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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2021
For the transition period from ______________to________________
Commission File No. 001-37704
DARIOHEALTH CORP.
(Exact name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
(972)-4 770-6377
(Registrant’s telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act
Title of each class Trading Symbol(s) Name of each exchange on which registered:
Common Stock, par value $0.0001 per share DRIO The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001 per share; Warrants to purchase Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☑ Smaller reporting company ☑
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter is $307,551,746.
As of March 17, 2022, the registrant had outstanding 21,814,967 shares of common stock, $0.0001 par value per share.
Documents Incorporated By Reference: None.
Table of Contents
TABLE OF CONTENTS
Item No. Description Page
Cautionary Note Regarding Forward-Looking Statements 3
PART I
Item 1. Business 4
Item 1A. Risk Factors 25
Item 1B. Unresolved Staff Comments 49
Item 2. Properties 49
Item 3. Legal Proceedings 49
Item 4. Mine Safety Disclosures 49
PART II
Item 6. [Reserved] 53
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 62
Item 8. Financial Statements and Supplementary Data 62
Item 9A. Controls and Procedures 63
Item 9B. Other Information 64
PART III
Item 10. Directors, Executive Officers and Corporate Governance 65
Item 11. Executive Compensation 70
Item 14. Principal Accounting Fees and Services 83
PART IV
Item 15. Exhibits and Financial Statement Schedules 84
Signatures 86
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, or the Annual Report, contains “forward-looking statements,” which includes information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to significant risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
● our product launches and market penetration plans;
● the execution of agreements with various providers for our solution;
● our ability to retain key executive members;
● our ability to internally develop new inventions and intellectual property;
● interpretations of current laws and the passages of future laws; and
● acceptance of our business model by investors.
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see “Risk Factors” for additional risks that could adversely impact our business and financial performance.
Moreover, new risks regularly emerge and it is not possible for our management to predict or articulate all the risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this Annual Report are based on information available to us on the date of this Annual Report. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this Annual Report.
When used in this Annual Report, the terms “DarioHealth,” “the Company,” “we,” “our,” and “us” refer to DarioHealth Corp., a Delaware corporation and our subsidiary LabStyle Innovation Ltd., and Upright Technologies Ltd., each of which are Israeli companies, Upright Technologies Inc. and PsyInnovations Inc., each a Delaware company, and PsyInnovations India Private Limited, an Indian company. “Dario” is registered as a trademark in the United States, Israel,
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China, Canada, Hong Kong, South Africa, Japan, Costa Rica, and Panama. “DarioHealth” is registered as a trademark in the United States and Israel.
PART I
Item 1. Business
We are revolutionizing how people with chronic conditions manage their health through the innovation of a new category of digital health: Digital Therapeutics as a Service (DTaaS). We believe that our innovative approach to digital therapeutics disrupts the traditional provider-centered system of health care delivery by offering user-centric care that is continuous, customized and multi-condition. Our solutions combine the power of technologies and behavior science to make better health accessible, affordable, and easy for all by solving for what people need, when and where they want it, with hyper-personalized care that is always connected – to services, devices, and people – and delivered continuously. This is how we deliver meaningful and sustainable results that result in measurable value for all stakeholders, supporting the full transformation of health care into a more effective and affordable ecosystem.
Market Environment
The United States health care industry is becoming increasingly inefficient, incurring higher, unsustainable health care costs while the chronic conditions that it seeks to address continue to worsen. According to the Centers of Medicare and Medicaid Services (CMS), the U.S. spent $4.1 trillion on health care in 2020, with 75% of the costs attributed to care for chronic conditions. We believe that addressing the cost challenges in chronic condition management will require three main shifts.
First, the market must shift from a provider-centric approach to a consumer centric approach, embracing the transformative effects of consumerization as a means to engage more patients in their own treatment to scale effective chronic condition management. This consumerization of health care will change how people experience care, create new opportunities to engage people and help them change their behaviors for better health and lower cost of care.
Second, the digitalization of health will enable scale by connecting patients to health care professionals and payers, giving patients access to care for their health between provider visits and shifting healthcare from episodic to continuous care. Telehealth addresses the synchronous portion of the problem, while digital health provides continuous support at scale.
Finally, value-driven care should become the standard. In fact, performance-based models are already becoming a reality as the industry reckons with unsustainable costs and growing demands for transparency, creating pressure on stakeholders to find solutions that will address poor health and lower costs of care.
Overview
We began as a direct-to-consumer digital therapeutics company, solving first for the problem of how to engage users and support behavior change to improve clinical outcomes in diabetes. In the last two years, we made two strategic shifts to transform our business: first, we significantly expanded commercial growth opportunities by adding a business-to-business product (B2B) and a commercial team alongside the legacy direct-to-consumer channel. In addition, we began targeting three traditional health business verticals – health plans, employers, and provider groups. As a result, we believe that our new B2B business now leverages our consumer-centric capabilities as a competitive advantage.
Second, we transitioned from a single condition platform to a multi-condition platform, creating a robust suite of solutions to address the five most commonly co-occurring and expensive chronic conditions, which are also representative of some of the most sought-after digital health solutions: diabetes, hypertension, pre-diabetes/weight management, musculoskeletal and behavioral health. After building weight loss and hypertension management into the legacy diabetes platform, we made three acquisitions in order to expand into musculoskeletal and behavioral health.
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Our acquisition of Upright Technologies Ltd. (“Upright”) in early 2021 and Physimax in early 2022 enables our musculoskeletal (“MSK”) solutions – “Dario Move.”, our digital behavioral health capabilities were secured through the acquisition of PsyInnovations, Inc. (dba wayForward) in mid-2021.
We believe a key success factor is our ability to integrate multiple chronic conditions into a single digital therapeutics platform, the “Dario One.” During 2021 we successfully won contracts in all three B2B business segments, including several contracts for Dario One, creating a compounding effect as more members enroll and many in multiple programs. The combination of moving from direct-to-consumer to the enterprise business market (B2B2C) and expanding from a single condition to multi condition platform, created multiple commercial growth engines as well as a multiplying impact that we believe will improve our financial profile by increasing potential revenue per account and per user.
Recent Developments
Agreement with a Leading Employer Benefits Brokerage
In December 2021, we announced that we entered into a strategic partnership with a leading employer benefits brokerage (the “Partner”) to sell its digital therapeutic solutions for diabetes, hypertension and musculoskeletal health as part of a new premier employee health benefits product for small businesses. The product has been made available to the Partner's more than 2,300 clients since early 2022.
Employer Contracts and Health Providers
Dario closed 2021 with a total of 54 new contracts in its first full year of selling digital therapeutics in the business-to-business market. We have a range of health plans, providers and employers taking advantage of our digital therapeutics platform designed to address the most common chronic conditions: diabetes, hypertension, weight management, musculoskeletal, and behavioral health.
In January 2022, we announced two new contracts with a large U.S. northeast regional employer in the finance industry set to deploy the Company's full suite of solutions, and a northeast regional employer in the food industry contracted to deploy the Company's digital therapeutic solution for diabetes. In January 2022, we also announced that we have contracted with a large regional health plan provider to deliver its digital therapeutic solution for diabetes for eligible U.S. Medicaid members in and around the mid-Atlantic region. The contract is expected to contribute to revenue beginning in the second quarter of 2022.
In addition, in February 2022, we announced several new contracts to deliver the Company’s digital therapeutics solutions for four new employers. The new accounts are expected to launch during the first and second quarters of 2022. The new clients include a northeast regional employer contracted for the Company's diabetes solution and three employers - including two educational organizations and a regional professional services firm - launching with the Company's behavioral health solution. In March 2022, we also announced new agreements with a regional employer and a regional provider. The new employer client will deploy Dario's digital behavioral solution to improve access to outcomes-based care, and the new provider contract will deliver both diabetes and hypertension solutions to patients. The contracts are expected to launch in the second quarter of 2022.
Agreement with Physimax
In January 2022, we announced that we have entered into an agreement to purchase all of the right, title and interest in certain assets of Physimax Technologies Ltd. ("Physimax"), a leading provider of computer vision (CV) technology for Musculoskeletal (MSK) functional screening and predictive risk of injury assessment. Physimax's technology is currently in commercial use by NBA and NFL teams, the U.S. military and health care facilities specializing in orthopedic care. The closing of the acquisition of Physimax's assets is subject to customary closing conditions, including the approval of the Israeli Innovation Authority. The technology enables automated MSK and injury risk screenings with validated accuracy and Physimax's Artificial Intelligence (AI) engine generates evidence-based personal training programs based on the user's objective scoring outcome to aid in effective injury prevention and recovery. Physimax's unique technology is validated by a professional motion lab as well as industry experts and proven to be comparable to trained human professionals. In consideration for the acquisition of Physimax's assets, the Company agreed to issue up to 256,660
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shares of its common stock, subject to a lock up period, plus a cash payment of $500,000, as well as agreed to assume certain liabilities in an approximate amount of $1,020,000.
Agreement with Sanofi U.S.
In March 2022, we announced our entering into a strategic agreement with Sanofi U.S., an innovative global healthcare company. The multi-year, $30 million-dollar agreement, which is subject to certain contingencies, will help accelerate commercial adoption of Dario's full suite of digital therapeutics and drive the expansion of digital health solutions on the Dario platform. Dario and Sanofi will collaborate on promoting the Dario multi-condition digital therapeutics solution, significantly increasing Dario's sales reach in the health plan market and selectively in the employer channel. In addition, the agreement calls for Dario and Sanofi to develop new or enhanced solutions leveraging the Dario platform, and for the parties to generate robust evidence to support future commercialization in the health plan channel.
Competitive Advantages
Our competitive advantage is driven by several unique capabilities, including:
Consumer-centric design. Most digital health solutions are built to address the needs of a business and then sold directly to the business, bypassing the difficult step of achieving consumer buy-in with respect to the product. Our experience as a direct-to-consumer company now leverages those insights to drive B2B2C commercial growth by working with health plans, employers, and provider groups and providing them a solution that their end users are more likely to utilize. Our current and potential customers recognize that consumer engagement insights are critical to success, and they are prioritizing solutions with more of a consumer focused experience.
Hyper-personalization. Unlike other digital health solutions, we personalize the user journey to anticipate and adapt to each individual’s unique circumstances, preferences and changes over time. Our solution has a 40% member enrollment rate. Our customized, dynamic user journeys are delivered by our artificial intelligence (“AI”)-driven journey engine which personalizes user experience across a range of factors including timing, tone, channel, content, frequency and intervention. We believe that this creates an adherence to our solutions that leads to an 80% year-over-year retention rate for consumers on our platform and the ability to sustain clinical improvements for more than two years, as demonstrated in our published studies as discussed more fully below.
Therapeutic value at scale. The digitization of health care has created an ecosystem of access points and point solutions that are largely disconnected, creating waste and inefficiency without sustainable value. We believe that our unique approach to connected and continuous health care through the use of our single integrated multi-condition platform leads to superior engagement and retention, reduced costs, and ultimately, improved user health that can be delivered at scale.
These advantages combine to ensure that our users have a better overall experience, with stronger engagement, superior clinical and financial outcomes and a simplified integrated platform that addresses the conditions that matter most to our customers and users.
