OVERVIEW
On February 11, 2021, we hosted a Digital Health and Remote Patient Monitoring Q&A on HedgeyeTV with DarioHealth ($DRIO) CEO Erez Raphael, and Rick Anderson, President & General Manager North America. To start 2021, the company announced that its Digital Therapeutics (DTx) Solution was Selected as an Employee Health Benefit by a [second] Self-Insured, Fortune 500 Subsidiary, as well as the Acquisition of Leading Digital Musculoskeletal (MSK) Company Upright Technologies and $70 Million Financing. These announcements caught our attention, as we continue to monitor the space and scrutinize our stance on Teladoc ($TDOC), which remains a Best Idea Long.
Tom Tobin moderated the discussion, and we came away rather impressed with the framework DRIO appears to have constructed over the past year as it pivots from B2C to B2B2C. DRIO isn’t a new entrant, but we can appreciate the need to amass data that makes AI work well, and the acquisition of Upright adds a musculoskeletal (MSK) offering with ~90k users to the existing diabetes and hypertension offering (~69k users). With Rick and his team pounding the pavement across payers, providers, and employers, we think there could be meaningful upside potential for shareholders.
TAKEAWAYS
-
DRIO's offering, which now covers diabetes, hypertension, and MSK (all w/ good NPS/customer ratings online, and all intensely focused on engagement/user experience), was/is expected to generate pro forma revenue of at least $18MM-$20MM this year, but that sounds like it could be low, and the perception of what 2022 will look like could change if Rick and his team can convert 20% of deals in the pipeline, on average. While they must prove it out, the optics around a $500MM pipeline are positive.
-
Hinge Health, Sword, et al. have been raising tons of money at high valuations - Sword Health scores $25M as virtual musculoskeletal care market continues to grow (Hinge recently valued at $3bn). Dario just bought Upright and raised capital simultaneously, and management intends to roll Upright into its B2B2C model this year. We think the market is large enough that there should be room for multiple players to grow, especially multi-specialty ones like DRIO.
-
Dario's "adaptive" AI is interesting. According to management, it learns and becomes more helpful over time, especially with user engagement and driving behavioral change/action. We think there's a link between diabetes and MSK issues that DRIO may address/help with, and using a 95/5 model of virtual/live coaching may work.
-
DRIO recently hired several people who have credible health care experience, which addresses a common gripe with "tech"/SaaS disruptive models. Rick was quite helpful on the call, and his prior experience at OnTrack helps the story. Another good example is Claudia Kraut, VP of Boker and Consultant Partnerships). We wanted to speak with her about Amwell in 4Q20 but couldn't connect - she was VP Population Health and Go to Market at AMWL and then went to Omada, a DRIO competitor.
Subscribers can CLICK HERE for event details (includes video and audio replay, as well as materials link).
CALL NOTES
*Edited lightly for clarity and length; emphasis added.
00:00 - Intro and Background Information
- Erez has a tech/software background (has been w/ the company for ~7 years), and Rick joined DRIO just over one year ago from Catasys (now OnTrak), which has a hybrid behavioral health solution (focus is commercialization following pivot to B2B2C).
- The past year has been one of transition for the digital therapeutics (DTx) company. DRIO provides a combination of hardware (medical device: glucose monitor w/ a custom reader/adapter for smartphone), software, and human coaching to improve clinical outcomes.
- Focus has been diabetes/pre-diabetes and hypertension. Now musculoskeletal (MSK) following the acquisition of Upright.
- “The DNA of the company is to create something extremely user centric.” 75-80% of the costs in our system are from chronic conditions. The view is that the only way to scale up is to get the user/patient involved. “It’s all about data and how users operate and learn from data, then we help them drive change,” said Erez.
- Also, the only way to get data is to have users, which is why DRIO made the decision to launch B2C first. The point was to get the product right, gather data, and then after a few years of operating and collecting data, make the switch to B2B2C.
- Thus far, DRIO does have a good NPS (77) and plethora of positive app reviews (>14k). Erez noted the need to prove the clinical side too (+ outcomes) - there are ~15 clinical papers showing they know how to manage lives. They have real data on real users - more than 38k for one year and 17k for more than two years.
