4DMedical Limited (4DX) Earnings Call Transcript

Good morning, everybody. We welcome our many investors to the 4DMedical Boardroom here at Melbourne Connect. We are very excited to present to our stakeholders today on our capital raising that's recently been completed. And I'd like to hand over to the Managing Director and Chief Executive Officer of 4DMedical, Dr. Andreas Fouras. Andreas, please?

Thanks, Clint. And thank you, everyone, for your interest in 4DMedical. And as Clint said, we're excited to have completed the placement on Friday of last week and equally as excited to be opening tomorrow with an SPP that will facilitate our fantastic basis of really loyal shareholders to participate on the same terms as the placement was conducted. We have to, of course, go through the usual disclaimers, which I'm sure all of you or many of you will have seen before, and we can take these as read. And of course, that will be included in documentation that needs to be completed. I'll just start with a brief introduction of 4DMedical, talk about who we are, our opportunity, our product pipeline and then from there, really start focusing on more recent and more timely events. 4DMedical is a software technology company with our flagship product, XV Technology. This technology is proven, patented and allows doctors and patients to more easily see things that are happening within the lungs. This important mission comes side-by-side with really important opportunity. Lung disease represents about 1/6 of all deaths. And really there's a $1 trillion opportunity in lung health. And out of that, we believe that there's about a AUD 40 billion opportunity or an addressable target market specifically for 4DMedical and our products. We've been establishing our strategy of building evidence, our dual strategies of clinical trials side-by-side with commercial pilots to demonstrate the usefulness of the technology. And our software-as-a-service business model allows a rapid rollout of our product line and using existing diagnostic equipment. We have a full-service offering across lung diagnostics where we have our XV LVAS and CT LVAS products, leveraging existing X-ray and existing CT equipment already in every major hospital on the planet. And coming soon, we're very excited about continuing status of CT:VQ which will allow us to use CT scanners to measure both ventilation and perfusion, which we believe will really open up a premium end of the market for us, for our software-as-a-service products. And as you can see, in addition to leveraging existing image acquisition technology, existing X-ray and CT scanners already everywhere on the planet, we're excited to have been funded to the tune of $28.9 million by the federal government to build the XV scanner. We think sites that have the XV scanner will be much stickier customers for our software. And really, that's what the XV scanner is all about, is driving software sales. As promised, we'll start with briefly talking about commercialization in Australia as we continue to gain momentum with our successful rollout of I-MED. So the official documentation here is as per previous announcements of 27 sites, although we do have some late changes with a small number of sites coming online right now. And I think we can take that as read as about 30 sites for the product. CT LVAS has successfully launched and we are getting faster and faster and more seamless with our implementation and integration with I-MED infrastructure. We're also working with I-MED to refine the workflow for their radiologists. The efficiency of that radiologist workflow is incredibly important for them. And so as a good partner, we've been able to streamline that over recent months. Our objectives over '23 and '24, continuing rollout of CT LVAS to I-MED leveraging their high penetration of CT scanners, and we have an expectation of getting up into about 100 sites there across that site. To build the referral base amongst clinicians, so specialists and GPs, and to explore adjacent markets, we are incredibly excited with where I-MED is going, but this really serves as a template for 4DMedical for other corporate radiology providers in other locations around the world. And certainly worth noting that there are some significant corporate radiology providers in the United States and our success with I-MED really can serve as a template for how we can progress in that market. Progress quickly to the United States, where if you'll allow me just to give a brief explanation around the size of the market. So the United States is about 14 billion -- USD 13.7 billion opportunity year-on-year for 4DMedical products and services. And briefly, we see ourselves segmenting that market or separating that market into portions of the market that can be accessed without reimbursement, such as the VA, and parts of that market that will require reimbursement to gain really significant penetration into such as the academic medical centers and the market more broadly. And we have really 2 significant advantages for us being our original -- our initial target in terms of the -- those sectors of the market that don't require reimbursement particularly the VA. And that is, of course, as I said, the core being that we can receive payment immediately at those sites. They don't require us to finish that reimbursement process or to seek additional funding PACT, funding, for example, adds the $280 billion for burn pit exposures over 10 years. And the size of the opportunity with 3.5 million troops being exposed to toxic burn pits and needing to be scanned. Legislation actually gives a guarantee that -- under PACT that all of those folks who have been exposed will receive screening. And so you can easily see the size of that opportunity when you look at our NASA’s SEWP price of $171 per scan and those numbers, 3.5 million troops. And of course, in that space, we also have significant advantages created by both appropriations language, so legislation that specifically gives -- makes mention of 4DMedical and our XV Technology and the fact that our clinical trial results have shown that our technology really is the only imaging or the only noninvasive technology that can detect the presence of damage from burn pits, chest x-rays do not, CTs do not, pulmonary function tests do not. So the only reliable method of detecting this damage from burn pit exposure to veterans is a highly invasive biopsy. So that procedure is highly invasive, uncomfortable inconvenience takes 3 days in hospital to recover at least and costs somewhere between USD 15,000 and USD 30,000 versus a total cost of delivery of just a couple of hundred dollars for a 4DMedical scan. So significant advantages there. And so this is why we're targeting that really very, very big opportunity, and we're incredibly excited about our opportunity to help in that space. We're also very excited to announce, and as part of -- this was announced last Thursday -- last Friday that as we've been working with the VA, we have been rubbing shoulders with and interacting with folks from the Department of Defense. You may be surprised as I was to hear that for the 1.3 million active service personnel in the U.S. Department of Defense, they are looked after by something called the Military Health System that has an annual spend of USD 55.8 billion. So a really