Our Product Offering
Our user-centric software platform integrates digital therapeutics, coaching, professional human support and medical devices to drive superior clinical and financial outcomes. Our suite of offerings is modular, allowing for enterprise clients to purchase one or more of our chronic condition management solutions, while enjoying the same best-in-class experience supported by our behavior change journey engine so our partners can be confident in achieving sustainable outcomes and value. Our suite of digital offerings include:
Dario Metabolic (“Dario Evolve”)
Dario’s metabolic solutions are designed to address some of the most commonly co-occurring metabolic health needs - diabetes, hypertension, and weight management - through a combination of software, our smartphone-connected tools,
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interaction with live coaches, and real-time data analysis to help inform and educate users of the relationship between their behaviors and their health outcomes to drive changes that last.
Dario Musculoskeletal (“Dario Move”)
Our unique approach prevents and treats the most common MSK conditions, including chronic pain, by dealing with the cause and empowers users to create behavioral change. Dario Move’s digital physical therapy programs and posture training help people improve strength and mobility by using a combination of software, wearable biofeedback sensors, and coaching to drive sustainable improvements in musculoskeletal health.
Dario Behavioral Health (“Dario Elevate”)
Dario’s behavioral health solution optimizes access to evidence-based care by using an AI-driven screener to triage users and connect them to the most appropriate support across a wide range of mental health needs, including our integrated digital tools and coaching, giving patients a seamless path to proven mental health support.
Dario Full Suite (“Dario One”)
Dario’s full suite of chronic condition management solutions offers the maximum benefit for our partners with a completely seamless and holistic approach to managing chronic conditions. In addition to a better member experience, our partners deploying Dario One enjoy several benefits from purchasing the entire suite of solutions: better overall health as evidenced by recent research published by us; the convenience and ease of a single vendor to manage; less strain on internal resources spread across several chronic condition management programs; and a more affordable program launches due to lower costs of implementation.
Dario Health Solution Main Components
Users vary significantly in their interests and preferences, and unique user preferences also vary over time with respect to the optimal timing, tone, content, channel, frequency, and interventions required to produce sustained behavior change. Users’ interactions with devices, smartphones, coaches, providers, and third-party solutions must be personalized along these axes to ensure optimal engagement, retention, and outcomes. Furthermore to engage and sustain user interest and participation, and drive outcomes, platforms must be dynamically responsive. Due to a lack of responsiveness to these types of variances, most digital health platforms that achieve high initial engagement often fail to retain users over time.
Key to our ability to accommodate user behavioral changes is our mature AI-driven user journey engine. While several in-market solutions now integrate health signals across a range of categories to apply limited, nominal personalization, primarily in the form of nudges, our solution is informed by years of user experience data from over 223,000 users, enabling us to continually personalize and adapt user journeys themselves (and not just messages) over time. Our journey engine drives our multichannel targeted outreach and enrollment campaigns, informs specific recommendations around a range of categories such as diet, physical activity, self-care, coaching interventions, and provider engagement, and evolves in real time in response to the data exhaust from a user’s interaction with the care ecosystem.
Our journey engine combines complex behavioral science insights with data from hundreds of thousands of users over several years to recommend AI-driven initial and updated care journeys in response to a user’s engagement with the platform. Most digital health solutions consist primarily of tracking, content, and nudges. These are often perceived by users as non-rewarding work, and often do not feel relevant to their concerns, particularly as they evolve over time. We believe that current in-market solutions trivialize within person changes over time and do not appropriately respond to the dynamically evolving interests of users. This results in reduced engagement and impaired outcomes. Our journey engine adapts user journeys to drive engagement, retention, and clinical outcomes by optimizing timing, tone, channel, content, frequency and intervention to deliver dynamically personalized user journeys that are more likely to result in the behavior changes needed to drive improved outcomes across a range of conditions. As we partner with solutions in additional conditions or categories, we engage new populations and generate fresh insights, enhancing the engagement and efficacy of these partnered solutions to deliver additional value to our users. The engine is designed for integration and scale; as
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we add populations and conditions for which behaviors are primary drivers of outcomes, our engine becomes more adept at customizing a user’s evolving preferences and needs.
Software Applications
Our chronic condition management solutions are designed as three separate software applications to provide the best possible user experience across metabolic, MSK and behavioral health needs. Each application is integrated with Dario’s single digital therapeutics platform and behavior change journey engine to ensure the same hyper-personalized experience across each person’s unique health needs and preferences to keep them on track with healthy changes over time.
Dario Evolve
Dario Evolve helps users change their behaviors and help better manage their diabetes, blood pressure and weight. Using real-time data and analysis, the app helps users track their progress and offers real-time feedback and customized content to support each individual’s needs and goals. Integration with the Dario journey engine ensure that each user receives holistic support and a highly personalized experience that keeps them on track for long-lasting results.
Dario Move
Dario Move helps users improve strength and mobility to help address chronic pain and improve overall musculoskeletal health. After completing an online assessment, each user receives a personalized, evidence-based exercise program that can be adjusted throughout their journey based on sensor data or self-reported feedback to a coach or in the app. Dario Move guides members through their tailored program with educational content to support long-term outcomes.
Dario Elevate
Dario’s Elevate helps people get the help they need to address common mental health needs. Starting with a responsive, AI-driven screener, elevate triages users to understand the need and recommend the most appropriate support to help them feel better. Our integrated, evidence-based digital tools and coaching help people learn proven techniques to better manage their emotional health.
DarioEngage and Coaching
Our member health is managed through our proprietary care management platform DarioEngage, an integrated experience from contracting through onboarding, data exchange, enrollment, outcomes, and reporting. Regardless of which conditions or populations our customers select, and independent of whether they choose to deploy portions of their strategy through other partners, we present a unified application experience in DarioEngage to reporting that simplifies deployments, creates market-leading transparency, and accelerates and broadens user engagement.
DarioEngage also serves to support our coaching staff by providing a member-level view to help monitor progress and track escalations in real-time. Our professional staff includes trained and certified health coaches who serve as a personal support for each member throughout their journey, and clinical experts who provide expert-level care when members need additional support. Our clinical coaches include Certified Diabetes Educators (CDCES), Registered Nurses, Pharmacists and Mental Health Clinicians who are able to assist members throughout their journey.
Dario User Devices
Our product offerings include integrated devices to capture relevant clinical and biofeedback data to support continuous, real-time monitoring of member health. Our native devices include:
● All-in-one smart glucose meter
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● Bluetooth connected blood pressure cuff
● Digital Scale
● Biofeedback sensor device
Sales and Marketing
In 2021, we invested in building a robust U.S. commercial team with deep experience in the health care industry to sell into the three key industry segments: health plans, employers, and providers. Dario’s sales teams are aligned to commercial channels and charged with maximizing revenue by selling multiple product lines in each channel.
Dario’s marketing resources are focused on three key objectives: first, engage new consumers on the platform to provide early feedback on new and enhanced solutions; second, engage eligible individuals with our services as part of an enterprise client population; and third, attract new enterprise clients across all three sales segments.
Our Commercial Channels
Our software solutions are sold across a range of channels to create multiple growth engines and support rapid adoption across all segments of the market. Our integrated product suite is designed to address a common and growing sentiment from enterprise customers expressing frustration with the large number of condition-specific solutions, lack of transparency, lackluster results and poor member experiences. Our software solutions align to meet the pain points across the three key buyer segments – health plans, employers, and providers – while also delivering value to strategic partners through our differentiated approach in the market. Finally, our consumer-centric legacy remans a key component of our commercial strategy, bolstering our ongoing solution development by serving as proving grounds for new services and product enhancements.
Health Plans: Although health plans represent the longest and most complex purchasing cycle across our client base, these contracts often represent sizeable opportunities as they typically offer much larger potential member populations. We currently have two live contracts with health plans, one a regional payer and one a large national plan, with several additional plans in negotiation and contracting at present day.
Employers: Our most robust growth in 2021 came from the employer market, a key buyer to help demonstrate our ability to deliver results. Today, we have several dozen employer populations actively on our platform, and growth of our employer pipeline continues to grow and mature.
Providers: The Centers for Medicare and Medicaid released additional proposed Current Procedural Terminology (“CPT”) codes for remote therapeutics in 2021, expanding our ability to support providers using our solutions to provide Remote Patient Monitoring (RPM) services. We won provider RPM contracts from several large regional practices in 2021 and continue to see pipeline growth thanks to the growing regulatory acceptance of digital health as form of care delivery, with several practices actively in the negotiation and contracting phase.
Partnerships: As part of our strategy for rapid growth, strategic partnerships play a key role in helping to expand our reach across markets quickly and efficiently. One such significant partnership agreement to come to fruition in early 2022 is our collaboration with Sanofi, a global leader in health care. The multi-year, $30 million-dollar agreement, as described more fully below, will help accelerate commercial adoption of our full suite of digital therapeutics through the promotion of our solutions in Sanofi sales channels and the collaborative development of new products. We also entered into partner agreements with several large employer benefits platforms such as Virgin Health Pulse in 2021, helping expand our reach within the employer market.
Consumers: Our ability to engage members and improve health begins with our consumer-centric approach, and this audience remains key to our commercialization at the enterprise client level. Our direct-to-consumer channel continues to attract members to our platform and provides a neutral audience for testing and learning about our products. These insights inform both our AI-driven behavior change journey engine, helping continuously improve engagement and retention, and inform product design to ensure our solutions remain at the forefront of consumer expectations.
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Sanofi U.S. Agreement
On February 28, 2022, we entered into an exclusive preferred partner, co-promotion, development collaboration and license agreement (the “Agreement”) with Sanofi for a term of five (5) years. Pursuant to the Agreement, we and Sanofi will collaborate as preferred partners to co-promote certain of our products and services, including devices and accessories, and to develop new products and services based on insights derived from our data relating to the use of those devices and services. In addition, we granted Sanofi a license to access and use certain of our data to derive insights from and improve our products or services, and Sanofi granted us a license under certain intellectual property of Sanofi for purpose of creating and promoting certain products and services in the United States.
Pursuant to the Agreement, in consideration of the preferred co-promotion and development rights granted by us, Sanofi agreed to pay us an aggregate amount of up to $30 million over the initial term of the Agreement, consisting of (i) an upfront payment, (ii) annual compensation for development costs per annual development plans to be agreed upon annually and (iii) certain contingent milestone payments upon meeting certain net sales and enrollment rate milestones at any time during the term of the Agreement. The Agreement also provides for us to make certain revenue sharing payments to Sanofi in a percentile beginning in the low double digits to low twentieth percentile of specified revenues upon qualifying sales through Sanofi introductions achieving a minimum revenue amount, and provided that the qualifying sales through Sanofi introductions remain above a specified percentage of total sales after year 3 of the collaboration. Revenue sharing in the thirtieth percentile will apply with respect to new solutions or services developed under the collaboration.
The Agreement has a term of five (5) years and may be renewed for a subsequent five (5) year term upon the mutual agreement of the parties. The Agreement may be terminated (i) by either party for a material breach, force majeure or insolvency; (ii) by us if net sales requirements are not reached; (iii) by either party for convenience, upon sixty days’ prior notice, beginning in the third year of the Agreement; or (iv) by Sanofi if we fail to complete a development plan within nine (9) months of the Effective Date, or upon our change of control.
