Tag Archives: Heartflow

Signify Premium Insight: Clear! HeartFlow Funding Kickstarts Vendor’s Next Phase

After a meteoric rise followed by a humbling retreat, cardiac AI vendor HeartFlow is back in the news, and has come out swinging with a $215m Series F funding round.

The round was led by first time HeartFlow investor, Bain Capital Life Sciences which was joined by another newcomer, Janus Henderson, as well as existing investors including Baillie Gifford and Capricorn investment group. The deal brings the vendor’s total funding raised to almost $800m, making it by far the medical imaging AI vendor with the deepest pockets. It marks the second time HeartFlow has raised more than $200m in a single funding round, and will, in lieu of a windfall from last year’s failed IPO, equip the vendor with enough cash to commercialise and scale new products in its portfolio.

Some problems, however, cannot be solved by money alone, a fact that HeartFlow needs to be conscious of given growing competition in the cardiac AI market.

Signify Premium Insight: Keya Opens Door to US Expansion

Chinese AI vendor Keya Medical recently announced that its AI-powered FFR-CT solution, DEEPVESSEL FFR is now available for clinical use in the US.

The availability follows the US-FDA clearance of the solution, and a significant clinical validation study, which was conducted at multiple international sites and on a range of patient populations.

Keya Medical is not a typical Chinese AI developer. Not only was it one of the first of the country’s vendors to receive US-FDA clearance,

Signify Premium Insight: Reimbursement Raises Prospects for Cardiac Plaque AI

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Cleerly recently joined the very exclusive club of medical imaging AI vendors whose solutions are now deemed eligible for reimbursement, with the CMS adding an OPPS code for AI-based coronary plaque assessments.

The move means that Cleerly’s plaque AI solution, as well as similar approved solutions from other vendors, now qualify for reimbursement of between $900 and $1,000, when used with Medicare patients scanned in hospital outpatient settings.

The provisioning of a reimbursement code means that Cleerly joins some of medical imaging AI’s most esteemed vendors, such as HeartFlow, and Perspectum, which are increasingly eroding one of the central barriers to the adoption of medical imaging AI: a clear return on investment for adopters.

The Signify View

In one of his works, playwright, poet and author Oscar Wilde once lamented “cynics” who “know the cost of everything and the value of nothing”. Given Wilde died in 1900, he was unlikely to have been thinking of US healthcare providers when he recorded such an utterance. However, his sentiment may resonate with the medical imaging AI vendors who are desperately trying to convince such providers to take a chance on their solutions.

These vendors have a challenging task ahead of them. One of the most pervasive barriers stymieing the adoption of medical imaging AI in hospitals is the questionable return on investment that some solutions offer. There are, for instance, solutions that offer limited value to providers, perhaps shaving only seconds off the completion of relatively menial tasks, or offering assistance in l low volume niche applications that are far too specialised to be commercially viable.

One of the ways those vendors which do offer clinically valuable solutions can convince hospitals of the worth of their solutions is focusing on demonstrating their value. This is a route taken by the likes of Perspectum, which recently published a study highlighting the cost-effectiveness of its LiverMultiScan software by demonstrating “significant” cost savings when the solution is used.

Other developments, however, focus on the other side of this Wildean balance, and instead of demonstrating value, aim to effectively negate, or at least minimise the cost the provider pays to use a tool.

Of Price and Value

At present, bar a handful of exceptions, providers must pay out of pocket for any AI solutions that they choose to utilise. Given the limited budgets and resources available to devote to a potentially intensive and time-consuming deployment of an AI solution, paying out of their own pocket is an unappealing prospect if they can’t be assured a return. The decision of the CMS to reimburse a solution, however, can assuage these concerns, allowing providers to enjoy the purported benefits of a solution, largely at another’s expense.

Even in cases where reimbursement doesn’t cover the entire cost of a tool’s use, such as that of HeartFlow FFR-CT, which is reimbursed at around $950 even though using the tool costs around $1,500, for a provider, paying $550 out of pocket is much more palatable than having to pay $1,500, especially given HeartFlow’s now well-established credentials.

Although Cleerly, like HeartFlow, targets cardiovascular disease, it offers value in a different way. Heartflow’s FFR-CT solution, can in some circumstances, replace an invasive diagnostic procedure which assesses blood flow within a coronary artery. Cleerly’s solution meanwhile measures the actual blockage of coronary arteries. As such, like HeartFlow, using Cleerly’s solution can avoid the need for an invasive procedure, and instead monitor biomarkers of cardiac disease non-invasively.

Now such assessment can be accomplished by providers, while being paid for by CMS, using Cleerly’s plaque solution is a clear opportunity, and one which comes without any obvious downsides.