significant -- very, very significant organization. We're incredibly excited that we've been able to become partners with to effectively establish a pilot for them to examine and to see the utility of 4DMedical Technology. This represents a really significant milestone in our commercialization strategy. It demonstrates that our sales team is effective, at being able to capture really significant clients. It shows that our technology can pass through due diligence of one of the most sophisticated and well-funded organizations on the planet. And while the size of this arrangement is not material from a revenue perspective, we really do think those things are indeed quite significant. And on top of that, of course, we won't be resting until we're going to be doing everything possible to completely to grow this contract out into something that is indeed quite significant. The payment is on -- is fixed on full terms and allows us to use the technology across a broad range of respiratory illnesses, not just burn pits. There we go. So sorry, it's a small technological glitch there. So as we -- we expect to have significant value, significant opportunity working within the Department of Defense and the VA. And as we said, we can get paid from them. And in fact, we have been paid from them already and making great progress to expand that out over the next 2 years. Side-by-side with us, we're also, as we said, targeting the other $13 billion component of that release of the U.S. market. And while we are excited and we'll talk about Miami in a moment that we are making progress there already without reimbursement, having reimbursement is going to be a significant boost to that. And we've been making great progress there. Reimbursement, we buy -- which has been identified by the fact that we now have category 3 -- CPT Cat III code, which really is the halfway mark towards complete reimbursement of a CAT I code. The -- what's required to get to that next stage is additional presentation and publication of clinical trial results and demonstrated usage of the technology. And I think over '23, '24, we will continue to make presentation and publication of clinical trial results. We will continue with execution of commercial agreement with U.S.-based hospital network, and we'll leverage opportunities associated with the scanner. As we said, a big part of winning the Category I code is that continued publication of clinical trial results. And these clinical trial results also help us across every conversation that we have with the doctor is based on evidence. And the more evidence we put in that clinical literature just helps build that story and makes it more and more likely, easier and easier to close doctors to be converts to using our technology. We have significant progress across all of those clinical trials and we currently have a dozen pieces of clinical trial data passing through various stages of dissemination and publication, significantly up from 4 at this time last year. And we're also very excited just in recent weeks to announce our first SaaS contract with a U.S. hospital with the University of Miami, our first academic medical center and our first U.S.-based hospital. This was -- these deals are difficult in this space without gaining reimbursement. So we're excited that, a, we have University of Miami closed; and b, that we have a pipeline of additional academic medical centers in behind the University of Miami that we'll hope to continue to close over the next months and quarters. I think the quote from Professor Naresh Punjabi, really, in some ways, says it all that XV LVAS has the potential to revolutionize the way we diagnose and manage respiratory conditions. It's incredibly exciting. It's great support and a great reference from a key customer. So given that we are making progress here, it's a great sign. We're extracting -- we are winning revenue from these sites. We'll continue to add more. This really sets the stage that when we add that network of sites to in 18 months or so when we add reimbursement to that, that really means the U.S. market will really be able to explode for us to really take off from that position. So short to medium term, VA and DoD. We're working on reimbursement behind the scenes. At the front of the game, we're bringing academic medical centers in slowly. But when we mix all of that together at the end of a network of academic medical centers plus reimbursement, we really will be able to load up into that very significant $13.6 billion opportunity. In order to help get us to get this done, we're really excited to have a great board that has the right mix of medical and commercial experience. I think given the time we have here and given the strength of the directors, I don't think we have time for me to go through what they add, but we also have a really strong head of advisers to the company. Very pleased to have Sam Hupert as both an investor and the company and an advisory Board member, Ray Casciari, Bruce Thompson, really well-known in lung, in this part of the world and also recently that we've added Dr. David Shulkin, onto the team. Some of you may know that the company will be presenting some of our clinical trial results and having a trade show at the ATS conference starting in a few weeks from now, and we're really pleased and excited that Dr. Shulkin will be attending that conference with us. So a little ahead of schedule on that. I think we've suggested a 20-minute presentation, but I don't think anyone is going to complain that we loaded that in 18 minutes. So from here, really very pleased to -- I'll just finish up with the executive summary. We are really building significant momentum receipts of $1.2 million in the last quarter, up 67% quarter-on-quarter. That includes a 5-year contract with Miami, successful completion of our first scans with the VA and with the DoD, strong pipeline of further commercial agreements to be announced this year and a really significant market opportunity in the U.S. alone of 74 million scans or $13 billion. The VA alone is really very significant with PACT of delivering $280 billion worth of funding, Dr. David Shulkin, joining us on board to support the effort. And this is laid on top of the year-on-year budget of the VA of $300 billion. We've got a great pricing. We've got support from Congress -- legislative support there and our first scan delivered through Harry S. Truman. DoD opportunity is new and exciting, and we'll work to expand that making ongoing progress towards reimbursement, which doesn't deliver anything to the company immediately. But over about 18 months when we get that reimbursement, it really will help set that U.S. market on fire. Looking to raise approximately $35 million. Pleased to have closed the placement at $20 million, I think, $15 million side-by-side with that make this one of the largest relative SPPs versus the total size of raise that certainly that I've ever seen. And this is really because we're looking to support and provide the same opportunity to our loyal shareholders who have been supporting us over weeks, months and in many cases, years. The rest of the offer details, I think I can take as read. I'm sure you're all familiar with those. So as I said, thank you very much for listening in, and I'm excited to progress from here over to the question time.