Our Growth Strategies
As a company with multiple product lines operating in several channels, we have multiple growth engines. Furthermore, because we often bill on a per member per month basis, this enables recurring revenue that grows when users are enrolled into the platform. The below key factors should have high impact on the business ability to grow.
Add customers across a range of markets and channels. In 2021, we established a client footprint across all three key enterprise verticals – providers, employers, and health plans – with contracts representing a mix of our solutions. Each additional contract not only increases revenues, but also the likelihood of attracting additional new customers as they recognize our solutions being adopted and trusted by peers and competitors. With new and existing clients, we are also focused on expanding client solution contracts across product lines to increase our ability to maximize revenue per member through engagement in multiple condition management programs.
Increase the eligible populations within customers. The expansion of our solution set to include MSK and behavioral health increases our ability to cover larger portions of our customers’ populations, thereby reducing the need for our customers to engage multiple vendors, and reducing their costs as compared to the alternative of partnering with multiple solutions to cover the conditions and categories that we cover on one single platform. The addition of medical conditions on our platform in the future can also accelerate the eligible populations for our services.
Drive Engagement. Our business model is predominantly a subscription model, where we charge per user engaged on the platform. As our AI matures and as we deploy increasingly dynamic and adaptive personalization, we intend to engage a large portion of eligible populations, potentially driving increased revenue.
Optimize solutions for value. Our customers primarily engage for 2 key reasons: the opportunity for cost savings and our competitive advantage in breadth of conditions serviced and our AI technology. Our pricing strategy is designed to deliver return on investment to our customers soon after engagement, and steadily over time. As we evolve our solutions to deliver increased value to our users, we can offer customers value-based pricing models that can lead to greater revenue.
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Operations
The onboarding of client populations across multiple product lines requires the ability to outreach and engage to large numbers of individuals in a coordinated and responsive manner. We are focused on scaling operations to meet the rapid growth our of enterprise client member base by investing in platform and process technologies.
We also maintain supply agreements with commercial-scale manufacturers to produce our consumer devices, and owns the specialized equipment used to manufacture the Dario Blood Glucose Monitoring System.
Clinical Studies
Main Highlights
Our studies below demonstrate the clinical value of our legacy digital therapeutic devices and the ability of our solutions to deliver sustainable outcomes over time.
Dario reported an Average Reduction in Estimated HbA1C of 1.4% for High-Risk type 2 Diabetes Users.
Dario presented at the 77th ADA session a study that was titled “Reducing A1C Levels in Individuals with High-Risk Diabetes Using the Mobile Glucose Meter Technology.” In the study Dario reported an average reduction in estimated HbA1C of 1.4% for high-risk type 2 Diabetes users.
At the ADA 2018 session, Dario presented three real-world-data analysis studies, as detailed below.
Type 2 Diabetes Users of Dario Digital Diabetes Management System Experience a Shift from Greater than 180 mg/dL to Normal Glucose Levels with Sustainable Results
● Reduction of 19.3% in high glucose readings within 12 months
● Increase of 11.3% in in-range readings within 12 months
Method: A retrospective data evaluation study was performed on the DarioTM cloud database. A population of all active Type 2 Diabetic (T2D) users that took measurements with DarioTM BGMS on average of 20 measurements per month during 2017. The study assessed the ratio of all high blood glucose readings (180-400 mg/dL) and the ratio of all normal blood glucose readings (80-120 mg/dL) in their first month of use to their last month of use during 2017 as recorded in the database.
Results: For 17,156 T2D users activated during 2017 the average ratio of high events (180-400 mg/dL) was reduced by 19.3% (from 28.4% to 22.9% of the entire measurements). While at the same time, the ratio of normal range readings (80-120 mg/dL) was increased by 11.3% (from 25.6% to 28.5% of the entire measurements). The most significant shift occurred after one month of usage (14% decrease) and maintained stability over the following months throughout the full year.
Updated Analysis combining 2017 and 2018 data totals 38,838 Type 2 Diabetes active users and 3,318,014 measurements show 14.3% decrease in high readings (180-400 mg/dL) and 9.2 % increase in In-range (80-120 mg/dL) readings
A decrease in High Readings and Severe Hyperglycemic Events for People with T2D over the Full Year of 2017 in Users Monitoring with Dario Digital Diabetes Management System
● Reduction of 58% of Hyper events (>400mg/dL) in T2D within 12 months
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Method: A retrospective data evaluation study was performed on the DarioTM cloud database. A population of active Type 2 Diabetic (T2D) users that continuously measured their blood glucose using DarioTM BGMS during the full year of 2017 was evaluated. The study assessed the ratio of high (180-400 mg/dL) and hyperglycemic (>400mg/dL) blood glucose readings during full year of 2017 as recorded in the database. The average of high and hyperglycemic glucose readings were calculated in periods of 30-60, 60-90, 90-120, 120-150, 150-180, 180-210, 210-240, 240-270, 270-300, 300-330, 330-360 days and compared to first 30 days as a starting point of analysis.
Results: For 225 T2D active users the ratio of high events (180-400 mg/dL) was reduced gradually in 19.6% (from 23.4% to 18.8% of the entire measurements) from baseline compared to the 12th month of the year. Moreover, the ratio of severe hyperglycemia events (>400 mg/dL) was decreased in 57.8% (from 0.90% to 0.38% of the entire measurements) at the same period.
Continuous Reduction of Blood Glucose Average during One Year of Glucose Monitoring Using Dario Digital Monitoring System in a High-Risk Population
● Reduction of 14% Blood Glucose average was observed in T2D within 12 months
Methods: An exploratory data analysis study reviewed a population of high risk active type 2 Diabetic users with initial 30 days glucose average above 180 mg/dL during a full calendar year. The study assessed the average blood glucose readings along a year of usage. The average of glucose readings was calculated per user in periods of 30 days intervals from 30-60 to 330-360 days and compared to the first 30 days as the starting point baseline of analysis.
Results: Overall of 238 highly engaged T2D users (more than one daily measurement in average) whose average blood glucose level was above 180mg/dL in the first 30 days of measurements (225±45 mg/dL) showed continuous reduction in glucose level average vs. baseline. Reduction in blood glucose average level was demonstrated gradually, in the succeeding 3, 6 and 12 months showing average decrease of 7%, 11% and 14% vs. baseline, respectively. Furthermore, 76% of the entire population (180 out of 238 users) improved their average blood glucose level over a year. Those 180 users (average blood glucose 228±46) showed an average decrease of 10%, 16% and 24% in their glucose average following 3, 6 and 12 months, respectively.
At the American Association of Diabetes Educators (AADE) 2018 Dario presented a study titled “Decrease in Estimated A1C for people in High-risk over a full year of users monitoring with a digital Diabetes management system.”
A reduction of 1.4% in estimated HbA1C in Type 2 Diabetes high risk users from baseline after one year of the Dario system use.
Method: A retrospective data evaluation study was performed on the DarioTM cloud database. A population of high-risk (with baseline A1C > 7.5 percent), active users that continuously measured their blood glucose using DarioTM BGMS during a full year was evaluated. The study assessed estimated A1C values based on blood glucose readings during a full year as recorded in the database. The estimated A1C values were calculated in periods of 3, 6, 9 and 12 months and compared to first 30 days as a starting point of analysis.
Results: A group of 363 high-risk Dario BGMS users (A1C>7.5) with greater than two blood glucose measurements taken per day in the first 30 days and in the 12th month of the year was selected. Estimated A1C was improved by -0.7, -0.8 and -1 percent from baseline to 3, 6 and 9 months respectively, and remained -1 percent lower following 12 months of usage (8.65±0.96 vs.7.65±1.0). Moreover, subgroup analyses by diabetes type revealed substantial estimated A1C improvement among people with T2D showing improvement of -1 percent from baseline to 3, 6 months and 1.4 percent following 12 months (8.5 ± 0.91% vs. 7.14% ± 0.98%).
An additional study evaluated on the potential improvement in glycemic variability in Type 2 diabetes over six months in patients monitoring with Dario Digital Diabetes Management System. Dario presented the study results at the Advance Technologies and Treatment for Diabetes (ATTD) conference in February 2019 in Berlin. We presented two additional studies outcomes at ADA 2019 conference.
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Decrease in Glycemic Variability for T2D over Six Months in Patients Monitoring with Dario Digital Diabetes Management System
● Hypo events (<70 mg/dL) remained <1 event on average
Method: A retrospective data evaluation study was performed on the DarioTM database. A population of T2D high-risk patients (blood glucose measurements average (GMavg) >180 mg/dL) measuring more than 20 times in the first 30 days (analysis baseline) was evaluated on days 60-90 (3 months) and 150-180 days (6 months). Standard deviation (SD) and GMavg were calculated and compared to the baseline.
Results: A group of 698 T2D high-risk DarioTM users was selected. GV was reduced by 10% and 14% from baseline through 3 and 6 months, respectively (SD of 55.7, 58.4 vs.65.0). GMavg was reduced by 8% and 12% from baseline through 3 and 6 months, respectively (201.1±25.57, 192.8±54.3 vs. 219.5±38.5) while patient’s hypoglycemic event (<70mg/dL) was in average, less than one (<1) during this period. Subgroup analyses (355 patients) revealed substantial GV improvement among non-Insulin T2D patients. The GV was reduced by 14% and 18% from baseline through 3 and 6 months, respectively (SD of 52.8, 50.7 vs.61.7).
T2D Users of Dario Digital Diabetes Management System Experience an Increase of in-range Glucose Levels Linked to App Engagement
Relative Increase of 10 % In-range linked to App engagement
Method: A retrospective data evaluation study was performed on the DarioTM cloud database. A population of active Type 2 Diabetic (T2D) users (>15 measurements per month on average) was evaluated. The study assessed the ratio of in-range blood glucose readings (70-140 mg/dL) as a function of App engagement level for 6 months as recorded in the database compared to first 30 days as a starting point of analysis.
Results: A population of 4917 T2D non-insulin users measuring more than 15 times per month on average during 6 months in a row was evaluated. The ratio of in-range (70-140 mg/dL) readings was increased following 3 months in correlation to the level of tagging meal reference/carbs/physical activity occurrences (4.0%, 9.1% and 11.9% for tagging 0-1, 1-2 and >2 times per day on average, respectively) and sustained for 6 months (3.1%, 7.0% and 12.2%, respectively). In subgroup analysis focusing on users entering their meal reference, high correlation was observed following 3 months with an increase of in-range measurements in 4.6%, 8.4% and 12.0% for 0-1, 1-2 and >2 meal reference tagging per day on average, respectively, and maintained stability over 6 months period (3.2%, 7.4%, and 12.5%, respectively).
Reduction of Blood Glucose Average Less than 140mg/dL in People with Type2 Diabetes Using Dario Digital Diabetes Management System
30-40% of T2D Dario users experienced Reduction of Blood Glucose Average below 140 mg/dL
Method: A retrospective data evaluation study was performed on the DarioTM cloud database. A population of active T2D users that continuously measured for 6 months was evaluated. The study assessed their BG avg and estimated A1C (eA1C) values based on blood glucose readings as recorded in the database. Values were calculated in periods of 3 and 6 months and compared to their first 30 days as a starting point analysis.
