Good morning. Thanks for joining us for today's next session here at TD Cowen's forty-fourth Annual Healthcare Conference. I'm pleased to be with DarioHealth, and presenting for the company is Erez Raphael, CEO, and Rick Anderson, President and General Manager of North America. Gentlemen, thanks for being here.
Thank you so much for hosting us.
Thank you.
Maybe, I think for people to help people, why don't you give us a quick overview of DarioHealth and also Twill, now that, you know, the merger happened just recently, so.
Yeah, absolutely. So DarioHealth is a technology company, software technology company, operating in a SaaS-like model, like software as a service. In the healthcare industry, we manage lives of people with chronic conditions in between the doctor visits. The company have one of the most comprehensive solutions out there in terms of number of conditions that we are supporting, and also our ability to navigate a patient to the right condition. So we are supporting diabetes, prediabetes, musculoskeletal, behavioral health. And as Charles mentioned, we recently also acquired a company called Twill, formerly known as Happify, that is adding a significant portion to our ability to manage patient across the whole spectrum from well-being to mental health.
Great, and maybe we can just dive in a little bit more there. What was the strategic rationale in acquiring Twill?
So when we were looking into this acquisition, we were looking into four main principles, and, we did acquisitions in the past. In this case, the synergy was amazing from all aspects. From a product offering perspective, we know that the market, the self-insured employers and health plans are looking to consolidate solution. There is a silo kind of solution issue. The employers have between 10-15 different solutions by 10-15 different vendors. So we're creating one integrated platform that was synergy number one. Synergy number two is that we are selling exactly to the same channels, employers, health plans, and also we have strategic relationships with pharma companies. The third synergy was in the economics.
We have seen digital health developing in the last 5-7 years, but we haven't seen business models that are very appealing or profitable. And by creating this integration, the economic per client is improving drastically because for every win, we can generate more dollars because of the enrollment capabilities and the overall increase in the ARPU, Average Revenue Per User, and total economics of the full account. And the last part that we have seen synergy is the operation of the company and our ability to integrate efficiencies and OpEx up to 30% in the first couple of years.
That's, that's great. Maybe can you dive in a little bit more in sort of the cross-selling opportunities? You touched on it briefly. Maybe kind of give some examples of where you see opportunities for the cross-sell.
I think, you know, if you look at one. This was one of the things that was attractive, is we're both selling into the two primary markets.
Right
... of health plans and employers, but we had no customer overlap. So, you know, they brought Elevance and Cigna to the combined company. We're bringing Aetna-CVS from that perspective. They have a bunch of behavioral health capabilities that, you know, as you know, we provide the private label platform for Aetna's new behavioral health offering that they're selling through to their customers. We think that there's some great, you know, synergy opportunities potentially there. We've already had interest from a number of the, when we, after we announced the deal, from a number of the different customers that are there. So they're primarily on the mental well-being and the behavioral health space, but they're seeing demand. Roughly 36% of the people on their platforms have chronic conditions from what they've seen.
They've had no ability to deliver against those. So now we're able to bring the Dario solution to that, and vice versa. They have some engagement capabilities and mental well-being capabilities that Dario doesn't have, and bringing those, and people are interested in how that works. And I really think if you think about it from a product perspective, mental well-being is part of what's, I mean, I refer to as sort of the glue in the middle of the hard chronic conditions, right? Because, you know, depending on whose numbers you believe, up to 73% of people who have a chronic condition have, you know, some sort of mental well-being or behavioral health, like anxiety, depression, are common in chronic conditions, for example. So how do you help people manage this over a long period of time?
They bring a lot of those capabilities, and they built their wellness, their mental well-being and platforms around different modalities, too, which is a big belief that we have as well. It's not just one approach to doing this. They have multiple modalities, so it actually allows them to engage with more people, and a lot of our chronic condition pricing is per engaged member per month. So we think, as Erez mentioned, that'll increase our engagement, which just goes straight to the top line.
How does their behavioral health kind of solutions differ from yours? Or are they, I mean, there's no risk here of, like, cannibalizing, or are they complementary? Like, can you talk about sort of the differences and how they kind of, how they can work together?
