Over the years I've found that nothing advances share prices like the strong top and bottom line growth DarioHealth Corp. (NASDAQ:DRIO) is experiencing.
- DRIO reported a whopping 282% growth in sales for the previous 9 month period ending last September
- Expect a record Q4 and full 2016 results when DRIO reports next month, a strong catalyst to drive shares higher
- Approval for the Android version of the DarioSmart Diabetes Management Solution is expected by mid-2017, another positive catalyst for the company
- Near-term launch in Germany also pending
- Coming off a $5.1 million raise last month, DRIO has a strong balance sheet to continue rapid market penetration
- DRIO has a unique business model in the Mobile Health (mHealth) space that helps customers better manage their diabetes, and that model, (along with the Company's proprietary technology), is the driving force behind the growth
DarioHealth Corp. , ( web site), is a digital health company that develops and commercializes patented and proprietary technologies providing consumers with laboratory-testing capabilities using smart phones and other mobile devices.
Its flagship product is the Dario Smart Diabetes Management Solution, a mobile, real-time, cloud-based, diabetes management solution based on a multi-feature software application combined with Dario Smart Meter, a pocket-sized, blood glucose monitoring device.
DarioHealth Corp. has marketing clearance in Europe and the U.S. and the Dario iOS mobile app recently launched with reimbursement in the United Kingdom, Australia, Israel, Italy, and Canada. Additionally, DarioHealth has launched in New Zealand, the Netherlands, Italy, and Belgium.
The company is also pursuing patent applications in various jurisdictions covering the specific processes related to blood glucose level measurement, as well as various general methods of rapid tests of body fluids using mobile devices and cloud-based services. The company was formerly known as LabStyle Innovations Corp. and changed its name to DarioHealth Corp. in July 2016. The company was founded in 2011 and is headquartered in Caesarea, Israel.
Shares Outstanding: 7.3 Insider ownership: ~40%
Float: 2 Closing Price 2/17/2017: 3.86
Market Capitalization: $28 milion
Quarterly Revenue Growth (yoy) 167%
DarioHealth Corp. Experiencing Strong Top and Bottom Line Growth
Nothing drives share price appreciation more than strong fundamentals, something DarioHealth Corp. has in spades. DarioHealth grew sales by 282% during the first 3 quarters of last year as compared to the same period in 2015, from $515,000 to $1,965,000 ( see SEC filing). Moreover, loss/share was trimmed to (.31) from (.90) during Q3 of 2016 vs. the same period in 2015. This strong improvement in top and bottom line growth is no fluke- it's due to several factors that set DRIO apart from competitors, factors that I'll discuss below.
Record Q4 Report Pending
DarioHealth will be reporting Q4 and full year results in March, and indications are that Q4 will be a new record for the company. This is due in part to the launch of DarioHealth Blood Glucose Monitoring System in the U.S. market, a launch in its infancy that's producing very substantial early results. On January 23rd, DRIO gave a peek at the upcoming Q4 results from the U.S. market launch, and the numbers are impressive:
More than 8,500 were sold in the U.S during Q4 alone, increasing market presence by 85% compared to the end of the third quarter 18,500 Dario All-in-One Smart Glucose Meter devices were purchased in the U.S. alone during the company's 2016 U.S. launch Nearly 95% of U.S. users have ordered test strips DarioHealth generates recurring revenue between $150-$500/user annually from sales of disposable monitoring strips
DRIO is the classic "razor-razorblade model" on steroids. FDA approval of Android version will add to sales.
By taking the lower end of annual recurring revenue/user of only $200 and the 95% U.S customer conversion rate to disposable test strip consumers (or approximately 17,500 of U.S. customers), DRIO is looking at $3.5 million in annual recurring sales from the U.S. market alone for 2017 ($200 x 17,500). Keep in mind this is using the lower end of the $150-$500 annual recurring revenue/customer range and includes just the U.S. market alone, where DRIO is still ramping up sales. It does not account for growth in multiple other markets, (including the United Kingdom, Australia, Israel, Italy, and Canada, New Zealand, the Netherlands, Italy, and Belgium), or Germany where DarioHealth has a launch pending.
DRIO also submitted the Android version of the Smart Diabetes Management System to the FDA and expects approval in Q1 or early Q2 of this year. There are approximately 107 million users of android devices in the U.S., so this is a noteworthy market for expansion.
Given the facts above, investors can look forward to a record Q4 and full year 2016 to be reported in the DRIO 10-K filing due in early March, followed closely by a record Q1 2017.
Recent Capital Raise Will Fuel Rapid Expansion and Strong Sales Growth
DarioHealth has a strong balance sheet with current assets of $5.6 million and current liabilities of $2 million for a healthy current ratio of 2.8. Keep in mind the balance sheet is from Q3 of 2016 and does not include the cash infusion of approximately $5 million in gross proceeds expected from the Company's recent raise announced January 12, 2017.
The financing deal was led by OurCrowd Qure, a dedicated digital health fund that invested $2.5 million of the $5.1 million. OurCrowd Qure has been granted two board seats which will be selected and announced at a later date.
On the recent funding, Erez Raphael, Chairman and CEO of DarioHealth stated:
" We have received great support and belief in our product, vision, and growth strategy from investors. With this funding, we will accelerate adoption of our innovative and user-friendly remote glucose monitor platform across current markets and also expand into new geographies, such as Germany, in 2017."