Results: A group of 1248 Dario BGMS T2D active users (1.98 measurements per day on average during 6 months in a row) with BG avg >140mg/dL (eA1C>6.5) was evaluated.100% reduced their BG avg along 6 months on average.
A group of 31% (387) achieved BG avg of <140 mg/dL (eA1C<6.5) following 3 months showing 19% reduction on average from baseline (132.38±13.36 vs.162.79±25.41 mg/dL and eA1C 6.24±0.46 vs 7.3±0.88) and sustained their glycemic control during a 6 months period (131.57±13.86 mg/dL and eA1C 6.21±0.48).
Subgroup analyses of 568 non-insulin users revealed that 40% (226) achieved a BG avg <140 mg/dL following 3 months (131.95±13.21 vs.161.67±24.18 mg/dL and eA1C 6.22±0.46 vs 7.26±0.84) and sustained for 6 months period
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(131.03±13.70 mg/dL and eA1C 6.19±0.47). Along the 6 months period, hypo events (<50mg/dL) per user per month on average remained stable.
In August 2019 another study was presented at the AADE 2019 in Atlanta. The study evaluated the “Impact of Digital Intervention on In-range Glucose Levels in Users with Diabetes.” The study results showed 6% improvement in average blood glucose levels over 3 months intervention program for a group of 162 users. A 39% increase in the in-range measurements was observed in a subgroup of 101 patients who started with average blood glucose levels of over 140mg/dL.
In February 2020, we presented an additional clinical study at the Advanced Technologies & Treatments for Diabetes (“ATTD”) conference in Madrid, Spain. The presented data shows the Dario digital therapeutics platform successfully assists insulin dependent patients with diabetes in reducing hypoglycemic events.
Decrease in Hypoglycemia Events Over Two Years in Patients Monitoring with Dario’s Digital Diabetes Management System
Method: A retrospective data analysis was performed on the Dario real-world database. Insulin dependent of users with type 1 or type 2 diabetes population was evaluated for two year of continuous system use. Average numbers of level 1 hypoglycemia (<70mg/dL) and level 2 hypoglycemia (<54 mg/dL) events were calculated monthly and compared to baseline (first month).
Results: For 1481 type 1 and type 2 insulin dependent users, average of level 1 hypoglycemia events and level 2 were reduced by 24% and by 17% after 6 months and by 50% and 57% after 2 years vs. baseline respectively. Users with type 1 diabetes (N=363) reduced level 1 hypoglycemia events by 50% and Level 2 by 55% after 2 years. Moreover, a 40% reduction in high blood glucose readings was observed as well after 2 years.
In November 2020, we presented additional clinical study data at the Virtual Diabetes Technology Society (DTS) meeting. The presented data indicated the potential for a digital diabetes management solution to effect and sustain glycemic control improvements and demonstrated long term reduction of blood glucose average (eA1c) and glycemic variability in type 2 diabetes over two years. The system assists users through a variety of mechanisms including behavior modification in diabetes self-management and in long-term routines for self-care.
The Effect of a Digital Therapeutic Platform on Glycemic Control in Adults above Age 65 with Type 2 Diabetes.
Reduction of 13% blood glucose average in age group ≥65 (N=298) at six months by 13% sustained for 12 months.
Reduction of 38.1% in high readings ratio (>250 mg/dL) in the ≥65 age group at six months and by 41.5% at 12 months.
Method: A retrospective study of high-risk users (BG avg >180 mg/dL equivalent to e A1c 8.0) 2 with type 2 diabetes that measured their blood glucose using the Dario® platform database over two consecutive years was performed. The minimum engagement level for inclusion was at least two blood glucose measurements per day on average taken in Month 1 and Month 24. Actual blood glucose readings were taken by the Dario meter and loaded into the cloud database. These were evaluated for the blood glucose average (BGavg), estimated A1c (eA1c)values and glycemic variability (by Standard Deviation; SD) following 24 months compared to the first month (baseline).
Results: 368 high-risk, T2D active and engaged users for at least consecutive 2 years were identified and assessed for their risk-level and insulin usage. A group of 148 T2D, non-Insulin users that started with a blood glucose average (BG avg) >180 mg/dl (equivalent to eA1c>8.0) consistently reduced their BG avg by 18% on average and sustained these values (179±45 vs. 219±56 mg/dL) following 2 years on the Dario platform. Glycemic variability was reduced over two years by 20% on average (SD:45 vs. 56) . Substantial reductions were observed for higher risk groups (insulin and non-insulin treated). The subset that started with average BG levels > 212 mg/dL (eA1c >9.0) and average BG levels >240 mg/dL (eA1c>10) reduced their average BG by 22.5% and 25.7% respectively on average over two years. The equivalent reductions in eA1c were 1.95% and 2.42%
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In August 2020, we presented an additional clinical study at the Virtual Association of Diabetes Care & Education Specialists (ADCES) conference. The presented observational study data demonstrated better glycemic and blood pressure control. Patients using an integrated chronic disease management digital platform have the potential to improve user activation which may assist to better manage their blood glucose and blood pressure levels and sustain behavioral change.
Impact of Digital Management on Clinical Outcome in Patients with Chronic Conditions: Diabetes and Hypertension.
Hypertension: Increase in normal level % measurements from 6% to 12% while hypertension stage 2 measurements decreased from 53% to 45%. 70% of the users (243 out of 345) improved their blood pressure levels by 8.4 mmHg Systolic and 6.2 mmHg on average.
Glucose levels: A reduction of 33% in high readings (>250 mg/dL) and 67% in severe events (>400 mg/dL) was observed over six months.
Methods: A retrospective data evaluation study was performed on the DarioTM cloud database. A population of active users that measured both blood pressure and blood glucose for at least 3 months was observed. Blood pressure and blood glucose levels were evaluated. First month measuring on Dario platform was used as study baseline. Clinical outcomes examined were blood pressure values, percentage of blood pressure categories, average blood glucose (BGavg) and high blood glucose readings (>250 mg/dL, >400 mg/dL) ratios.
Results: A group of 345 active users started at baseline with Hypertension stage 1, 2 or hypertensive crisis levels and measured following 3 months was evaluated.
●Blood pressure:
●Blood Glucose:
A subset of 114 users with diabetes in higher risk started with BG average >160 mg/dL improved their average blood glucose by 14% (207±47 vs.177±50 mg/dL) following six months.
In June 2020, we presented two clinical studies at the ADA Virtual conference. The presented data from these studies showed:
Users with type 2 diabetes using a digital platform experienced sustained improvement in blood glucose levels.
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Method: A retrospective data evaluation (Q1:2018-2019) was performed on the Dario® data base. A population of active users (18 measurements per month with the Dario® System on average) with T2D, non-Insulin treated was evaluated over a full year. High blood glucose readings (180-400 mg/dL, >250 mg/dL), fasting readings (<126 mg/dL) and post-meal readings (<180mg/dL) ratios were assessed in their first month of use until the 12th month.
Results: For 9,200 users with T2D, non-Insulin users, the average ratio of high glycemia events (180-400 mg/dL) from entire set of measurements was reduced by 26% (18.62% vs. 23.43%) while readings of >250mg/dL were reduced by 33% (4.65% vs. 6.93%) over a year. Fasting measurements analysis revealed an increase of 16% in ratios of readings <126 mg/dL per entire set of fasting measurements (40.59% vs. 34.92%) on average. Post-meal readings ratio of <180 mg/dL per entire post-meal measurements increased by 5% (73.75% vs. 70.42%) on average over a year.
Estimated A1C Reduction in High-Risk Patients over Two Years of Using a Digital Diabetes Management Platform
Method: A retrospective data evaluation study was performed on high-risk users with type 2 diabetes that measured their blood glucose using Dario® platform database for two consecutive years. The study assessed BGavg, estimated A1c (eA1c) values and glycemic variability following 24 months compared to the first month (baseline).
Results: A group of 148 high-risk users with type 2 diabetes, non-Insulin treated was evaluated. Their BGavg was of >180mg/dL (eA1c>8.0) for users taking ∼2 blood glucose measurements per day in the first month and in the 24th month on average. Their BGavg was consistently reduced by 18% and sustained (179±45 vs. 219±56 mg/dL) and eA1c was reduced by 1.5 percentage points (9.26±1.3 vs. 7.86±1.8). Glycemic variability was reduced by 20% (SD: 45 vs. 56) at the end of 2 years. Additional analysis of 220 users with type 2 diabetes,147 started with eA1c >9.0% and 73 started with eA1c >10%, revealed substantial eA1c reduction of 2.0 percentage points (10.31 ± 1.8% vs. 8.36 ± 1.2%) and 2.4 percentage points (11.15 ± 1.2% vs. 8.73% ± 2.1%) from baseline after 2 years, respectively. Glycemic variability was reduced by 20% for both (SD: 55 vs. 69 and 59 vs. 74, respectively).
The potential benefit of implementing a real-time digital diabetes intervention journey to recognize episodes of high blood glucose measurement clusters and assist patients in improving self-management and clinical outcomes.
Method: A retrospective data evaluation study was performed on a population of 3,609 users who experienced a cluster event of frequent high blood glucose levels above 250 mg/dL (>=4 times in 4 different days along 7 days) and measured with Dario at least one month before and after the event during 2021. A group of 1,084 users was assigned to a Test group who experienced a digital intervention flow with personalized messages via various channels. The remaining 2,525 users were assigned to a Control group. The clinical outcome examined was the monthly average of high blood glucose readings ratio calculated as the number of blood glucose measurements >250 mg/dL per total number of measurements in a month. This was measured during the event month and in the following month. T-test was used to compare the changes in high readings ratio in the Test group and Control group in the following month versus event month.
Results: A significant difference of 19% vs. control group (N=3,609), 18% for the group with type 2 (N=2307) and 42% for the group with type 2 non-insulin, in the reduction in average monthly ratio of high readings (above 250 mg/dL) per total blood glucose measurements in the following month. The results indicate personalized communications are effectively influencing positive lifestyle behavior change
A group of 454 users experienced the cluster event in a 6-month period before the digital journey was activated and after. A significant difference was observed after the digital journey versus before the digital journey in the following month's change in high readings ratio (-8% vs. +5%; P-value <0.03)
Product updates to digital platforms that guide on healthy eating and help users understand their glucose readings in context may assist users in improving the management of their diabetes.
Method: A retrospective data evaluation study was performed on Dario TM members during the time before and after product modification. Digital engagement and clinical outcomes were measured on first to six months per each period to examine if habit formation was achieved.
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Results: A group of total 9794 users who had enrolled in a membership for 6 months or longer was evaluated. The ratio of measurements logged with context (fasting, pre-meal, post-meal, bedtime) was increased significantly by 56% in the first month following product modification on average (51.3%. vs. 32.8%) (P<0.001). Differences in the level of digital engagement remained stable over a 6 months period. The average number of days between measurements, i.e. “recency” decreased by 21% on average (2.71 vs. 3.45). Average ratios of high readings (180-400 mg/dL) were reduced by 12% on average over six months.
Digital diabetes platform has the potential to enhance self-care behaviors across socioeconomic statuses and among different language speakers.
