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Last week, Exo made headlines in the blossoming handheld ultrasound segment by announcing the acquisition of AI specialist, MEDO. The deal seeks to make Exo’s as-yet unreleased handheld ultrasound system easier to use, and therefore accessible to a wider range of professionals.

MEDO’s Sweep AI solution achieves this by automating parts of the ultrasound image capture and interpretation workflows, which, according to the vendor, lowers the level of expertise required to diagnose common and critical conditions.

As well as gaining Sweep AI, Exo will also pick up MEDO’s two US-FDA-approved AI algorithms, one for hip dysplasia screening and one for thyroid imaging, and its library of millions of ultrasound images and longitudinal health data.

The deal will set Exo apart from its competitors, who have so far tended to only partner with AI firms, but will it be enough to elevate it beyond them?

The Signify View

Apocryphal though it is, a quote attributed to iconic IBM CEO and Chairman Thomas J. Watson about there only being a world market for “maybe five computers” would have seemed plausible enough in 1943 when it is alleged to have been said. Not only were these machines vast, fragile and fickle, more akin to a plant room than a modern laptop, but they were also horrendously complicated to operate. While computers got smaller and less temperamental, and sales rose at major corporations and research institutions, they very much remained the preserve of professionals trained in their use. It wasn’t until the 1980s, when graphical user interfaces started to emerge, that more inexperienced users, who could then interact with a computer through icons rather than codes, started to purchase systems en masse. In making devices easier to use, computer manufacturers were able to sell to an entirely new market, the home market, rather than squabbling to take business customers off one another.

This is akin to the opportunity Exo has with its acquisition of MEDO. Exo is looking to sell its as-yet-unreleased handheld ultrasound scanner, a device that will be competing with second and third generation devices from its competitors, so needs to represent a compelling proposition from the outset.

While Exo is not looking to sell ultrasound systems to consumers, it aims to simplify image capture through the use of AI, thereby hoping to avoid a ruthless race to the bottom against the world’s largest ultrasound imaging vendors. Instead, it aims to open new markets, selling a clinician their first hand-held ultrasound device, rather than having to displace a rival. As such, while MEDO does bring with it two US-FDA-cleared algorithms, of greatest appeal to Exo will be its Sweep AI image capture technology.

Buy or Borrow?

Exo isn’t the only vendor to realise this opportunity, with what is likely to become the vendor’s closest competitor, Butterfly Network, also seeking to simplify image capture through a partnership with AI-developer Caption Health. However, while partnering has its own advantages, including the requirement for less investment and less commitment, acquisition could, in the longer term, give Exo the edge.

The instantaneous nature of ultrasound means that many of the modality’s most valuable solutions will be those that are embedded on devices and used during image acquisition rather than being utilised post-acquisition on the PACS. By acquiring MEDO, Exo will gain granular control over its technology, enabling the ultrasound vendor to more effectively integrate its Sweep AI into the upcoming handheld device. Instead of being constrained by the limitations of a partnership, even an exclusive one, Exo can put MEDO’s technology and approach at the heart of its device. It can intertwine hardware and software in such a way that a partnership, where there is always the risk of separation, simply cannot offer.

Acquisition also grants the acquisitor strategic control. Caption Health’s primary focus is cardiac imaging. Through its exclusive partnership, Butterfly Network will likely have some influence over Caption Health’s strategy, but this will fall far short of the absolute control that Exo will command over MEDO. This could prove crucial. Cardiology is a sizeable and significant imaging target, but it is still only one clinical area, a factor that could prove limiting over time.

Bigger is Better

The low cost of handheld ultrasound devices means that, unless sold as part of a particular programme or as an add-on to a larger medical imaging deal, scale is essential for commercial viability. Achieving this volume by selling to existing ultrasound users will be nigh-on impossible, particularly as the segment becomes more competitive and providers become increasingly entrenched in their vendor of choice.

Instead, this scale needs to be attained through new users, such as GPs, nurses and midwives. MEDO’s Sweep, with its universal applicability, as well as Exo’s ability to direct software development into any particularly lucrative burgeoning opportunity could grant it an opportunity to make money where others have been forced to accept losses. This is particularly true as the low cost of the devices themselves means that additional services such as add-on solutions and software subscriptions will be critical. For these opportunities to be leveraged, a critical mass of users must be reached.

In this regard, acquisition could also prove preferable to partnership, albeit at the expense of greater developmental resource. It is likely that Exo will continue to offer MEDO’s hip dysplasia and thyroid applications, although, as niche use cases, they will not be as high priority as its Sweep AI technology, while also continuing to add additional clinical applications over time. It would be both quicker and cheaper to offer additional tools through partnerships. But while boasting about additional capability might entice some customers, taking a modest percentage of a relatively small sum from the sale of a partner’s solution is unlikely to hold much sway for a handheld vendor such as Exo, leaving it a long way off the elevated service revenues it seeks.

Deals to be Done

While there has been collaboration between AI developers and handheld ultrasound vendors before, until now, most of these relationships have taken the form of partnerships. Given the advantages acquisition could offer in terms of tighter integration, the growing competitiveness of the handheld market and the need to target new users to reach the necessary sales volumes, other handheld companies could look to forge similar deals.

Price could be a barrier. Terms of Exo’s deal haven’t been disclosed, but the cost of the relatively modest AI outfit will have been easily absorbed by Exo’s total funding of more than $320m. Other vendors may not be so lucky. If their chosen targets have already had more commercial traction or been able to secure significantly higher funding than MEDO, or if an ultrasound vendor has raised less money, or is taking heavy losses, such a purchase could be well out of reach.

There are other options, with a large international imaging vendor like GE HealthCare currently having the means to pick up an AI specialist. The vendor currently partners with Intelligent Ultrasound, a London-listed ultrasound AI and training simulators specialist. The healthcare giant could be tempted to purchase the AI developer, which has a market capitalisation of around $43m. GE does, after all, pride itself on its global ultrasound market leadership position, has recently refreshed its own handheld offering, and, with its acquisition of BK Medical and its investment in Pulsenmore shown its willingness to invest in ultrasound. However, other ways to formalise the partnership are also possible, with licensing agreements, for example, another way to shore up the use of Intelligent Ultrasound’s technology for the long term.

Whether such deals come to pass remains to be seen. Doubters will continue to see the handheld ultrasound market as a niche, a $200m fragment of a $7.1bn market, in which even the most prodigious player is floundering financially. With such a worldview, the flexibility and affordability of partnerships continue to be the preferred practice. For believers however, Exo has been shrewd. In the same way ‘home computing’ grew out of improvements in affordability and, crucially, usability, MEDO’s technology could help handheld ultrasound find its way into the pockets of countless doctors, nurses, and other clinicians. In such a way a lucrative new customer base could be created, and those vendors that seized an early opportunity to access this base could rally.

In acquiring MEDO, Exo has revealed its hand and quietly raised the stakes. Now it can wait to see if others share its convictions.

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This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here