Australian companies can punch above their weight globally in any number of fields, and medical devices is certainly one. Here are two that are doing impressive things in the medical imaging area, in which they have established strong footholds in the crucial US market. It has not all been plain sailing for either, on the share market – but analysts feel there is good scope for gains.
- 4D Medical (4DX, 57.5 cents)
Market capitalisation: $236 million
One-year total return: –7.3%
Three-year total return: –17.9% a year
Analysts’ consensus target price: 85 cents (Stock Doctor/Refinitiv, three analysts), 92.5 cents (FN Arena, two analysts)
Listed in August 2020, Melbourne-based 4D Medical is bringing to the market innovative four-dimensional lung imaging technology called XV Lung Ventilation Analysis Software (XV LVAS), which maps and measures lung motion and airflow by converting sequences of X-ray images into four-dimensional quantitative data. The 4DX technology accurately and quickly scans lung function as the patient breathes, to provide sensitive, early diagnosis and to monitor changes over time. At the heart of the process is a proprietary technique 4DMedical has developed, inspired by wind-tunnel technology, which combines fluoroscopy and advanced visualisation to generate high-resolution images of the motion of, and airflow through, lung tissue; doctors can see the lungs breathing and normally, and see through them.
4DMedical aims to disrupt the US$31.4 billion ($50.6 billion) respiratory diagnostic imaging market. There are 378 million respiratory diagnostics tests done around the world every year, with four existing lung diagnostic technologies accounting for 99% of all lung scans: X-rays (46.2% of the market); computed tomography, or CT (37.9% of the market); pulmonary function tests, or PFT (10.8% of the market); and nuclear medicine (5% of the market). 4DX’s technology can be a supplement to conventional x-rays, CT and magnetic resonance imaging (MRI); The company can use existing lower-value scans and transform the images, charging fees on a software-as-a-service (SaaS) basis.
The XV LVAS technology was first cleared by the US Food & Drug Administration (FDA) in May 2020, when it received 510(k) clearance, which demonstrates that the FDA accepts that the device to be marketed is as safe and effective as a legally marketed device. The clearance followed a major confirmatory clinical trial of the XV Technology, conducted at Cedars-Sinai Hospital in Los Angeles, California. The clinical trial showed that XV gave clinicians much more detailed information than the commonly used pulmonary function test (PFT) and computed tomography (CT) imaging methods, confirming 4Dx’s belief that the unique and non-invasive XV technology enables unprecedented insight into pulmonary functioning, which is critical in the analysis and treatment of respiratory diseases.
The clinical trial demonstrated that XV not only matched the performance of current “gold standard” measures and other clinically available measures, but it was also more predictive than other measures in assessing the onset of conditions such as radiation-induced pneumonitis and/or pulmonary fibrosis. In addition, the trial found that XV was clearly superior to the major incumbent testing technologies, PFT and CT, in detecting loss of regional lung function associated with early-stage disease progression, both in terms of sensitivity to structural changes in the lung (where it was compared to CT) and in standard lung function tests (where it was compared to PFT.) 4DMedical says XV is a break-through medical technology and a potentially world-changing advance in better and more timely diagnosis – and thus, improved treatment outcomes – for all lung disorders, including asthma, chronic obstructive pulmonary disease (COPD), cystic fibrosis and cancer.
Since receiving FDA clearance, 4DX has worked hard to build its market, particularly in the US; and in FY24 (year to 30 June 2024) the company achieved commercial revenue, with operating revenue of $3.8 million, plus other income of $11 million. It reported a net loss of $36 million for FY24, and had a net cash balance of $30.6 million at the end of the financial year, with zero debt.
A crucial milestone was reached in November 2023, when 4DX successfully gained US Centers for Medicare & Medicaid Services (CMS) reimbursement for its XV LVAS and CT LVAS products. This means that XV LVAS and CT LVAS scans conducted in a US hospital outpatient facility for Medicare beneficiaries can be billed to CMS, with a reimbursement of US$299 and US$650.50 per scan, respectively. More importantly, this benchmark payment level acts as a guide for private health insurers in determining their pricing levels, which typically comes in at a much higher rate.
In particular, 4DX’s path to commercialisation has been through the US veterans’ market, and the company’s transformative November 2023 deal with medical device giant Philips under which the latter became an authorised reseller across the US, receiving exclusive five-year distribution rights to US government contracts, and non-exclusive rights on other scans. The deal leverages Philips’ long-established and significant existing commercial partnerships, including with US Department of Veterans Affairs (VA) and Department of Defence (DoD). VA on its own has an annual healthcare budget of more than US$330 billion ($532 billion) a year, and 50% of VA clinics currently use Philips’ imaging solutions (US veterans have three times the rate of chronic lung diseases such as chronic obstructive pulmonary disease (COPD) compared to the general population.)
