Digital therapeutics firm DarioHealth reported this week that it is starting to reap big financial benefits from a business model transformation that its executives architected last year to tap into broader digital health trends. As the company transitions from the role of personal medical device maker to comprehensive health data platform provider, it’s posting record revenue growth along the way.
In an earnings call to investors yesterday, the company reported large gains in revenue both sequentially and year-over-year for the first quarter of 2019. The firm reported that it grew revenue 32% compared to the fourth quarter of 2019. Company leadership chalks up the growth to their move to a higher margin, subscription-based model that monetizes data services and coaching to help patients get more personalized, data-driven care.
“We have the right offering with the right business model for the right timing of the health care market,” DarioHealth CEO Erez Raphael told investors. “The market becomes more and more digital and is demanding solutions that are very data evidence-driven and very performance-driven.”
The SaaS Shift
In previous earnings calls, Raphael has explained that DarioHealth’s shift into digital therapeutics services looks very similar to what most software companies have done over the last decade to transform their business models.
“We’re comparing this kind of transition that we are doing now into digital therapeutics to the transition that was done in the software industry from licensing to software-as-a-service (SaaS),” he said.
That transition began in 2018. The company was still riding on the wave of initial success from the 2016 roll-out of MyDario, a small personal glucose meter that plugged directly into patients’ smartphones. It was gaining market share and still growing, but executives nevertheless saw the writing on the wall. They realized the biggest opportunities lay beyond the device itself. Instead, they saw that it is the data produced by the device that holds the true value to patients, healthcare providers, insurance companies, and employers paying for those insurance plans.
Executives recognized that if the company could find ways to better analyze the data, contextualize the data, and connect the data into the broader healthcare provider environment, it would help patients achieve better outcomes. It would also help companies reduce healthcare costs. Right now, diabetes management and treatment makes up somewhere along the lines of 20% of US healthcare spending.
And so, DarioHealth executives drove to build a membership service on top of the device that included artificial intelligence (AI) and analytics capabilities to improve diabetes management for the patient, and digital coaching tuned to individual users’ real-time data. By adding greater value to the data, they could improve margin, and by structuring it as a SaaS model, they built in a recurring revenue stream for the business.
Additionally, the company is broadening its addressable market space by building integrations with other medical devices and creating an open platform that connects individual patient data back into provider and insurance company systems to optimize patient care. As a result, the company adds a significant B2B element to its business model that hinges on connection to and contextualization of data.
“We believe that this business model will provide multiple effects on our growth,” Raphael said yesterday, explaining that he believes last quarter’s results are just the start of the payback for investment in these changes.
The Digital Health Market
The investments that DarioHealth has made to reinvent itself as a digital therapeutics and data company highlights the huge opportunity for companies as the healthcare industry is undergoing a broader transformation. The industry is moving toward value-based care models that depend on real-time patient data to work best. Just last month, Centers for Medicare and Medicaid Services (CMS) and the U.S. Department of Health and Human Services (HHS) announced it is moving toward outcome-focused, value-based care payment models.
So many of the impending changes in the healthcare industry depend on effective use of data. Data collection, data management, data sharing, and data analysis through machine-learning and AI, are all top-of-mind for providers and payers in the coming years. In order to support these new technologies, expect to see a bonanza in digital health spending in the coming years.
According to a report released earlier this year by Global Market Insights, the digital health market is expected to increase with a compound annual growth rate of almost 30% annually through 2025, with spending reaching $504.4 billion at that point. Mobile health technology like that of DarioHealth will lead the growth, with an increase of almost 39% expected in that segment.