4DMedical Limited (4DX) Earnings Call Transcript

Thank you for standing by, and welcome to the 4DMedical Limited webinar. [Operator Instructions] I would now like to hand the conference over to Dr. Andreas Fouras. Please go ahead.

Hi, everybody. I really -- thank you so much for your interest and being on the call today at this really, really very exciting time in the 4DMedical journey. Those of you who have been following us for some time know that we've been investing over years to really build a strong foundation for a generational business. And we've had a -- recently, we've had a great milestone there in signing the reseller agreement with Philips. But just briefly, for those of you who haven't been following us for a long time, I'd just like to introduce myself. So I'm Andreas Fouras. I was -- I'm a mechanical engineer by training. And in about 2005, my research team and I at Monash University invented XV technology, which lays at the foundation of 4DMedical. Had the great privilege of over $11 million of investment through the usual research channels into that technology over 5 or 6 years there at Monash University, which then led to the technology getting to the position for us to be ready to commence operations at 4DMedical in 2013. Then a few years after that, picked myself up, my wife and 5 children and moved ourselves to the United States. It was somewhat of an easy move because already had sold the house. And in fact, over those formative years, borrowed a couple of million dollars, sold the house and really did absolutely everything to put it into 4DMedical. And now run the business principally from the U.S. on the basis that it's those U.S. doctors at places like Vanderbilt and Johns Hopkins, those leading doctors in the United States that can make or break companies like ours. And so I'm there on the ground to see that, that happens. So with that, we can go to -- we can get into the presentation. Thank you. So next slide, please. And everyone has the disclaimer on file. So next slide again, please. The global lung diagnostic market is in excess of USD 30 billion per annum. And that sits on top of about USD 1 trillion of lung health care globally. And the rule of thumb is about 4% of that is spent on diagnostics. And in the lungs, it's no different. So as I said, in excess of USD 30 billion spent on lung health. And that's spread across these 4 modalities. Pulmonary function tests, where you blow into the tube, X-ray technology, CT technology, which I think everyone is familiar with and probably a little bit less well known but still very important is the nuclear medicine VQ test. And so those 4 tests account for 378 million global respiratory tests per year. And as I said, a spend of over $30 billion per annum. Next slide, please. But even with that significant spend, current lung diagnostics are failing us. And today, I've got really 3 clear specific examples of where those lung diagnostics are letting us down. We can talk about lung health screening. And I think those of you who follow the company would have heard several times that COPD, chronic obstructive lung disease is the fourth largest cause of mortality in the world. Many of you may have heard of emphysema, which is really a related a key part of that COPD. Also, it's worth mentioning that if we look at the example in screening of lung cancer screening, lung cancer is the fourth most common cancer and yet is the #1 cancer killer. And a big part of that is the difficulty we have in screening and diagnosing folks with that condition. Unexplained dyspnea. And that's something that many of you outside of health care may not have heard of. So that's unexplained shortness of breath. So people who rock up to their GP saying that they feel puffed, they have -- that they're short of breath, but it's not immediately obvious why. And it's been estimated that 9.5% of adult Australians have clinically relevant breathlessness. And this is costing the Australian economy $12 billion per year. And a key driver of that is the difficulty that doctors have in diagnosing and managing that condition. And so there's a number of key drivers. Is it -- are you -- you do get puffed when you walk up a flight of stairs because you have problems with your lungs? Are you puffed walking up a flight of stairs because you have a problem with your heart? Or do you just not feel like walking up a flight of stairs because life can be tough. So separating all of those things out is a really difficult job for a family practice doctor or GP. And then, of course, if we change gears, we move across to burn pits. There are more than 6 million American service personnel who have been exposed to burn pits and other related toxic airborne hazards. And today, none of those diagnostic tools that we articulated before, CT, X-ray, pulmonary function test or Nuclear VQ, none of those are able to diagnose deployment-related constrictive bronchiolitis. The only way to do it using standard technology, standard yesterday technology is surgical biopsy, which is expensive and really quite unpleasant, quite awful experience and risky experience for the patient involved. Next slide, please. And over the past 12 months, 4DMedical -- in the past 12, 24 months, 4DMedical has come out of its cocoon here. And we have a complete comprehensive suite of imaging diagnostics to sit within the chest. And so this is the most comprehensive test diagnostic product suite of any company, big or small, anywhere on planet Earth today, having that complete coverage. Additionally, it's worth noting that this product suite, all of this leverages the Software-as-a-Service business model. And so there's advantages in that for both us and for the customers and for the providers, the hospitals and doctors. Principally, we are able to leverage existing layers of human and capital infrastructure, the CT scanners, the radiologists, the radiology techs who operate them and we're leveraging all of that existing layer of technology and adding a software layer on top. So that means the hospitals don't have to invest billions and billions of dollars in new technology to access the latest and greatest. We can provide that very cost effectively as a software layer on top. So it's cost effective for the hospitals, incredibly cost effective for us. Our latest reimbursement win of $650 for CT LVAS costs us about $4 to deliver per scan. Next slide, please. So to break that into a little bit more detail, we've structured them here on this slide by the way that they operate. Traditional radiology works by radiologists