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DRIO: DarioHealth and HMC HealthWorks Announce Partnership Agreement

09/25/2020

By John Vandermosten, CFA

NASDAQ:DRIO

READ THE FULL DRIO RESEARCH REPORT

DarioHealth (NASDAQ:DRIO) and HMC HealthWorks announced that they had entered into a sales and distribution partnership. HMC will incorporate DarioHealth’s digital therapeutics (DTx) platform into its comprehensive care management programs and offer DarioHealth’s platform as a stand-alone option.

HMC HealthWorks is a healthcare management company that provides administrative and care management to smaller plans such as Taft-Hartley union plans. They provide chronic care management, behavioral health and wellness services to client plans. The group covers approximately one million lives and is in a space that other competitors such as Livongo have not yet actively pursued. The arrangement between Dario and HMC will offer Dario’s full suite of services, including diabetes care, blood pressure management and coaching as well as other services as they become available.

The agreement with HMC was not one of the new and transformative agreements that were referenced in the 2Q:20 press release and conference call. We expect these to materialize shortly with the delay attributable to last minute adjustments to the contract.

HMC is forward-thinking, integrating the latest in technology and analytics for the benefit of customers. The consummation of the deal sends a message that out of the platforms evaluated, HMC found best value in DarioHealth’s solution.

Exhibit I – DarioHealth’s Platform-as-a-Service (PaaS)1

This agreement comes at a time when DarioHealth is undergoing changes. The company continues to seek and form partnerships as its overall strategy shifts from its direct-to-consumer, where it refined and vetted the DarioHealth platform, to a business-to-business-to-consumer model, targeting catalytic relationships with large care populations. The arrangement with HMC will layer on incremental lives at a $40 to $60 and higher per member per month rate, depending on level of services which could include diabetes management, blood pressure management and coaching. We estimate anywhere from 10% to 18% of a covered population has a chronic disease and over time we anticipate substantial penetration into this group. For a quick back of the envelope estimate at $40 PMPM and 10% penetration, this equates to $48 million in annual revenues.

Exhibit II – DarioHealth Market Opportunity2

DTx is a burgeoning and disruptive field with a major addressable market where DarioHealth holds a dominant position. The DarioHealth platform can improve behavior, be an extension of the physician and monitor a patient’s care in the management of chronic conditions. Excitement about the possibilities for DTx led to the August 5th announcement of the $18.5 billion merger deal between Teledoc and Livongo. Assuming the deal is completed, the combination will match two of the largest players in digital therapeutics and telemedicine. There is only a small degree of overlap between the two companies, so we do not anticipate an increase in the competitive environment. Penetration for the industry is very low which also suggests that this merger will not hinder Dario’s efforts. We discussed the deal in a note published on August 6th. With M&A in the air, Dario becomes a potential target for acquirers that could include health plans, managed care, hospital systems or even technology players desiring exposure to this rapidly expanding space.

The deal with HMC supports our thesis of rapidly growing expansion into the health plan market with is expected to have higher PMPM and lower acquisition costs, providing both topline and margin leverage. While Dario’s sales are predominantly in the US, we see global opportunity as the platform proves itself and will add other regions when there is a reasonable assumption that they can be developed. Please see our initiation and latest report for additional details on our investment thesis, valuation approach and the DTx space.

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1. DarioHealth Investor Presentation, September 25, 2020

2. DarioHealth Investor Presentation, September 25, 2020

 
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