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Overall, the medical imaging market is well consolidated, with a handful of vendors dominating large dealmaking opportunities. However, innovations in technology and developments in business strategy have meant that, of late, several hungry, disruptive and above all aggresive, modality vendors have positioned themselves as medical imaging revolutionaries. These vendors aspire to cast off medical imaging’s established hegemony and reimagine how medical imaging can fulfil its potential. While there are many young companies quietly working on new products, targeting existing markets, these disruptive vendors seek to create new markets, and establish a new order, at least in their own spheres. But, how do the most vocal of these new revolutionaries, Butterfly Network, Nanox and Hyperfine stack up?
When Butterfly Network was promoting its first iQ scanner in 2017 it was, according to the vendor’s website at the time, “priced to empower”. The vendor had leveraged proprietary solid-state transducer technology to lower the cost of ultrasound devices and entered the market in 2018 with a system that retailed for $2,000. This pricing set it apart from other competitors on the market, and, Butterfly hoped, would enable it to secure considerable device sales, which would in turn lead to large subscription revenues from its service offerings. This growth in service revenue does appear to be happening, with subscription revenue growing 86% year-on-year in 2021 compared to product revenue growth of 25%, to now account for almost a quarter of revenues.
The backdrop to this success is less rosy, with the vendor bringing $62.6m total revenues in 2021, $15.5 million less than the target it set itself just one year earlier. The vendor has also seen its share price plummet since going public, with the shares now trading at little over $4, less than a fifth of what they were a year ago, a fall dramatic enough to spark a lawsuit against the firm.
Since the launch of its first iQ scanner in 2018, the handheld ultrasound market has moved on. While Butterfly Network still offers a price advantage compared to its rivals, the difference has been brought down to be competitively negligible. Clarius’ recently released 3rd generation scanners start at $2,995, compared to Butterfly Network’s current iQ+ which comes in at $2,399 with a subscription. Further the market has become more competitive, with new offerings from established vendors such as GE, as well as new entrants such as Exo poised to offer their own alternatives. While these moves haven’t diminished the capability of the iQ+, they have made it more difficult for the vendor to stand out. The iQ is a whole-body system, but some specialists may choose a specialist system from Clarius, other providers might choose GE or Philips systems that are bundled with broader imaging purchases, Butterfly Network risks being left out in the cold.
This could have a growing impact on the vendor unless it realises its aim of creating new markets. One of the main challenges with these markets is that they target novice users. Butterfly Network has started to address this, with its partnerships with Caption Health and Ultromics aiming to leverage AI to facilitate inexperienced users. However, Butterfly’s own in-house AI developments have been somewhat underwhelming, with rival products offering more AI features than the current iteration of IQ+. Another positive is the vendors’ proactivity. In this year alone it has made a major partnership with Ambra and has most recently launched its own enterprise platform. It is too early to identify their impact, but they are signs the vendor is starting to join the dots, at least for its hospital and health system customers.
Butterfly Network is entering a turbulent time. Next year the group expects to make a loss of $225m-$245m against revenues of $83m-$88m. This is unsustainable and will leave the company needing to dramatically increase revenues from new markets, or raise more cash in order to push on.
Amidst the falling share price, the lawsuits and the competition, there are positives though. The handheld market is among ultrasound’s fastest growing, and Butterfly, has raced to take one of its top spots. Its Butterfly Blueprint platform gives it a stronger value proposition in the established point of care ultrasound markets like emergency medicine and intensive care, but it has yet to make a big play to open-up new market opportunities in outpatient and primary care settings. Moreover, creating new markets is difficult, expensive and time consuming. But, in order to do so, and deliver on its promise, this is what it will need to do. Arguably a new, updated device and a focused approach on a single, choice target is perhaps the most secure way of doing so.
“Existing medical imaging systems are too expensive and complex for mass deployment”, proclaims the website of the Israeli innovator. This fundamentally encapsulates Nanox’s stated aim. The vendor seeks to use its proprietary cold cathode X-ray source to massively reduce the cost of full-body 3D imaging. This, in conjunction with the use of advanced screening and diagnostic AI solutions, a cloud-based image management system and new pay-per-scan pricing models, will help bring medical imaging to parts of the world which have no access to medical imaging, according to the vendor.
At least that’s the plan. Since day one, the vendor has faced considerable headwinds, from short-sellers comparing it to disgraced blood-testing firm Theranos, to questions regarding the legitimacy of its technology, and even lawsuits. Many of these difficulties have not gone away. The vendor is facing a class action case from investors alleging that the vendor made false and misleading statements when hunting for potential investors. Additionally, the vendor has still been unable to secure FDA approval for the multi-source implementation of its X-ray technology, delaying the commercial release of its integral Nanox.ARC 3D scanner. While this has been going on, its share price has tanked, currently trading at around $10, down from a high in 2021 of almost $76.
Even aside from these challenges there are some fundamental questions surrounding Nanox’s strategy. While prioritising a pay-per-scan business model is innovative, and can reduce the initial outlay for providers in what Nanox identifies as ‘the two-thirds of the world with no access to medical imaging’, it seems at odds with the purchasing strategies of those countries. Budgets are often not stable and predictable, which is needed for ongoing operational sales models. Instead, in many cases, there are infrequent and irregular injections of capital, which providers spend on specific pieces of equipment.