In December 2023, 4DX bought US company Imbio, a leading AI medical imaging company specialising in lung and cardiothoracic diagnostics. Not only did this boost 4DX’s armoury by adding a comprehensive suite of AI-driven lung diagnostic tools, Imbio also came with an established presence within the VA, which also accelerates 4DMedical’s entry into the US healthcare market.
4DX is also developing its CT-based ventilation-perfusion product (CT: VQ), which represents a major breakthrough in respiratory imaging by providing blood flow analysis without the need for radioactive tracers or contrast media. 4DMedical says this is market is worth more than US$1 billion ($1.6 billion) a year, and clinicians and healthcare providers are looking for an alternative to nuclear medicine VQ scanners, which have radiation risks associated with the handling and disposing of radioactive materials.
The other major product on the horizon is IQ-UIP, an AI algorithm that identifies patients with radiological usual interstitial pneumonia (UIP) pattern, the first-line diagnostic indication for Interstitial Pulmonary Fibrosis (IPF). This product could potentially tap into the multi-billion-dollar drug development sector.
The market has been slightly disappointed with revenue coming through in the proportions expected, but investors buying now can use that to their advantage. 4DX has a significant commercial opportunity and it looks like it is only just getting started.
- Curve Beam AI (CVB, 11 cents)
Market capitalisation: $36 million
One-year total return: –65%
Three-year total return: n/a
Analysts’ consensus target price: 26 cents (Stock Doctor/Refinitiv, two analysts), 26 cents (FN Arena, one analyst)
The Melbourne-based CurveBeam AI manufactures and sells specialised cone beam CT (computed tomography) scanners for orthopaedic needs, and subscription software that uses artificial intelligence to help doctors diagnose bone fragility in patients. The products are made at Curve Beam AI’s US headquarters in Pennsylvania. Curve Beam systems have been installed in North America, Europe, South America, Australia and China.
The lead product, the HiRise scanner, performs weight-bearing computed tomography (WBCT) scans from hip to foot while a patient is standing, unlike traditional CT scanners, that capture images while the patient is lying down. Because the patient is standing, the HiRise enables clinicians to make a more accurate assessment of joint conditions that might not be apparent when the patient is lying down. Under the body’s standing load, doctors can see much better the positioning of the bones and where any condition is impinging on a joint’s proper function.
The HiRise was cleared by the US Food & Drug Administration (FDA) and in Europe (CE Mark) in 2020. In the US, the HiRise scanner is exclusively distributed by Stryker, a major player in the orthopaedic market.
CurveBeam AI announced FDA clearance for the enhanced HiRise scanner in the first quarter of FY25, and the company expects to have FDA clearance of the bone mineral density (BMD) software module (a software-as-a-service, or SaaS product) roughly in mid-2025 (calendar year), through a “revised regulatory strategy.” Enhanced HiRise WBCT scans, which have a higher energy X-Ray source, allow key anatomical landmarks to be identified in larger patients: the product is aimed at robotic surgical systems (it is currently being validated at two US sites.)
CurveBeam AI also expects to launch its SkyRise device in 2026. SkyRise will extend the capabilities of HiRise to the upper body, including the spine and shoulders: it will feature a telescopic arm to accommodate a larger body size and will initially focus on CT imaging. Spinal problems are about three times more common in patients than knee problems.
As the company name suggests, CurveBeam AI’s products use deep learning and artificial intelligence, which eliminates all the manual steps a doctor would usually take in order to give recommendations to patients. As well, CubeVue, CurveBeam AI’s custom visualisation software, gives orthopaedic surgeons access to dynamic three-dimensional ‘rendering’ tools, that allow them to rotate anatomy, segment bones, and cut through realistic representations of bones and joints.
CurveBeam AI says orthopaedic pre-treatment planning involves understanding of the structure and alignment of the foot, which contains 26 bones and 33 joints; to segment the bones in the foot and accurately assess bone geometry & alignment requires about six hours of manual effort. But with the company’s deep learning/AI (DLAI) model, surgeons have a working 3D model with measurements in minutes. The DLAI model will be filed for FDA approval by the end of FY25.
Importantly, the company has reimbursement in place in the US: that is the situation where a public or private third-party payer – for example, Medicare, Medicaid or private insurance companies – compensates providers for the costs of a treatment. Reimbursement can make or break a device’s success. Curve Beam says that “in general, healthcare companies reimburse specialists for cone beam CT scans taken at the point-of-care.”
The company says its total addressable market (TAM) in the US alone is a $10 billion market for device sales alone, plus a $2.7 billion SaaS market.
It is still early days in terms of revenue and cashflow, and CurveBeam AI has to be careful with its cash, but it has about 50 HiRise units (as well as 120 previous-generation scanners) installed and working around the world, and the products are well-regarded. It has a significant sales pipeline to build on its 170 existing global installations: the company says there are more than 17,000 potential installations around the world.
It’s a very interesting story; but investors must closely watch reported progress on device sales and orders, and cash levels.
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