Erez Raphael draws his own blood for me. “If I can prick myself at every investor meeting,” he laughs, “I can do it for the newspaper too.” He places the little drop of blood on a disposable test strip, which a moment earlier he connected to his smartphone using a small device called Dario. An app lights up, greets him with, “Hi Erez,” and displays his sugar level. Because Raphael ate chocolate not long ago, his sugar level is a little higher than ideal for the morning. If he were an insulin-dependent diabetic, he would have already received advice about his next injection.
“I’m a little addicted to measuring my sugar, I learn a lot about myself from it,” admits Raphael, and shows all his recent stats - each one representing a demonstration for investors. My eyes settle on a particularly high reading from two weeks ago: “Maybe I drank a cola,” he laughs, “Maybe our stock dropped on that day.”
LabStyle Innovations Corporation (Bulletin Board: DRIO) is the company that makes Dario, and its stock performance does not contribute to CEO Raphael’s inner peace. At its peak, Labstyle traded at roughly $3, and is now hovering around $1. However, he takes comfort in the rosy analyst forecasts: Goldman Sachs’ research department set a target price of $12 for the stock a month ago, and Aegis Capital set a target price of $6 in February.
What is so special about Dario that so excites the analysts? The kit that includes the needle, the test strips, and the smartphone connector, is really well designed, and looks like a flash drive, and not like the standard pouch that diabetics carry with them - a significant advantage if someone needs to use the kit on the subway, for example - but this alone would position the company alongside the standard medical equipment manufacturers, dominated by giants like Johnson & Johnson and Bayer. Apps for diabetics already exist as well.
What sets Dario apart is its ability to create an inseparable connection between the two. In other words, the smartphone itself is the glucometer and, at the moment of the test, your personal data, which you or your doctor or caregiver entered, along with the data that have been gathered over time, go to work. And your support group (be it your family, or, at later stages, doctors and diabetes support groups), sees your stats, and can help. If the patient is a child, for instance, his parents can see that he has checked himself, when, and what his status is, even while they are at work and he is at school.
The app itself is fun, friendly, colorful, and knows how to praise and “befriend” you, like the apps Raphael describes as “trendy and cool.” “We are connecting to the trendy world of health and lifestyle,” he says.
Raphael knows well that not much is “cool” about a chronic disease like diabetes. Diabetics’ lives revolve around their blood-sugar levels; they test themselves numerous times each day, and if the patient is insulin-dependent, the patient also has to decide how much insulin to inject in order to balance his or her blood-sugar level. On the other hand, the patient must not reach the very dangerous opposite situation of hypoglycemia, or ‘low blood sugar,’ as it is commonly known, which can in extreme situations lead to death. Averages indicate that a patient receives four doctor-hours each year, but each and every day, the patient needs to make many decisions that affect his or her health, and more or less deal with the burden of making the decisions alone.
The decision on how much insulin to inject is based on the “notebook,” a concept every patient with relatively severe diabetes knows and hates: the patient must keep a diary of his or her sugar levels, an accurate account of what was eaten and when, what physical activity he or she engaged in, etc. On the basis of these entries, the doctor uses an industry accepted formula and runs a statistical analysis, and determines how much should be injected and when.
The reason Raphael knew all this even before he connected with Labstyle and learned about the intricacies of the FDA and the like, is very personal: Raphael received the offer to join the new start-up three months after his father passed away at 68 from complications associated with Type 2 diabetes, which is less dangerous than Type 1.
Harnessing the wisdom of the crowd
In September 2013, the product received CE Mark approval, which allows the company to market it in 32 countries in Europe (and Australia and New Zealand). The request for US Food and Drug Administration (FDA) approval was submitted in late 2013, and the company hopes to receive approval in 2014. The next step after approval is to get the product covered by health-insurance providers. Because the product’s core element, the glucometer works like other glucometers, the approval process is not expected to take long. As for insurance coverage, the product is priced similarly to other glucometers.
In this field, the business model for manufacturers is not based on the device itself, which they sometimes give away for free, rather, much like printers, coffee machines, and other equipment with a disposable part - the profit comes from the disposable test strips. The test-strip industry has an annual turnover of $12 billion, and every Type 1 diabetes patient who uses test strips spends between $500 and $700 on them each year. Labstyle’s test strips are priced similarly to others in the market.