Yeah, I mean, they are complementary. Theirs is much, what I would call much deeper into the mental well-being side of the space. So most of ours-- So the platform that we had previously was really screening and navigation into one of three categories, either CBT, electronic CBT. They have much greater depth around that self-help component, all the way down to what I would call mental well-being, where we don't have those capabilities historically, that we can bring into it from that perspective. And then coaching or coaching combined with that, so that fits well with what's being done. They, they out-partner their coaching. We have our internal coaches, so there's a really interesting mix of how do you optimize that-
Mm-hmm.
in the middle, and then from the provider perspective. And then, you know, with their wellness community, their mental well-being community that they have that they sit on top, which is actually serve pharma, health plans, and to a much less extent, but to some extent, employers from that perspective, it gives you more navigation capabilities. So the ability to sort of sit and see what how people self-reveal what they're interested in.
Okay, that's interesting. I wanna then maybe switch gears a little bit here and talk about one of your big partners, Aetna in particular. I know this has been something that investors have been very focused on over the last year. Maybe can you give us an update, you know, on the launch so far, with Aetna and what we're seeing?
Yeah. So, the platform launched in Q1 of this year. They're continuing to bring on employers. They've got quite a number of them that are on, including some very large names that they brought on, and they're continuing to come in. We have implementations, people going live basically on the Mind Companion platform at least through May, and now, you know, they'll go out from there. We think that to get to total, you know, penetration of where it'll ultimately be because they're selling it through to their customers as they come up for renewals and new opportunities that they see, it'll probably take eight quarters to get to, you know, full implementation, something along those lines of it. But, you know, we're excited.
We're happy about where, you know, it's launched, which, you know, got delayed, so, you know, that was of great interest and the level at which it's launching.
Yeah, I think, you know, when we talked about this, when you guys talked about this on, maybe a couple quarters ago, you know, I think you had talked that Aetna was only bringing maybe a handful of employers to start. It sounds like you're saying it's, it's more than that?
It's increased, and it's like it's phasing in, which is sort of what we were looking to see how that was gonna evolve, and we're seeing that. You know, so we're seeing people coming in that are gonna start in the second quarter. So, you know, we had some that started in January, some that started in February, and so they're really kind of coming on month-over-month, which is fine. It's a nice ramp. So yes, we are seeing more than the small handful that we were seeing the last time that we talked about it.
Yeah, that, that's exciting. And maybe, can you talk about how this partnership, you know, could evolve with Aetna, and then maybe even CVS more broadly?
Yeah. So I mean, obviously, Aetna CVS is a very large organization with lots of different divisions that are in it, but we're already seeing some expansion. You know, here in the next between 30 and 60 days, we will see. We mentioned this before, but we won a piece of business that was what they call CBT only. So it's only a portion of the platform that was previously delivered by Teladoc that we'll be launching here shortly. So I think we can see those kinds of expansions. I think there's also product capability expansions that we can see. So, like with the CBT only, we're just adding it into the Mind Companion platform, and I think that, you know, it's a question of strategically, where do we want to evolve that to go from that perspective?
And then on the, you know, sort of more on the chronic condition side, we see some opportunities to get into their ASO space this year, and, you know, we continue to have conversations around that. And it's-- they're like any health plan, you know. It's, it's sort of a land and expand. Once you have a master services agreement, it's easier to do business with them. Not easy, easier. And, you know, so we believe that we'll be able to continue to expand. We're having other conversations with other pieces of their business. Obviously, you know, they talk about where their, where their focus is and, you know, where their strategic goals are. I think that we have a value proposition that fits well with that.
If you think about, you know, the care delivery system and, you know, care at home and some of those kinds of things, I think digital health fits very well into this.
Maybe now, you know, that you've had some time working with them, you know, maybe what have you learned in working with, you know, these large kind of partners like Aetna? I know you've had experience with that in the past as well, but as you go forward, and I know Twill brings, you know, Elevance and Cigna to the table. But, you know, companies like Elevance are ones that you have been looking towards speaking with as well. Any kind of learnings that you've brought that you feel will be helpful as you engage with additional large players?
Yeah. I mean, I think every large player sort of has its own, if you will, personality in terms of what's important to them, what's not important to them. So you have to have a differentiated approach to all of them and understand what's important. But I think that, you know, they're everybody is looking for: how do we engage people, and how do we address costs? And I think, you know, going forward, too, especially with the new rules around Medicare, the new reimbursement really around Medicare, I think you're gonna see more pressure on the Medicare plans to improve unit economics or member economics, if you will, versus just pure top-line growth. I think that benefits Dario from that perspective, and we see some of that internally. But I, I think it's a lot like managing any very large customer.
It's about the relationships, and it's about understanding what's important to them and showing where you can align what you can do against that.