Analyst Sees $8 Million in Sales for 2017 and $19 Million for 2018
Analyst Joseph Gunnar & Co has a well-researched report on DarioHealth you can read here. In the report you'll find sales estimates of $2.9 million for 2016, $8 million for 2017, and $19 million for 2018. Using a reasonable metric of 4.5X sales, Joseph Gunner has an $8/share price target on DRIO shares.
Additionally, Rodman and Renshaw has a $12 price target on DRIO shares, using a net present value (NYSE:NPV) model, and assuming just 6.6% diabetes market penetration and $400/year sales/user (includes hardware, strips, licensing, etc.)
Clearly, DarioHealth Corp. is on to something in the rapidly expanding mobile health space.
The Diabetes Management Market
Diabetes is the 7th leading cause of death in the United States according to the Centers for Disease Control. Moreover, it greatly increases the risk for heart disease, end-stage renal disease, blindness, amputation, and complications during pregnancy. It is a chronic medical condition that has increased in its numbers at a faster pace than most other chronic conditions. In 2015, the International Diabetes Federation estimated that more than 415 million people had been diagnosed with the disease, and that number is expected to balloon to 642 million by 2040.
The importance of carefully managing diabetes cannot be overstated. In a recent study by the National Institutes of Health, people with type 2 diabetes who intensively managed their blood sugar levels were found to have cut their risk of diabetic retinopathy in half. Multiple studies have shown that well managed blood sugar levels in diabetics dramatically reduces risk of complications including heart and blood vessel disease, nerve damage, and kidney disease as well.
Mayo Clinic puts it simply and directly:
"Controlling your blood sugar levels can help prevent these complications."
And this is where DarioHealth Corp. comes in- with 12% of all global health expenditures spent on diabetes, having a real-time diabetes management solution that is practical and user-friendly while reducing risk of costly and life-threatening complications represents an urgently needed paradigm shift in the management of the disease.
Moving the Market from "Monitoring" to "Management" is Driving Growth
The company's focus on helping consumers manage and not just monitor diabetes is why sales are skyrocketing. Investors should understand that DarioHealth Corp. is not simply a diabetes monitoring or blood sugar measurement device company. Dario is a pioneer in effective disease management solutions, and diabetes is the first, "low hanging fruit" the company is addressing.
Unlike traditional glucose meters offered by competitors, the Dario App provides:
Real-time, easy-to-access information Test results automatically logged and synced in the cloud for physician access (no need to write in paper log books) Data insights, analysis, and pattern recognition so users can easily understand why their personal blood glucose levels change and what changes them Actionable alerts and reminders Insulin dose tracking Log of carbs and calories Database showing carbohydrate counts of half a million foods Users can even set extreme hypoglycemic result alerts to text message family member(s) with GPS tracking
DarioHealth also intends to increase penetration in both the direct to consumer market and to other businesses by offering diabetes management coaching services in the future. The company plans to reduce medical complications of employees with diabetes (and improve clinical outcomes, reduce sick time, reduce health care costs) by using a team of nurses and other health care professionals that will provide diabetes management coaching services.
The video below gives an overview of the DarioHealth Smart Diabetes Management System in action.
The DarioHealth Smart Diabetes Management System includes a sleek, accurate, all-in-one Smart Meter combined with a robust, real-time mobile app that allows users to record their data: blood glucose measurements, carbs & insulin intake, and physical activity. Users can view, analyze, list and compare all of this valuable information and share it with family and medical staff.
DarioHealth is the only diabetes management system that includes all of the features below:
Innovative B2C Sales Model = High Margins and Rapid Sales Growth
Going beyond technological innovation in disease management, DarioHealth Corp. has an innovative approach to sales. The company is using a direct business to consumer sales approach with a strong presence on social media. DarioHealth is creating demand directly from the consumer, skipping the middlemen, and generating high margins.
Ultimately, DarioHealth intends to dramatically ramp revenue by expanding the company's diabetes management solution beyond individual consumers to include businesses by offering a cost effective mobile health solution for employees with diabetes. DarioHealth plans to reduce medical complications of employees with diabetes (and improve clinical outcomes, reduce sick time, reduce health care costs) by using a team of nurses and other health care professionals to provide diabetes management coaching services. This is a huge, untapped market for Dario to penetrate with an early mover advantage.
DarioHealth is a pioneer in the digital health space, addressing a global market of > 400 million diabetics with patented technology that can help them better manage their disease and reduce expensive and life-threatening complications in a cost-effective manner.
With sales just beginning to dramatically increase following last year's U.S. launch and the enormous market the Diabetes Management System addresses, the current low market capitalization of DarioHealth ($28 million) is not likely to last. To date, the company has been focused on the successful launch of the system itself, including FDA and other regulatory hurdles, obtaining patent protections, and regularly upgrading the software based on user feedback. During my conversation with management it was clear the company intends to begin doing much more in terms of investor awareness and investor relations, including taking steps to increase institutional awareness and participation in the company in 2017.
Relative to other digital health data solutions, both retail and institutional investors should find DRIO shares attractive at a $28 million market cap, especially given the "hockey-stick" growth curve the company is experiencing.
Fundamentals matter, and as a result DRIO shares shares should have a very strong showing in 2017 as the company rapidly expands revenues and is introduced to a larger investor base. Look for a record Q4 report in early March, followed up by another new record for Q1 2017.
DarioHealth February 2017 Investor Presentation
Rodman and Renshaw Report: DarioHealth BUY $12 PT
Disclosure: I am/we are long DRIO.