4D Medical (ASX:4DX) could become the next Pro Medicus, it’s a long way to the top

There’s not many Australian radiology companies that seek to conquer the USA, but 4D Medical (ASX:4DX) is one of them. Another one was Pro Medicus (ASX:PME), and everyone knows how that story turned out – that stock is now worth over $11bn, all because of runaway success in the US market. 4D Medical shareholders inevitably hope that it can follow in its predecessor’s footsteps, but there’s a long way to go.

Introduction to 4D Medical (ASX:4DX)

4D Medical has lung imaging technology called XV. It is no ordinary piece of technology, enabling doctors to see the lungs breathing and normally, and to see through them. The company can also use existing lower-value scans (such as X-rays) and transform the images, charging fees on a SaaS basis.

4D Medical began in 2013, founded by Dr Andreas Fouras who still heads the company today, having guided it through clinical trials, FDA approval and its ASX listing in 2020. Yes, it is FDA approved, with the green light received in May 2020. The company has a deal to supply Australian diagnostic imaging clinic operator I-MED and counts Pro Medicus founder Sam Huppert as a clinical advisor.

The US market is a tough cookie to crack

The company believes there are 400m procedures worth more than US$30bn annually, and a significant proportion of these are in America. Of course, while FDA approval is a necessary pre-requisite for selling a medical device in the USA, the world’s largest healthcare market, that doesn’t automatically it will be a success.

Business development hasn’t been as easy for 4D Medical as investors expected and the share price has been under pressure as a consequence. Living with government grants and tax incentives as a primary source of revenue can only last for so long.

4D Medical secured its first ever SaaS contract with the University of Miami back in April 2023. At the end of CY23, it acquired Imbio, a company with an automated platform that can transform chest CT studies into visual lung maps. While 4D Medical provides functional analysis, by assessing lung ventilation, Imbio provides structural analysis in the form of assessment of lung anatomy. The company’s investment thesis in buying Imbio was that having two views helped to make a better, more informed clinical decision.

Imbio could be a game changer

Maybe this could be the launching pad 4D Medical needs. The company’s operating revenue for 1HY24 was $0.8m, but $3.1m on a pro forma basis, that is to say including Imbio. The latter figure was up 32% compared to what it would have been if the companies had been one in the prior corresponding period. 4D Medical closed the period with a net loss of $15.6m, but reduced its net operating expenditures by 14.5% and closed with a cash balance of $47.9m.

There are a number of potential tailwinds in the near future. The company signed a commercial agreement with Phillips to collaborate to establish solutions to evaluate US Veterans with respiratory diseases. Talking about perfect timing, Joe Biden signed into law legislation from Congress to provide funding for services to veterans with respiratory illnesses and cancers related to the smoke from military burn pits and other toxic exposures. And finally among veterans affairs, Imbio secured a research agreement with the U.S. Department of Veterans Affairs to use Imbio’s technology to assess the CT scans of certain veterans to determine the prevalence of interstitial lung disease.

Amongst the general population, the US Centres for Medicare & Medicaid Services (CMS) assigned a reimbursement benefit for XV scans conducted in hospital outpatient facilities. 4D Medical obtained multiple new contracts in outpatient facilities (PrecisionIR in Detroit and the Memphis Vascular Centre).

Turning to Australia, the company has not forgotten its roots, given the deal with I-Med noted above as well as with Integrated Diagnostics. Next year will see a federally-funded lung cancer screening program that it wants to be a part of.

Conclusion

We’ll know the answer for sure over the next couple of years. The challenge for 4D Medical will be potentially weak investor sentiment, as well as growing at the top line while making its was towards profitability.

There’s no doubt that there’s market demand and need for the type of product that it has, but whether or not it can follow the same trajectory (or even a similar one) to Pro Medicus remains to be seen.

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