Erez Raphael, CEO and president of LabStyle Innovations Corp. (OTCQB: DRIO), talks with Opportunist’s Managing Editor Leslie Stone about his company’s all-in-one glucose meter and cloud-based mobile diabetes management platform.
Managing blood sugar ups and downs is a daily challenge for the 371 million people with diabetes worldwide. It’s important for diabetics to take regular blood sugar readings to help their doctor determine the type and dosage of medication they need to manage their illness and also to gauge the specific foods and activities that trigger fluctuations in their blood sugar levels.
Israeli startup LabStyle Innovations Corp. has developed a device about the size of a cigarette lighter that lets users turn their smartphone into a glucose meter. Called DARIO Smart Meter, the all-in-one unit includes test strips, a blood lancet and an adapter that connects into a smartphone’s audio jack. Once attached to a smartphone, the device works in conjunction with the DARIO app—available free via the App Store (for iPhone) or Google Play (for Android)—to not only log and track blood sugar levels, but also to chart how foods and exercise are affecting the user’s diabetes. The app also alerts the user and caregivers when special action is needed and makes it easy to share data with physicians.
“DARIO is a very cool and sexy device that is designed to fit people’s lifestyle,” says Erez Raphael. “We wanted to take ownership with the patient to help make it easier for them to manage their diabetes. The overall look is something more appealing and it is helping people in their day-to-day life. “The key to properly managing diabetes and, even, in some cases, improve its outcome, is to focus on the patients’ day-to-day behavior and motivational factors. Positively affecting patient behavior can only happen with consistent engagement.”
Opportunist: How did you become involved with LabStyle Innovations?
Erez Raphael: My father was a Type 2, insulin- dependent diabetic. He passed away four months before I joined the company. I had met a gentleman who decided to start this company and we were talking about it from the standpoint of a mobile solution and how it could help family members, patients and so on to make everything digital. I had previously held management positions in development, technology, project and product management, post-merger integration and business operations for companies such as Nokia Siemens Networks and Amdocs (NASDAQ: DOX). We envisioned the whole market from glucose monitor solution into diabetes management. The glucose monitor is the tool but the vision is to go beyond monitoring into chronic disease management and this is what DARIO is all about. We started with diabetes and we will target other chronic illnesses in the future.
Opportunist: What are your duties as CEO and president?
Erez Raphael: Generally speaking, my primary role is fulfilling the vision of a publicly traded, startup company. I am committed to funding the company as well as committed to the shareholders, and I would like to ensure that this technology reaches millions of people worldwide as it helps them to thrive with their chronic diseases.
Opportunist: How will you achieve that?
Erez Raphael: Part of our strategy is to combine the device and also the app and remote treatment capability by web portal to every country where we have already met the regulations and, therefore, can reach as many patients and help as many people as possible.
Opportunist: How much is the app?
Erez Raphael: The app is free. While we are not necessarily charging the consumer to use it, we are subsequently converting them to use the device in conjunction with other things that will help them manage their disease. This is where we are generating revenue. We are still in the very initial phase, as we started our full commercial launch in Q4 2014. We currently have ongoing revenues in six countries where we are launching.
Opportunist: In which countries is DARIO currently available?
Erez Raphael: We started in the United Kingdom, the Netherlands, New Zealand, Australia and Canada and we are expanding very shortly into Latin America and South Africa. We intend to start focusing on the United States later this year. We are providing a full mobile health experience and we are also making it available under the reimbursement program for patients in Australia, Canada, the U.K. or the Netherlands. DARIO is changing people’s lives by giving them the support they need and helping them to improve their performance.
Opportunist: When do you expect the U. S. Food and Drug Administration will approve DARIO for use here in the States?
Erez Raphael: We initiated the final submission back in the beginning of this year and we have been in contact with the F.D.A. over the last few months. The glucose monitor takes somewhere between eight to15 months, so we feel comfortable that later this year we should be cleared. When it comes to glucose monitors it’s all about accuracy and usability, and studies that we made supporting it.
Opportunist: Does DARIO have any competitors and, if so, how does it compare to the competition?
