Given the spotlight on digital health over the past year, we have been heavily focused on the outlook for telehealth, remote patient monitoring (RPM), digital therapeutics, and determining which solutions are necessities vs. “nice to have.” From this work, we became interested in the investment theme within "online coaching," pleasant experiences in disease management, and eventually, our newest Best Idea Long. DarioHealth (DRIO) is a digital therapeutics company, which engages in the research, development, and sale of pharmaceutical products. It offers a monitoring device, mobile application, and data services for diabetes management. The firm solutions include MyDario, Daro Engage, and Dario Intelligence, as well as Upright Go and Upright Go 2 through the recent acquisition of Upright Technologies.
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Background
Employers turned to digital support to help manage chronic illness over recent years. Some like Livongo grew their user base rapidly. The global pandemic accelerated the use of some digital tools as in-person care became increasingly restricted beginning March 2020. As COVID19 cases recede we believe the adoption of digital health tools will persist even through a drawdown in COVID19, although there appears to be more scrutiny on the value proposition of these tools.
Thesis
The key to the stock will be pipeline conversion over the remaining quarters of 2021. News of wins should highlight the upside potential we see for revenue looking out to 2022. In their most recent conference appearance, Dario quoted the pipeline to be $600 million vs. the last update of $500 million. Regardless, until they close a deal, it's only a nice data point. In our interview with their management team, Rick Anderson stated that they expect to close 10% to 20% of the pipeline per year, which would equate to $60MM-$120MM in new business.
Valuation
We don’t need to see multiples as high as Livongo or other comps for this stock to work. Based on our estimates for the combined company, we can model 29.67MM for 2021 and 48.76MM for 2022. Depending on the pace and magnitude of the deal announcements we would expect Dario to trade at 15-25X revenue and trade into the high $30s to low $40s.
Catalysts
Dario is currently responding to RFPs for their B2B2C strategy now through mid-2021. We expect deal announcements in 3Q21 for new starts January 1, 2022. There is also the opportunity for Dario to announce wins any time throughout the year, although the number of opportunities are small in number according to management.
Risks
Global pandemic pressed many telemedicine and remote patient care tools into use to respond to social distancing requirements. Employers have complained about the lack of evidence of ROI, patient data integration, and integration of many point solutions. Dario may be too late in making the transition to a B2B2C sales strategy. It may be that the product finds limited to no uptake.
Total Adressable Market
Catalysts, Trackers, & Data
Valuation & Estimates