[Operator Instructions] Your first question comes from [ Alexander Lamscher ] which reads, what, in particular, will the capital funds be used for, the statement reference assisting and commercialization. Does this involve sales crews, et cetera, or something else?

Thank you, [ Alexander ]. So absolutely. We will be using these funds to progress the commerciality of the technology. And principally, that will be to grow our customer base. And once again, principally, that will be in the United States. Now associated with that, of course, that will mean an increase in sales and we're already advertising for more salespeople right now. In fact, I interviewed someone this morning for a new sales position in the company. But it's not just sales team, side-by-side with that, that's the software implementation, there's the trainers who go out on site from to time when that's needed, and medical affairs people also from time to talk to doctors about the technology. So across the board of all of those areas.

Your next question comes from [ Philip Chesham ]. How difficult/easy is it for a U.S. company to copy the 4D technology and therefore, to get the advantage in the U.S. VA market?

Thank you for that question. That's a great question. It's something that we spent quite a lot of time working on in terms of building that moat. And I think we have an incredible moat here at 4DMedical. I think that we've -- and we've built elements of that moat across every dimension of the business. So I think where you started with the question in terms of is copying the 4D technology. At 4DMedical, we have 75 patents and counting. And in fact, at 4D, one of our senior engineers is a fully qualified patent [indiscernible] and helps us build that internal patent strategy from the inside in the most cost-effective and timely manner. So those 75 patents are really a significant moat. Also, the clinical trials are not easy and not far to deliver. The relationships we have with all of the key hospitals in terms of those clinical trials, the Cleveland Clinic, Johns Hopkins, Temple, Duke, also contribute significantly to that moat. And finally, particularly with the VA, we've gone to the -- we've taken the time. We've worked with Congress and there's legislation that specifically talked about our form of technology, which is really the hardest part and the hardest thing to copy. So we feel really very secure in terms of the fact that it's very difficult or impossible to copy our position.

Your next question comes from [ Sam Baker ]. Do you envision a scenario where all 1.3 million members in DoD MHS require a lung scan as part of the annual health assessment?