looking at an image, for example, of your lungs and getting a view of the structure, getting a view of how your lungs look, right? And radiologists are incredibly good at looking at that and interpreting that to form a view and opinion of what's happening to your health. The pulmonary structure or the structural capabilities that we have at 4DMedical add significant value to the radiologists there by giving them diagnostic certainty, by giving them quantitative data to be able to add and compare between previous scans, all of that allowing them to give a better and more rapid result back to the referrer in a much quicker fashion. So it's much more efficient, much and better service to their partners. Pulmonary function or the functional component of what we have, for example, measuring ventilation or measuring perfusion, blood flow in the lungs offers them a window into data that's just not available in any other way. It's not interpretable by the naked eye by examining these images. Also, we've been able to show in clinical trials and published studies over and over again that those functional things change first. function changes before structure, it's more sensitive and really adds incredible power side by side with the structure for the radiologist. Additionally, we're doing the same thing in the cardiovascular space, in the heart space. And that makes perfect sense because, for example, if someone goes in -- and lung cancer screening will be available from next year in Australia, if you go and get a CT scan of your lungs, your heart is right in there. And in fact, your radiologist, doctors are legally required to check your heart while they're there. And so of course, we offer those capabilities on top, giving this total combined suite, this total solution across that whole sector. Next slide, please. And we -- one of the most common questions we get when we present this, whether it's to investors or, in fact, to doctors, so can you explain to us, can you help us take us on the journey of how does this actually help us drive better outcomes for patients and a more effective and efficient practice for myself as a doctor. And if you look across at the top right of this slide, you can see the example I laid out before of unexplained dyspnea. And the real conundrum that the doctor has, is it lung related? Is it cardiac related? Or is it related to other causes? And it's not uncommon for someone and the reason why this cost $12 billion a year to the Australian economy, it's not uncommon to be bounced around between those as diagnostic tests are unable to dig in or as you see on the left, if there's a mismatch between clinical tests. So for example, symptoms or a pulmonary function test saying I get puffed, but the CT scan looks clear. But we provide a set of tools directly to the GP or the cardiologist or respiratory specialists. Is it lung related? Well, let's have a look, run a CT LVAS scan. Is it cardiac related? Let's have a look. We can run a CAC or a PAH. And so right at the first appointment, those questions can be answered, carving years off or unnecessary appointments with specialists, which are time consuming or those delays, often it takes months or years to get those appointments, which could be delaying the treatment that you needed. Similarly, for veterans, for restrictive diseases with deployment related for pulmonary fibrosis, which is a relatively rare disease, but difficult or dust exposure silicosis, we have a portfolio of XV LVAS, LDA, LTA and EQUIP coming soon to manage that. Obstructive diseases, we talked about COPD, emphysema, asthma. So we have LDA, CT LVAS and our flagship XV LVAS product there. And we won't talk about it too much today, but our companion diagnostics business unit that we talk about that allows us to deal with interventional and pharmaceutical multinational companies, people like Olympus, for example, delivering through on those product lines that you see there. Next slide, please. So we've been, as I said, as a big theme here is that we have been building these foundations. We've been working with the VA, ganging top-down, bottom-up and more recently with community care networks. The acquisition of Imbio rounding out that portfolio, the incredibly powerful addition of reimbursement, a game changer performance multiplier for those teams for selling XV LVAS and CT LVAS. Expansion in Australia, which has been going incredibly well and especially quite recently, has been really strong growth in Australia, which is exciting in its own right and also provides a template across in Australia. And of course, probably the reason many of you are here on the call today because having inked that master reseller agreement with Philips. Next slide, please. So before I get on to Philips, I'll just give a quick around the grounds on our commercial status. Next slide, please. We continue to grow new customers and new avenues of bringing in revenue for the significant expense investment of having developed all of these technologies across U.S. government and U.S. commercial now with Philips with our global partnerships, as I said, through our companion diagnostics arm through Olympus, Genentech, Nuance, ADOC and also Blackfords and in Australia. The significantly multi-threaded opportunities with opportunity for intellectual property to bounce back and forward between these areas, really allowing those network effects and really very rapid growth. Next slide, please. Here, I think I'll leave this slide for folks to read in their own time and just come back again to talk about how we're attacking the VA from 3 directions now. Bottom up, where we have our sales team knocking on the doors, talking to VA doctors, talking to VA hospitals with the opportunity of what we offer them. And particularly for the opportunity with burn pits, our top-down area where we're attacking -- we're talking to senior leadership in the VA on a regular basis, also leadership in Congress -- U.S. Congress. And many of you may recall that just a couple of months ago, a large team of us from 4D were in D.C. talking to folks at the Senate and House VA committees as well as folks from the VA. And then more recently, the opportunity to deliver scans for people living with burn pits through something called the Community Care Network, where it's law in the United States, if a technology isn't available to veterans inside the VA that they can get access to that through the community. And this is a really exciting area that we've been working on and has really significant opportunities for us. Next, please. And