Special Report

TICKERS: DRIO

Dial In on Diabetes Solutions with LabStyle Innovations Corp.'s Dario

Erez Raphael Having a chronic disease like diabetes engenders a sense of isolation that hasn't been adequately addressed by technology until now. With Dario, LabStyle Innovations Corp. has created a device that not only provides vital medical information to a diabetic patient in real time, but also connects that patient to a community of care providers, family and online resources. In this interview with The Life Sciences Report, LabStyle President and CEO Erez Raphael describes how the Dario software platform could provide sufferers of other chronic diseases with the benefits of real-time data and community as well.

Management Q&A: View From the Top

The Life Sciences Report: Your first marketed brand is Dario. Could you please describe this device?

Erez Raphael: Dario is a solution for diabetes. In fact, the name Dario stands for "diabetes all in one." The "r" is just for fun.

In general, we provide a solution for diabetes patients using a smartphone, software and the cloud. The Dario device turns a smartphone into a glucose meter and, with the software from the Dario App, whether it is downloaded for iOS or Android or cloud-based services, we can provide a treatment overview.

The understanding we had from the market, and from our understanding of diabetes itself, was that in addition to a device or tool, patients needed other elements related to empowerment, information and overall support for their treatment regimens. By making a glucose meter look like a gadget, smaller and integrated into a smartphone on the one hand, and providing, on the other hand, experience-intensive software that integrates data, information and an understanding of what to do next, we knew we'd be able to provide a good solution to the market. This is what we are combining—a smart medical device with smart software.

TLSR: The device looks like it's very easy for a patient to use.

ER: This is one of the comments we hear from users day by day. If you Google Dario on Facebook in the United Kingdom (U.K.), you'll see that people are in love with the device. It doesn't look like a traditional medical device; it looks like a lifestyle gadget. At the same time, the app is smart and sophisticated, with a user experience that is reminiscent of other lifestyle and social media apps. It provides the feeling of managing a chronic condition and not a disease, which is the mindset we wanted to provide.

TLSR: Can you describe how the concept evolved? What was your inspiration for Dario?

ER: The cofounders of LabStyle Innovations Corp. (DRIO:OTCBB) were Dr. David Weintraub and Dr. Oren Fuerst. They wanted to build something small and quick for diabetes care using the smartphone. I joined the company a bit after it was founded, and come more from a software orientation. I also have some personal attachment to diabetes. My father was a Type 2 insulin-dependent diabetic, and I remember the overall challenge of the treatment: how much insulin to inject, all the different calculations, and so on. I thought the LabStyle device was very nice, and that it could be a foot in the door to attract patients to use the app.

The platform's real benefit will be apparent once patients using a smartphone have been exposed to our app, which will not just provide them with blood glucose level readings but also take them one or two steps forward, giving them an understanding of what they can do next given the specific measure and also providing some insight into how they are doing with regard to overall treatment.

"The fact that Dario is cloud-based means that everything comes together in real time."

The fact that Dario is cloud-based means that everything comes together in real time. As opposed to other devices on the market that are more Bluetooth-enabled, we defined our solution by coupling the smartphone with the medical device to impose the real-time aspect. For example, if my son is at school and he takes a measure, I'll know about it three or four seconds later because I have the access to all his readings online. Caregivers or people who are following him will also know. Everything is on the cloud.

TLSR: Are there other products on the market or in development that could compete with Dario?

ER: A couple of companies are trying to do things that are similar, but I can divide these into two types. There are purely software-oriented companies, coming up with ideas about apps. I've seen great apps in the market; I like a lot of them. On the other hand, I've seen medical device companies take traditional meters and connect them to the smartphone. But I haven't seen, in any place, state-of-the-art software combined with a state-of-the-art device in one overall solution. We were trying to be the best in both, and I hope that we have managed to do so.

In some ways, we are a software company that developed a medical device as opposed to a medical device company that developed software. I think users know we are providing something different; this is what we hear from the market. Also, with our portfolio of patents, I feel we can sustain our ability to compete in the market.

TLSR: Can you describe your partnership with the FatSecret nutrition data application?

ER: One of the things that diabetics need to effectively manage their disease is to understand exactly how specific foods impact their blood sugar, and how specific workouts impact their blood sugar. We want to provide, in addition to empowerment, aspects of social analysis.

A specific type of food will impact your body in a different way than the same type of food will impact my body. We provide users with access to a big database of foods so they can define their doses of insulin based on the specific foods they eat. And we give them the option to do it from menus of restaurants, even if they are in a different state, or in different language. FatSecret has one of the biggest databases in the world for food and for menus, so we sought out a partnership and integrated the database into our platform. Dario also syncs with fitness app RunKeeper.

TLSR: You've gotten approval for reimbursement of your testing strips and lancets in Europe. What's the status of other approvals, reimbursements and patents, both in the U.S. and Europe? What's coming up?

ER: At the very end of Q1/14, we launched Dario in what we are calling a "soft launch," which means we have limited the number of devices that we are manufacturing and delivering to the market. We launched the product in Italy, the U.K. and also New Zealand. We wanted to make sure that the supply chain was working, that our approach for digital marketing was working, that the relationships with the distributors were working and so on. In parallel, we started to take care of the reimbursement activities. Today, we are reimbursed in Italy and in the U.K.

