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Co-written by Dr. Sanjay Parekh

In our recently released analysis of venture capital funding for medical imaging AI vendors (download free report here – note this report was published prior to Viz.ai’s very recent $100m series D funding round), Signify Research found that venture capitalists’ appetite for medical imaging AI is yet to be satisfied. Total VC investment in medical imaging AI has reached almost $3.6bn since 2015. What’s more, despite a dip in 2019, overall levels of funding have continued to rise making 2021 a record year in terms of investment raised at $815m.

This record-breaking year also saw the emergence of the ‘$100m club’ of vendors which have raised more than $100m in capital funding. Many of the vendors also highlight another trend detailed in the report; the eastward transition of funding, with companies from Asia and especially China accounting for an increasing and significant proportion of investment.

In this more nuanced analysis for Premium Insights clients, we dig deeper into these findings.

The Signify View

These headline figures only tell half the story, with large numbers of vendors choosing not to reveal the levels of funding they have secured. Circle Cardiovascular Imaging, for example, has reported raising almost $20m in funds, however, their latest undisclosed funding is estimated to be in the range of $75m-$100m, pushing the Canadian vendor’s total funding above $100m. This is a trend that is mirrored across the world. China’s Infervision raised $70m in series B funding, and $140m in series D funding, but did not disclose the results of its series C round. If this undisclosed round is taken into account, it is likely that the vendor has raised upwards of $300m in total, far higher than the $225m disclosed. Other vendors also share this dynamic, with Shukun Technology and Deepwise both harbouring far higher sums than publicly disclosed.

These high figures show the strength of these vendors and the emergence of prominent market leaders. Already members of the ‘$100m club’, these vendors are sitting on cash piles while also having NMPA Class III approvals, allowing commercial operation within China. This makes them formidable competition in the market, especially given that their lack of disclosure makes them difficult to accurately assess and limiting most international vendors from targeting the Chinese market.

Had these rounds been disclosed, we would be discussing a group of unicorns (those estimated to be worth more than $1 billion). However, other vendors have been more transparent. Viz.ai is an example of one vendor that can lay claims to this status, having confirmed its series D funding round of $100m itself earlier this week. This funding round took the total the company has raised to over $250 million, valuing it at $1.2 billion.

Chinese Action

More broadly, these funding rounds for Chinese vendors evidence the trend identified in Signify Research’s 2021 report, which showed that China is increasingly the hotbed of medical imaging AI VC funding. This is expected to continue, with 2022 likely to surpass other years as more vendors mature and secure larger, later-stage funding rounds. As detailed in a recent Premium Insight which addressed trends in regulatory clearances, more solutions are receiving Class III NMPA approval in China, a factor that is likely to encourage investment, with approved solutions often a more attractive investment target than those with no approvals. This growth in funding will also be compounded by the possibility that the Chinese market offers. As well as its insular nature, which makes penetration difficult for non-Chinese vendors, limiting competition, the market is also the world’s second-largest.

AI uptake has, so far, been very regionalised, with vendors targeting specific patient cohorts in certain areas. In China, where there are 15 provinces with populations of more than 40 million, sub-regionalisation is likely, with vendors targeting specific diseases based on provincial priorities, providing VC investors with plenty of viable targets, even if they are, individually, unlikely to become global powerhouses.

However, investment will peak, potentially as soon as 2022. In the US, VC investment peaked in 2018, at over $400m, after which it slipped backwards, plateauing around $150m. This is a result of market leaders emerging, securing later stage funding, increasingly growing revenues, and then receiving undisclosed private equity investments or attempting to list publicly. The Chinese market is approaching a similar scenario, with market leaders being established and some reaching the end of their VC funding journeys.

Lapping the Shore

These dynamics in funding, show that so far, there have been two waves of funding for medical imaging AI. The first peaked in 2018 (total funding of $772m; average deal size of $16.4m), but the second peak in 2021 was far greater (total funding of $875m) with an average deal size more than double ($33.6m) that of 2018.

