On the Couch with Dr Andreas Fouras (4DX): Lung Imaging, CTPA and the Billion-Dollar Opportunity

In this episode of On the Couch, Henry Jennings speaks with Dr Andreas Fouras, Managing Director and CEO of 4DMedical (ASX: 4DX).

Many Marcus Today members will know 4DX from when it was a fraction of its current price. Henry has long been a fan of the company, which has developed XV Technology – a proprietary software platform enabling non-invasive, quantitative imaging and analysis of lung function.

They cover the opportunity in replacing CTPA scans, the Pro Medicus relationship, and what the next twelve months could look like for the business.

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This podcast is general information only and does not consider your personal circumstances. It is not personal financial advice.

Transcript

Part 1

Henry Jennings:
Welcome to another episode of On the Couch with myself, Henry Jennings from Marcus Today. Today I’m delighted to be joined by Dr Andreas Foras from 4DX, a firm favourite of Marcus Today members, and a company we have done very well with over time.

For those unfamiliar with the story, 4DX is involved in lung imaging, non-invasive quantitative imaging, and analysis of lung function. Dr Andreas Foras is the Managing Director, CEO and founder of the company.

Andreas, welcome to the podcast. It’s great to have you on.

Dr Andreas Fouras:
It’s really great to be here. I’m excited. I hope it’s going to be fun.

Henry Jennings:
Before we kick off, as always, general advice only. Please do your own research and contact your financial adviser regarding any of the thoughts, ideas, or insights in this podcast.

Let’s get straight into it. Your technology at 4DX is very much on the cutting edge. What exactly does it do, and what does it add to lung imaging for people coming to the story fresh?

Dr Andreas Fouras:
There are a couple of key ways it adds value.

The first is that lung imaging has been left behind compared to other areas of healthcare. In neurology, for example, we’ve had functional MRI for years. That allows doctors not only to see structure but also function, and that has transformed how brain conditions are understood and treated.

The lungs haven’t had that equivalent capability.

The closest options today are nuclear medicine scans involving injections, or CT scans with contrast. Both come with cost, complexity, and clinical risk.

What we’ve built is a software layer that brings functional imaging capability to standard CT scans. That means doctors can see not only what the lungs look like, but how they function — without injections and without new hardware.

They can use the CT scanners already installed in hospitals today.

Part 2

Henry Jennings:
One of the major catalysts for investors was the investment by Promedicus. The shares have gone from around 40 cents to roughly $4 since then. It was clearly an important endorsement.

How is that relationship progressing?

Dr Andreas Fouras:
The team at Promedicus has been incredibly supportive for quite some time.

They've been generous with their time, sharing their experience of building a world-class healthcare software company, how they've won in the market, and how they've attracted some of the best hospitals in the United States.

I think they now have nine or ten of the top 20 US hospitals as customers, so they've clearly demonstrated what success looks like.

They've shared those strategies with us over a number of years, which has been enormously valuable.

When they began hearing feedback from their clinical network that our VQ technology was the real thing, they recognised the opportunity before most of the market did. They understood where the technology was heading and wanted to be part of that journey.

It's been great for our shareholders, and I think it's also been a very successful investment for Promedicus shareholders.

Henry Jennings:
Absolutely.

Most investors are familiar with CTPA, which is currently the standard technology. Could you explain what it does, and more importantly, why your approach is better?

Dr Andreas Fouras:
It's worth putting this into context.

Today we're replacing the nuclear VQ market, and we believe we can ultimately capture that entire market. That's roughly one million scans annually.

The next opportunity is much larger. It's the five million CTPA scans performed every year.

CTPA is used to detect pulmonary embolisms. It's a well-established technology that's trusted by clinicians and has served medicine well.

The issue isn't that CTPA is bad. The issue is that it's more invasive, more expensive and less efficient than it needs to be.

Imagine a patient arrives at the emergency department.

Initially, doctors are trying to work out what's wrong. It could be a heart attack. It could be pneumonia. It could be any number of serious conditions. As part of that process they'll often perform a standard CT scan.

Later, if they begin to suspect a pulmonary embolism, the patient has to return for another CT scan, this time using contrast dye.

What we offer is the ability to analyse the original CT scan using our software.

There's no second scan.

There's no contrast injection.

There's no delay.

That saves time, reduces cost, and avoids exposing patients to unnecessary risk.