Yeah. As you know, a couple of years ago, you made the decision to sort of de-emphasize the DTC part of the business and shift your focus to the B2B side, and Twill similarly has done the same over time. What is the future of DTC? Because, you know, I think on the one hand, you see some companies out there, you know, I can think of like someone like Hims that seems to be doing pretty well, right? You know, others, when we think of, let's say, Teladoc on their DTC side, it's starting to struggle a bit. So, you know, I think investors tend to be a little confused, like, you know, is this a good market? Is it not a good market?
You know, because definitely different people have different strategies, and, you know, some, you know, you have to say, some are still able to perform well in that kind of market. Maybe give us some sense of what you see in the DTC market. Is it just dependent on what you're going to market with? You know-
Yeah.
Any kind of thoughts there would be helpful.
It's a very interesting question because from our perspective, DTC was kind of a sandbox. If we wanna make sure that we have the best product, we need to make sure that this product is working, and people that are building product doesn't know that the product is gonna work in day one. The only person that knows that the product is gonna work is the consumer. So the only way to see that it's working is to put it into the hands of users. So from our perspective, DTC is kind of a sandbox or part of the R&D process in order to build the solution, and it took us, like, 4 or 5 years to get to 5... 4.9 stars on the App Store and 23,000 or 24,000 reviews. So it's part of R&D process.
I think that specifically in the healthcare industry, when we look into the possibility to scale on a B2C, where we are asking people to pay out of pocket, this is something that start to be very challenging because the cost per acquisition, usually when you scale on B2C, for these kind of solutions and products, it's becoming very expensive. So you know, I'm not familiar with other companies, but I'm very suspicious about companies that scaling in the healthcare industry through the direct-to-consumer channel. The cost per acquisition is getting more and more expensive, and eventually, the average revenue per user is not necessarily growing, and that's a challenge. In our specific case, at the top, we were, like, $15 million or $16 million in revenue, and we were losing money on this P&L.
When we slowed down the DTC to around $8 million a year, $9 million a year, this is the cash flow positive. So, that's, that's, that's part of the nature of this, DTC. What I can tell you, based on my experience, is that during the COVID years, where a lot of money was floated to the market, we have seen more companies buying traffic and paying a lot of money to Facebook and Google and so on, and we have seen inflation in the overall cost of the advertising. Now, when the interest rate were higher, and then companies started to spend less into digital marketing, we have seen the cost per acquisition going down.
So to some extent, my personal opinion is that a lot of direct-to-consumer businesses are highly depending on the on Facebook, Google, and the other publishers, and what is the overall volume on their platforms. So it's very hard to build a sustainable business based on B2C. I'm a big believer on the R&D aspect and the data aspect of this methodology.
I was reading a very interesting article, one of the big VCs in the country, that was talking about what's the best way to build a digital health solution for consumer, for chronic conditions and consumer, and they were talking about start from B2C, validate the solution, get the data, and only when you have the data, you can go into the B2B2C and sell it into employers and health plans, and this is exactly what we did. So the concept is to C2B2C. That's kind of the evolvement. So I'm not super bullish on companies that are purely scaling on B2C.
Yeah, I mean, it's definitely a challenging area, and yeah, so it's... I agree with you. I mean, I think the B2C market has really demonstrated to be the place, at least in the healthcare space, right? That it's-
Yes, and, you know, a lot depends on the algorithm and so on, and we have seen multiple cases that, you know, you are scaling, and at some point, the algorithm of Facebook or Google or whatever is starting to generate something different. And we tend to think that B2B is not predictable because we don't know when Aetna's gonna launch. We thought that Aetna's gonna launch in July. Eventually, it was launched in January, and so on. So we are saying B2B is not super predictable, but also B2C is not super predictable because it's relying on a lot of the traffic changes in the world, algorithm and stuff like that, and you might end up with a quarter that it sucks because something didn't work. So-
Interesting. Let's switch gears a little bit and talk about sort of... You know, one of, I think, the biggest advantages that we see with Dario in the marketplace is that you have built, you know, one of the broad multi-condition platforms. And, you know, I think you mentioned it earlier, right? I think there is the trend for employers looking for a single platform or payers looking for a single platform, vendor fatigue, right, to move away from point solutions. Can you give us sort of what the feedback you've seen so far, particularly from your, you know, some of your customers on the, you know, when it comes to sort of this integrated multi-condition platform?
