Here is a bit of big news for DarioHealth investors - the company is getting labeled as a "disruptor" in the multi-billion dollar diabetes monitoring market. Now, in most instances, being stigmatized by a label is not necessarily a good thing, as most of the adjectives that come to them are typically not favorable. In the case of DarioHealth, however, being classified as potentially "disruptive" is just about the best compliment the company could earn, signaling a recognition of their progress towards becoming an industry leader in next-generation, app-based digital health data management.
DarioHealth is rapidly transforming the digital health landscape by providing personalized solutions that are redefining the way people think about chronic disease management. People deserve the best tools to manage their treatment, and with DarioHealth intuitive user-centric and highly engaging approach, individuals have an unrivaled method for health management.
DarioHealth just started commercialization in the U.S. a little over a year ago, and is already thinking ahead of next-generation. DRIO sees a future in monitoring and data management in big data, analytics and artificial intelligence and is less focused on the device or how you take the blood sample, but rather the next-generation’s ability to predict future blood sugar glucose levels.
When DRIO began marketing its MyDario device in the U.S. in 2016, few analysts were giving credit to the breakthrough technology the company was bringing to the market. Granted, emerging companies like DRIO often don't get the market attention deserved, but that lack of early recognition is in no way an indicator that the company's product is not worthy of considerable attention. DRIO is worthy of every bit of attention its competitors are getting, and here's why.
The DarioHealth Model
As strong as the story is becoming with DRIO executing well on their mission to become a leading "app based" blood and glucose monitoring system for people with diabetes, the company is uniquely positioned in digital eHealth big data management and analytics. The business model is not necessarily complicated in design, but when applied successfully, it can be quite lucrative. If you look, the signs of success are already apparent, with DRIO announcing a record first quarter in May of 2017, highlighted by quarterly revenue increases of 77% compared to the first quarter of 2016, and a 20% sequential increase over the most previous quarter. Indeed, these numbers demonstrate the financial direction of the company, and by digging deeper into the recurring-revenue model, investors can get a glimpse as to how DRIO expects to consistently increase its quarterly revenues.
It's been just over a year since their U.S. launch, but DRIO is already accomplishing what it has set out to do - penetrate the U.S diabetes market by selling app-based blood and glucose monitoring devices that allow diabetes patients to quickly monitor blood sugar levels, by using their smartphone; in essence turning an iPhone into a medical device. Since launching in the U.S., Dario has sold more than 25,000 MyDario devices, but the real money-maker comes with the sale of peripheral products needed to provide results. Focusing on opportunity, DarioHealth management seized a chance to take an essential element of a recurring revenue strategy and apply it to their own. For DRIO, the result is that the company has set in place a recurring revenue model by selling diabetic test strips to its device users. Thus, the more devices sold, the higher the level of recurring revenue, with DRIO capitalizing on an 80% rate of customer return for supporting products, and a 75% gross margin on the test strips needed for the MyDario measuring device.
Analysts in the industry have referred to the DRIO business model as the "razor blade" strategy, whereby blade manufacturers sell a single shaving tool and then rely on customer loyalty and a particular blade design to encourage long-term repeat business. It's a proven and profitable sales model. In fact, for evidence of the value, just look at the $1 billion paid to Dollar Shave Club by Unilever (UN) to illustrate the interest, paying a respectable 6.5X the revenue of DSC at the time. Was DSC disruptive? You bet it was, and the founders earned a handsome reward for being so. Therefore, what's not to say that DRIO investors won't enjoy the same fate?
As a believer in app-based therapy and acknowledging the disruptive power behind the DRIO device, there is already clear value. However, the value is amplified by the fundamental changes in the way health services are being provided, creating a perfect storm of opportunity for companies, like DRIO, that are at the forefront of the revolution of digital eHealth big data management and analytics.
Revenue Ramp Thru Q1 2017:
The Perfect Storm For DarioHealth
The biotech market has been fickle and somewhat precarious for small-cap stocks, demonstrated by the current share price of DRIO, which sits at $2.32 a share, down about 45% from its 52-week high. But, underneath the facade of an underpriced stock lies enormous value that is not realized into the current market cap. And, since understanding where the value may lay is not always a numbers game, an explanation as to why the DRIO share price remains undervalued is appropriate.
There is a fundamental shift taking place in the medical world, and those who are paying attention are witnessing a revolution in business analytics and marketing metrics that will forever change the way the medical industry markets and sells drugs. Some have called the trend a violent convergence of technology, innovation, and cloud-based app services, and it's this alteration of dynamics that is expected to transform parts of the medical industry. And, for companies like DRIO, who are ahead of this shifting curve, the benefits can be substantial. Consequently, for others who are stuck in the 20th century, like an executive at Merck (MRK), who believes that app-based technology will never adopt significant user attention, the likelihood of some large pharmas becoming another IBM of the 1990's is not out of the question.
