Capital Investments and NPS - Digital Therapeutics

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Capital Investments and NPS - Digital Therapeutics

Key Takeaways

  • Livongo Health, Teladoc and DarioHealth are three examples of key players in the digital therapeutics sector that have increased their NPS scores in conjunction with a meaningful level of capital investment.
  • Notably, top-tier analysts (e.g., Credit Suisse) and private investors (e.g., Saga Partners) have taken note of this customer satisfaction metric, and are integrating NPS scores within their assessments of potential digital therapeutics investment opportunities.
  • In tandem, NPS scores are motivating the internal investment decisions of digital therapeutics companies themselves, such as whether to advance new products or how to position offerings to consumers.

Introduction

The research team identified three publicly traded companies (Livongo Health, Teladoc, DarioHealth) that operate in the digital therapeutics space and have also reported a recent increase in NPS scores. In tandem, the research team determined that NPS scores are influencing investor perceptions of digital therapeutics organizations, as well as the product investment decisions within these organizations. Notably, reputable data on the relationship between NPS scores and capital investment decisions in the digital therapeutics sector is extremely limited, likely in part due to the fact that many players in this developing marketplace remain privately owned/operated.

Livongo Health NPS Growth

  • Livongo Health (website link here) is a digital therapeutics company that offers technology solutions to improve chronic condition management and treatment.
  • Notably, Livongo Health had only a brief period as an independently traded, public entity, given that the organization went public on July 25, 2019 and was subsequently acquired by Teladoc on October 30, 2020.
  • However, during that same period, the company reported a pronounced increase in its NPS score, specifically:
    • 2018: NPS score of approximately 60 (per an interview with Livongo CEO Glen Tullman).
    • 2019: NPS score as low as 62 (per a subsequent interview with Livongo CEO Glen Tullman).
    • 2020: NSP score of over 64 (per a Livongo investor presentation).
  • In tandem, the company revealed the following cash flows from investing activities per its financial public disclosures in 2019 and 2020:
  • Meanwhile, within a podcast interview, Livongo CEO Glen Tullman offered more detailed insight into how the organization tracks its NPS score (e.g., on a monthly basis) as a key guide to enhance its customers' experience (discussion starts at approximately 29 minutes at this link here).

Teladoc NPS Growth

  • Generally referenced as a telehealth company, Teladoc (website link here) has increasingly become a vertically and horizontally integrated digital health provider. In particular, the company has prioritized the expansion of its digital therapeutics offerings since 2019, most notably through the acquisition of Livongo Health in 2020.
  • Over the past seven years, the company has also made significant strides in bolstering its NPS score, specifically:
    • 2015: NPS score of at least 70 (per an interview with Teladoc’s CEO Jason Gorevic).
    • 2016: NPS score of 74 (per reporting by Direct Recruiters Inc.).
    • 2019: NPS score of 77 (per reporting by Federal Telemedicine News).
    • 2021: NPS score of 77 (per reporting by Customer Guru).
  • Over the same period, the company revealed the following cash flows from investing activities per its quarterly and annual public reporting:

DarioHealth NPS Growth

  • Lastly, DarioHealth (website link here) offers artificial intelligence-based digital therapeutics solutions for chronic conditions including diabetes and hypertension.
  • Although data on the company's NPS score is relatively limited, it appears that the customer satisfaction metric increased from 76 in 2020 (per the company's 2020 10-K reporting) to 77 in 2021 (per a 2021 investor presentation).
  • Over the same period, the company revealed the following cash flows from investing activities per its quarterly and annual public reporting:

NPS Scores Influence Investor Perceptions

  • Although data on the use of NPS scores to justify large capital investments in the digital therapeutics sector is extremely limited, public statements by top-tier analysts (e.g., Credit Suisse) and private investors (e.g., Saga Partners) indicate that this customer satisfaction metric has become a meaningful factor in the assessment of potential investment opportunities in this industry by both public and private market investors.
  • Perhaps most notably, top-tier investment bank Credit Suisse has begun to reference NPS scores within its analyst coverage of the digital therapeutics sector, including its July 14, 2020 assessment of Livongo Health.
  • In this specific instance, Credit Suisse referenced the digital healthcare company's NPS score as an indicator of customer "appreciation" for Livongo Health's offerings, as well as an underlying factor in the company's competitive advantage. Notably, Credit Suisse gave Livongo Health an Outperform rating.
  • In tandem, Saga Partners' healthcare tech sector analyst Richard Chu (also known as "Mr. Teladoc") is outspoken in his firm's use of NPS scores when assessing investment opportunities.
  • For example, the NPS score is one of 16 criteria that Mr. Chu leverages in identifying appealing investment opportunities, per a February 2021 interview with Investment Talk.
  • Preceding statements by Saga Partners (H2 2020 Investor Letter) and Mr. Chu (September 2020 Portfolio Review) more qualitatively highlight NPS scores as a sign of company strength and success.
  • Notably, the NPS scores of Livongo and GoodRx are clearly associated with Saga Partners' decisions to invest in both companies.
  • More recently, Mr. Chu suggested in a December 2020 interview that he is "really bullish" on Teladoc, owing to the NPS score of its primary care offering. He added that public markets will similarly "soon...come around" to the opportunity represented by Teladoc given its strong NPS scores.

NPS Scores Drive Product Development

  • In addition to influencing external investment decisions related to digital therapeutics companies, public statements by Livongo and Teladoc indicate that NPS scores are also motivating investment decisions within these companies.
  • Most recently this past January 2021, Teladoc reported that it would move forward with expanded pilots of its Teladoc Primary 360 offering across domestic and international markets after the new product "earned a 90-plus NPS."
  • In particular, the digital health company stated that its Primary health product was "at the top of the list" in terms of investment due to its average NPS of 95.
  • More recently, the competitor in the digital therapeutics space reported that its multiproduct offerings "see stickier clients with over 5 points increase in net promoter score."
  • Citing this improvement in business performance, Teladoc announced a strategic pivot and investment in the "opportunity in multiproduct cross-selling."

Research Strategy

In preparing this report on the relationship between NPS scores and capital investment in the digital therapeutics space, the research team took care to leverage only the most reputable sources available in the public domain, including corporate reports (e.g., Livongo Annual Report), analyst recommendations (e.g., CreditSuisse), investor interviews (e.g., Saga Partners), executive interviews (e.g., Livongo CEO Glen Tullman) and coverage by leading industry trades (e.g., HealthcareDive).
Sources
Sources