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‘We can play in big league’: 4D Medical rockets on US contract

Tom RichardsonMarkets reporter and commentator

Apr 10, 2023 – 8.00am

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The $13 billion US healthcare sector is the big prize for 4D Medical, the four-dimensional lung imaging software company backed by Australia’s Medical Research Future Fund that is trying to crack the world’s biggest clinical market.
Shares in the medical technology business have doubled over the past two trading sessions after the Melbourne group signed its first contract to supply software imaging services to the University of Miami’s research centre.

4DMedical founder Andreas Fouras. Wayne Taylor

“Our tech allows you to see the lungs breathing and moving, and it allows you to see the air flowing through the lungs. We’ve really proven over the last few years that we see things that the picture of a still lung from a CT [computed tomography] scan really can’t deliver,” said the company’s chief executive, Andreas Fouras.

Wednesday’s breakthrough deal announced with the University of Miami sits alongside an agreement 4D Medical has to supply Australian diagnostic imaging clinic operator I-MED Radiology.

4D Medical stock fetched 63¢ on Thursday for a $186 million valuation

Mr Fouras founded the business in 2013 after developing the technology as a professor of biomedical engineering at Monash University in the 2000s. The federal government’s Medical Research Future Fund (MRRF) awarded development funding of $38.9 million in March 2021 and a further $9.4 million last November on milestone completion.

“There’s 70 million people a year in the US that get some kind of lung test, and globally there’s about $40 billion of lung testing done. We think we’re on a trajectory to take a big piece of that market,” Mr Fouras said.

The ambitious founder added that 4D Medical’s XV lung ventilation analysis software, which received US regulatory clearance in May 2020, could deliver the world’s first advanced lung function scanner for rapid analysis in adults and children.

Pro Medicus blazes the trail

The deal to supply software to I-MED’s diagnostic clinics resulted in operating revenues of $739,000 over the quarter to December 31. The group’s operating cash loss – excluding government grants and tax breaks – totalled $11.9 million for the quarter. With cash on hand of $45.9 million and government support, it estimates a cash runway of 15 months.

Under the I-MED deal it charges $160 per scan for its software imaging services. “We leverage existing X-ray or CT equipment and take a relatively low-value scan using X-ray equipment and then apply our software to those low-value images and transform their value into a much higher value scan,” he said. “We share that value with the hospital on a SaaS [software-as-a-service] fee, per-service basis.”

Most of the investor enthusiasm for medical imaging software businesses on the local sharemarket can be traced back to the wild success of market darling Pro Medicus.

Its scrip is up about 147-fold from 43¢ to $63.60 in 10 years after Pro Medicus gained sales traction in the US hospital market and produced a profit of $27.2 million for the December half.

Other medical software groups have a mixed track record. New Zealand-based Volpara floated its breast imaging business at 50¢ a share in April 2016, and the stock was fetching 74¢ this week.

Mr Fouras is comfortable 4D Medical can deliver “very rapid revenue growth” from a small base over the next couple of years, and acknowledged the US was the big prize.

“We have a bit of a hometown advantage in Australia and see it as something like a $400 million-a-year opportunity. We can absolutely take it to being a profitable company just in ANZ,” he said.

“But the US opportunity is about $13 billion. So demonstrating we can do business in the US and secure a real brand name with a five-year SaaS contract shows we can play in the big league and that’s important to investors.”