4DMedical: Taking lung imaging to the next level

Andreas Fouras is the CEO and founder of 4DMedical, which is a recent IPO that started trading on the ASX on August 7.

Andreas has quite an interesting story. He was a former Professor at Monash University in Melbourne that sold his house, used his savings and packed up his life in Australia to pursue this business opportunity in the US. 4DMedical sells a lung imaging platform which provides medical professionals with a four-dimensional view, which assists in the diagnosis and management of lung diseases.

Now this, of course, is very relevant given COVID-19’s impact on the respiratory system and all the focus on lungs at the moment. 4DMedical’s technology received FDA clearance earlier this year. I discuss all of this, plus how they’re going with commercialisation in the US, which is their main market.

Here's Andreas Fouras, the founder and CEO of 4DMedical.

Table of contents:
Andreas' background
XV technology
XV technology's use for COVID patients
COVID impact on business
IPO and use of capital
US market
Revenue model
Financials
Share price movement

Thanks for joining us Andreas, there was an interesting article about your personal story with regard to what you've put on the line to get 4DMedical to where it is today. You sold your house, put your savings into the business and moved from Melbourne to the US to pursue this. Could you give us a bit more background about your personal story?

Yeah, very happy to. I was at Monash University. I was working there as a research assistant, helping a number of really fantastic researchers there, a number of professors with them in their research. And my job was to take their ideas for research, and then as an engineer to turn them into reality, to build the equipment and so on, necessary to conduct their research. And I found that a fantastic kind of role for me. I really loved it. But I started to develop some new technology that really allowed us to do imaging in the wind tunnels, there much more effectively. We were able to image the airflow and the water flow around models of vehicles, with really much better precision due to that engineering technology that I developed.

At around about the same time I had the opportunity to be rubbing shoulders with some really fantastic people, also in the medical faculty there at Monash. At some point in about May of 2005, I kind of connected the dots between the imaging engineering, wind tunnel imaging technology that I developed and a really big unmet need in healthcare. From there, I really was just completely obsessed with the idea of this.

And then that, I'm assuming, formed part of the way in developing this XV technology, which 4DMedical actually sells. Could you explain the process behind the discovery of that XV technology and what it does?

Yeah, absolutely. The technology is quite different from other imaging in that at its core, what it does is it measures changes, or particularly in the case of the lungs that's motion. It measures the movement of the lungs as someone breathes and it does that in 4D. By 4D, we mean, the lungs are already three-dimensional, but we measure the lungs as you breathe. The phases of the breath are that fourth dimension. We measure in high precision, and detail how every part of the lung moves as you breathe. And once we have that measurement, we're able to precisely calculate the air flow through all parts of your lungs.

You just said before you've noticed an unmet need for it. There's obviously some forms of lung imaging out there. I think x-rays, CT scans, spirometry, things like that. How does the XV technology provide a need that's not met by those existing imaging devices?

Look, as you say, it's not as though doctors aren't diagnosing patients, they don't have tests to perform as it stands, but those tests, and you don't have to take my word for it, in the thoughts and the words of hundreds of doctors that I speak to, just aren't fit for purpose. Those technologies are for one, really quite out of date. The spirometry, for example, was developed in the mid-1800s. And those technologies between them really just provide tiny little snapshots, to me, it's like the doctors are trying to peek at the lungs through a little key hole and they just provide small little pieces of information. The CT provides a still image of how your lung looks, for example, the appearance of the structure of your lung. Spirometry provides detail of how much air flows in and out of your lung throughout the phases of the breath. But our technology, XV technology, provides you air flow throughout all parts of the lung throughout all phases of the breath. It's like those two multiplied together, or combined together to create what doctors really need.

And obviously the lungs are a very big focus around the globe at the moment, given COVID’s impact on the respiratory system. Is the XV technology useful in recognising and treating COVID patients as well?

Yes, we haven't come across a condition in the lung that when we've tested XV with it, that it's not helpful. And while we didn't predict the presence of COVID, but we'd been working with a number of researchers on a condition called ARDS, which is actually what you'll end up in the ICU with if you have a COVID. And so we've been working proving the usefulness of the technology in combination with ARDS for a number of years. So, we're really very confident about that COVID use case. And we're also really excited by the fact that with the US as our first regulatory clearance through the FDA, the FDA has given us a very broad clearance and that includes COVID.