Method: A retrospective data evaluation study was performed on the DarioTM data base. A population (“high-risk users”) of all users with type 2 diabetes activated during 2017-2020 who took measurements with Dario in the first 2 months and who started with an average blood glucose above 180 mg/dL was evaluated. The ratios assessed were target range (70-180 mg/dL) and high blood glucose (>180 mg/dL) readings over a year. Socioeconomic status was matched by applying zip code data to census.gov data.
Results: For 11,101 users, the average ratio of target range readings (70-180 mg/dL) was significantly increased from 28.4% to 54.8% (P<0.001). Average high events ratio (>180 mg/dL) was significantly reduced from 71.3% to 44.4% over a full year usage (P<0.001). The change appeared in the earliest months and was maintained over a year. Average number of days between measurements, i.e., “recency” was 3.3 days. A subset of Spanish language app users (N=169) was also evaluated, and comparable trends were observed. Matching Census.gov data on study population showed that 20% of users resided in low income zip codes, 70% in middle and 10% in upper income zip codes.
The benefit of implementing a digital diabetes interaction platform to durably improve self-management among users who had not recently measured their blood glucose.
Method: A retrospective study was performed on a population of 246 Dario active members who had not measured blood glucose for a 7-day period. 127 of these users were randomly assigned to a Test group and experienced a digital intervention flow, and the remaining 119 users were assigned to a Control group.
Results: Digital engagement levels were observed following 60 days in both groups. Differences between Test group and Control group were observed. In the Test group, the percent of users who measured blood glucose was significantly higher (P<0.001): 14% in first 30 days and 22% in 30-60 days; average number of measurements was 6% higher in the first 30 days and 17% in 30-60 days; number of interactions (e.g. logging fasting glucose) with the digital platform was 10% higher in first 30 days and 15% in 30-60 days. Difference in average days between measurements, defined as “recency” was 30% lower in the test group.
The potential benefit of a digital diabetes management platform in the self-management required from insulin treated users, incorporating its use on a daily base, and sustaining behavioral change.
Method: A retrospective study was performed on a population of 285 active Dario users (85% with type 2) under insulin therapy, that measured with Dario for at least three months and logged basal insulin usage. The group included 112 users whose starting average blood glucose >180 mg/dL. Among this group the average age was 55. The group also included 173 users whose starting average blood glucose was <180 mg/dL with average age 59. First month measuring on platform was used as study baseline.
Results: In the sub-group of 112 users the average amount of basal insulin increased by six units after three months (45 vs.39). Their fasting blood glucose was significantly reduced (9%) after three months (186±40.6 vs. 204±42.7) without change in hypoglycemia events ratio (<70 mg/dL) on average, and 15% of the users reduced their fasting average to <126 mg/dL. However, in the sub-group of 173 users, basal insulin usage and fasting glucose levels remained stable following three months.
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Government Regulation
The principal markets that we have initially targeted for Dario are the United States, Canada, the European Union, Australia, and New Zealand. The following is an overview of the regulatory regimes in these jurisdictions.
United States Regulation Generally
In the United States, devices are subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical evaluation is conducted before a device receives clearance for commercial distribution. Under Section 201(h) of the Food, Drug, and Cosmetic Act, a medical device is an article, which, among other things, is intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment or prevention of disease, in man or other animals. The Dario Blood Glucose Monitoring System is classified as a medical device and subject to regulation by numerous agencies and legislative bodies, including the FDA and its foreign counterparts. FDA regulations govern product design and development, pre-clinical and clinical testing, manufacturing, labeling, storage, pre-market clearance or approval, advertising and promotion, and sales and distribution. Specifically, the FDA classifies medical devices into one of three classes. Class I devices are relatively simple and can be manufactured and distributed with general controls. Class II devices are somewhat more complex and require greater scrutiny. Class III devices are new and frequently help sustain life.
Unless an exemption applies, each medical device commercially distributed in the United States will require a 510(k) clearance, 510(k)+ “de-novo” clearance, or pre-market approval (or PMA) from the FDA.
510(k) Clearance Process. After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could even require a premarket application approval. The FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the FDA disagrees with the determination, the agency may retroactively require the manufacturer to seek 510(k) clearance or premarket application approval. The FDA also can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or premarket application approval is obtained.
De Novo Classification. If the FDA denies 510(k) clearance of a device because it is novel and an adequate predicate device does not exist, the “de novo classification” procedure can be invoked based upon a reasonable assurance that the device is safe and effective for its intended use. This procedure approximates the level of scrutiny in the 510(k) process but may add several months to the clearance process. If the FDA grants the request, the device is permitted to enter commercial distribution in the same manner as if 510(k) clearance had been granted.
Premarket Application Approval Process. After approval of a premarket application, a new premarket application or premarket application supplement is required in the event of a modification to the device, its labeling or its manufacturing process. The premarket application approval pathway is much more costly, lengthy and uncertain. It generally takes from one to three years or longer.
European and Non-European Regulation Generally
Sales of medical devices outside the United States are subject to foreign regulatory requirements that vary widely from country to country. These laws and regulations range from simple product registration requirements in some countries to complex clearance and production controls in others. As a result, the processes and time periods required to obtain foreign marketing clearance may be longer or shorter than those necessary to obtain FDA clearance.
The commercialization of medical devices in Europe is regulated by the European Union. The European Union presently requires that all medical products bore the CE mark, an international symbol of adherence to quality assurance standards and demonstrated clinical effectiveness. Compliance with the Medical Device Directive (MDD) or the Active Implantable Medical Device Directive (AIMD) or the In Vitro Diagnostic Medical Device Directive (IVDD) as audited by a notified body and certified by a recognized European Competent Authority, permits the manufacturer to affix the CE mark on its products.
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In September 2013, we obtained ISO 13485 certification for our quality management system and CE Mark certification to market Dario, and in May 2015 Dario was cleared to fulfill the criteria according to EN ISO 15197:2013 The granting of the CE Mark allows Dario to be marketed and sold in 32 countries across Europe as well as in certain other countries worldwide. On November 21, 2014, MDSS, our European Authorized Representative, completed the registration of the Dario Blood Glucose Monitoring System with the German Authority as required by Article 10 of Directive 98/79/EC on in vitro diagnostic medical devices. We commenced an initial soft launch of the product in Europe in 2014, created initial demand for the product and established brand awareness and marketing techniques to reach our target market with a goal to continue expansion to new markets and territories.
We achieved regulatory clearance to market Dario in other countries that do not rely on the CE Mark. To date, the non-CE Mark jurisdictions which we have begun to market Dario include the United States, New Zealand, Canada, and Australia.
To the extent that we seek to market our product in other non-CE Mark countries in the future, we will be required to comply with the applicable regulatory requirements in each such country. Such regulatory requirements vary by country and may be tedious. As a result, no assurance can be given that we will be able to satisfy the regulatory requirements to sell our products in any such country.
Clinical Studies
Even when a clinical study has an approved Investigational Device Exemption (IDE) from the FDA under significant risk (SR) determination, has been approved by an Institutional Review Board (IRB) under non-significant risk (NSR) determination and/or has been approved by local or regional Ethics Committee, the study is subject to factors beyond a manufacturer’s control, including, but not limited to the fact that the institutional review board at a given clinical site might not approve the study, might decline to renew approval which is required annually, or might suspend or terminate the study before the study has been completed. There is no assurance that a clinical study at any given site will progress as anticipated; the interim results of a study may not be satisfactory leading the sponsor or others to terminate the study, there may be an insufficient number of patients who qualify for the study or who agree to participate in the study or the investigator at the site may have priorities other than the study. Also, there can be no assurance that the clinical study will provide sufficient evidence to assure regulatory authorities that the product is safe, effective and performs as intended as a prerequisite for granting market clearance. See “Clinical Trials” above for clinical trials performed to date.
Post-Clearance Matters
Even if the FDA or other non-US regulatory authorities approve or clear a device, they may limit its intended uses in such a way that manufacturing and distributing the device may not be commercially feasible. After clearance or approval to market is given, the FDA and foreign regulatory agencies, upon the occurrence of certain events, are authorized under various circumstances to withdraw the clearance or approval or require changes to a device, its manufacturing process or its labeling or additional proof that regulatory requirements have been met.
A manufacturer of a device approved through the premarket approval application process is not permitted to make changes to the device which affects its safety or effectiveness without first submitting a supplement application to its premarket approval application and obtaining FDA clearance for that supplement. In some instances, the FDA may require a clinical trial to support a supplement application. A manufacturer of a device cleared through a 510(k) submission or a 510(k)+ “de-novo” submission must submit another premarket notification if it intends to make a change or modification in the device that could significantly affect the safety or effectiveness of the device, such as a significant change or modification in design, material, chemical composition, energy source or manufacturing process. Any change in the intended uses of a premarket approval application device or a 510(k) device requires an approval supplement or cleared premarket notification. Exported devices are subject to the regulatory requirements of each country to which the device is exported, as well as certain FDA export requirements.
Mobile Medical Applications Guidance
On September 23, 2013, the FDA issued final guidance for developers of mobile medical applications, or apps, which are software programs that run on mobile communication devices and perform the same functions as traditional
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medical devices. The guidance outlines the FDA’s tailored approach to mobile apps. The FDA plans to exercise enforcement discretion (meaning it will not enforce requirements under the Federal Food, Drug & Cosmetic Act) for the majority of mobile apps as they pose minimal risk to consumers. The FDA plans to focus its regulatory oversight on a subset of mobile medical apps that present a greater risk to patients if they do not work as intended. The FDA is focusing its oversight on mobile medical apps that:
Ongoing Regulation by FDA
Even after a device receives clearance or approval and is placed on the market, numerous regulatory requirements apply. These include:
● establishment registration and device listing;
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions: fines, injunctions, civil or criminal penalties, recall or seizure of our current or future products, operating restrictions, partial suspension or total shutdown of production, refusing our request for 510(k) clearance or PMA approval of new products, rescinding previously granted 510(k) clearances or withdrawing previously granted PMA approvals.
We may be subject to announced and unannounced inspections by the FDA, and these inspections may include the manufacturing facilities of our subcontractors. If, as a result of these inspections, the FDA determines that our or our subcontractor’s equipment, facilities, laboratories or processes do not comply with applicable FDA regulations and conditions of product clearance, the FDA may seek civil, criminal or administrative sanctions and/or remedies against us, including the suspension of our manufacturing and selling operations.
Ongoing Regulation by International Regulators
International sales of medical devices are subject to foreign government regulations, which may vary substantially from country to country.
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In order to maintain the right to affix the CE Mark to sell medical devices in the European Union, an annual surveillance audit in the company premises and, if needed, at major subcontractors’ premises needs to be carried out by the notified body. Additionally, European Directives dictate the following requirements:
Failure to comply with applicable regulatory requirements can result in enforcement action by the regulatory agency, which may include any of the following sanctions: fines, injunctions, civil or criminal penalties, recall or seizure of our current or future products, operating restrictions, partial suspension or total shutdown of production, refusing our request for renewing clearance and/or registration of our products or granting clearance/registration for new products.