Commercial Objectives

For Cleerly, this further bolsters its strong position in the medical imaging AI market. The vendor emerged from stealth mode in June 2021 with a $43m series B funding round, since then it secured a $223m series C round in July 2022. In the Premium Insight evaluating that funding round, we highlighted that the vendor should use that money to push for reimbursement and look to expand its commercial reach. Now, with the former objective achieved, it can better focus on the latter. Its hefty funding rounds gave the vendor the financial firepower to establish effective sales networks, while the reimbursement gives providers a reason to pull the trigger. The use of Cleerly’s tool has, after all, quickly grown from a capable solution, to a capable solution that offers a competitive return on investment.

More broadly, the reimbursement also illustrates the guiding hand of the CMS. Reimbursement has the potential to be transformative for a valuable, yet underutilised solution, instantly removing the biggest barrier to its use. As such, the CMS can offer a boost to any vendors or solutions which it believes are particularly worthy, or any avenues which particularly merit further development. It also has the power to revise reimbursement over time, upping or lowering reimbursement in line with the scale of use and relative “value” of the solution. The body must still be discerning, so almost without exception reimbursement has been granted to vendors which already have mindshare and cachet in the market, but, as it has done with Optellum, it can propel smaller, lesser-known vendors to relative stardom.

Furthermore, reimbursement not only makes certain specific products more appealing, it also can improve the prospects of particular use cases, with vendors offering solutions similar to those which have been approved likely to refine or further develop their own products in order to be able to capitalise on that reimbursement. In this way, the CMS can help shape development of the medical imaging AI market.

Heartfelt Progress

At present, this development is leaning further towards cardiac imaging than radiology. Tools that assist in cardiac imaging, from vendors such as HeartFlow and now Cleerly offer significant value to providers, changing patient care pathways, and in the case of Cleerly in particular, offering the opportunity to improve the health of entire populations. This aligns to forecasts made in Signify Research’s AI in Medical Imaging World Market Analysis 2022 – Core Report, which identifies cardiac imaging as the largest medical imaging AI segment over the forecast period.

Compared to cardiac imaging, radiology is somewhat lagging behind. This is largely a result of the nature of many radiology tools. While there are numerous radiology tools on the market, many of them represent limited value propositions. These tools may, for instance, only offer incremental gains, such as marginally increasing the speed at which findings are detected, or fractionally increasing the rate at which measurements are taken. In cardiology, on the other hand, solutions often have far more significant value, shifting a diagnostic pathway or providing earlier diagnosis for example. There are also radiology vendors with similar aims, but in most cases, the benefits are less clear cut than in cardiac imaging.

Another facet of the CMS decision to reimburse the use of Cleerly’s plaque detection solution is the fact it has assigned the vendor an OPPS code, for reimbursement in an outpatient setting. Such a move suggests the body aims to push forward the use of AI in outpatient settings. This makes sense. Outpatient settings represent an attractive setting for AI assistance and keeps pace with the growing preponderance in the US for use of outpatient imaging for non-emergency imaging a more cost-effective setting versus hospitals.

Above all though, the decision by the CMS to provision an OPPS code for Cleerly highlights an important step for the company, propelling it into the upper echelon of medical imaging AI vendors. It does, after all, offer a valuable solution with regulatory clearance, it is well funded and has won the confidence of investors, and now qualifies for reimbursement, incentivising providers to adopt it. More significantly however, it represents a milestone for medical imaging AI as a whole. In this and other recent moves, the CMS has shown that it will support vendors which offer value to providers and will incentivise the use of solutions that can materially improve outcomes for patients.

With its provisioning of a code for Cleerly, the CMS has shown that it is making a more concerted effort to forward the adoption of medical imaging AI. One might even say it has realised the importance of being earnest.

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Signify Premium Insight: The Tightrope Upon Which Lunit Must Walk

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Lunit recently announced that it has received preliminary approval for an IPO on the South Korean KOSDAQ index. Following the approval, the Seoul-based AI developer now plans to submit a listing within the first half of the year.

The outfit already has partnerships with several large international imaging vendors, including GE Healthcare, Philips and Fujifilm to incorporate its AI capability into their imaging systems, but Lunit says the money from the funding round will enable it to further develop its AI product range, and expand its global commercial reach. This will entail promoting its products, which include an AI tool for analysing mammograms, an AI solution for analysis of tissue slides for cancer biomarkers, and a comprehensive AI solution for chest X-rays that detects 10 of the most common findings, in more markets across the world.