Is the technology already compatible with existing equipment that hospitals will have, or will you be needing to go into the hospitals and introduce the technology?

You've touched on one of the key selling points, I think from a business side, both to our shareholders, our investors, but also to our customers of the product offering that the way we have XV rolled out is through a software as a service proposal. That means that we don't have to make any modifications to the x-ray equipment that's already in a hospital. Someone can go in with the x-ray equipment, as it already stands, there's just 20 seconds worth of imaging without any changes whatsoever to that hardware. We don't have to install anything there on that hardware and then we're able to vacuum up those images into the cloud, run our analysis and deliver it back in a very fast and hands-free way, so no human hands touch it. But once again, as I said, without any changes needed at the hospital side at all.

Have you been getting increased interest from hospitals? You mentioned your main market is in America, but just in general, as a direct result of COVID? I'm just trying to get an understanding of how COVID has impacted the business.

Yeah. Look, we certainly have had a number of parties reach out to us specifically to talk about COVID and when we're talking to our friends and customers in the marketplace, we raise the topic and the truth is, it's a mixed circumstance. Once again, focusing on the US, there are a number of our hospitals who are indeed quite distracted by COVID, they're really under a lot of pressure as a result of the number of patients that they're seeing from COVID. But equally, there are also a number of hospitals who aren't quite under much pressure and who are interested, or ones who are under pressure and are interested in trying to do something new to help relieve that pressure.

But the other thing I think that's really worth pointing out about COVID is that, and once again, in the US, there's more than 5 million people have tested positive to COVID now to date, and the evidence is really increasingly growing that those people are going to need ongoing review of their lung health to make sure that there's no damage left behind or that the damage that is there is being treated properly and can be resolved. And so that's really in the medium to long term, an incredible opportunity for us to show what the capability of our technology really is.

Did that impact your decision to IPO in the midst of COVID, or was it always the plan to list on the ASX during this period?

Yeah, it's really that simple. We were going through the process of FDA. We made the decision that once we had FDA clearance, we'd like to go to the market. And you know, of course, we had some trepidation when we saw the turbulence on the markets and a number of other parties withdrawing their IPOs, but we were fortunate enough that when we went out and spoke to the investors that interest was really very strong and we were able to proceed exactly as per plan.

The IPO itself, you raised $55.8 million through issuing shares at 73 cents. Is the fresh capital going to be solely used for that commercialisation in the US?

That's certainly the key use, rolling out that commercialisation. We have an aggressive program of clinical trials that will go side by side with that commercialisation to bring the evidence to doctors, to help make their decision. But we also will be spending some of that in bringing the product to Australia and New Zealand in the coming year, as well as once again, another small portion to extend our pipeline. We've got a really exciting pipeline of new products coming out behind XV and some of the funds will be used to help bring those to market as well.

So will those new products be focused on the lung as well? Or are there other areas of the respiratory system that you're focusing on?

Yeah, so the simple way of looking at it is that our XV product measures air flow everywhere in the lungs, as someone breathes. Our new layer of technology, which has been recently proven out and we're in the process of getting that ready to bring to market, is the capacity to measure blood flow throughout the lungs, as the heart beats and as the lungs breathe, and those two capabilities in combination are even more powerful. Yes, the short answer is really it's the next step or the next evolution in lung diagnostics, will be where we add. But from there, we do have opportunities to expand out into the heart cardiovascular health, and even cancer.

Just looking at your investor presentation, you've got the US spending $13.7 billion on these images and behind that, you've got the next highest, which is Germany, which is $2.6 billion. Could you just explain why the US market has such a high spend on these images?

The US is an interesting market in that, because I think the basis of your question is you know that the US only represents about 5 per cent of the world's population. But they do about 73 million procedures a year compared to say 20 million procedures a year in Germany that you also brought up there. The thing is, is that the Americans in the US, you know, it's a sizeable population, but they do more scans per head of population than nearly any other country. And they also charge, or bill far more per scan, or far more per procedure than any other country. And so those things actually multiply up so that a country, which only represents about 5 per cent of the world's population represents though about 40, 45 per cent of the world's spend on lung testing. The global spend is about US$31 billion and that US spend is about $13.7 billion. It really kind of amplifies how important that US market is.