There is no need to beat up on Merck, but it's difficult to reconcile their belief that the growth in app-based therapy does not have a bright future. Several things are happening to prove Merck wrong, and many analysts go as far as saying that the current method of marketing drugs and therapies will soon be obsolete. There is a new world of creative marketing being introduced to patients by social media campaigns and endorsements, that will soon offer more patient value and information that any multi-million dollar ad campaign would ever be able to accomplish. And, those that don't believe in the change will likely be left behind, no matter the current financial might of the business.
With a plethora of information now at the fingertips of users, consumers and patients alike want to know far more than what a company sponsored marketer is telling them. Thus, with the explosive growth of social media sites that offer reviews, information, and pricing comparisons, drug companies are seeing far less traction to their marketing sites. Instead of resisting the change, companies like DRIO are embracing this trend, with real-time data becoming the new creative force in marketing. Thus, by understanding that data is becoming the driver in providing the consumer a reliable and more comprehensive source of information, companies that follow the change will benefit the greatest.
The DRIO Advantage
Putting the strategic pieces together, and taking into account the fundamental changes in the medical landscape, DRIO sits well positioned to benefit significantly from its encompassing business model. Being a company focused on app-based solutions, DarioHealth brings with them significant marketing advantages. First, DRIO is an agile company, able to quickly produce and target market segments to generate sales. While this model may sound simple, it isn't. Few medically focused companies to date have demonstrated that they have the visibility to see where the new patient dynamics are leading. The fact that DRIO has a game-changing medical device, coupled with the ability to quickly adapt to changing market conditions, should pay huge dividends in the future.
Already a proven innovator in app-based monitoring and data management, DRIO has developed its MyDario monitoring system centered around one of the most vital assets that people now own: their smart phone. The genius behind the MyDario product is that the system allows the phone to become more than just a communication tool - the phone itself is transformed into an actual blood and glucose monitoring device. Imagine taking a phone and converting it into an actual medical device, whereby a simple plug-in makes an accurate glucose reading within six seconds of treatment, and that reading can be stored in the "cloud", where it may be retained and shared with medical professionals. No need to imagine any longer, because the MyDario does just that. For those familiar with the device, they know that it has been referred to as the "Fitbit of diabetes," taking real-time data and running it through complex proprietary and customized software, allowing patients to better understand how food and activity can alter their daily glucose levels in real time. In essence, MyDario offers a predictive capability to patients and can provide insight as to how the body will react to certain foods or situations. The predictive capabilities add significantly to the value of the MyDario device, and serve to differentiate the system from most others available in the market.
The system is next-generation, and DRIO has signed some major talent to spread the message. Securing major endorsements from basketball legend Dominique Wilkins and Lazier Racing, the MyDario monitoring system is gaining market attention. The focus of the partnerships is to advance awareness of MyDario, drive growth of new customers and increase market penetration. In regards to Dominique Wilkins, the multi-year agreement encompasses collaboration on social media, digital marketing and public appearances. Dominique Wilkins stated, “A few months ago, I started using MyDario on a daily basis to monitor my blood glucose levels. I found the MyDario plug-in enabling my smartphone to become a glucose meter device to be extremely easy to set up and use. I really like the compact design and convenience of making what I already carry with me all day, my smartphone, into a medical device. The MyDario mobile app is strong in its ability to manage and analyze the data inputs, leading to the management of a healthier lifestyle. I am excited to partner with DarioHealth to help others be more proactive and to think differently about managing their diabetes.”
Even a former Bayer executive, who worked in the diabetes sector, has joined DarioHealth as an advisor and sees it as a useful tool in maintaining healthy glucose levels, and could effortlessly improve the quality of daily life in patients with diabetes.
DRIO is already thinking ahead of next-generation, and is not as focused on the device or how you take the blood sample, but rather the opportunity in big data management and analytics. DRIO next-generation will be about artificial intelligence and the ability to predict future blood sugar glucose levels.
The Changing Landscape
For larger companies, coming to grips with the changes in the medical landscape are becoming increasingly important, and may be beneficial to companies like DRIO. Perhaps that's why GlaxoSmithKline (GSK) entered into a partnership with Propeller Health to share in the rewards of the app-based asthma market. Perhaps more important, Medicare is beginning to recognize app-based medical solutions as a reimbursable treatment, opening the DRIO focused diabetes market to tremendous growth opportunity. Welldoc has pitched in as well, having the only FDA approved app-based treatment available by prescription only.