Erez Raphael: There are a few devices that predict and connect medical devices into mobile devices; however, when it comes to the diabetes native mobile solution, our technology can turn every iOS and Android smartphone into a glucose monitor and diabetes management tool. We offer what others don’t have. There are a few initiatives in the mobile industry that companies will create—for example, companies that created a dedicated device—but in our case we wanted to have one device: our mobile phone. We already have enough screens in our lives; we believe you should only have to go to one.
In the glucose monitoring industry companies are typically thinking very traditional. Medical device companies manufacture devices dedicated to their own operating system. When it comes to our solution, we intend for all smartphones to have the ability to become a glucose monitor. Once you own this platform you can do whatever you want with data and software and so on. Integration with smartphones over audio jack is under patent in the U.S. and together with our global software differentiates us from our competitors. If you want to have everything in a smartphone in real time and be constantly engaged, motivated and communicate with others—all of these advantages together with the all-in-one device (meter, test strips and lancet)—doesn’t allow you too many choices but to choose DARIO. There is only one at the moment in the market.
Opportunist: Is there anything you would like to pass along to investors?
Erez Raphael: First, when you look at the overall glucose monitoring side of the medical industry in general, it represents a $12B market. Likewise, the market for mobile apps is huge. Up until we came along, whenever new technology was developed for diabetes management it was all on a dedicated device. This is the first time someone is providing something that is cost effective and I think we can catch a very big portion of this market. Second, because of the technology and continuity we can lead the transformation of monitoring into management—as in management of chronic conditions and not just providing a tool to monitor levels. I believe we can be leaders. We will receive reimbursement from medical providers who will partner with us because we are the only one in the market that provides 100 percent real-time connectivity. Our valuation is less than $14.5M even though the market is huge and we have already started to generate revenue and the revenue is growing very rapidly. I believe that we should take care of the fundamentals of the company and the stock will take care of itself. The market is huge. It already exists. We do not need to invent the market—we provide an advanced tool into existing need and an existing market where the potential is huge. Revenues will come and will be there.
In fact, we started to generate revenues at the end of last year. In Q1 we had shipments of 147,000, and the growth should continue in Q2. Our focus will go in a global direction in the next two quarters. Europe, Canada and Australia will be contributing to our revenue in 2016, and then we will progress into the United States. We have hired a general manager to direct our activities in the U.S. and we have established our offices in Boston. Moreover, we have started already to talk with plants and so on. The U.S. is going to be one of the biggest revenue generators for the company, which we firmly believe we are going to see by the end of this year or beginning of 2016.
We were funded by friendly investors including friends and family. We are keeping the company cap table ‘clean,’ so to speak by doing our financing in stages in an effort to create value without diluting the company. Officers, including CFO, the board members and myself invested personally in the company. The idea is to continue the execution and to be able to uplist in the near future to one of the national exchanges, such as NASDAQ or NYSE. This is our strategy. We need to be there to increase the value and this is on our agenda for the next few months.
Opportunist: What motivates and inspires you to continue working toward your goals for DARIO?
Erez Raphael: I enjoy waking up in the morning and looking at comments people are writing about our product. When somebody says ‘this is the best device I have ever used’ or ‘this is the first time in my life that my glucose levels have been balanced for three months’ or ‘this has changed my life’ that is one of the most rewarding things to see. It really goes beyond the device and the platform. People are supporting each other. I admit I’m not crazy about all the fundraising and so on—I do find it less creative—but I am building a product and launching into more markets and meeting with patients because this is a very patient-centric solution. I also participate in lots of consultations with doctors but mainly I am listening to patients in an effort to really hear them. Talking with them and helping to improve their lives is the most enjoyable thing.
Opportunist: Are there any recent developments you can share with us?
Erez Raphael: The U.S. market is being transformed as we are talking, from insurance companies to Medicare and Medicaid issues to Obamacare. Insurance companies and payers are looking to pay for clinical outcome. In the past, they were paying millions of dollars for people to test their blood sugar. But simply because diabetics test their blood sugar levels does it mean they will take care of themselves? Does it mean their clinical outcome will improve and be maintained? Not necessarily. The fact that we can go beyond the monitoring into management and improvement of clinical outcomes speaks volumes. By making DARIO available to their patients, the health system including payers can monitor their patients’ performance and reduce health expenses and resource utilization.