And then you mentioned you're also going to be looking at Australia, and just looking at that, the spend is quite a bit less. What about all these other countries in between – Japan, China, UK, and France – are you looking to target those markets as well in the future?

Well, look, we really are. I think in the long term, we have an exciting opportunity to be a global player and with the software as a service business model, where really all we need to export product to another country is an internet connection the opportunity to spread out, to diversify out across the globe and service all of those major economies, Europe, China, Asia, outside of China, is really there to be taken. We're keen to do that. Obviously, we have to concentrate on our early targets first the US and then Australia and New Zealand. But over time, the ability for us to expand out globally is just right there and is something that's really exciting to me personally.

And can you explain the revenue model behind selling the XV technology? Do hospitals pay for the software as they use it?

Yes. Spot on. That's exactly right. We deliver that service, so as I said, the hospital will help us in that they will capture the images, they'll take the extra images, they then get uploaded to us on the cloud. Our software does the analysis. The hospital gets to charge for doing the imaging and for something over the top on the whole product. But for our part, we charge each time a scan gets uploaded to the cloud and we deliver a report back to the hospital. We basically charge for that report on a pay per use model. The hospitals love that because it means there's zero upfront. So there's no upfront or no capex for them to get involved with the business. They're saving money from the very first scan and it just really makes it nice and light and easy for them to understand. They get paid per scan, they pay us per scan and everybody wins.

What price are you selling the scans at for a hospital?

Look, the sticker price for our analysis is about US$200 and we expect that pretty much every customer will have some degree of discount. I think we've been thinking of that as about $175 per scan for our product.

As we mentioned before, you're currently in the commercialisation stage in the US, what is that going to involve over the next few months? Will it be impacted by some states going into lockdown, coming out of lockdown and things like that?

We've now been cleared by the FDA, and we're going through some final regulatory steps you know, in terms of basically documentation, paperwork, and so on. That's just being wrapped up pretty much right now, as we speak. From there, our next step is, we've decided that we're going to do some beta sites, some soft launch sites where we'll run through the product, start to finish with some friendly hospitals. And then we expect to have all of that wrapped up so that we can effectively, hang a sign up on the door that we're ready to be selling scans towards the end of this year. On one hand, there will be some hospitals that aren't ready to do business with us in the last quarter of this calendar year in the United States. But the opportunity is so vast and we're really only going to be looking to sign up our first few hospitals.

I think it will be something which has a moderate impact on us, but I don't think it's going to stop us from getting our first customer signed up, hopefully by about the end of this year. And then having a pipeline of new customers who are keen to sign up early in the calendar year, next year,

Just from a financial perspective, you're currently operating at a loss. I think it was around $5 million in the first half of the 2020 financial year, but your revenue does seem to be increasing and I’m expecting as you roll it out over America it will continue to. Have you got a date or a time around when you're expecting to become profitable by?

Look, I think having just come so recently out of the, the IPO, we're still a little bit hesitant to be putting forward projections out into the marketplace. But where I will go as far as saying is that we've raised as you said, a good amount of capital out of this IPO process and for what it's worth, I'm quite confident that that capital will be sufficient to bring us through to the day that we can be profitable.

But you are expecting, I guess, to see a ramp up in revenue over the next few years as the technology becomes more widely used?

Absolutely.

Just lastly, 4DMedical started trading on the ASX on August 7, the opening day of trading, it jumped up from 73 cents, to $1.59. Were you expecting that sort of interest from new and existing shareholders?

I think, it's the first time I've taken a company public, and I have to be honest, I wasn't really sure what I was expecting. But the truth is we had received really incredibly strong support from the investment community, both quite substantial support from the key Australian institutional investors and some of them who have been with us now for a few rounds back to back and a whole host of new institutional investors. We've also seen really very strong support from the smaller players in the field. We did know that there was something special happening. We knew that there was really extraordinary level of interest in the stock. But of course, you know, didn't know exactly that it would play out quite as spectacularly as it did on the market.

Great to chat Andreas. Thanks for your time.

A real pleasure. Thank you very much.

That was Andreas Fouras, the founder and CEO of 4DMedical.