across all of that, a capability multiplier is that there is payment there for these providers to win these reimbursements of $299 for XV LVAS and $650 for CT LVAS. These are game-changing numbers. And in fact, the presence of these really makes our conversations, for example, inside the community care network or for that matter, with folks at Philips much, much easier because they understand how they can leverage these to win business. Next slide, please. And so here, here we go, Philips update. Let's get into it. Next slide, please. Philips, for those of you who haven't Googled them or aren't familiar with the company, did EUR 18 billion of sales in 2023 and 40% of those sales are recurring revenue and have approximately 70,000 employees. So compared to a reminder, approximately 150 folks here working at 4DMedical. You can see 7 business units there across Philips there across Diagnosis & Treatment, Connected Care and Personal Health. But I'll highlight 3 of them. You can see them there in bold. Diagnostic Imaging. So you can think of that as their CT business unit. Image-Guided Therapy, you can see that's the business unit that has X-ray and fluoroscopy embedded within it. And Enterprise Informatics, you can -- where they have their PACs and interoperability systems or if you like, you can think of that as their software business unit. And we have really great opportunities across all 3 of them. But what's rolled out, what's shaken out between our discussions and our hard work we've been doing with Philips since signing the teaming agreement last year is we've identified and found the right home for ourselves being enterprise informatics. We're excited about bundles of a CT scanner plus CT software. We're excited about bundles similarly with Fluoro systems and software, but having them sold by a business unit that's experienced in selling software that has the contracting and the sales cycle experience of selling software and also, frankly, the capability to sell our software with the hardware, for example, the CT scanner from Siemens or a Fluoro system from GE. Next slide, please. And -- so we have a really -- this is an absolutely incredible opportunity to scale up the muscle and the firepower that we have to deliver these sales in an unbelievably rapid fashion. Philips has 45 years' experience of selling to the VA and the DoD and 50% of VA clinics across the United States have Philips imaging solutions there. And so this 5-year agreement, exclusive inside the government, and you can think of the government as the VA and DoD and nonexclusive across the rest of the United States, so outside of those government sectors. We're excited to announce that we have minimum performance hurdles. So post -- following the first year, we have strong hurdles that grow rapidly year after year in order for that exclusivity to be maintained. And also incredibly competitive pricing terms. So 20% on XV LVAS, 30% on CT LVAS and 35% across the Imbio portfolio. We're already working -- in fact, we've been working for months as we finalized hammering out the agreement on delivery. So there are 250 boots on the ground with thousands of sales support folks behind them, that Philips muscle behind them across those business units that I was talking about. And we will use this capability that we've built, that we've built with Philips and have arranged with them to attack across the United States, 1, 2, 3, the PACT Act and the 6 million veterans who need the screening. And then inside the VA and Department of Defense and other U.S. government sectors, but separate to PACT is the portfolio to be able to deliver day-to-day health care for veterans. The VA has an annual health care budget of 300 billion folks. There's 9 million veterans in there with 3x the rate of chronic lung disease of the general population. So really very significant opportunity separate to PACT. And then once again, separate to PACT and completely separate to the VA is that there are nearly 11 million CT scans on 14,000 scanners and that we have that reimbursement established of $650 per scan and excuse the typo here, it's corrected elsewhere in the document of $299 per scan for XV LVAS. So a monumental step change in our ability to reach customers and sell our products across the United States overnight with the signing of this agreement. I could not be more excited, and I think we've done a really good job of sitting down, working with them and building this together with Philips. So I think we've landed in an amazing place. Next slide, please. So from here, next slide again. I'm sure everyone wants to jump in and ask some questions about Philips, but I couldn't end this presentation without saying just also how excited I am about 2 products that are just on the horizon for us at 4DMedical. CT:VQ represents an opportunity to disrupt a $1 billion sector in a like-for-like sale. We are doing an amazing job selling change into health care and growing out that revenue. I believe that CT:VQ represents a different sales opportunity where we can be representing a substitution of existing product that's already in market. And EQUIP is also going to be a game changer. It will be the first time that radiologists can get a diagnostic level of this is pulmonary fibrosis on the CT in this location. Really big for health care and for that diagnosis, but also incredibly valuable to $1 billion drug portfolios in that pulmonary fibrosis space. Next slide, please. So as I said before, we have put these foundation stones in place, U.S. government opportunities, Philips as our performance multiplier, 250 salespeople on the ground with thousands of people behind them, deep connections across that space, opportunities in commercial. We have incredible products coming down the pike. Australia really growing strong, which is great for the -- in the hometown, but also learnings that we can spread to the rest of the world and global partnership with pharma and device manufacturers such as Genentech and Olympus, respectively. Next slide, please. And as you can see here, the team to make that happen. And just quickly, I'll just pull out David Hannes, who some of you may remember, was previously the CEO of Imbio. He's now running global business development for us. And that really just articulates we've got this team in, we've got them embedded down and the integration with Imbio is basically now complete. So we've built the foundations, and we've got the team to execute on that and make it all happen. Thank you. Next slide. Thank you very much. So that's it for my presentation.