State Licensure Requirements
Several states require that Durable Medical Equipment (“DME”) providers be licensed in order to sell products to patients in that state. Certain of these states require that DME providers maintain an in-state location. If these rules are determined to be applicable to us and if we were found to be noncompliant, we could lose our licensure in that state, which could prohibit us from selling our current or future products to patients in that state.
Federal Anti-Kickback and Self-Referral Laws
The Federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce the:
● referral of a person;
To the extent we are required to comply with these regulations, it is possible that regulatory authorities could allege that we have not complied, which could subject us to sanction. Noncompliance with the federal anti-kickback legislation can result in exclusion from Medicare, Medicaid or other governmental programs, restrictions on our ability to operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations.
Federal law also includes a provision commonly known as the “Stark Law,” which prohibits a physician from referring Medicare or Medicaid patients to an entity providing “designated health services,” including a company that furnishes durable medical equipment, in which the physician has an ownership or investment interest or with which the physician has entered into a compensation arrangement. Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a noncompliant arrangement, civil penalties, and exclusion from Medicare, Medicaid or other governmental programs.
Federal False Claims Act
The Federal False Claims Act provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim approved. In addition,
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amendments in 1986 to the Federal False Claims Act have made it easier for private parties to bring “qui tam” whistleblower lawsuits against companies. Penalties include fines ranging from $5,500 to $11,000 for each false claim, plus three times the number of damages that the federal government sustained because of the act of that person.
Civil Monetary Penalties Law
The Federal Civil Monetary Penalties Law prohibits the offering or transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the Federal healthcare programs.
State Fraud and Abuse Provisions
Many states have also adopted some form of anti-kickback and anti-referral laws and false claims acts. A determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Administrative Simplification of the Health Insurance Portability and Accountability Act of 1996
The Health Insurance Portability and Accountability Act of 1996, or HIPAA, mandated the adoption of standards for the exchange of electronic health information in an effort to encourage overall administrative simplification and enhance the effectiveness and efficiency of the healthcare industry. Ensuring the privacy and security of patient information is one of the key factors driving the legislation.
Intellectual Property
Patent applications
On May 8, 2011, certain of our founders filed a Patent Cooperation Treaty (PCT) Application No. PCT/IL2011/000369, titled “Fluids Testing Apparatus and Methods of Use.” This PCT claimed priority from two preceding U.S. provisional applications filed by our founders, with the earliest priority date being May 9, 2010. The PCT application was transferred to us by our founders on October 27, 2011.
This application covers the novel blood glucose measurement device, comprising the glucose meter; and an adaptor that connects the glucose meter to a smart-phone to receive power supply and data display, storage, and analysis. A PCT search report and written opinion on patentability that we received from World Intellectual Property Organization (known as WIPO) that included only two “Y” citations and one additional non-relevant reference. Corresponding national applications of our PCT were filed in the U.S., Europe, Japan, China, Australia and Israel.
On May 1, 2014, we announced the receipt of a U.S. Notice of Allowance for a key patent relating to how the Dario Blood Glucose Monitoring System draws power from and transmits data to a smartphone via the audio jack port. This patent was issued as U.S. Patent No. 8,797,180 in August 2014, and in August2015, we received U.S. patent (No. 9,125,549) that broadened our registered patent No. 8,797,180 to include testing of other bodily fluids through an audio jack connection. We believe these early patents represent critical intellectual property recognition and a significant initial validation of our intellectual property efforts. Further, a corresponding European patent was granted to us in May 2016, as European patent No. 2569622 for testing of fluids through an audio jack connection. An additional corresponding patent was granted in Israel in April 2016. In February 2016 we were granted U.S. patent No. 9,257,038, which is a further Continuation application connected to the U.S. patent No. 8,797,180, this new patent enhanced the way the Dario Blood Glucose Monitoring System communicates with the end user’s smartphone devices.
In November 11, 2017, U.S. patent No. 9,832,301 titled “Systems and methods for adjusting power levels on a monitoring device” was granted. This patent enhances the way the Dario Blood Glucose Monitoring System communicates with users’ smartphone devices. This family includes a corresponding pending application in China.
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Additionally, we recently received U.S. patent No. 10,445,072 that enables optical communication between the Dario Blood Glucose Monitoring System and the end user’s smartphone devices.
Additional patent applications are in the process of being discussed and developed, and we believe that we have a rich potential pipeline of future technologies that we intend to develop.
For example, we are further seeking to develop and protect new intellectual property around future generations of our hardware and software with the goal of achieving enhanced functionality, user interface, data usability, cyber protection, and artificial intelligence enhancement.
In 2021, we acquired Upright and acquired the following patents which were added to our portfolio:
“BODY MOVEMENT FEEDBACK SYSTEM AND METHOD”, Patent App# 15/749,335 which is in National Phase (USPTO). The application was published Aug. 9, 2018.
In addition, a patent on PCT rout #PCT/IL2021/050739 was filed on June 17, 2021 titled “Posture detection device and system.”
In early 2022, we acquired Physimax and acquired the following patent – US 10,709,374 B2 titled “System and Method for Assessment of Musculoskeletal Profile of a Target Individual.”
Design patents and patent applications on the Dario Blood Glucose Monitoring System
To further protect our market distinction and branding for the Dario Blood Glucose Monitoring System, three U.S. Design Applications have been filed and granted covering the glucose meter, the cartridge, and connection dongle. At least some of these applications were granted and registered in the United States, as well as Brazil, Canada, China, Europe, and Hong Kong.
Trademark applications
We have also filed several families of trademark applications covering the “Dario” name (wordmark), the Dario name and logo (logo), the Dario logo alone (logo), the DARIO-LITE wordmark, the LABSTYLE INNOVATIONS wordmark, the DARIOHEALTH wordmark, and the DARIOHEALTH logo. In particular, the “Dario” wordmark is registered as a trademark in the Australia, Canada, China, Costa Rica, United States, Israel, China, Canada, Hong Kong, South Africa, Japan, Costa Rica, Europe, Israel, Japan, Korea, Mexico, New Zealand, Panama, Russia, South Africa, and the USA. The “DARIOHEALTH” wordmark is registered as a trademark in the United States, Canada, China and India.
Upright also added the following trademarks to our list: UPRIGHT, UPRIGHT GO – registered in the US, AU and EM, and UPRIGHT DASHBOARD, UPRIGHT DESKTOP, UPRIGHT GO 2, UPRIGHT PRO, UPRIGHT POSTURE IS WITHING REACH – registered in the US.
Utility Models
We have been granted Utility Models for our core invention in Japan and Germany.
Other intangible assets
As the number of Dario users grows, an ever-growing amount of data is being collected from diabetic patients, including their blood sugar levels, meal compositions, routines, physical exercise (intensity and duration) as well as many other factors, and lately also blood pressure data, which are all useful for creating meaningful correlations between these factors and insulin use. We expect that this database will be highly valuable and may be capitalized in many ways. The accumulation of this type of know-how and related algorithms are protected as trade secrets using specialized confidentiality protocols.
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Competition
In recent years, a number of digitally supported solutions have emerged to manage diabetes and other chronic conditions. Competitors are developing new technologies rapidly and, in some cases, are also expanding to manage other chronic conditions. In this crowded field, our success is predicated on our flexibility to adapt to evolving customer requirements in digital health and superior execution in engagement, retention and clinical outcomes in a manner that delivers clear return on investment in required time-horizons and in complex, highly regulated business environments. We expect new entrants in the field and the emergence of novel technologies, as well as competition from larger technology platform players such as Amazon, Apple and Google. Dario’s competitors vary by intervention (devices, applications, coaching and analytics), by channel (health plan, pharma, provider, employer) and by condition (including, for example, diabetes, MSK, HTN, behavioral health and others). Certain of our competitors offer this integrated approach in varying degrees, including, among others, Hinge Health, Inc., Livongo Health Inc. (acquired by Teladoc Health Inc.), Omada Health, Inc., Vida Health, Inc.and. Virta Health Corp. We believe that our competitors are comparatively disadvantaged along several axes:
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Employees
As of March 10, 2022, we had 200 full-time employees and 14 part-time employees. We have employment agreements with our five executive officers. See “Management – Employment Agreements.”
Item 1A. Risk Factors
Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the following factors and other information in this Annual Report and our other SEC filings before making a decision to invest in our securities. Additional risks and uncertainties that we are unaware of may become important factors that affect us. If any of the following events occur, our business, financial conditions and operating results may be materially and adversely affected. In that event, the trading price of our common stock and warrants may decline, and you could lose all or part of your investment.
Summary of Risk Factors
Our business is subject to a number of risks, including risks that may adversely affect our business, financial condition and results of operations. These risks are discussed more fully below and include, but are not limited to, risks related to:
Risks Related to Our Financial Position and Capital Requirements
● Risks associated with our relatively new business;
Risks Related to Our Business
● the impact of COVID-19 on our operations;
● our risks of basing our business on the sale of our principal technology;
● our reliance on manufacturers and distributors;
● the impact of a failure of our digital marketing efforts;
● our reliance on the Apple App Store and Google’s Android platform;
● the risks associated with conducting business internationally;
● potential errors in our business processes and product offerings;
● the integration of Upright and PsyInnovations into our business;
Risks Related to Product Development and Regulatory Approval
● the expense and time required to obtain regulatory clearance of our products;
● our ability to complete clinical trials;
● our reliance on third parties to conduct clinical trial work;
● the potential impact of product liability suits;
Risks Related to Our Intellectual Property
● the risks relating to obtaining or maintaining our intellectual property;
● potential litigation relating to the protection of our intellectual property;
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● our limited foreign intellectual property rights;
Risks Related to Our Industry
● the intense competition we face in the markets we operate;
● our need to respond quickly to technological developments;
● the risks relating to obtaining or maintaining our intellectual property;
Risks Related to Our Operations in Israel
Risks Related to the Ownership of Our Common Stock and Warrants
● the impact of analysts not publishing research or reports about us;
● the expense relating to our requirements as a U.S. public company;
● that we do not intend to pay dividends on our common stock.
Risks Related to Our Financial Position and Capital Requirements
We were formed in August 2011 and are thus subject to the risks associated with new businesses.
We were formed in August 2011 as a new business and, commencing from 2015, we entered the commercialization stage of our technology. As such, this limited operating history may not be adequate to enable you to fully assess our ability to develop and commercialize the Dario Smart Diabetes Management Solution, achieve market acceptance of the Dario Smart Diabetes Management Solution, develop other products and respond to competition. We commenced a commercial launch of the free Dario Smart Diabetes Management application in the United Kingdom in late 2013 and commenced an initial soft launch of the full Dario Smart Diabetes Management Solution (including the app and the Dario Blood Glucose Monitoring System) in selected jurisdictions in March 2014 with the goal of collecting customer feedback to refine our longer-term roll-out strategy and continued to scale up launch during 2014 in the United Kingdom, the Netherlands and New Zealand, in 2015 in Australia, Israel and Canada and in 2016 in the United States. These efforts have not generated sufficient revenues, and we will need to generate additional revenues over the next years. Therefore, we are, and expect for the foreseeable future to be, subject to all the risks and uncertainties, inherent in a new business and the development and sale of new medical devices and related software applications. As a result, we may be unable to fully develop, obtain regulatory approval for, commercialize, manufacture, market, sell and derive material revenues in the timeframes we project, if at all, and our inability to do so would materially and adversely impact our viability as a company. In addition, we still must establish many functions necessary to operate a business, including finalizing our managerial and administrative structure, continuing product and technology development, assessing and commencing our marketing activities, implementing financial systems and controls and personnel recruitment.
Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in their initial revenue generating stages, particularly those in the medical device and mobile health fields. In particular, potential investors should consider that there is a significant risk that we will not be able to:
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● attract, enter into or maintain contracts with, and retain customers.
In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected.
Given our limited revenue and lack of positive cash flow, we will need to raise additional capital, which may be unavailable to us or, even if consummated, may cause dilution or place significant restrictions on our ability to operate.
According to our management’s estimates, based on our current cash on hand and further based on our budget and the assumption that initial commercial sales will commence during our anticipated timeframes, we believe that we will have sufficient resources to continue our activities through 2023.
Since we might be unable to generate sufficient revenue or cash flow to fund our operations for the foreseeable future, we will need to seek additional equity or debt financing to provide the capital required to maintain or expand our operations. We may also need additional funding for developing products and services, increasing our sales and marketing capabilities, and promoting brand identity, as well as for working capital requirements and other operating and general corporate purposes. Moreover, the regulatory compliance arising out of being a publicly registered company has dramatically increased our costs.
We do not currently have any arrangements or credit facilities in place as a source of funds, and there can be no assurance that we will be able to raise sufficient additional capital on acceptable terms, or at all. If such financing is not available on satisfactory terms, or is not available at all, we may be required to delay, scale back or eliminate the development of business opportunities and our operations and financial condition may be materially adversely affected.
If we raise additional capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. Given our need for cash and that equity raising is the most common type of fundraising for companies like ours, the risk of dilution is particularly significant for stockholders of our company.
Debt financing, if obtained, may involve agreements that include liens on our assets, covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, could increase our expenses and require that our assets be provided as a security for such debt. Debt financing would also be required to be repaid regardless of our operating results.
If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or candidate products, or to grant licenses on terms that are not favorable to us.
Funding from any source may be unavailable to us on acceptable terms, or at all. If we do not have sufficient capital to fund our operations and expenses, we may not be able to achieve or maintain competitiveness, which could lead to the failure of our business and the loss of your investment.
We have incurred significant losses since inception. As such, you cannot rely upon our historical operating performance to make an investment decision regarding our company.
Since our inception, we have engaged primarily in research and development activities and in 2015 entered the commercialization stage. We have financed our operations primarily through private placements and public offerings of common stock and have incurred losses in each year since inception including net losses of $[ ],000 and $29,445,000 in 2021 and 2020, respectively. Our accumulated deficit at December 31, 2021 was approximately $[ ],000. We do not know whether or when we will become profitable. Our ability to generate revenue and achieve profitability depends upon
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our ability, alone or with others, to launch Dario in additional European countries, and elsewhere and manufacture, market and sell Dario where approved. We may be unable to achieve any or all of these goals.
We may be subject to claims for rescission or damages in connection with certain sales of shares of our securities.
In March 2016, the Securities and Exchange Commission declared effective a registration statement that we filed to cover 66,667 shares 76,667 warrants to purchase common stock, 76,667 shares of common stock underlying such warrants, and underwriters’ warrants to purchase up to 7,172 shares of common stock. Sales of approximately 2,778 shares of common stock, approximately 12,778 shares of common stock underlying warrants and approximately 1,278 shares of common stock underlying underwriters’ warrants may not have been made in accordance with Section 5 of the Securities Act of 1933, as amended. Accordingly, the purchasers of those securities may have rescission rights or be entitled to damages. The amount of such liability, if any, is uncertain. In the event that we are required to make payments to investors as a result of these unregistered sales of securities, our liquidity could be negatively impacted.
Risks Related to Our Business
There is no assurance that our DarioEngage software platform will succeed or be adopted by healthcare providers.
Our product offering consists of our DarioEngage software platform, where we digitally engage with Dario users, assist them in monitoring their chronic illnesses and provide them with coaching, support, digital communications, and real-time alerts, trends and pattern analysis. We expect that the DarioEngage software platform may be leveraged by our potential partners, such as clinics, health care service providers, employers, and payers for scalable monitoring of people with diabetes in a cost-effective manner, which we expect will open for us additional revenue streams. While we have begun to execute agreements with employers and health plans in the United States, we have not yet seen wide adoption of our platform. Therefore, the success of our DarioEngage software platform will depend entirely on our potential partners’ adoption of the platform and we cannot assure you that our potential partners will do so, or, if adopted, that they will continue to use the platform continually and for an extended period of time. If we cannot encourage potential partners to utilize our DarioEngage software platform we may not succeed in marketing the product to our potential partners, the failure of which may materially and adversely affect our business and operating results.
We only recently began commercializing Dario, and our success will depend on the acceptance of Dario in the healthcare market.
Dario has been CE marked since 2013, enabling us to commercialize in 32 countries across Europe as well as in certain other countries worldwide. It was also approved by the regulatory authorities in Australia, New Zealand, Canada, Israel and South Africa, and most recently in December 2015, we received FDA clearance. As a result, we have a limited history of commercializing Dario and commenced selling Dario in the United States in 2016. We have limited experience engaging in commercial activities and limited established relationships with physicians and hospitals as well as third-party suppliers on whom we depend for the manufacture of our product. We are faced with the risk that the marketplace will not be receptive to Dario over competing products and that we will be unable to compete effectively. Factors that could affect our ability to establish Dario or any potential future product include:
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We cannot assure you that Dario or any future product will gain broad market acceptance. If the market for Dario or any future product fails to develop or develops more slowly than expected, or if any of the technology and standards supported by us do not achieve or sustain market acceptance, our business and operating results would be materially and adversely affected.
A pandemic, epidemic or outbreak of an infectious disease in the United States, Israel or elsewhere may adversely affect our business.
A regional or global health pandemic, including COVID-19, could severely affect our business, results of operations and financial condition. A regional or global health pandemic, depending upon its duration and severity, could have a material adverse effect on our business. For example, the COVID-19 pandemic has had numerous effects on the global economy and governmental authorities around the world have implemented measures to reduce the spread of COVID-19. In addition, the COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility of financial markets. The COVID-19 pandemic continues may also impact our supply chain partners, including third-party manufacturers, logistics providers and other vendors. Current vessel, container and other transportation shortages, labor shortages and port congestion globally have delayed and may continue to delay inventory orders and, in turn, it may delay the delivery of our products to customers. In addition, the impact of COVID-19 on macroeconomic conditions may impact the proper functioning of financial and capital markets, foreign currency exchange rates, commodity prices, and interest rates. Even after the COVID-19 global pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession that has occurred or may occur in the future.
As a result of the COVID-19 pandemic, many of our personnel previously worked remotely, and if we return to a remote working environment, is possible that this could have a negative impact on the execution of our business plans and operations. If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The increase in remote working may also result in consumer privacy, IT security and fraud concerns as well as increase our exposure to potential wage and hour issues.
We are unable to accurately predict the impact that COVID-19 will have on our operations going forward due to uncertainties that will be dictated by the length of time that the pandemic and related disruptions continue, the impact of governmental regulations that might be imposed in response to the pandemic and overall changes in consumer behavior.
The extent to which COVID-19 will impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus, including the actions to contain COVID-19 or treat its impact, the efficacy and scale of the various vaccines currently deployed across the world, among others. Moreover, COVID-19 has had indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely affected to the extent that COVID-19 or any other epidemic continues to harm the global economy generally. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk factors” section.
We cannot accurately predict the volume or timing of any future sales, making the timing of any revenues difficult to predict.
We may be faced with lengthy customer evaluation and approval processes associated with Dario. Consequently, we may incur substantial expenses and devote significant management effort and expense in developing customer adoption of Dario which may not result in revenue generation. We must also obtain regulatory approvals of Dario in certain jurisdictions as well as approval for insurance reimbursement in order to initiate sales of Dario, each of which is subject to risk and potential delays, and neither of which may actually occur. As such, we cannot accurately predict the volume or timing of any future sales.
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If Dario fails to satisfy current or future customer requirements, we may be required to make significant expenditures to redesign the product, and we may have insufficient resources to do so.
Dario is being designed to address an evolving marketplace and must comply with current and evolving customer requirements in order to gain market acceptance. There is a risk that Dario will not meet anticipated customer requirements or desires. If we are required to redesign our products to address customer demands or otherwise modify our business model, we may incur significant unanticipated expenses and losses, and we may be left with insufficient resources to engage in such activities. If we are unable to redesign our products, develop new products or modify our business model to meet customer desires or any other customer requirements that may emerge, our operating results would be materially adversely affected, and our business might fail.
We expect to derive substantially all of our revenues from our principal technology, which leaves us subject to the risk of reliance on such technology.
We expect to derive substantially all of our revenues from sales of products derived from our principal technology. Our initial product utilizing this technology is Dario. As such, any factor adversely affecting sales of Dario, including the product release cycles, regulatory issues, market acceptance, product competition, performance and reliability, reputation, price competition and economic and market conditions, would likely harm our operating results. We may be unable to develop other products utilizing our technology, which would likely lead to the failure of our business. Moreover, in spite of our efforts related to the registration of our technology, if patent protection is not available for our principal technology, the viability of Dario and any other products that may be derived from such technology would likely be adversely impacted to a significant degree, which would materially impair our prospects.
We are dependent upon third-party manufacturers and suppliers making us vulnerable to supply shortages and problems and price fluctuations, which could harm our business.
We do not own or operate manufacturing facilities for clinical or commercial production of the Dario Blood Glucose Monitoring System, and we lack the resources and the capability to manufacture the Dario Blood Glucose Monitoring System on a commercial scale. Therefore, we rely on a limited number of suppliers who manufacture and assemble certain components of the Dario Blood Glucose Monitoring System. Our suppliers may encounter problems during manufacturing for a variety of reasons, including, for example, failure to follow specific protocols and procedures, failure to comply with applicable legal and regulatory requirements, equipment malfunction and environmental factors, failure to properly conduct their own business affairs, and infringement of third-party intellectual property rights, any of which could delay or impede their ability to meet our requirements. Our reliance on these third-party suppliers also subjects us to other risks that could harm our business, including:
● we may have difficulty locating and qualifying alternative suppliers;
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We may not be able to quickly establish additional or alternative suppliers if necessary, in part because we may need to undertake additional activities to establish such suppliers as required by the regulatory approval process. Any interruption or delay in obtaining products from our third-party suppliers, or our inability to obtain products from qualified alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to switch to competing products. Given our reliance on certain single-source suppliers, we are especially susceptible to supply shortages because we do not have alternate suppliers currently available.
We rely in part on a small group of third-party distributors to effectively distribute our products.
