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 decisions. Maybe this could be the launching pad 4D Medical needs.

Contracts will be game changers

The company’s operating revenue for FY24 was $3.8m, up 422%. The bulk of this was SaaS revenues, which were $3m. Impressive, but the company’s operating expenditure was $30.3m – over 8 times higher. This resulted in -$30.5m EBITDA, excluding $2.3m transaction expenses.

In our view, the key will be commercial contracts at a pace similar to Pro Medicus. By pace, we don’t necessarily mean a large size (although big deals would be good), but new clients adopting it on a regular basis. A key to the company’s US ambitions was a reseller deal signed with Philips in September 2024 – a 5-year exclusive deal which includes both commercial customers and government customers such as the VA and Department of Defence which Philips has served for over 40 years.

At the end of November, 4D Medical gained Imaging Partners of Orange County (IPOC) as a client. This has been followed up by deals with Perth Radiology Clinic (PRC) – which has 16 clinics across Perth – and the University of Chicago Medicine. There are good signs, but it is early days of course. So far shareholders have had a nuanced reaction, but it could take just one major contract for shares to take off. By ‘major contract’ we mean a deal with one of the top US providers, for 5-10 years and worth at least US$20m, in our view.

Conclusion

What’s the answer to our question in the title of this article? 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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