[Operator Instructions] Your first question comes from Matt White with Shaw. This reads, can you elaborate on the main thresholds mentioned in the Philips agreement? Secondary, how many scans should we be forecasting in our numbers?

Look, great question. And look, we've gone as far as we're able to go in terms of our relationship and commercial and confidence with Philips on those. I can tell you that after the first year that they are million dollar thresholds and that they grow quite rapidly. They grow -- ramp up very strongly year-on-year following that. And then with respect to the other, I think look, we -- how many scans can you see? Can we see getting out of this relationship? I think that we continue to grow the rest of the portfolio. You'll note that pre-signing this agreement, those scans were growing very strongly. And I just -- I'm incredibly excited about what growing the sales team from 7 with 150 people behind them to 257, I guess, plus 70,000 people behind them can do to those sales.

Our next question comes from [indiscernible]. This reads, does Philips have an in-house imaging solution or with any other provider with the same offering as 4DMedical?

Yes. Well, the short answer is no. No one on Planet Earth has a portfolio of solutions like that we have. And there may be some providers that have some products that have some similarity to small pieces of the portfolio. But XV LVAS, CT LVAS coming soon, CT:VQ are all globally unique capabilities. And as I said, in its totality, the portfolio is also globally unique. No company, big or small, has that complete service offering that we have.

Your next question comes from Josh Murphy. This reads, Andreas, does 4DMedical envisage that it will need to utilize the at-market funding facility or conduct a capital raise? Or are you confident given this development that you are well funded to profitability?

Look, we are feeling very confident. I think that the -- one of my least favorite things about compliance on the ASX today is the requirement in 4Cs to leverage the formula to express the number of quarters that you have in cash flow. I think they don't accurately describe where our cash position is. The numbers I would draw your attention to is that on last year's numbers, we had a net OpEx in the ballpark of our cash position at the end of that year. And also, they demonstrate we have really strong control over our costs and rapidly growing revenues. So I feel that we are a long way from needing to bring capital into the business.

