DarioHealth Corp. revealed 10-K form on Monday, Mar 25.
The latest studies released by the Centers for Disease Control and Prevention (CDC) report that in 2015 over 30.3 million Americans have diabetes. More alarming is that in 2015, an addition 84.1 million Americans age 18 or older have what is known as prediabetes, which when left unmanaged will most likely become diabetes in a matter of a few years. The number of people with diabetes or prediabetes equates to 35% of the adult population in the U.S. In addition, there is a strong correlation between obesity and the development of diabetes. Many believe, including the National Center for Biotechnology Information (NCBI), that diabetes is one of the worst epidemics of the 21st century. The diabetes epidemic is not only felt in terms of its impact on health but also represents a financial burden on the U.S. and global healthcare system.
Importantly, one out of three American adults with prediabetes can, in fact, reverse the condition if they take action, and the health of people with diabetes can be improved through measurement adherence and medication. Furthermore, studies have shown that a 1% reduction in the concentration of glycated hemoglobin (also known as HbA1c or A1c) in human blood goes beyond better diabetes control. That reduction may translate into a 15% to 20% decrease in heart attack and stroke risk and a 25% to 40% lower risk of diabetes-related eye or kidney disease. Better diabetes management may result in substantial savings in the costs related to diabetes and healthcare in general, through the avoidance of health complications and related expense savings. A 2013 NCBI study found that improved A1c levels are associated with healthcare savings.
Based on data we have extracted from our user database, using the Dario Smart Diabetes Management Solution leads to an improvement in glucose level of the users and lowers their A1c levels over time. This data also indicated that higher engagement of users with the Dario Smart Diabetes Management Solution increased the level of A1c improvement. Specifically, we found A1c improvements during a period of 3 months, 6 months, and 9-months for people who began the study with A1c levels of more than 8%, 9%, and 10%. The key finding was that, on average, every segment of the users showed an improvement compared to their A1c level when they started to use the Dario Smart Diabetes Management Solution, while 75% of participants which started to use the Dario Smart Diabetes Management Solution with A1c levels higher than 9% were able to lower their A1cC levels during that period with as little as 3 glucose level measurements per day.
We use our patented technology to enhance the way our Dario Blood Glucose Monitoring System communicates with usersā smartphone devices. In the U.S. market, the Dario Blood Glucose Monitoring System connects to a smartphone via a sugar-cube dongle that does not require a battery for operation; rather, it relies on the smartphoneās battery as its power source. In the effort to reduce battery-dependence and ensure 100% real-time data capture, the application is able to monitor and adjust power levels on smartphones accordingly to enable sufficient output with minimal reliance.
ā Large Market of Potential Users. Our reliance on diabetics within the massive smart mobile device market gives us an established potential user-base. According to recently published Mobile Fact Sheet by Pew Research Center, or PRC, 81% of Americans own a smartphone, up just 35% in PRCās first survey of smartphone ownership conducted in 2011. Between the ages of 18 to 34, 95% have a smartphone, and between the age of 34 to 49, 92% own a smartphone. We believe that it is reasonable to assume that the percentage of smart mobile device users with diabetes mirrors that of the general population.
Type 1 diabetes, sometimes called insulin-dependent, or juvenile, diabetes, is caused by an auto-immune reaction where the bodyās defense system attacks the insulin-producing cells located in a personās pancreas. The reason why this occurs is not fully understood. People with Type 1 diabetes produce very little or no insulin. The disease can affect people of any age but usually occurs in children or young adults. People with this form of diabetes need injections or infusions of insulin several times a day in order to control the levels of glucose in their blood. The use of insulin may lead to excessively low levels of glucose in the blood, also known as hypoglycemia, leading to other health problems. Type 1 diabetes patients constitute approximately 10% of the overall number of patients, but are much more extensive users of BGMS, as these diabetics need to measure their glucose levels 4-10 times a day to avoid both hyperglycemia and hypoglycemia (versus once or twice a day for most Type 2 non-insulin dependent diabetic patients). The vast majority of Type 1 diabetes patients are insulin dependent.