We depend in part on medical device distributors for the marketing and selling of our products in certain territories in which we have launched product sales. We depend on these distributors’ efforts to market our products, yet we are unable to control their efforts completely. These distributors typically sell a variety of other, non-competing products that may limit the resources they dedicate to selling Dario. In addition, we are unable to ensure that our distributors comply with all applicable laws regarding the sale of our products. If our distributors fail to effectively market and sell Dario, in full compliance with applicable laws, our operating results and business may suffer. Recruiting and retaining qualified third-party distributors and training them in our technology and product offering requires significant time and resources. To develop and expand our distribution, we must continue to scale and improve our processes and procedures that support our distributors. Further, if our relationship with a successful distributor terminates, we may be unable to replace that distributor without disruption to our business. If we fail to maintain positive relationships with our distributors, fail to develop new relationships with other distributors, including in new markets, fail to manage, train or incentivize existing distributors effectively, or fail to provide distributors with competitive products on attractive terms, or if these distributors are not successful in their sales efforts, our revenue may decrease and our operating results, reputation and business may be harmed.
Failure in our online and digital marketing efforts could significantly impact our ability to generate sales.
In several of our principal target markets, we utilize online and digital marketing in order to create awareness to Dario. Our management believes that using online advertisement through affiliate networks and a variety of other pay-for-performance methods will be superior for marketing and generating sales of Dario rather than utilizing traditional, expensive retail channels. However, there is a risk that our marketing strategy could fail. Because we plan to use non-traditional retail sales tools and to rely on healthcare providers to educate our customers about Dario, we cannot predict the level of success, if any, that we may achieve by marketing Dario via the internet. The failure of our online marketing efforts would significantly and negatively impact our ability to generate sales.
Our Dario Smart Diabetes Management application, which is a key to our business model, is available via Apple’s App Store and via Google’s Android platforms and maybe in the future via additional platforms. If we are unable to achieve or maintain a good relationship with each of Apple and Google or similar platforms, or if the Apple App Store or the Google Play Store or any other applicable platform were unavailable for any prolonged period of time, our business will suffer.
A key component of the Dario Smart Diabetes Management Solution is an iPhone or Android application which includes tools to help diabetic patients manage their disease. This application is compatible with Apple’s iOS and with Google’s Android platforms and may in the future become compatible via additional platforms. If we are unable to make our Dario Smart Diabetes Management application compatible with these platforms, or if there is any deterioration in our relationship with either Apple or Google or others after our application is available, our business would be materially harmed.
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We are subject to each of Apple’s and Google’s standard terms and conditions for application developers, which govern the promotion, distribution, and operation of games and other applications on their respective storefronts. Each of Apple and Google has broad discretion to change its standard terms and conditions, including changes which could require us to pay to have our Dario Smart Diabetes Management application available for downloading. In addition, these standard terms and conditions can be vague and subject to changing interpretations by Apple or Google. We may not receive any advance warning of such changes. In addition, each of Apple and Google has the right to prohibit a developer from distributing its applications on its storefront if the developer violates its standard terms and conditions. In the event that either Apple or Google ever determines that we are in violation of its standard terms and conditions, including by a new interpretation, and prohibits us from distributing our Dario Smart Diabetes Management application on its storefront, it would materially harm our business.
Additionally, we will rely on the continued function of the Apple App Store and the Google Play Store as digital storefronts where our Dario Smart Diabetes Management application may be obtained. There have been occasions in the past when these digital storefronts were unavailable for short periods of time or where there have been issues with the in-app purchasing functionality within the storefront. In the event that either the Apple App Store or the Google Play Store is unavailable or if in-app purchasing functionality within the storefront is non-operational for a prolonged period of time, it would have a material adverse effect on the ability of our customers to secure the Dario Smart Diabetes Management application, which would materially harm our business.
We rely upon Software-as-a-Services, or SAAS, technologies from third parties to operate our business, and interruptions or performance problems with these technologies may adversely affect our business, financial condition and results of operations.
We rely on hosted SaaS applications from third parties in order to operate critical functions of our business, including platform delivery, enterprise resource planning, customer relationship management, billing, project management and accounting and financial reporting. If these services become unavailable due to extended outages, interruptions or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage finances could be interrupted and our processes for managing sales of our platform and products and supporting our customers could be impaired until equivalent services, if available, are identified, obtained and implemented, all of which could adversely affect our business, financial condition and results of operations.
The SaaS pricing model is evolving and our failure to manage its evolution and demand could lead to lower than expected revenue and profit.
We derive most of our revenue growth from subscription offerings and, specifically, SaaS offerings. This business model depends heavily on achieving economies of scale because the initial upfront investment is costly and the associated revenue is recognized on a ratable basis. If we fail to achieve appropriate economies of scale or if we fail to manage or anticipate the evolution and demand of the SaaS pricing model, then our business and operating results could be adversely affected.
Our results of operations may fluctuate significantly due to the timing of our recognition of SaaS revenues.
We may experience volatility in our reported revenues and operating results due to the differences in timing of revenue recognition between our SaaS offerings and our traditional on-premise software and hardware sales. SaaS revenues are generally recognized ratably over the life of the subscriptions. In contrast, revenue from our on-premise software and hardware sales is generally recognized in full at the time of delivery. Accordingly, the SaaS delivery model creates risks related to the timing of revenue recognition not associated with our traditional on-premise software delivery model and hardware sales. A portion of our SaaS revenue results from the recognition of deferred revenue relating to subscription agreements entered into during prior reporting periods. A decline in new or renewed subscriptions in any period may not be immediately reflected in our reported financial results for that period, but may result in a decline in our revenue in future reporting periods. If any of our assumptions about revenue from our SaaS delivery model prove incorrect, our actual results may vary materially from those anticipated, estimated, or projected.
Any damage, failure or disruption of our SaaS network infrastructure or data centers could impair our ability to effectively provide our solution, harm our reputation and adversely affect our business.
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Our SaaS network infrastructure is a critical part of our business operations. Our clients access our solution through standard web browsers, smart phones, tablets and other web-enabled devices and depend on us for fast and reliable access to our solution. We serve all of our clients from our data centers located in the United-States. Our SaaS network infrastructure and data centers are vulnerable to damage, failure and disruption.
In the future, we may experience issues with our computing and communications infrastructure, or data centers caused by the following factors:
•human error;
•telecommunications failures or outages from third-party providers;
• computer viruses or cyber-attacks;
•break-ins or other security breaches;
•acts of terrorism, sabotage, intentional acts of vandalism or other misconduct;
•tornadoes, fires, earthquakes, hurricanes, floods and other natural disasters;
•power loss; and
•other unforeseen interruptions or damages.
If our SaaS network infrastructure or our clients’ ability to access our solution is interrupted, client and employee data from recent transactions may be permanently lost, and we could be exposed to significant claims by clients, particularly if the access interruption is associated with problems in the timely delivery of funds payable to employees or tax authorities. Further, any adverse changes in service levels at our data centers resulting from damage to or failure of our data centers could result in disruptions in our services. Any significant instances of system downtime or performance problems at our data centers could negatively affect our reputation and ability to attract new clients, prevent us from gaining new or additional business from our current clients, or cause our current clients to terminate their use of our solution, any of which would adversely impact our revenues. In addition, if our network infrastructure and data centers fail to support increased capacity due to growth in our business, our clients may experience interruptions in the availability of our solution. Such interruptions may reduce our revenues, cause us to issue refunds to clients or adversely affect our retention of existing clients, any of which could have a negative impact on our business, operating results or financial condition.
Our products are subject to technological changes which may impact their use.
Our Dario Blood Glucose Monitoring System is currently designed to be plugged into the Lighting jack for Apple devices or the USB-C jack for other mobile devices. As a result, our products are subject to future technological changes to mobile devices that may occur in the future. If we are unable to modify our products to keep pace with such technological changes, it would have a material adverse effect the ability of our customers to use our products, which would materially harm our business.
As we conduct business internationally, we are susceptible to risks associated with international relationships.
Outside of the United States, we operate our business internationally, presently in Europe, Australia and Canada. The international operation of our business requires significant management attention, which could negatively affect our business if it diverts their attention from their other responsibilities. In the event that we are unable to manage the complications associated with international operations, our business prospects could be materially and adversely affected. In addition, as a result of the crisis in Ukraine, both the United States and the EU have implemented sanctions against certain Russian individuals and entities, as well with respect to Belarus, and may impact the economic and political stability in the EU. If the EU experiences economic and political instability as a result of these current tensions, our business, including revenue, profitability and cash flows, and operations could be adversely affected. In addition, doing business
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with foreign customers subjects us to additional risks that we do not generally face in the United States. These risks and uncertainties include:
● delivery, logistics and storage costs;
● difficulties supporting international operations;
● difficulties supporting customer services;
● changes in economic and political conditions;
● impact of trade protection measures;
● complying with import or export licensing requirements;
● exchange rate fluctuations;
● maintaining and servicing computer hardware in distant locations;
● securing or maintaining protection for our intellectual property; and
The occurrence of any or all of these risks could adversely affect our international business and, consequently, our results of operations and financial condition.
We expect to be exposed to fluctuations in currency exchange rates, which could adversely affect our results of operations.
Because we expect to conduct a material portion of our business outside of the United States but report our financial results in U.S. Dollars, we face exposure to adverse movements in currency exchange rates. Our foreign operations will be exposed to foreign exchange rate fluctuations as the financial results are translated from the local currency into U.S. Dollars upon consolidation. Specifically, the U.S. Dollar cost of our operations in Israel is influenced by any movements in the currency exchange rate of the New Israeli Shekel (NIS). Such movements in the currency exchange rate may have a negative effect on our financial results. If the U.S. Dollar weakens against foreign currencies, the translation of these foreign currencies denominated transactions will result in increased revenue, operating expenses and net income. Similarly, if the U.S. Dollar strengthens against foreign currencies, the translation of these foreign currencies denominated transactions will result in decreased revenue, operating expenses and net income. As exchange
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rates vary, sales and other operating results, when translated, may differ materially from our or the capital market’s expectations.
Non-U.S. governments often impose strict price controls, which may adversely affect our future profitability.
We intend to seek approval to market Dario and any future product in both the U.S. and in non-U.S. jurisdictions. If we obtain approval in one or more non-U.S. jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our products. In some countries, particularly countries of the European Union, each of which has developed its own rules and regulations, pricing may be subject to governmental control under certain circumstances. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a medical device candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available products.If reimbursement of our product candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
Our Dario Smart Diabetes Management Solution and associated business processes may contain undetected errors, which could limit our ability to provide our services and diminish the attractiveness of our service offerings.
The Dario Smart Diabetes Management Solution may contain undetected errors, defects or bugs. As a result, our customers or end users may discover errors or defects in our products, software or the systems we design, or the products or systems incorporating our designs and intellectual property may not operate as expected. We may discover significant errors or defects in the future that we may not be able to fix. Our inability to fix any of those errors could limit our ability to provide our products, impair the reputation of our brand and diminish the attractiveness of our product offerings to our customers.
In addition, we may utilize third-party technology or components in our products, and we rely on those third parties to provide support services to us. Failure of those third parties to provide necessary support services could materially adversely impact our business.
Our future performance will depend on the continued engagement of key members of our management team.
Our future performance depends to a large extent on the continued services of members of our current management including, in particular, Erez Raphael, our Chief Executive Officer and a member of our Board of Directors and Zvi Ben David, our Chief Financial Officer, Treasurer and Secretary, Dror Bacher, our Chief Operating Officer, and Richard Anderson, our President and General Manager for North America. In the event that we lose the continued services of such key personnel for any reason, this could have a material adverse effect on our business, operations, and prospects.