In April, the product was launched in what Raphael calls a “soft launch.” The first country in which the product went into use is Italy; next will be the UK. Of the 3,000 devices for distribution, a few hundred have been distributed so far, as the company want to make sure that everything is working correctly - that the test strips are available in the pharmacies in the areas in which the device has been distributed. At this stage, they know that though they are past the feasibility and development hurdles, they need to convince the market and investors of their reliability - in other words, their ability to provide the strips to patients over time. By the end of July, 3,000 devices will have been distributed.
In addition to working with distributors, as is standard for medical device companies, Labstyle is taking advantage of its special status as an app-based company, and is appealing directly to consumers via social networks. Even without the device, anyone who wants can download the app for free, enter data manually, and use it. Raphael hopes that, at a later stage, the same potential user will fall in love with the system, and will want to buy the device, if and when the insurance company or HMO begins covering the product. On the basis of this belief, Raphael believes that the company will reach thousands of users in the coming year.
Thus far, the company has raised $21 million, mostly from private US investors, in four fundraising rounds. Institutional investors participated in the most recent round as well.
One of the things that the insurance companies will be able to keep track of is how often people actually use their glucometers. There are statistics indicating that 10%-15% of test strips are wasted, either because they are not used, or because of exposure to moisture. Because Dario tests are uploaded to the cloud and saved there, the insurance companies will be able to track how often the device is actually used (while ensuring that patient privacy it protected according the applicable regulations, of course).
Labstyle has a number of patents in progress for various parts of the device and software, including the algorithms that build the user’s personal profile, which doctors and programmers worked together on, shoulder to shoulder. One of their patents was already approved in the US, for the part that connects the test strip to the smartphone: “Anyone who does self-diagnosis via the smartphone’s audio jack, and also charges it there (in other words, there is no other charge source), is in violation of our patent,” says Raphael. With time, Labstyle hopes to expand its repertoire to include other chronic conditions, such as high cholesterol.
You are not the first app on the market for diabetes
“True. There are many apps on the market that try to help, and with them the person enters his glucose level, the insulin guidelines he received from his doctor, and what he ate, and receives suggestions. But the response to these things is very low. People get excited at first and, after a week, become lazy. In the end, figures indicate that fewer than 5% stick with it. Another problem typical of these apps is that it was not clear in all of them who the medical authorities behind them are, and the FDA only issued guidelines on the matter two-three years after they had launched.
“There are medical device companies that said: lets develop a glucometer that connects to a smartphone via Bluetooth, and then the person can choose to sync or not. For us, the smartphone is the medical device, and you cannot see the glucose level without it. We wanted to force the person to reach the smartphone.”
“So that in the seven to ten seconds in which he looks at the smartphone we have time to advise him, and empower him, and to take him to the next step.”
Dario is not the only device in which the smartphone serves as glucometer. Sanofi’s iBG Star does this as well. According to Raphael, the competitor connects via the charging port, which caused some problems when iPhone 5 came out, and when they tried to adapt it for Android. Furthermore, says Raphael, Dario is unique in its creation of a personal profile, and the included advice, and also other aids, like connecting to the largest food database. This can provide nutritional information for various foods, even from restaurants around the world, and, using the app, can also “predict” how the diabetic will react to the house special at the restaurant he frequents.
At this stage, the people exposed to the information uploaded from the smartphone to the cloud are those in the “close circle,” defined by the diabetes patient - family members, and the like. The plan is for diabetes clinics to buy the platform, and thereby be able to advise patients remotely, and to make it possible to use “Diabetes Educator” services remotely. Diabetes Educator services are very advanced in the US, and are run by caregivers who are not doctors, who specialize in advising and supporting diabetics. Two Diabetes Educators are on Labstyle’s board of directors, one of whom, Gary Scheiner, who is himself a diabetic and something of a celebrity in his field, wrote a training book that earned him the title of “Diabetes Educator of the Year” in 2014. Also on the team is David Edelman, manager of the most popular online forum for diabetics in the US. “As soon as I came on board as CEO, I knew I wanted him to work with us,” said Raphael.
The scientific team is led by Hadassah Ein Kerem Diabetes Unit Head and National Diabetes Council chairman Prof. Itamar Raz. “One of the reasons he is with the company,” says Raphael, “is because we share the same opinion: there are more and more chronic diseases, with more and more patients, and the medical community does not have the ability to care for all of them. The only way to partially close the gap is to empower the patient, and to surround him with a circle of people that knows how to care for his chronic condition, and also to teach him to take better care of himself.”
Published by Globes [online], Israel business news - www.globes-online.com - on July 17, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2014