DRIO: First Quarter 2022 Financial and Operational Results

By John Vandermosten, CFA

NASDAQ:DRIO

READ THE FULL DRIO RESEARCH REPORT

On May 12, 2022, DarioHealth Corp. (NASDAQ:DRIO) published its first quarter 2022 operational and financial results and filed its Form 10-Q for the three month period ending March 31, 2022. Dario hosted a conference call and webcast to discuss results in further detail. During the quarter, 14 new business to business (B2B) contracts began, including two health plans. Dario highlighted the 61 contracts that have been signed in the last year and a half which should generate a run rate of $42 million per annum when fully implemented. Revenues increased 124% over the prior year quarter, as Sanofi revenues and new clients are recognized in revenues.

Highlights for 2022 include:

➢ Webinar presentation: Navigating Digital Health Trends – January 2022

Physimax acquisition: MSK computer vision services – January 2022

➢ Clinical outcomes study published in the Journal of Medical Internet Research – February 2022

➢ Equity direct offer: $40 million – March 2022

➢ Strategic agreement with Sanofi US – March 2022

Dario generated revenues of $8.1 million for the quarter ending March 31, 2022, producing a net loss attributable to common stockholders of ($16.4) million, or ($0.74) per share.1

For the year ending March 31, 2022 and versus the same ending March 31, 2021:

➢ Revenues totaled $8.1 million, increasing 124% from $3.6 million due to sales increases in the commercial channels and contribution from the Sanofi agreement;

➢ Gross profit was $4.0 million (49% gross margin), increasing 269% from $1.1 million (30% gross margin) with the improvement in gross margin attributable to more profitable sales through the commercial channel;

➢ Research & development expense totaled $5.9 million, rising 123% from $2.7 million, mainly due to increase in salaries and software development expenses;

➢ Sales and marketing expense totaled $9.5 million, rising 34% from $7.1 million, mainly due to increases in payroll related expenses and stock-based compensation;

➢ General and administrative expense totaled $4.4 million, falling 22% from $5.6 million, mainly due to lower consulting expenses;

➢ Net loss attributable to holders of common stock was ($16.4) million, increasing 6% from ($15.5) million or ($0.74) and ($0.92) per common share, respectively, with the improvement in net loss per share attributable to the substantial increase in shares outstanding.

As of March 31, 2022, cash and equivalents totaled $55.6 million, up from the $35.8 million at year end 2021. Dario executed a gross $40 million raise during the first quarter, sufficient to support operations through 2023. Dario holds no debt on its balance sheet. Cash burn for 1Q:22 totaled ($18.3) million.

Contracts

Dario continued to add new clients in 2022 with three new entities signing contracts since Dario reported its fourth quarter in late March. Two new employer contracts were executed and an agreement was signed with Health Plan Colorado Access which will manage multiple chronic conditions for the Medicaid population in the state. Below we summarize the latest closed agreements. The previously announced national health plan client will begin its phase 2 implementation earlier than expected and Dario will begin this component of the agreement in the second quarter.

Strategic Agreement with Sanofi US

In 1Q:22 Dario entered into a multi-year, $30 million strategic agreement with Sanofi US. This agreement will support commercial adoption across Dario’s full suite of offerings with Sanofi’s US commercial clients leveraging the pharma company’s sales force. It will extend reach in the health plan and employer markets. The agreement should also stimulate development of new enhanced solutions leveraging Dario’s platform and generate robust evidence to support future commercialization in the health plan channel.

The agreement marks Sanofi’s latest foray into the tech space since the announcement of its partnership with Google.2 Sanofi’s agreement with Dario is a testament to its continued interest in the DTx space and its belief that the future of patient care will be data centric and highly personalized. As a first step in Sanofi’s appearance in DTx, the agreement provides Dario additional exposure to health and employer plans and Dario will share its data and analysis with Sanofi. If the partnership is successful, Sanofi may increase its interest in the company. Sales exposure for Dario in terms of sales reps will expand more than fivefold with the addition of Sanofi’s commercialization force which will include Dario’s digital therapeutic in their portfolio of medicines.

Objectives of the agreement include development of services based on Dario’s data and analytics. Sanofi’s $30 million investment will be allocated toward the value of the data Dario has collected, its access to this data and its analysis. Sanofi has identified health plans that it will target with the digital offerings, avoiding overlapping sales efforts with Dario. Dario will in turn supply development data, analytics and expertise to support Sanofi’s DTx sales. Cash flows from the agreement will be recognized in 2022 consisting of $8 million in year one, $7 million in years two and three and the remainder thereafter.

Physimax Acquisition

In late January, Dario announced that it had entered into an agreement to acquire Physimax Technologies Ltd., and issued a press release providing detail. The acquisition aims to augment the features of Dario Move with computer vision capabilities. Physimax leverages computer vision Artificial Intelligence (AI) technology for automated musculoskeletal (MSK) functional screening and predictive risk of injury assessment. The platform has been validated by experts and generates output proven to be comparable to that of trained human professionals. Among Physimax’ clients are NBA and NFL teams, as well as US military and healthcare facilities specializing in orthopedic care. Through the agreement, Dario will acquire the right, title and interest in certain assets of Physimax. Consideration for Physimax’ assets will include common shares worth approximately $2.5 million, $500,000 in cash, and the assumption of up to $1.02 million in liabilities. Dario Move will gain computer vision capabilities as a result of the Physimax acquisition. Dario unveiled Dario Move at HLTH 2021 several months earlier in October of 2021 and emerged as a result of the integration process for Upright Technologies.

Publication for Single DTx Platform-Multiple Conditions Outcomes

On February 9th, Dario announced the publication of a retrospective study demonstrating Dario’s DTx impact on managing both blood pressure and diabetes using a single platform in the Journal of Medical Internet Research. The study compared the results of two propensity-matched groups using Dario’s digital therapeutic platform to monitor and manage blood sugar levels. Six months of blood sugar level monitoring with Dario were provided for the test group before and after adding blood pressure measurements, while the control group used Dario to manage blood sugar only. The study showed a significant improvement in average blood glucose levels during the first six months of using Dario to manage both blood glucose and blood pressure versus the control group whose average blood glucose levels did not change. Both systolic and diastolic blood pressure dropped during the first six months of monitoring and 27% of users achieved systolic blood pressure reduction of more than 10mmHg, demonstrating the impact of managing both conditions using a single digital application.

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1. Earnings per share as provided in the press release include adjustments that are not included in company filings. We use company-provided earnings per share in the discussion section to align with management discussion but use our calculated numbers on page 1 of this report and in our model.

2. Sanofi and Google to develop new healthcare Innovation Lab – Sanofi

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