Memorandum

DarioHealth 2Q19 – Revenue of $1.7 Million Drops 20% YOY and 18% Sequentially; Aims to Transition to B2B – August 26, 2019

DarioHealth recently reported 2Q19 results in a call led by CEO Mr. Erez Raphael. Sales totaled ~$1.7 million, down 20% on a tough comparison to 70% YOY growth in 2Q18 (though still from a low base of $2.1 million). Sequentially, sales declined 25% from the record 1Q19. The declines reflect reduced investment in the direct to consumer (D2C) channel as DarioHealth transitions towards a business-to-business (B2B) model. The B2B channel is expected to start producing revenue in the second half of the year.

DarioHealth completed a public offering raise of ~$7 million in the quarter, finishing 2Q19 with ~$8 million in cash, compared to $7 million in 1Q19 and $11 million at the beginning of the year. During Q&A, Mr. Raphael stated that the company had enough cash to get to “April” 2020, enabled by a lower burn rate as it transitions to the B2B channel.

During prepared remarks, Chief Commercial Officer Olivier Jarry reported Dario has seen “positive traction with two major payers covering several dozen million lives” and is working to sign up patients. Additionally, Dario has “just signed a large employer” and is “finalizing agreements with a couple others.” Mr. Raphael also stated that the company is currently being “evaluated by four life science companies looking for a digital therapeutics companion.” Management hinted at a hope for its software to become device-agnostic and serve as the “Intel inside” for diabetes coaching – a bold goal and one that Omada, Livongo, or One Drop may be better suited to tackle. While Dario remains committed to its direct-to-consumer channel, momentum for its B2B channel is apparently ramping and will be “the big part of Dario’s future.”

There is some pressure to show traction: DarioHealth shares have been trading below $1 since November 2018; in July, the company received a 180-day extension to meet the Nasdaq’s minimum $1 price per share requirement. If the shares fail to meet the requirement, the stock will subject to de-listing. The market cap is currently ~$15 million.

  • During 2Q19, DarioHealth launched a new connected blood pressure meter as part of its foray into hypertension management. This parallels similar horizontal expansion moves from Livongo, One Drop, and Omada. Mr. Raphael pointed to the high comorbidity of hypertension and type 2 diabetes, calling it a more “holistic way” of helping users. The new blood pressure meter communicates with the Dario app and is expected to generate higher revenue per user; it is currently priced at $70.

  • In the retail channel, DarioHealth is working on a new “membership in a box,” with the company’s BGM, strips, and three months of membership. During Q&A, Mr. Jarry revealed that it was a “very large [retail] chain” that brought the idea to Dario, and the idea has seen very positive reception with other retailers. One Drop (Premium) and mySugr (Bundle) have similar “membership in a box” approaches, with One Drop notably getting distribution in select Apple retail stores in June.

  • Dario presented a retrospective data analysis at ADA (n=4,917 non-insulin type 2s), revealing relative increases in the percent of in-range BG readings (70-140 mg/dl) – 4%, 9%, and 12% for people who engaged with the Dario app 0-1 times/day, 1-2 times/day, and >2 times/day, respectively.

 

--by Ani Gururaj, Albert Cai, Adam Brown, Kelly Close