Contrast agents can cause allergic reactions and kidney complications. Even when those complications don't occur, patients still need additional monitoring, adding pressure to already busy emergency departments.

Time is critical in emergency medicine.

Every extra test delays diagnosis, occupies a hospital bed, and increases costs.

We believe we can streamline that entire process while improving patient outcomes.

Henry Jennings:
One statistic that really stood out to me was that around 10% of hospital deaths are associated with pulmonary embolisms.

That's an extraordinary number.

Dr Andreas Fouras:
It really is.

When I first came across that statistic I was genuinely shocked.

Pulmonary embolisms are responsible for an enormous number of preventable deaths.

Around one in three hospital autopsies where the cause of death isn't immediately obvious reveal a pulmonary embolism. In roughly a third of those cases, the clot itself was the direct cause of death.

This isn't a niche medical problem.

It's a major healthcare issue.

Most people have heard the advice on long-haul flights to flex your calves or walk around the cabin.

That's because blood clots often begin in the legs before travelling to the lungs, where they become potentially fatal.

If we can diagnose those clots earlier, using the scans patients are already receiving, we believe we can materially improve patient care while making emergency departments more efficient.

Henry Jennings:
That's a compelling proposition.

What about competition?

Is anyone else doing what you're doing?

Dr Andreas Fouras:
We believe we're well ahead.

That said, we never take our lead for granted.

Our strategy has two parts.

The first is to keep moving quickly. The faster you innovate, the harder it is for competitors to catch you.

The second is intellectual property.

We've built an extensive patent portfolio and continue expanding it rapidly.

We now have around 120 patents, supported by a full-time patent attorney within the business.

Our research and development is accelerating.

Our product development is accelerating.

Our patent filings are accelerating.

We intend to stay well ahead.

Henry Jennings:
Australia has produced some remarkable healthcare technology companies over the years.

Promedicus.

Cochlear.

Now 4DX.

Why do you think Australia punches above its weight in this sector?

Dr Andreas Fouras:
I've thought about that quite a lot.

It starts with excellent university research.

That was certainly the foundation for 4DX.

We also have outstanding engineers who can build world-class technology competitively.

The R&D tax incentive has also played an important role by making it more economical to develop advanced technology here.

Ironically, another strength is that Australia is a difficult market.

Local hospitals don't necessarily favour Australian companies simply because they're Australian.

You have to prove yourself.

If you can survive those early years and build something people genuinely want, you're probably creating a globally competitive product.

We've certainly had difficult periods ourselves.

There were times when success depended on persistence as much as anything else.

Fortunately, we've always enjoyed tremendous support from our retail shareholders, and that's made a real difference.

Henry Jennings:
One of the things I noticed in a recent Bell Potter report was the expectation that 4DX could capture around 20% of the CTPA market over the next three to five years. Does that seem realistic to you?

Dr Andreas Fouras:
I actually think we can do considerably better than that.

When you look at comparable companies, including some outstanding Australian healthcare software businesses, our commercial momentum at this stage is significantly stronger than theirs was at a similar point in their journey.

A large part of that is thanks to the advice we've received from companies like Promedicus. They've been incredibly generous in sharing their experience, particularly Sam Hupert, and we've benefited enormously from that.

What we're seeing now is hospitals moving much faster than we expected.

Major institutions such as the Cleveland Clinic and the Mayo Clinic can often take six, nine or even twelve months to finalise a contract. We're seeing some agreements completed in closer to three months because clinicians immediately understand the value of the technology.

They can see that it improves patient care, helps them practise better medicine and, at the same time, makes healthcare delivery more efficient.

That's a powerful combination.

We've also published clinical data showing that when our technology is used to plan certain lung procedures, success rates improved from 46% to 76%.

If you're a patient choosing between those outcomes, it's not a difficult decision.

We believe the technology speaks for itself.

We're already on record saying we expect to capture the entire nuclear VQ market, and I believe we can outperform forecasts for the CTPA opportunity as well.

Henry Jennings:
You've recently received TGA approval in Australia.

Are there any significant regulatory hurdles still to clear in the United States or elsewhere?

Dr Andreas Fouras:
Regulatory approvals never completely stop because every new product requires its own pathway.

However, we've now cleared the major hurdles.