The quantity of deals was higher in 2018 (47 deals), as a higher number of vendors looked to secure their initial rounds of funding, fostering the creation of the market for radiology AI. Since then, some tools have matured, and in a bid to increasingly add value to clinicians, become more sophisticated. The vendors who have developed these tools have grown and are facing significant costs in the commercialisation of their products. Resultantly, they have needed to raise more capital to fund this expansion and commercialising, spurring the recent second wave.

One indicator of this current wave is the growth in the number of vendors entering the ‘$100m club’. As vendors have matured and sought out later-stage rounds, the number of deals has declined (26 deals in 2021). However, these deals are frequently for very sizable amounts, taking increasing numbers of vendors past the $100m mark (ten vendors to date), a barrier that, until recently had only been broken by a very select few vendors, which met a very demanding criteria.

These dynamics are, of course, not immune to wider influences, with the Covid-19 pandemic also playing its part. Part of the second peak rebound in 2021 was due to the market emerging from the pandemic, and investors were once again able to confidently invest in medical imaging AI start-ups. After husbanding cash throughout the pandemic VC investors could once again seek opportunities and take on more risk. Healthcare technology would also have been an attractive sector in which to invest, given the Covid-induced excitement around digital healthcare. Investors, with available cash and looking for companies in which to invest, bought into the story of AI helping radiologists become more efficient and deal with the backlogs they were left with. The pandemic had created a problem, which radiology AI could aid in solving.

The Looming Threat

These trends could contribute to the growing spectre of consolidation that is hanging over the medical imaging market, with a distinct gap between the minority of vendors that have secured sizable funding rounds and the long tail of vendors which have not. Since 2015, the top 10 vendors have, after all, raised an overwhelming 55% of all funding, while the top 25 vendors account for almost 80% of funding. These larger, better-funded vendors look set to increasingly take control of their specific market segments, making life difficult for smaller vendors to gain any traction and increasing the risk of casualties in this market.

Life could yet be difficult for larger vendors too, though, with higher VC investment rounds representing greater pressure on these vendors to start delivering the sizable revenues that they have promised. Reimbursement for medical imaging AI also remains limited and sporadic; the question of who will pay for AI, in many instances, is still unanswered. This may prove more of a challenge than expected, leaving many investors disappointed.

As these problems are worked through, vendors will go on to list publicly, as some including Keya Medical and HeartFlow have already unsuccessfully attempted; some may also be bought out by private equity, giving early VC investors the sizable returns they were hoping for. As this happens, there could be another wave of VC investment in medical imaging AI, given the technology’s transformative potential. However, the next cohort of start-ups backed by VC funding is unlikely to be in any of the established clinical segments (e.g., breast imaging, neuroradiology, cardiac imaging, chest imaging) as the opportunity for a start-up to break into these well-catered segments is negligible. This future wave of funding, as VC firms look to find the next stalwarts of medical imaging AI, could catalyse interest in tools targeting different clinical specialities or different regions. Tools for liver imaging, for example, could blossom, as drugs to manage fatty liver disease become increasingly available and backing from VC firms looking to capitalise is forthcoming. Additionally, the use of MR imaging as a first-line diagnostic imaging procedure for prostate cancer may create an opportunity for vendors with prostate imaging AI tools, a niche segment targeted by advanced visualisation incumbents today. The small wave of regulatory approvals for prostate AI solutions in the past 12-18 months may be indicative of this trend.

In the more immediate future however, funding in the US and Europe should continue its plateau, while funding in Asia is expected to continue to grow, with the country accounting for an ever-greater share of imaging AI funding. The size of these deals is also set to grow, albeit there will be fewer of them, as VC investment continues assist in the forging of medical imaging vendors. From this, vendors will be able to establish clear market leadership positions, and, assuming vendors live up to their own ambition drive significant revenues. At this point, the VC’s job will be complete, and the medical imaging AI market, established.

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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