Type 2 diabetes is sometimes called adult-onset diabetes and accounts for at least 90% of all cases of diabetes. It is characterized by insulin resistance and relative insulin deficiency, either of which may be present at the time that diabetes becomes clinically manifest. The diagnosis of Type 2 diabetes usually occurs after the age of 40 but can occur earlier, especially in populations with high diabetes incidence. Type 2 diabetes can remain undetected for many years, and the diagnosis is often made from associated complications or incidentally through abnormal blood or urine glucose test. It is often, but not always, associated with obesity, which may contribute to insulin resistance and lead to elevated blood glucose levels. A portion of the Type 2 diabetes patients are insulin dependent or use insulin as part of their treatment.
Diabetes is a growing epidemic for which no cure exists, but for which treatments (including a regimen of frequent blood glucose testing) are available. The medical journal Lancet has reported that the number of worldwide diabetics has doubled over the past thirty years. While about 70% of the increase has been attributed in the Lancet report to population growth and aging, the balance was linked to changing diets, rising obesity levels, and less physical activity.
It is estimated that the costs of diabetes complications account for between 5% and 10% of total healthcare spending in the world. In the United States, the ADA estimated that the total cost of diagnosed diabetes has risen from $174 billion in 2007 to $245 billion in 2012. Early diagnosis of warning signs and ongoing monitoring of diabetes are the keys to the prevention and treatment of the disease, with blood glucose monitoring being the primary method of diagnosis and disease management, coupled with matching blood glucose readings with food (i.e., carbohydrate) and insulin or another medication intake.
Since blood glucose self-monitoring is a key part of managing diabetes, the market for BGMS products required to service these many patients is also large. As reported in a press release published by Allied Market Research, the blood glucose self-monitoring market was estimated to be $7.76 billion in 2017 and is expected to grow to an estimated $10.82 billion by 2025. The biggest drivers for growth in the diabetes device market will be the increased prevalence and awareness of diabetes. The U.S. is the largest market, contributing close to 40% of the global market for these devices.
From a competition perspective, four companies currently dominate the BGMS business, controlling a majority of the market: Roche Diagnostics (part of Hoffman-LaRoche), LifeScan (a Johnson & Johnson company), Ascensia (formerly Diabetes care), and Abbott Laboratories. These ābig fourā offer a wide variety of BGMS products and have led the market since the late 1990s. Numerous second-tier and third-tier competitors, including several in Asia, hold the remaining 10% of the market. We believe that the BGMS offerings by all vendors are comparable, with mild differentiation of the main feature sets of the devices. This is akin to the differentiation among personal computers (PCs) during the 1990s and 2000s, where most of them had the same key feature set of Microsoft Windows and Intel Processors.
As part of our CE Mark clearance, in 2013 we conducted positive User Performance studies for the Dario Blood Glucose Monitoring System in Israel with 161 diabetic patients. This study aimed to collect measurement data from capillary blood with a defined distribution of glucose concentrations in order to perform system accuracy evaluation according to ISO 15197:2013, the current international standard requirements for BGMS systems. The results of this study showed that the test strips are well within limits for system accuracy defined by ISO 15197:2013 in that 100% of results fell within zones A and B of the Consensus Error Grid for all systems, which means that the system accuracy requirements of the ISO 15197:2013 have been met. The acceptance criteria for accuracy of BGMS per ISO 15197:2013 is ā95 % of the individual glucose measured values shall fall within Ā± 0,83 mmol/l (Ā±15 mg/dl) of the measured values of the manufacturerās measurement procedure at glucose concentrations < 5,55 mmol/l (<100 mg/dl) and within Ā± 15% at glucose concentrations ā„ 5,55 mmol/l (ā„100 mg/dl)’.