We've focused on these countries to start, but we have plans to extend the launch to a few more countries in the next few months. We also announced a partnership with a very big distributor in Canada, and also in Australia. I believe that by the end of this year, we will be able to launch in at least seven different countries, including Germany and the Netherlands.

"The way the product was designed, and the way our company approaches users, makes Dario a perfect match for the U.S. consumer."

The comments and the feedback so far from the market are very good. Because of the product type, and because we run our marketing and sales more directly to consumers, we are not just identifying users through social media and digital marketing, we are also getting requests for customer support, and a lot of feedback and comments. We look forward to scaling up our production line and increasing our user base.

TLSR: What about markets in Asia? Are you looking to market there in the near future, or are you going to focus on the U.S. and Canada?

ER: In 2014, we wanted to focus mainly on New Zealand, Australia and Europe. Toward the end of the year we plan to turn our focus to the U.S.

I think this product is going to be very special to patients in the U.S., to U.S. consumers. I believe Dario can create a real change in this market; I truly believe that the way the product was designed, and the way our company approaches users, makes Dario a perfect match for the U.S. consumer. I feel that, given all the success we see now in Europe, Dario is going to be even bigger in the States because the mindset will satisfy the U.S. market.

In parallel, we have a few potential partners that we started discussions with in other markets. I have met recently with a few potential partners in Japan. I believe that in 2015, we will be able to approach two other countries in Asia.

TLSR: What proportion of the diabetes market, which appears to be approaching 400 million (400M) patients worldwide, would you expect the Dario to secure?

ER: Out of the 400M patients across the world, 80–100M are insulin dependent. I believe that the market is big enough to support our business. In some ways, unfortunately, the market is getting bigger—the test strip market is $12 billion/year, and is growing at 12%/year. I believe LabStyle will be able to get a few percentage points of the market in the next two to three years, which will be a very nice revenue stream. We need to remember that as a software company, we'll be able to provide other value-added services to the cloud and to the database. We are looking at subscription models. We are looking at clinical studies that we can run over the platform. There are other things that might create value for LabStyle in addition to the major revenue stream, which will come from Dario.

TLSR: That leads into the next question, which is about other products in development at LabStyle. What are some of the things the company is looking at?

ER: We are working to improve our cloud-based services and communities, which enable overall diabetes treatment to be in real time and more connected. We believe diabetics have the feeling they're alone. Not everyone wants to share their disease, but in some way, sharing with someone who has the same condition, or sharing with a supporter or a family member, can really create a difference for a diabetic. We want to provide patients with all the options—and do it in a very nice and sexy way, through software. This is one very important direction.

"Once this platform is established for chronic disease, it can be used for conditions outside diabetes, such cardiovascular problems."

Another direction is the expansion of our self-diagnostics. We want to provide more self-diagnostic options over the smartphone. Once this platform is established for chronic disease, it can also be used for conditions outside diabetes, such as disease related to cardiovascular problems. We believe we can run self-diagnostics related to cholesterol over a smartphone. Obviously, to start, we want to be very successful in the diabetes market, but our technology is designed to approach other markets, to make any chronic condition more manageable.

We also have a patent related to the integration of self-diagnostics with the smartphone using the phone's audio jack, which is a very important asset of quantity for LabStyle, in addition to other patents we've filed around Dario's design and software.

TLSR: Is there anything else that you'd like investors to know about LabStyle's technology and future plans?

ER: In terms of diabetes, the market is very diluted for test strips. There are a lot of glucose meters on the market. If there's a way that I would like investors to look at LabStyle, it is as a company that provides differentiated products, not from the angle of the glucose meter but from the angle of the software, the treatment, the empowerment of patients. I would have investors look at us more as a data and software company.

It is true that we have a glucose meter that creates a connection with a smartphone, and that we are also generating revenue from strips. But this is the real differentiator: the understanding that for chronic disease, effective management is not just the medicine and the device. It's also the behavioral changes. It's also about empowerment, understanding, information and motivation. These other aspects are not being addressed by existing devices. But they can be addressed by providing information, by a smartphone and by connectivity. This is what we are trying to do. . .with a nice device attached.

TLSR: Thank you very much.

Erez Raphael is a seasoned leader who brings more than 17 years of industry experience to his role at LabStyle Innovations Corp., including product delivery, technology and business development. Prior to joining LabStyle in 2012, Mr. Raphael held a leadership position in portfolio business transformation at Nokia Siemens Networks, and prior to that held senior positions at Amdocs Ltd. (DOX:NYSE), ranging from leading large technology teams worldwide to a complex software development transformation that streamlined a change in the management and business operation of more than 1,500 employees worldwide.

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DISCLOSURE:
1) Tracy Salcedo-Chourré conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services toStreetwise Reports as an employee. She owns, or her family owns, shares of the company mentioned in this interview: None.
2) LabStyle Innovations Corp. paid Streetwise Reports to conduct, produce and distribute the interview.
3) Erez Raphael had final approval of the content and is wholly responsible for the validity of the statements. Opinions expressed are the opinions of Erez Raphael and not of Streetwise Reports or its officers.
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