Thus, with two major avenues for revenue now open, DRIO is in prime position to exploit the opportunity. In a medical industry that is plagued by high cost and inconsistent reimbursement rates, companies like DRIO can take advantage of their low-cost options. While emerging companies may feel push back from the high-powered drug developers, the inevitable reality shows that using DRIO products and services can result in a 50% decrease in cost, and may soon have Medicare and major insurance carriers looking carefully at these app-based solutions. And, once the reimbursements become mainstream, investors should expect the valuations of companies like DRIO to increase exponentially, leading to an elevated level of mergers and acquisitions of these emerging and disruptive competitors.
There will come a time when patients will look back and laugh at the idea of having to take up to ten pills a day. But, such a pattern of treatment by pill has become facilitated by enormously wealthy companies, which generally treats symptoms rather than the disease. Well, DRIO can do the same at half the cost. Digital therapeutics and digital drugs will be common forms of treatment in the coming years, and regardless of the money spent to slow the changing tide of treatment options, patients will use their new found leverage in deciding what is best for themselves.
The future of utilizing digital monitoring and therapy is far closer than many people believe, with companies like DexCom (DXCM), which provides continuous glucose monitoring systems, now sporting a market cap of more than $5 billion. And then there is Livongo Health, a privately held company that is making real strides with its app-based "best practices" approach, designed to coach patients in making better lifestyle choices when living with diabetes. Livongo Health raised $52.5 million to advance their cause for "smart" diabetes management. Those two company valuations make the $2.32 share price for DRIO almost laughable, leading many investors to agree with the assumption that DRIO remains significantly undervalued.
Is DRIO undervalued? I believe they are. And I believe that an investment into DRIO is even more appealing to investors when I see industry giants like Apple (AAPL) and Google (GOOGL) hiding behind the scenes developing their own sensors to monitor blood glucose levels. According to a CNBC story, Apple believes that they will deliver the "holy grail" for treating diabetes to the market, an app-based service for its iOS system. For their part, Google and Sanofi (SNY) have partnered in a $500 million joint venture that will focus on type 2 diabetes, developing solutions that could help diabetic patients make better decisions about day-to-day health, ranging from medication management to improved social habits and lifestyle goals.
Obviously, both Apple and Google have the potential to develop apps that can compete with DRIO, but truth be told, the interest by each serves as an endorsement to the medical revolution taking place. It’s typical for large companies to take interest in a sector ripe for change and emerging growth, but they usually do not enter it successfully. Preferably, investors might embrace a partnership between DRIO and either of the two financial behemoths, but the interest alone may become a driving force in building shareholder value at DRIO. For DRIO fans, the dam has been opened, releasing substantial opportunity for the company to exploit, especially in Medicare reimbursement and potential FDA approvals. In either scenario, DRIO is positioned to benefit enormously.
The Means To Disrupt
The good news for DRIO investors is far from complete. From a financial perspective, the company is financially sound with a strong balance sheet. Recently completing a $2.5 million deal with an Israeli digital-health specialized fund, OurCrowd Qure, DRIO sits comfortably with $7 million in cash, absolutely no debt, and only 9 million shares outstanding.
The most recent quarterly results posted record revenues and continued sequential growth, with 76% of its revenues coming from the sale of test strips, proving the value of the recurring revenue model strategy. Sequentially, test strip sales increased by over 20%, and the Dario Blood Glucose Monitoring System sales grew by 6,900 units, eclipsing the 25,000 level since 2016.
For those tracking revenue growth, more good news: DRIO has recorded sequential revenue growth since the 1Q of 2015, rising from $67K to $1.07 million during the latest quarter, representing a cumulative growth of over 1393% in just over two years time. During the last nine quarters, DRIO has posted sequential revenue increases for each quarterly period, with average revenue increases between 12% - 85%.
It's easy to see what drives the DRIO story, and there is not a chapter that does not inspire interest. The company, with their next-generation MyDario device, is well positioned to capitalize on their industry strengths and have a balance sheet and capital structure that can deliver continued sequential growth with minimal dilutive effect on shareholders. For investors who are willing to conceptualize the future and bank less on what large pharma is trying to tell a changing industry, the opportunities are substantial.
During the past five years, a revolution in the way medical treatment is being delivered has taken hold of a generation of patients that care more about changing a lifestyle than they do about filling their bodies with medication. While medication may be a vital component to patient care, in more cases than not, education and app-based lifestyle management are proving to be a viable competitor to conventional treatment. For DRIO investors, the company is still providing a ground-floor opportunity, trading at prices that neglect to factor in the multiples given to peer competitors. The revenue run-rate alone is ample ammunition to suggest far higher levels for the stock.
At just $2.32 a share, DRIO stock is a prime example of a disruptive stock that has simply not gotten the attention it deserves. Perhaps it's time to monitor DRIO itself and take strong interest in investing in a stock that is riding the wave of a medical revolution in digital eHealth big data management and analytics.
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