- The switch to B2B2C is ~1 year old - goal is to get payers, employers, and/or providers to cover the cost of the monthly membership.
07:29 - What equipment is yours, and with the test strips, is that tech amenable to other analytes?
- Erez: We have our own glucose monitor. We did that because we wanted a very good user experience and wanted it to run through/on a smartphone. We own all the R&D of the monitor and integration w/ smartphone (users plug it in). The test strips are sourced through an OEM w/ another company - we chose to spend on the equipment R&D (software, data, AI, etc.), not the test strips. We think of ourselves as a software company w/ a device, not the other way around.
- 09:30 (question on data) - Once we capture data from the glucose monitor via a smartphone, we literally capture 100% of the data. Most of our competition can’t say the same. With the context of other data points like day and time stamps, GPS, etc. on the phone, plus the capability of the app to capture biochemical data, we can measure the relationship between food and blood sugar, exercise/activity with blood sugar or blood pressure, etc. We can build a profile of the member and understand their daily routine - 24/7. Once we can do that, we can offer digital interventions in a way that eventually helps users change their own habits, which leads to better outcomes.
11:00 - How many coaches do you have/need?
- Rick: We built the platform to integrate easily w/ partners, who can get up and running quickly. Regarding the coaching, we are using AI to understand how to use them efficiently and effectively. If we understand members, we can personalize “it” and give coaches “superhuman” powers – i.e., help them understand what the intervention should look like.
- We have more than a dozen currently, including RNs, pharmacists, certified diabetes educators; and Dario Partners – people that are very educated clinical or medical friends, who understand the pieces and the patient journey. They help with motivation, encouragement, setup, etc. – it’s a combination of people with expertise and health friends - behavior change is made possible when you think someone that cares is paying attention. The primary deficit out there is not one of education.
- We can’t presume what works for all members – it’s about engagement and what works for each patient. Some people do best with an asynchronous digital experience. So long as it’s personalized, or dynamically personalized.
- Operationally, our solution is 95% digital, 5% human.
15:00 - Pipeline – Your pipeline is up to $500MM. Can you talk about how close you are to closing and implementation?
- Rick: Yes, our pipeline has been increasing as we’re seeing a dramatic increase in interest in what we’re doing. We’re active in three channels:
- Self-insured employers, which is a more established space (Livongo and Omada have been playing there for a while)
- Health plans, looking at fully insured (want to manage their risk)
- Providers, large Medicare-focused providers and integrated health systems (RPM channel – different focus)
- In the beginning of 2020, codes were set for Medicare for RPM. So, providers see an opportunity – if you meet the criteria – to make top line revenue and improve outcomes.
- Each of those channels has its own cycle (for example, health plans take 1-2 years). We built the teams around B2B shortly after I joined last year. I think we’ll start seeing signed contracts in the relative near-term from 5-6 [prospects] in late-stage negotiations.
- On the employer side, we’re seeing some wins with Fortune 500s. Two have launched and are scaling nicely. There are some off-/mid-cycle opportunities that could come before 2022, but we’re generally working on implementations for next year.
- In the RPM space, we have a few different contracts, including a health system in New Mexico – I’m hoping to see more come on this quarter and next.
- We have a great opportunity with the pipeline – I expect to convert ~20% per year, give or take. The indicators are pretty good – we anticipate increasing revenue in 2021 based on what’s signed and in late stages.
20:00 – AI Differentiation
- Dario’s AI is next-gen personalization. Other solutions aren’t terribly personalized. The messages and nudges are more general, which is different from a process that adjusts to the member. It’s a black box, but if you look at engagement and think about everyone paying us out of pocket, it’s clear that there’s a difference. We try to delight customers that are paying for it. With a 77 NPS, people like it a lot. If you read the reviews, words like “easy” and phrases like “best ever used” come up often.
24:00 - Anything else about technique, ML, NPL, etc.?
- Erez: We have more than 4 years of data collection – billions of data points went into building it. Other companies talk about AI, but we think the way we think about it is different -> personalization from enrollment to day-to-day use of the application. The result is a different interaction w/ coaches and with the other digital interaction through channels - through app, emails, text, others.