Yes, I love this question. And the short answer is, yes, there is a scenario where we get to there. I think that I want to be cautious and not say that I think that, that scenario is likely to occur tomorrow. But we are, in fact, working on that space. Population health is a very strong angle for our technology. We are looking and working to identify ways to align our technology with population health. For example, are we able to provide lung cancer screening with our technology or nodule screening are the things that we can do because that would bring that day forward. But certainly, with the technology and the relationships we have now, I think scans every time a member of the DoD deployed overseas, pre-deployment and post-deployment scan, I think, is absolutely something that we could achieve. And that might, in fact, be -- and not too dissimilar number to annual scans for every member.

Your next question comes from [ Naveed ] [indiscernible] which reads, the company has seen success in the Australian market through its commercial arrangements with I-MED. Can you please update us on the status of the Medicare reimbursement? Is Medicare reimbursement critical to gaining a greater share of the Australian market in the same way CPC category codes are for the U.S. health care market?

Thank you, [ Naveed ]. It's a really good question. And -- the -- our view is that it is not as important to get Medicare for our growth in Australia as it is to get CPT III in the United States. And a big part of that is the cultural and traditional differences between those 2 health care systems. Now that doesn't mean that, a, we are not working towards gaining Medicare reimbursement in Australia; and b, that, that wouldn't help. It certainly would help widen out our share. But it's not as urgent or not as important in Australia as it is in the U.S.

Your next question comes from [ Jeff Shenfield ]. How important is the actual new scanning hardware to the overall market penetration strategy and what volume of scanners are predicted within the next 3 to 5 years?

So I think the -- we see the scanners as a value-add or as a value multiplier for our software business. And there are a number of parts of the market that will be important in. And so I think we -- for example, we think that the dedicated scanners will be important in terms of allowing us to make greater progress in assisting the pediatric, the child population. Radiation dose is very important in that population, and we think that, that our scanners can assist there. We also think that the scanners may assist. If we do have opportunities, such as the one that you mentioned, scanning, that was mentioned by a question just before, for example, annual health checkups for members of the Department of Defense or scanning large volumes of veterans before a deployment because of the very high throughput nature of the scanner, because you can do -- at least, theoretically, you can do a scan in 4 seconds on that instrument, that really will allow very high volumes of patients. So we think there will be particular sectors where adding the scanner can really help increase both the stickiness, and importantly, to both us and our health care provider partners, increase the volume over the throughput on those scans. And in terms of predicting volumes, I think that's something that is -- it is difficult, it's tricky for listed companies like ours to get too deeply into that. But you could certainly take a look and see how many military centers -- how many military health centers there are in the United States and how many pediatric hospitals there are in the United States and Australia. I think those are really, I think, the best and most likely target.

Your next question comes from [ Matthew White ]. Can you explain the competitive landscape? Who has market share? Are there any other technologies coming online in the next 5 years?

Yes. Yes. Thank you, [ Matthew ]. And there are a few different ways of looking at this. And I think our preferred way of looking at the market share right now is what technologies are being used, what are the imaging modalities that are being used right now to investigate or diagnostic modalities being used to investigate people who have concerns about their lung health. And right now, there's 98% of market is covered by CT scans, X-ray scans and pulmonary function tests. They cover about 98% of the market. And if we add to that list, the scan called the nuclear VQ scan, then we get to about 99% or 99% plus of that market share. And there are, of course -- you can look at that and identify that there are a number of technologies looking to layer on top of CT, AI technologies, for example, looking to layer on top of CT scans but we, broadly speaking, consider ourselves different to that. We see ourselves as a new modality, a new way of investigating the lungs. And when we go to large conferences like the RSNA, the world's largest radiology conference the participants there and the radiology community tends to agree with us on that. So that's where we're at. And I think that we demonstrate significant advantages against all 4 of those modalities, significant advantages against CT, X-ray, pulmonary function test. And when we release our CT:VQ technology or submit to the FDA later this year will be one step much, much closer to having a very significant advantage over the Nuclear VQ test as well.

Your next question comes from [ Satish Nagarajan ]. What's the timeframe for the U.S. DoD trial?

Thank you, Satish. This is quite exciting. So the trial with the DoD is a fixed number of scans. And the -- something that's really quite exciting is just how quickly and promptly those scans have been have headed our way. But we've never seen anything before in our experience of scans showing up so quickly after having an arrangement in place. So I suspect that it won't be very long at all on that trajectory that we'll have completed during the imaging and the analysis will have sent all those scans back to the DoD within weeks or perhaps in the longest timeframe a few months. That will then -- that really then opens the door for us to have that next conversation with them. Do agree how much -- how great this technology is and what's next? And in fact, informally, those what next conversations have already begun.