Nanox’s business model could be attractive in some more developed markets, perhaps in non-traditional imaging settings but here it would arguably face competition from the established vendors, which can offer pricing flexibility and are increasingly releasing lower cost systems targeting these markets.
If Nanox does sell its scanners in significant volumes it will also face another problem: the shortage of radiologists. The reality is that in many areas without medical imaging capability there aren’t the doctors to interpret images, nor the capacity to treat patients receiving diagnoses. Nanox’s ARC scanner can’t succeed in isolation. There are signs the vendor recognises this. Its somewhat opportunistic acquisitions of Zebra Medical Vision and USARAD bring some AI screening and teleradiology capabilities to the business, and tease a joined-up, resource-efficient medical imaging-as-a-service provider. However, ahead of the acquisition Zebra, which has since re-branded as Nanox.AI, pivoted from developing AI algorithms for diagnosis and triage to focus on AI-powered population health solutions, which seems at odds with Nanox’s strategy.
Ultimately, all of this is moot. While there are the aforementioned causes for concern, there are also causes for optimism, with backing from SK Telecom, FDA approval of Nanox’s single-source prototype, and a claimed 6,500 MSaaS contracts adding weight to the vendors ambitions. However, until it receives FDA approval for its multi-source scanner the vendor’s only option is to tread water, and hope that if and when it gets the go-ahead, providers aren’t overladen with Covid-driven CT purchases and other, larger vendors haven’t smelled opportunity and moved in.
The use of advanced 3D imaging is increasing in hospitals, while some vendors are also looking to promote use of the devices in other care settings. However, use of the modalities in all these cases is reliant on patients being taken to permanently installed systems, often in busy imaging departments. This can be detrimental to patients for cases where time is of the essence. Hyperfine hopes to address this need with its mobile MRI scanner, a device which it says can be used at the point of care and produce viewable images in as little as 30 seconds.
The vendor’s founder, Dr Jonathan Rothberg, also founded Butterfly Networks. There are parallels between the two vendors, with Hyperfine recently following in its older sibling’s steps and going public via a SPAC acquisition. This brought the debt-free company around $375m, standing it in good stead to commercialise its product and fund sales activities. Like Butterfly Network, Hyperfine also seeks to use its price to its advantage, with a very competitive price and a subscription-based model both aimed at getting the device into providers.
Where Hyperfine and its Swoop portable device does have an advantage is that it has few direct competitors, with only a handful of other vendors focused on point of care MRI. This brings entirely new clinical opportunities to providers which can quickly conduct MRI scans in intensive care wards, trauma wards or emergency rooms. It also leaves the device particularly suitable for stroke care, an area on which Hyperfine is rightly focusing.
There are difficulties facing the vendor though. Aside from its share price, which, like the other vendors has fallen spectacularly since listing, down to around $3 from a peak of $16 mere months ago, the vendor also faces the same challenges in market creation as the other vendors. Price is only one barrier to the adoption of MRI, with a lack of technicians and radiologists a problem that adoption of bedside imaging will only exacerbate. Hyperfine also offers its own cloud-based PACS as part of its subscription offering, how effectively that can integrate into providers’ existing systems will be crucial, especially for stroke care where time and post-imaging workflow are critical.
Longer-term continuing to grow the business will likely bring more challenges. While some of the aforementioned use cases make sense, others laid out in Hyperfine’s investor deck, such as in the operating room and home use particularly seem optimistic.
While new ventures are always precarious, Hyperfine does appear to be in a relatively strong position. Its Swoop device offers uncommon clinical capability at an affordable price, and so fundamentally, seems sound. Operating in such a new market however does offer drawbacks as well, though, with the vendor being responsible for promotion of the concept of point of care MRI, itself. Of greater concern is that it will burn through its cash, and successfully create a market, only for an established player to sense the opportunity and, further down the line, swoop in.
Despite those concerns, it looks like the vendor is making good headway, and has identified a real, tangible opportunity. Whether it can seize it, however, depends on the vendor’s ability to convince providers to open their wallets. With an installed base of only 70 systems and approximately $1.5m total revenue in 2021, Hyperfine clearly has a lot of work ahead of it.
The Fate of the Disruptors
Disrupting the medical imaging market is no mean feat. Fundamentally for any of these vendors to be successful in the long term, they need to solve a clear medical problem, and do so profitably. Competing on price alone, in order to bring medical imaging to emerging markets with poorly funded health networks is admirable, but all too often unsustainable, short sighted and naïve. The alternatives, meanwhile, are also difficult; enter into an established product category and compete with other vendors with more tools at their disposal, or create a new category and absorb the associated costs oneself.
These challenges aren’t insurmountable – these vendors have already made impressive progress – but antithetical to the central tenet of a disruptor, require slow, considered and deliberate moves rather than blind ambition and bolshiness. All of these vocal vendors have the potential to solidify their places within the pantheon of successful medical imaging companies, but bruised egos and broken promises are likely to litter their ascents.
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