- In the past 1.5 years, there’s been a big step up in terms of the level of prediction. For example, we can identify specific capabilities around food personalization (a green apple impacts people differently) or the ability to look into medication personalization (insulin from different manufacturers has a different impact on the body).
- Not all of it is being used by the users but we are introducing these elements into the experience. These prediction algos can help predict who requires specific coaching, who might leave, etc. As we feed it, the AI improves over time. It all drives better engagement.
- We put more budget into R&D – the result, we think, is the future of the market (charging for users w/ improved clinical outcomes).
28:40 – You cover multiple conditions, and data must be integrated (part of the EHR) – how does Dario fit in?
- Data collection, biochemical profile, consumer data, and now biofeedback from Upright that relates to physical activity. When we think about data - integration w/ user, first, and then can integrate w/ other devices through the app. Then, data collection - exercise, heart rate, smart database of food, pictures of food, trying to help users understand the relationship between blood sugar and pressure w/ other elements.
- With external, we think we created an advantage via an open platform that can integrate with any other devices. The ease of integration for health plans is important, for example. They can use their own coaches, systems, clinical program, etc. (w/out additional software development). The advantage w/ Upright is that it’s one platform. We can also allow users to add data manually (coming off a Garmin or Apple watch).
33:15 - Upright - I bought one and have been reading up on PubMed, clinical data. There’s a large body of evidence around posture training…
- Rick: Yes, on the commercial side, we’d like to expand from back and neck, which represents a large portion of the overall challenge that’s there. Upright enables a digital experience connected to biofeedback. Pain impacts employers - people are actively out of work, or there are people that are impacted by being at a desk all day. We’d like to move to hips and knees over time, so the product will be a combination of digital self-help w/ PT (chronic and acute pain MSK issues as well as pre- and post-surgery).
37:00 - Competition in MSK?
- Rick: In B2B, there are a few point solutions – Hinge, Sword, Omada bought Physera – all different approaches to market. We think we have a unique approach stemming from our DNA w/ B2C, which fits with the consumerism angle. We make it engaging, add the AI engine, and the ability to provide point or integration solution – there is crossover between diabetes and MSK – joint pain, weight management, etc. Depending on how you define MSK, it expands the market (~10% of people with diabetes, and 30-40% with MSK issues – there’s acute and chronic). People that move tend to feel better.
40:00 - KPIs – If we’re modeling and putting pen to paper for 2022?
- Erez: ARPU was relatively low with B2C, but as we expand to B2B2C, the unit economics are stronger and we’re selling different offerings including premium coaching services. The 4Q20 run rate was around $8.4MM in sales, 69k active users, mostly B2C, paying out of pocket.
- The channels Rick mentions – for every 10k users it results in $7MM-$8MM to Dario. The next 10k users will change the whole financial profile of the company – growth rate, margins, etc.
- We’ll launch Upright into B2B in the second half of 2021 – for now, it’s B2C already.
- We’re not in a position to give guidance, yet.
45:00 - The market tuned in to what Livongo is doing, but we haven’t heard a lot of incremental out of TDOC. Is there anyone you bump into most often? Is it Livongo or other players?
- Rick: The competition depends on the market. For employers, the largest are Livongo, Omada, and we run into Virta too. We have gone head-to-head and been finalists or won recent RFPs. Livongo was the first-mover and did a great job of opening the market.
- The conversation has moved from “is there something to do with digital?” to “who should we be doing this with?” That shift can create large opportunities for fast followers.
- If we look at all the competition, the market is probably MSD% to HSD% penetrated. There are a lot of employers w/ out a solution.
- Fully insured health plans are not penetrated – there are some partners, but not a lot of adoption. We are seeing pure digital competition more frequently.
- In the RPM space, there’s no clear leader, in my opinion. The winners will have clinical data and a level of engagement to bill the codes.
- We’re already seeing a different kind of focus from Teladoc and Livongo.
49:30 - Closing comments?
- Erez: The transformation to digital is huge and it’s the first inning. Digitization of the space has been happening for a while, and COVID accelerated it. It’s a huge space, and we’re looking forward to being leaders.
Please send any questions or feedback via .
Thomas Tobin
Managing Director
Twitter
LinkedIn