We evaluated the accuracy and user performance in this clinical trial with 368 diabetic patients, each of whom tested fresh capillary finger prick blood glucose levels while using the Dario Blood Glucose Monitoring System for the first time, as instructed by Darioās instruction material. System accuracy was determined with samples obtained from each subject measured both on the Dario Blood Glucose Monitoring System by individual subjects and by a reference YSI analyzer. We documented sample collection or measurement errors. When required, repeated sampling by each subject was limited to three per subject. The interval of glucose levels tested was within BGMS range 43.0-477.0 mg/dL, and YSI range 42.3-435.5 mg/dL. There were no outliers. Accuracy for the Dario Blood Glucose Monitoring System met ISO 15197:2013 criteria, as can be seen in the accuracy tables below. Below 100 mg/dL, 97.8% of values were within Ā±15mg/d of YSI reference glucose values. For samples with glucose above or equal to 100 mg/dL, 96.4% of values were within Ā± 15% of YSI glucose levels. Lay subject performance assessment of Darioās instruction clarity and usefulness showed that 100% successfully obtained a measurement result, and 97.1% of subjects found instructions easy to follow with 70.7% rating they were very satisfied (5/5) and 26.4% rating they were satisfied (4/5). Reading the result on the smart mobile device was rated easy to understand by 99.1% of lay subjects, with 86.1% rated it very easy (5/5) and 13% rated it easy (4/5). If an error message displayed on the report screen, 100% of lay subjects were clear about how to resolve the error, with 56.5% reporting it was very clear (5/5) and 43.5% reported it was clear (4/5).
The acceptance criteria for accuracy of BGMS per ISO 15197:2003 is āNinety-five percent (95%) of the individual glucose results shall fall within Ā± 15mg/dL of the results of Darioās measurement at glucose concentrations < 75mg/dL and within Ā± 20% at glucose concentrations greater than or equal to 75mg/dL’. The study evaluated the accuracy and user performance in this clinical trial with 100 diabetic patients, each of whom tested fresh capillary finger prick blood glucose levels while using Dario for the first time, as instructed by Dario’s instruction material. System accuracy was determined with samples obtained from each subject measured both on the Dario by individual subjects and by a reference YSI analyzer. We documented sample collection or measurement errors. When required, repeated sampling by each subject was limited to three per subject. The interval of glucose levels tested was within BGMS range 42-396 mg/dL, and YSI range 37-386 mg/dL. There were no outliers. Accuracy for Dario met ISO 15197:2003 criteria, as can be seen in the accuracy tables below. Below 75 mg/dL, 100% of values were within Ā±15mg/dL of YSI reference glucose values. For samples with glucose above or equal to 75 mg/dL, 98.88% of values were within Ā± 20% of YSI glucose levels. Lay subject performance assessment of Dario’s instruction clarity and usefulness showed that 100% successfully obtained a measurement result. The average rating of the users for successful operation of the Dario was 4.35 (out of 5 when 1 is ‘completely failed’ and 5 is ‘very successful’) and an average rate of 3.66 (out of 5 when 1 is ‘very hard’ and 5 is ‘very easy’) for operating the Dario for the first time.
From time to time, legislative reform measures are proposed or adopted that would impact healthcare expenditures for medical services, including the medical devices used to provide those services. For example, in March 2010, U.S. President Barack Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively referred to as the Affordable Care Act. The Affordable Care Act made a number of substantial changes in the way health care is financed by both governmental and private insurers and the way that Medicare providers are reimbursed. Among other things, the Affordable Care Act requires certain medical device manufacturers and importers to pay an excise tax equal to 2.3% of the price for which such medical devices are sold, beginning January 1, 2013.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislationās automatic reduction to several government programs. This includes reductions to Medicare payments to providers of 2.0% per fiscal year. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which delayed for another two months the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. On March 1, 2013, the President signed an executive order implementing sequestration, and on April 1, 2013, the 2% Medicare payment reductions went into effect. The Bipartisan Budget Act of 2013, enacted on December 26, 2013, extends these cuts to 2023. The ATRA also, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers, and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. In December 2014, Congress passed an omnibus funding bill (the Consolidated and Further Continuing Appropriations Act, 2015) and a tax extenders bill, both of which may negatively impact coverage and reimbursement of healthcare items and services. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure. For example, U.S. President Donald Trump has recently publicly indicated an intent to lower healthcare costs through various potential initiatives. In addition, President Trump and other U.S. lawmakers have made statements about potentially repealing and/or replacing the Affordable Care Act, although specific legislation for such repeal or replacement has not yet been introduced. While we are unable to predict what changes may ultimately be enacted, to the extent that future changes affect how our products are paid for and reimbursed by government and private payers our business could be adversely impacted.
As of the date of this Annual Repo