Your next question comes from Sam B. This reads, congratulations on a great year and all the accomplishments, Andreas. My question is regarding the revenue forecast that were included in the Imbio acquisition presentation on December 11. You announced that expected revenue from Imbio was USD 6.3 million, approximately AUD 9 million for CY '24. I note that in the results released on 30th of August, Imbio revenue AUD 2.7 million covering the first 6 months of this year. Can you please confirm that the Imbio revenue forecast is still on track as there looks to be a lot of ground to make up to meet the forecast? If not, can you please update the market on this?

Yes. Look, thank you. It's a great question. And Imbio has been steadily building on its pipeline with Olympus, Nuance, ADOC and now Blackford. In addition, also pursuing other opportunities with big pharma. But in the recent results, management updated the -- our view of the earn-out down to about 50% of that earn-out opportunity. So right in the midrange of that. So in short, we have had some -- we're behind schedule on hitting those targets. But the thing that I do want to be clear on is that's really a delay and not so much as a reduction in that opportunity. Our prospects remain unchanged. The acquisition represents really significant revenue synergies for us. And as you've been seeing throughout this presentation today, having this complete portfolio offering really does boost those revenue synergy opportunities. And I can tell you from having crawled over every inch of that pipeline -- the Imbio sales pipeline that it's really in strong shape. And we will absolutely get there, but we'll just -- it is going to be a few months behind when we thought we'd get there.

Your next question comes from [indiscernible] with George Clinical. This reads, what's the progress on the clinical study on proving the use of XV technology as a replacement sorry, apologies, as a replacement of lung biopsy for DRRD. When will the study be complete?

Well, that's great. So we are very close. We are working on publishing that study. I believe we've completed all of the imaging of patients. I believe the human component, imaging those veterans and control subjects is complete. The data is incredibly strong as was announced in a preliminary announcement some time ago, and we're working to get that out published in the peer-reviewed literature. And so the short answer is that study is complete, and it absolutely does demonstrate our capacity to do that. In addition, we have partnered with folks at Vanderbilt University Medical Center at Vandi to grow the study and enlarge it. Now I want to be clear that that's not something that we believe were required to do. That's really going above and beyond. And in fact, part of what we're doing there is demonstrating the capability of the XV scanner to also to deliver the same type of outcomes. And it can't hurt to triple the size of the study. But in short, we have completed that work, and it's very exciting, and I can't wait for the publication to come out.

Your next question comes from Tom Godfrey with Ord Minnett. Can you discuss how sales and marketing efforts will be carved up across Philips and your direct sales team? Has the Philips sales force been adequately incentivized to push 4D and Imbio products?

Yes. Look, thanks. It's a great question. And yes, that number I articulated, Tom, was 250 boots on the ground salespeople who have got significant incentives delivered directly to them to drive those sales. And with the whole of Philips standing behind them. And those incentives are in place today. As of signing that agreement, we have those salespeople incentivized, and we're very pleased with the level of incentivization being put against them. On reflection, I'll just also add, at the start of your question, you said, how is that work going to be carved up? And the we already have multiple meetings where we're working in side by side with them. And I think that there are opportunities for us to have our sales team working as trainers for the Philips sales team, but also on the ground face-to-face or on a phone call with customers side by side with Philips. So both of those opportunities are what I envisage for how that will operate.

Your next question is from Michael L. and reads, well done to the team on securing the game-changing Philips reseller agreement. Does the team have any advanced discussions with other commercial providers on foot for distribution of the company's products in the U.S. outside of the VA?

Look, I think that we have a whole avenues of -- we're examining every avenue of taking our technology to market and serving those communities, serving our customers, doctors and patients with the technology. So we're putting the core of our efforts right now, as you would expect, the Philips opportunity is really very significant. And really, we feel that the best way right now is to focus on and concentrate on that Philips opportunity. But there are some other places, I've mentioned, for example, multinational pharmaceutical companies, device companies that are really noncompetitive with Philips. And that would be the second tier or the best place for us to look. Also, we've done a great job in learning how to interact with and partner with corporate radiology providers in Australia over the last few years. As I said, that's really accelerated very nicely over the last months. And that's a really great template for us to be able to use to expand across into the United States as well.

Your next question comes from Sanjay Sharma. This reads, when can we expect the first revenue from this reseller agreement?

That's an exciting question. I can't wait, and I certainly can't wait to share that with you. We expect that we'll be able to get our first revenues in this calendar year. That would be what we'd love to do. But I think that certainly into the -- early into the new year next year is, I think, is very solid.