In other countries we have signed contracts. One of the biggest HMOs in Israel has signed on with us to provide the whole platform to their members. So we aren’t just improving levels for one patient—we are improving them for patients in the whole clinic. Professionals can get access to and track and support those at the clinic as well as in their homes because literally 100 percent of the management is being transformed to the call center of the diabetes management. This project has given us the opportunity to prove our technology can be providing the cloud service.
Opportunist: What else does the company hope to achieve by the end of this year?
Erez Raphael: We want to penetrate more markets and we are trying to launch in every quarter at least one new market. There are already tons of distributors as well as those who want to look at the overall solution. On one hand we have the monitor and on the other hand it’s disease management. In Israel we are providing a system that improves the clinical outcome. It is not only about sales but also about getting to the right places and reaching more people. Penetration in Canada and new countries is continuing. We are planning to start in Asia by the Q3 of 2015 and toward the end of the year, as I mentioned, into the States. In 2016 we look forward to perhaps beginning the project of taking the same solution for diabetes and converting it into other chronic diseases. It is a behavior thing at the end of the day. Support and engagement of this behavior aspect can incorporate to other chronic diseases, and this is something we have on our agenda for 2016.
Opportunist: What other chronic diseases will you target initially?
Erez Raphael: Cardiovascular disease and also testing for cholesterol levels. The technology is cost-effective. For a few dollars we can turn every smartphone into a device to monitor glucose and cholesterol and other things. This will benefit a lot of people who are not necessarily under chronic conditions but who might be at risk of becoming chronic. There is a whole market of people who are pre-diabetic in addition to the nearly 400 million people with diabetes all over the world. Millions are pre-diabetic or diabetic and don’t know it. They can buy a kit that will provide them with the ability to test for two or three days their blood sugar level to find out whether they are under threat of a chronic condition and be better able to take care of themselves. This will be extremely beneficial to those with cardiovascular disease because only a few months with this chronic condition can do serious damage. This will help us penetrate into new markets.
Opportunist: Where do you hope to see DARIO by the year 2020?
Erez Raphael: I think we are going to be one of the pioneers and big players in terms of digital health, especially in the area of diabetes. We have hundreds of thousands of users and will be recognized as the company that transforms it from medical device equipment into an engaging mobile lifestyle digital health solution. We think differently. We are focused on the behavior and engagement of patients and, together with the core technology, it creates a huge difference. I am not saying it’s not challenging. It is very dependent on customers and hospitals. The fact that we are providing something different is sometimes very hard for them to perceive.
Opportunist: How so?
Erez Raphael: DARIO doesn’t look like a tool for a sick person. I see DARIO being to the medical industry what Waze is for navigation. Waze is a crowdsource GPS and one of the first who made the transition from a dedicated GPS to mobile by integrating software and maps into mobile. The brilliant thing they did is engage the user to share information about traffic and so on. Crowdsourcing in combination with mobile GPS created a very appealing solution. Google acquired Waze for $1.3B. This is something that is achievable also for a medical device and disease management. It is a bit more complicated in an area that is highly regulated like medicine but it is achievable, and we want to be the ones for the diabetes market first of all and then for other chronic diseases.
By 2050 the number of diabetics in the U.S. is expected to double. In 10 to 15 years from now everyone will understand that the traditional way of taking care of the patient no longer works. It is not just the doctor and the patient. In between you have the aspect of behavior and also the support circle of community, family members, educators, etc. The digital health revolution is something that is trying to close this gap between the limited time doctors have and the huge number of patients. Behaviors can be handled with this technology. I believe that DARIO is going to lead this kind of transformation.
Leslie Stone is an award-winning writer, editor and journalist with more than two decades of experience covering business, finance, real estate and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides between Florida and Michigan. Follow Leslie on Twitter: @lescstone.