongo is shaking up the health technology market.

Teladoc plans to pay $18.5 billion in cash and stock for Livongo, which provides diabetes monitoring and remote monitoring. The combination of two of the largest publicly-traded virtual care companies announced Wednesday will create a health technology giant just as the demand for virtual care soars.

The two companies combined are said to be worth about $37 billion, according to Piper Sandler.

Both companies are seeing record growth during the COVID-19 pandemic and the combined company is expectead to reach $1.3 billion in revenue in 2020, according to Teladoc CEO Jason Gorevic.

That represents year-over-year growth of 85%. Revenue growth of 30% to 40% over the next two to three years is expected, company executives said.

Livongo, which went public last year, on Wednesday reported 125% second-quarter revenue growth reaching $91.9 million

RELATED: Teladoc's virtual visits grow 200% in Q2, revenue reaches $241M as COVID-19 resurges

By combining Teladoc's telehealth capabilities with Livongo's chronic disease management and remote patient monitoring services, Teladoc will now have a "depth and breadth of services that is unmatched by any other company in the digital health space," Gorevic said during a business call with analysts Wednesday.

"Teladoc is the only virtual care organization to deliver and enable full spectrum, whole person care, from primary care to chronic condition management and critical care needs from home to hospital worldwide," he said.

Gorevic said “the combination of these two companies was an inevitability”—though one that was “accelerated substantially” by the health crisis that has pushed virtual care to the forefront.

"We would either team up or end up competing with each other," he said, noting Teladoc's longstanding interest in expanding into chronic disease management.

A substantial change for virtual care

Many industry and Wall Street analysts believe this deal will substantially change the virtual care market and even healthcare delivery.

"I’d expect this to become a single point of access for virtual care in the next five years with one app to control them all," SVB Leerink health technology analyst Stephanie Davis.

She notes that Teladoc's platform will now include virtual urgent care, virtual behavioral health solutions and Livongo's data science-driven chronic disease management solution all in one place.

The acquisition will give Teladoc a broader breadth of offerings to enable significant cross selling opportunities, she said.

RELATED: Livongo raises 2020 revenue guidance as use of remote monitoring accelerates

"This makes it very hard for a standalone telemedicine payer to compete with someone like a Teladoc," she said.

Forrester Senior Analyst Arielle Trzcinski agrees that the deal expanded the breadth of Teladoc’s capabilities significantly, "enabling them to truly provide end-to-end support for healthcare organizations."

The acquisition enhances Teladoc's chronic disease management capabilities for the 70 million U.S. consumers the company reaches, analysts said.

The combined company is now positioned to bend the cost curve by improving access to quality healthcare and reducing the widespread under-management of chronic conditions, according to Daniel Stewart, managing director at RBC Capital Markets’ healthcare investment banking group covering healthcare technology and services.

"This combination creates an opportunity to empower patients to manage serious health conditions through a single, integrated delivery platform with robust capabilities," he said.

The deal also builds on Teladoc's virtual mental health offerings with the addition of Livongo's MyStrength solution, Trzcinski said.

"That mental health focus is part of the compelling value that Livongo brings to the table for Teladoc," she said.

RELATED: Telehealth leader Teladoc to buy Livongo in $18.5B deal

Impact to digital health market

The Teladoc deal will likely increase acquisition activity in the digital and virtual care space as other telehealth companies will look to implement similar strategies to broaden their capabilities, analysts said.

Many leaders leaders say the acquisition marks a "vote of confidence" in digital health solutions and helps to elevate the entire market.

The deal is a big signal of what the future of virtual care will look like—the combination of Teladoc's ability to do one-to-one care with Livongo's focus on one-to-many care, according to Jon Bloom, M.D., CEO of care management company Podimetrics.

Those combined capabilities will help to make virtual care scalable and address healthcare access challenges, he said.

Telehealth company DarioHealth, which went public a year ago, saw its stock jump 25% Wednesday following the Teladoc news, according to CEO Erez Raphael.

"I believe investors want to see solutions in the public market. They are looking into the digital health space and see how small companies are disrupting the market. Now that Livongo is off the table, it creates more opportunities in the public market," he told Fierce Healthcare.

While analysts said this week the deal makes sense for both companies, Wall Street seems to need more convincing.

Both companies' stock dropped Wednesday after news of the deal broke. Teladoc's stock was down 15% and Livongo's stock also fell by 14%. As of Thursday, both companies' stock was still trading lower.

Analysts say the total deal price of $158.99 per share represents a 10% premium over Livongo stock's record closing price of $144.53 as of Aug. 5, leading to the market pushback on the high valuation.

Davis told Fierce Healthcare that the timeline comes as a surprise as the deal happened "10 years earlier" than expected.

"The deal makes sense longer-term. It makes [Teladoc] a more meaningful competitor and increases their moat," Davis said.

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