DarioHealth Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited financial figures are in U.S. dollars, thousands, unless stated otherwise. DarioHealth is a digital therapeutics company expanding from consumer sales into enterprise channels and from diabetes into multiple chronic conditions.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $8,059 | $3,595; up 124.2% |
| Gross profit / margin | $3,985 / 49.4% | $1,081 / 30.1% |
| Operating expenses | $19,857 | $15,408 |
| Operating loss | $15,872 | $14,327 |
| Net loss | $15,916 | $14,966 |
| Net loss attributable to common stockholders | $16,367 | $15,510 |
| Basic and diluted loss per share | $0.74 | $0.92 |
| Cash used in operating activities | $18,094 | $10,532 |
| Cash used in investing activities | $181 | $2,540 |
| Cash provided by financing activities | $38,023 | $65,711 |
- Revenue growth was primarily attributed to the commercial channel: commercial revenue rose to $4,549 from $53, while consumer revenue was $3,510 versus $3,542.
- Cost of revenue was $4,074, including $932 of acquired-intangible amortization and inventory step-up costs. Gross profit excluding the amortization cited by management was $4,917, or 61.0% of revenue.
- R&D increased 123.2% to $5,927, mainly reflecting expansion into additional products. Sales and marketing rose 33.7% to $9,535. General and administrative expense declined 21.8% to $4,395.
- At March 31, cash and cash equivalents were $55,558, up from $35,808 at year-end 2021; total assets were $127,331 and stockholders’ equity was $114,185. Current liabilities were $13,098. The filing reports operating lease liabilities but no conventional borrowings in the presented balance sheet.
- The company raised approximately $40 million gross ($38,023 net) in a February 2022 stock and pre-funded-warrant offering. Common shares outstanding increased to 22,070,963 from 16,573,420 at year-end; additional pre-funded warrants were also issued.
Material changes and notable items
- The company signed a five-year Sanofi agreement in February 2022. The agreement provides for collaboration, promotion, licensing and potential development work, with aggregate consideration of up to $30 million, including contingent milestones; it is subject to contingencies.
- On March 31, 2022, DarioHealth acquired Physimax technology in an asset acquisition. Consideration was reported as $1,686, including shares and cash, with an additional $131 of capitalized acquisition costs; the technology was recorded as an intangible asset.
- Net loss increased by $950 year over year despite higher revenue and gross margin, as operating expenses rose. Lower foreign-currency-related expense reduced financial expenses to $44 from $639.
- Stock-based compensation was $5,343, compared with $4,438 in Q1 2021. A $452 gain from remeasurement reduced the WayForward earn-out liability to $373 from $825.
Outlook, risks and contingencies
- Management said cash resources were expected to cover obligations for at least 12 months from issuance of the statements; the MD&A also describes resources through 2023, conditional on budget assumptions and commercial sales commencing on anticipated timelines. The filing cautions that revenue may not scale as expected and further capital may be needed.
- The company reported cumulative losses of $238,381 and said it had not established stable recurring revenue sufficient to cover operating costs; it expects losses to continue. Additional financing may be unavailable or dilutive, and failure to obtain funding or achieve commercial targets could require changes to plans or threaten continued operations.
- Key uncertainties include commercial adoption and market penetration, execution of the Sanofi relationship, product development and regulatory clearances, manufacturing, and the impact of COVID-19. The filing provides no quantified revenue or earnings guidance.
- Potential Israeli Innovation Authority royalties equal 3% of sales and related revenue from supported projects, up to 100% of grants received, plus interest; payment depends on generating applicable sales. The company also noted it may be involved in claims and legal proceedings, without providing a specific quantified contingency.
- Management concluded disclosure controls were effective at a reasonable-assurance level as of March 31, 2022, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the Sanofi agreement’s contingent milestones and development plans translate into recognized revenue and cash receipts.
- Commercial-channel growth, customer enrollment, renewals and revenue concentration, given the sharp increase in commercial revenue from a low prior-year base.
- Cash burn and runway against management’s 12-month and conditional through-2023 statements, including whether additional financing will be required.
- The dilutive effect of the February offering, pre-funded warrants, equity awards and future capital raises.
- Execution and commercialization of the expanded product portfolio, including Physimax technology, and any regulatory or manufacturing requirements.