Yeah. So I think that, you know, we see a really good response in the marketplace in terms of, you know, the ability to get multiple conditions through it. Most-
... you know, 90%+, probably closer to 99%, to be frank, is at least multiple conditions on the platform, is what, what we're seeing in the buyers. We're seeing essentially no buyers that wanna buy a single condition. You know, one of the interesting dynamics in the whole point solution fatigue going through, is the benefit consultants are still set up to buy on a point solution perspective, so they'll send potentially multiple RFPs. You know, diabetes, hypertension, you know, pre-diabetes would each be potentially an RFP. Now, we're starting to see that consolidate even a little bit more. I think that'll accelerate the trend.
The other thing we're seeing is people liking the idea that, 'Hey, even if I'm looking for one or two conditions, that I can always come back, you know, 'cause maybe I have a solution for hypertension that I'm already using, and my contract's not up, but I really need a diabetes and a pre-diabetes and a behavioral health solution.' You know, maybe they'll do those three with the understanding that, "Hey, if we want to, we can come back and put all of this on one platform." You know, we're seeing, I think, a related trend where there's pressure, even more pressure than you'd normally see in self-insured employers from, I'll call it the finance side, that's saying: Hey, we wanna, we wanna access through the lowest cost of acquisition. So if that means through a partner, that's great.
You know, that's part of the reason why we spend so much time focused on our partner strategy, not just our platform strategy. If we can get more conditions so that, you know, we're not spending as much time and money doing vendor management and things like that, that they truly appreciate that, and I think that's a macroeconomic piece that's kind of starting to play into that as well.
We also saw a few specific inbound calls that are coming from pharma that are super interested about the combination of Twill and Dario. As well as the huge data that was collected by the two companies. If they did, like, 12 years of growing business, from which 6 or 7 years direct to consumer, we did the same. So probably one of the most comprehensive platforms from a data perspective, which is also a huge advantage.
Yeah, and I'd love to touch on the pharma part in a second here. But just sticking with sort of the platform itself, you guys recently launched a weight management solution. Can you talk about sort of how that fits into the broader suite of solutions that you're offering? And, you know, what do you see as the opportunity here to, you know, you know, help with this whole wave of GLP-1 usage?
Yeah, so it really wasn't a separate product. It was really an extension of our existing pre-diabetes weight management portion of our platform. But we have been building out features, actually, some of those within our Sanofi strategic relationship, that were really kind of related to medication adherence and managing those. And we also were able to look backwards and say: How many people did we have that we could identify? Obviously, we didn't identify all of them that had GLP-1 before we launched this, and how were they performing on the platform? What were they utilizing? How was that working? So I think that we've been able to understand how to help members.
We're primarily, right now, focused on managing people onto the medication, so how to change their diet, how to support nutrition, how to, you know, increase what they're doing from a weight management or a nutrition aspect to be able to build their confidence, but also reduce the side effects associated with it. Because what you see is in the data is, you know, roughly a third of the people that started are on it a year. Part of that is a side effect, so how can you help people do that so that if you're going to spend money on these medications, you're actually getting the benefit of it?
And then how do you, you know, help them change their behaviors on an overall basis, build their confidence so that at such time that maybe they want to come off of these medications, they can do so in a way that doesn't immediately revert back to some of the, you know, worst things that we've seen in terms of gaining back all the weight immediately and those kinds of things? So we've been focused on that. I think the other place where there's value, where customers are telling us that their value is everybody's still struggling to understand how to manage these medications. Who should be getting them? You know, what sort of steps should we have in the process to have people get them? Obviously, people are concerned about cost as well.
So one of the things we can feed back is data that says, "If you look at the cohorts of people that are on this, who's doing well, who's doing not as well, who really is not doing well," right? So we can give them data to help them construct how they go forward and what the criteria are that they use to manage it. That's not just in employers. I mean, we're seeing it in health plans, too. This is everybody's just really trying to understand because they have the, you know, the FDA clinical guidelines, but that's not a lot of data to build real medical necessity and criteria around.
Yeah. I guess, you know, do you get any pushback from employers or... You know, I guess the people who are looking or interested in these programs, is it that they are already covering GLP-1s, and they need a way to kind of manage that? Or is it folks that are thinking about covering, but they don't want to jump in without, you know, having sort of guardrails to make sure that either appropriate usage or people who that the appropriate people get it?