The Signify View

That Lunit has decided to place its fortunes in the hands of public investors should come as no surprise. As detailed in a recent Premium Insight discussing medical imaging AI vendors with more than $100m of venture funding, Lunit, like many of its successful peers shares some common traits. The vendor has, for instance, taken a very robust approach to product development. Instead of relying solely on one of the available training datasets, which can introduce some ambiguity and aren’t always perfectly labeled, Lunit has chosen to use training data validated against biopsy results. This helps ground the AI tool’s algorithm and minimise the likelihood of errors. A tool is only as good as the data it is fed so supplementing images with other clinical data is a prudent approach.

In a similar vein, the vendor has also been thorough with regard to clinical validation. One of the hurdles stymieing the broader adoption of AI is a lack of robust evidence. To be profitable AI vendors need to prove their solutions are valuable to providers, to warrant hospital budgets and convince policymakers that their tools deserve reimbursement. To do this these vendors must undertake strenuous, detailed clinical validation studies. These are expensive and time consuming to conduct, but they are necessary. This need is compounded as AI vendors look to grow globally, with developers obliged to prove their solutions are as effective on non-local populations. Lunit has been able to meet this requirement, and can point to a wealth of published studies open to scrutiny, as well as regulatory approvals for its Insight CXR and Insight MMG chest X-ray and mammography solutions in the USA, Europe, Japan and South Korea and for SCOPE PD-L1 in Europe.

Available Options

In addition to this technical capability, the vendor has also been commercially savvy. As well as selling its products directly, Lunit has made its products available on several AI marketplaces, allowing providers which use, for example, Sectra’s imaging IT solutions to incorporate its tools through that company’s Amplifier Marketplace.

More significantly, the vendor has also sought to utilise partnerships to target new markets. It has received $26m from liquid biopsy specialist Guardant Health. As well as boosting Lunit’s bank balance, the collaboration will help the AI vendor target the US oncology market with its SCOPE tissue analysis platform. Lunit has also looked to international imaging vendors to grow, with the company inking deals with GE Healthcare, Philips and Fujifilm helping encourage Lunit’s adoption among those vendors’ install bases.

Such endeavours are for naught, if the products themselves are inadequate. Lunit, however, has avoided this trap. While its range of products is small, comprising of three solutions, one for chest X-ray, a second for mammography and a third for pathological tissue analysis, they are focused on valuable areas. Insight CXR, for example is a solution that is on the rising tide of increasingly comprehensive AI tools which, like those from Annalise AI and Oxipit AI seek to provide greater clinical value to doctors than narrow AI solutions which are often more limited. Similarly, Lunit’s SCOPE solution is set to benefit from the growth of digital pathology and the establishment of closer ties between diagnosis and treatment.

A Time for Temerity?

Despite these strengths, however, listing publicly also represents a risk for the vendor. Reports suggest the listing offers Lunit a valuation of around $500m. This is a far cry from the valuations of the likes of HeartFlow and Viz.ai, which saw valuations as high as $2.4bn and $1.2bn respectively in their recent fundraising endeavours, however it is still a significant sum for a vendor that, according to Signify Research’s AI in Medical Imaging report, achieved just over $1 million in revenue and a loss of $16.5 million in 2020. While the IPO will furnish the vendor with ample capital, it also adds considerable pressure. It risks facing many private investors necessitating consistently strong quarterly performances, rather than sympathetic private investors au fait with the medical imaging AI market, which are likely to be understanding of more modest returns in the name of sustainable long-term progress.

There are other hurdles too. The enormous valuations that some medical imaging AI vendors have been able to achieve through the high availability of funding for AI firms over recent years, have, in some instances proved a hindrance to these AI firms when they have looked to list. The likes of HeartFlow and Keya Medical both sought to go public, before being forced to postpone their plans, in part due to the inability of public investors to match these lofty valuations. Furthermore, in many instances, vendors that did go on and list publicly have seen their share prices fall as they were unable to meet the high expectations of their public investors. This has been true of all Lunit’s closest South Korean peers.

Vuno listed at an initial price of KRW32,150 in February 2021, and is now trading at around KRW10,500. DeepNoid shares initially traded at a price of KRW25,200 in August 2021 but now sit languishing at an all time low of KRW11,400. JLK, meanwhile went public in December 2019 with an initial price of KRW8,330, rallied to KRW14,150 in September 2020 but now trades at KRW6,220. The market as a whole has suffered, with the KOSDAQ falling 13% year-to-date, but JLK, DeepNoid and Vuno have all underperformed even relative to this benchmark, falling 20%, 38% and 44% respectively.

