Dive Brief:

• The Blue Cross and Blue Shield Federal Employee Program (FEP) awarded a two-year contract to chronic disease management platform Livongo Health, the organizations announced Monday. The deal is the newly public company's largest diabetes agreement to date.

• Beginning Jan. 1, Livongo will offer FEP beneficiaries with Type 1 or Type 2 diabetes a glucose meter, unlimited test trips and lancets at no additional cost, plus remote access to nutrition and lifestyle coaches via Livongo's mobile app.

• Livongo said it sees the agreement adding 25,000 Livongo for Diabetes members in 2020, growing to approximately 45,000 in 2021, for an estimated $50 million to $60 million in revenue across the two years, depending on actual enrollment and retention. Those additions compare to the 80,000 enrolled diabetes members Livongo had in 2018.

Dive Insight:

Livongo hinted at the FEP deal when it went public earlier this year, noting in a financial filing that it was working on a "significant opportunity" that could add up to 30,000 members to its diabetes program in 2020 and 2021. Some analysts baked that opportunity into their forecast Livongo sales but have revised estimates upward after the size of the deal exceeded expectations.

The up to 45,000 new members come 2021 "is larger than the expectation of 20,000 to 30,000 total Members previously disclosed by Livongo," the company said Monday.

Livongo predicts the agreement will be worth up to $25 million next year and as much as $35 million in 2021. Analysts at SVB Leerink responded to the news by adding $2 million to their 2020 revenue forecast and $3.5 million to 2021, reflecting that the deal is larger than the one hinted at during Livongo’s IPO. 

SVB Leerink has consistently championed Livongo, arguing it has "cracked the code" of sustainable behavior modification but the wider investor community has been more circumspect. Livongo raised $355 million in an IPO earlier this year and its stock soared in the days after the listing. However, the stock has fallen steadily since then, declining more than 60% from the high it hit in late July.

Livongo’s stock climbed 18% following news of the FEP deal, moving back above $20 a share for the first time this month. The stock remains well down on both the IPO price, $28, and its all-time high of about $44.

SVB Leerink analysts believe Livongo’s stock can blow past its all-time high and hit $50. The ability of Livongo to live up to that outlook in the near term will depend in part on the success of the FEP deal.

The analysts think Livongo’s forecasts for the deal are "appropriately conservative." Across the new customers Livongo added in 2018, most of which were self-insured employers, the average 12-month enrollment rate exceeded 30%. The forecast for the FEP deal implies a 12-month enrollment rate of 7.5%, according to the analysts, reflecting that the deal moves Livongo into unchartered waters.

"This is the largest contract [Livongo] has ever won and the enrollment ramp of large contracts is substantially different than that of small contracts, [and] this is a relatively new market segment with limited historical enrollment precedent," the SVB Leerink analysts wrote in a note to investors.

Livongo said it expects a nine to 12-month deployment period once services are available Jan. 1, 2020.