I think it's both. I think, you know, if you look at, I believe Cowen actually did a survey that looked at, in fact, like, how many people are planning on adding it, adding a, you know, a weight management/GLP-1 nutrition management program to something that they're doing, and the numbers were staggeringly high in terms of those that are doing it. I think you have the whole spectrum of people, and I think other than those that have just said, "Look, we're not going to cover it at all," people are interested in these kinds of solutions, and we're seeing, you know, interested. I think those even that are saying, "We're not going to cover it at all," that's not going to be their long-term position. It's their starting position.
Got it. Erez, you know, I think last quarter, you guys talked about adding several new employer and health plan clients in this year, right? I think in the early part. You know, how has that progressed so far?
... So we definitely added more employers and clients in Q1, and we see the ARR of the company increasing between Q4 to Q1. So this is something that is progressing. We also were talking about growing the ARR 100%-170% for the standalone Dario between 2023 to 2024. So we think that this is something that we can still deliver, obviously. With Twill, I mean, the scale is going to be larger. So on a combined basis, Twill and Dario together for the first nine months of 2023, we are generating around $30 million in revenue for the combined, on a pro forma rate, we are talking about $40 million for the full year.
So, that's something that we're going to see going into 2024. The B2C, we are planning to keep it around $8-$8.5 million. That's the cash flow positive point. The strategic, which is the third category that we are looking into, which is pharma and others, we expect that this one will go in the next two years, follow the deal that we did with Twill. At the moment, we are looking for growth on somewhere between $6-$8 million a year. That's the strategic.
I know that Twill came with some pharma partnerships. One of your big ones, Sanofi, you know, you signed that back in 2022. Maybe give us an update on... You know, 'cause if I remember correctly, they were really focused on, can we build a sustainable digital health business? And they were looking at that as a new path, and really leaned on you guys for the data and technology. Give us an update where we are with that, and you know, how, you know, 'cause I know in the last year or so, you know, a lot of pharma, a lot of companies, right, have been pulling back on some discretionary spend. Just curious how, you know, where they're at in terms of their views on digital health.
Yeah. So if we look back into the deal, we were looking into market access, plus clinical and data. On the clinical and data, from a fundamental perspective, they did two very important studies that were relying on real-world data that was generated over many years on our direct-to-consumer. They hired a company called Symphony that cross-checked our data with claims data, and they have seen more than $5,000 savings for every member that is on the platform per year. So practically, fundamentally, the deal is delivering and on the expectations. There were a few changes internally inside Sanofi that and if we're looking back into the revenues on a quarterly basis, things were very, very milestone driven, as you remember.
So we have seen ups and downs in the revenues, but practically, the deal exists, and the deal is still continuing according to the overall agreement. Actually, since then, we have seen some changes inside Sanofi, but now we are facing an opportunity to expand the existing deal, and that's something that we were discussing regardless of Twill, and it was accelerated post the acquisition of Twill. So here we see additional opportunity to get into more commercial relationship with Sanofi because Twill have access to a much larger population. They also know how to operate in the more commercial side on specific drug and specific therapeutics, which is something that can serve Sanofi on top of the funnel. So we are very optimistic that we are going to a direction that the relationship are going to be expanded.
You know, in the middle of the way, we have seen some changes inside the organization, which is something that created some bumpers, but overall, the existing deal is continuing, and we're going to see an expansion, ideally, in the next couple of quarters.
Okay, that'll be exciting to watch. Maybe just to close out, you, you talked a little bit before about sort of standalone Dario. The expectation was for top line growth of 100%-170%. With Twill, does that change, and/or is that still a good metric to think about, even on a combined basis?
I think that on a combined basis, it's not going to be 100%-170%, because if you think about... And just to be clear, we talked about the B2B, B2C, the employers and the health plans.
Right. Sorry.
We didn't talk about the strategic, and we didn't talk about the B2, the B2C. So overall, on a full base, we are seeing a growth that is less than that because we are looking also into Twill. So overall, as I said, Twill are providing around $18-$20 million a year. Around $15 million is coming from employers and health plans, and the rest is coming from pharma and other deals that they have. The plan that we have is to...
We wanna continue the growth of the employers and health plans, and in terms of the pharma, we are looking into restructuring the way that they are generating revenue from pharma in a way that it's going to be more significant and more profitable, which is something that might take us, like, few quarters. So in a combined base, we see a less growth than 100%-170%.
Okay.
It's still, you know, a company that is selling, like, on an integrated base, around $38 million-$40 million. So,
Right.
Even if we're going to grow, I don't know, 20% or 25%, I think it's still impressive.
Yep. All right, well, I think we're right at time, so, gentlemen-