A Hard Market

Making headway amidst these underperforming peers will prove difficult. This challenge will also be compounded by market complexities facing its products. While the tools themselves are sound, they are competing in difficult markets. Mammography for instance has well-established incumbent vendors such as Hologic and iCad, as well as a plethora of breast imaging AI start-ups each trying to eke out a share of the market. Similarly, Lunit’s Insight CXR product will not only face stiff competition, but even when used it will be fighting for a small percentage of the limited reimbursement available for chest X-rays. Both could be successful products, but could be slow to return sizable revenues. Lunit SCOPE is likely to be similar. There are considerable opportunities pertaining to digital pathology AI, clinically as well as in other areas such as drug discovery. However, the digital pathology market is so nascent, it is unlikely to significantly contribute to Lunit’s bottom line for several years.

These weaknesses do point to one area in which Lunit should prioritise following its IPO. As well as commercialisation efforts, building sales and support networks in new markets, Lunit must also spend heavily on the development of new tools. The vendor must channel its expertise into targeting new areas that offer high potential returns, whether for better-reimbursed modalities, high-value use cases, or care coordination tools that expand beyond image analysis itself, Lunit needs to supplement its current strength with tools that will be lucrative into the long term.

Don’t Look Down

Ultimately, Lunit’s growth up to this point has positioned it in a difficult spot. While the vendor must move forward, doing so requires overcoming considerable adversity. This is not a problem that is unique to Lunit, but each medical imaging AI vendor that makes it to this pivotal moment, must navigate it in its own way. Balancing the needs of its investors while continuing to invest in product development and market creation, will be tough. The need to create significant revenues and profits to justify its lofty valuation, while not neglecting the robust way it has approached algorithm training and clinical validation, which helped establish its credentials, means walking a tightrope, where one slip can send a share price tumbling.

Lunit will see a future in which the company is successful. Consistently generating revenues, with sustainable growth, a secure user base and an innovative roadmap. The vendor can lead its investors to this future, but its challenge will be in ensuring they don’t lose faith and fall along the way.

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Signify Premium Insight: HeartFlow’s Deal that Failed to Rise

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Back in July of 2021, cardiac imaging AI vendor HeartFlow announced that it was set to go public through a SPAC merger with Longview Acquisition Corporation II. This deal was set to make HeartFlow medical imaging AI’s first double unicorn, with a pro forma enterprise valuation of $2.4bn.

However, this deal has since been called off, with the vendor giving unfavourable market conditions as the cause. The move comes after HeartFlow cut its 2021 revenue forecast back in September, when the company said that the disruption caused by the then-prevalent delta variant meant that it expected revenues of $36m-$42m, rather than the previously stated $42m given in June. A move which prompted its acquisitor to demand a “thorough analysis of its financial projections”.

The Signify View

Assessing the value of something is a notoriously difficult task. One famous case covered by the Wall Street Journal regarded the pricing strategy of the Williams-Sonoma company which had launched its first at-home bread making machine. This device retailed for $275, but customers weren’t interested, and sales were disappointing. Instead of assuming the device was priced too highly for consumers and lowering it accordingly, at the suggestion of a marketing firm, the company brought out a second, similar model for the inflated price of $415. Although the original model hadn’t changed, the introduction of the second, more expensive model made the original device look like a bargain by comparison, and its sales doubled. Without the second product, consumers were unable to contextualise the price of the first.

HeartFlow is likely to have fallen foul of similar psychology. When HeartFlow announced that it was listing, it was set to become medical imaging AI’s first double unicorn. More pertinently it was set to become one of the first medical imaging AI vendors outside of China which had chosen to list publicly, while also establishing itself as the most notable heart health software vendor. Since last summer, however, there have been a number of heart health vendors which have made moves in the space. In November, Artrya, for example, announced its own plans for a public listing, which it hoped would raise AUD 40m ($29m), while Cleerly secured $43m in series B funding for its own heart health solution back in June. Although HeartFlow is more advanced in its plans than either of these companies, the much smaller amounts involved in these deals could have made HeartFlow look overpriced by comparison. Deals done outside of heart health could have compounded this effect. IBM, for example, recently agreed the sale of its Watson Health business, which reportedly generates around $1bn in annual revenue, for ‘over $1bn’. HeartFlow may have huge growth potential, but looking for a valuation 2 – 2.5 times IBM Watson Health’s reported selling price, while bringing in around one-twentieth of the revenue could have seemed a bad deal to some.

Drawing a Line

This difficulty in ascribing a valuation to HeartFlow was perhaps the final straw. Longview Capital itself recognised as much in its February 4th 8-K filing with the SEC, noting that after Longview requested HeartFlow “undertake a thorough analysis of its financial projections” the deal fell apart. “Following the conclusion of that process, and extensive mutual efforts to negotiate an appropriate valuation adjustment, both parties agreed to terminate the Business Combination Agreement,” the filing read.

There are however other factors that will likely have contributed to the listing going south. Unlike several other successful AI vendors which have developed care-coordination platforms, comprehensive tools or suites based around clinical use cases, HeartFlow has predominantly relied on a single tool. The tool is very clinically valuable, offering an alternative to more risky invasive diagnostic procedures, however, the vendor itself has recognised that to continue to grow it must develop and offer additional capability. In its investor presentation, it highlights a myocardial insight tool, a stenosis tool and a plaque visualisation, quantification and characterisation tool in its development pipeline, but the latter two of these aren’t given launch dates, suggesting they are some way off. Some of this functionality is also offered by other vendors. While no vendor has yet combined these tools with FFR-CT, the fact that other vendors have some comparable functionality may have made investors less bullish about HeartFlow.

While HeartFlow has control of these factors, there were other issues that the AI vendor had no influence over. Chief among them was the coronavirus pandemic. When the vendor first announced it was listing in the summer of 2021, many countries, and their health services, were beginning to open up. The worst of the Covid pandemic appeared to be over, and providers would be able to shift their focus to longer-term goals and the adoption of new technology, such as AI. There would still be considerable hurdles, with the conservatism of some radiologists and cardiologists likely to impede the adoption of FFR-CT at some hospitals, but HeartFlow could up market education and support activities to overcome these.

The Beating of a Butterfly’s Wings

The pandemic was less malleable, and, according to the vendor, the factor that was primarily responsible for the aforementioned reduction in revenue guidance. This alone may have given some would-be investors cold feet, but a bearish response was made more likely by the fortunes of an entirely separate concern. HeartFlow planned to merge with Longview Acquisition Corporation II (Longview II), an investment vehicle for Glenview Capital Management. The first Longview Acquisition Corporation (Longview I) merged with disruptive handheld ultrasound vendor Butterfly Network, facilitating its entry onto the New York Stock Exchange in February 2021. Since listing on the bourse, the modality vendor’s share price has plummeted from a peak of more than $29 in February 2021, to its current position, languishing around the $5 mark. One of the main reasons for this fall has been the vendor’s underwhelming results. In its investor presentation released in November 2020, the company forecast revenues of $78.1m for 2021. In January 2022, in its preliminary results for the fourth quarter of 2021, it anticipated annual revenues in the range of $61.5m to $62.5m.

Despite the fact that both vendors are completely separate and operating in separate areas of imaging, investors who had their fingers burned with Longview I are likely to be far less accommodating to Longview II, with any revisions to revenue guidance or discrepancies regarding valuations enough to send already flighty investors fleeing.

The Mythical Beast

This is unfortunate. It is possible that the original $2.4bn valuation of HeartFlow was too high, or that its worth has changed because of both the internal and external factors, but these differences are somewhat moot. As highlighted in Signify Research’s recent Insight assessing vendors with more than $100m of funding, HeartFlow has, so far, not missed a beat. It offers a product that solves a real clinical problem, offering a safer and cheaper alternative to an invasive diagnostic procedure. Its FFR-CT tool has received regulatory approval in several key markets and the vendor has proved its tool with considerable clinical validation studies. Even more impressively, use of FFR-CT now qualifies for reimbursement in multiple markets, making it a viable financial, as well as clinical solution. This will benefit HeartFlow, which does not have any direct competitors in the US, while only a few vendors offer similar capability in other regions. Interestingly, one of these is Chinese firm Keya Medical, which also had a failed IPO after its application to list on the Hong Kong Stock Exchange, at a valuation of more than $600m, was rejected.

Despite these strengths, the next steps for HeartFlow are unclear. The failure to list once will likely hinder its ability to list again, at least in the near term, as potential investors’ confidence in any future valuation given will wane. Further funding may be forthcoming, but any investor will be wary that their cash will be diverted to earlier investors looking to exit, rather than being spent on research, development and sales which will grow their own capital. By dint of its hard work over the past decade, HeartFlow is, unlike many medical imaging AI vendors, at least generating reasonable revenue. While some plans may have to be scaled back, and some frantic strategy meetings may now be on the cards, at least the vendor has cash coming in as it works through its challenges. Less showy, perhaps, but a period of internal focus and commercial growth will only do the vendor good, standing it in good stead for future fundraising opportunities. What’s more, by then, more imaging vendors may have listed, and investors will have more confidence in a new valuation. Until that happens, medical imaging unicorns will remain as rare as their namesake.

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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