We were particularly pleased to receive FDA clearance covering both applications for our technology, replacing nuclear VQ imaging and detecting pulmonary embolisms.

Those were the key regulatory milestones for us.

We've also now gone nine from nine with FDA submissions, and our most recent clinical package was approved without any questions at all.

That's something we're very proud of.

Our philosophy is simple.

We ask the FDA exactly what evidence they want, then we provide precisely that.

They appreciate that approach, and it's helped us build a very constructive relationship.

Henry Jennings:
You're obviously Australian, but you're spending a lot of time in the US these days.

How is the business structured?

Dr Andreas Fouras:
The company is headquartered in Melbourne.

I'm originally from Brisbane, but these days I split my time between Melbourne and the United States, with my family now based in America.

That was a conscious decision.

The US is by far our most important market, and I felt it was important to immerse myself in it.

If I'm speaking to doctors every week and supporting our sales team, it's far more effective if I'm participating in the same healthcare system they work in.

It builds credibility.

It also allows the company itself to remain very much an Australian business.

Most of our workforce remains here.

The customer-facing functions are largely based in the United States, and that includes me.

Henry Jennings:
That certainly demonstrates commitment.

How large is the US operation now?

Dr Andreas Fouras:
We're approaching 40 people and growing quickly.

As sales continue to accelerate, we're expanding both the sales force and the clinical support teams around them.

For example, we now have several physicians working alongside our sales representatives in the field.

Having medical specialists supporting commercial discussions adds enormous credibility and significantly improves our ability to engage with hospitals.

Henry Jennings:
Finding quality salespeople in the US isn't easy.

Has that been a challenge?

Dr Andreas Fouras:
Initially it was.

Top-tier healthcare sales professionals want to know they're joining something genuinely special.

As awareness of 4DX and our VQ technology has grown, attracting high-quality people has become much easier.

We're now seeing exceptionally strong candidates approaching us rather than the other way around.

Another advantage is that our sales team receives part of their remuneration in equity.

As the company has grown, that's become an increasingly attractive proposition.

People want to be part of changing healthcare, but they also like sharing in the value they help create.

Henry Jennings:
I've always believed employee share ownership is one of the best motivators.

When people own part of the business, they think differently.

Let's talk about the balance sheet.

You raised around $83 million earlier this year, so cash doesn't appear to be an issue.

Where do things stand today?

Dr Andreas Fouras:
We're now holding well over $250 million in cash.

Under the standard ASX calculations, that's roughly 20 quarters of funding at our current expenditure levels.

Importantly, it means we have far more than enough capital to reach profitability.

It also gives us strategic flexibility.

When opportunities arise, such as the acquisition of Contextflow, we can move quickly.

That acquisition immediately gave us a presence in Europe and strengthened our technology platform.

Having a strong balance sheet allows us to think beyond simply funding operations.

We can also invest in opportunities that accelerate long-term growth.

Henry Jennings:
That sounds like a very different challenge from the early days.

When money is tight you're naturally disciplined.

Once you have a quarter of a billion dollars sitting in the bank, is there a temptation to spend it?

Dr Andreas Fouras:
That's a very fair question.

Human nature doesn't change.

When resources become more abundant, discipline becomes even more important.

There were times in the early years when I personally lent money to the company so we could meet payroll.

On one occasion I even had to delay paying my own rent because paying the team mattered more.

Experiences like that stay with you.

If anything, having more capital should increase the return we generate on every dollar we spend.

When you're constantly under financial pressure you're sometimes forced into short-term decisions.

With a stronger balance sheet we can make better long-term decisions while remaining disciplined.

That's something I talk about with the team all the time.

Part 4

Henry Jennings:
One thing investors often focus on is the short position in 4DX. Around 67 million shares are currently shorted, roughly 11% of the company.

Why do you think the short interest is so high?

Dr Andreas Fouras:
I've spent a fair bit of time thinking about that.

If I had to guess, I'd say it's probably a fairly superficial assessment.

Someone looks at a company with a relatively high market capitalisation, modest current revenue, a share price that's appreciated strongly, and comparatively low institutional ownership, and they conclude it's overvalued.

I think that misses what's actually happening inside the business.

We've never been a stronger company than we are today.

From my perspective, we've also never been cheaper relative to the opportunity in front of us.

We see an addressable market of around six million scans annually.

At approximately US$500 per scan, that's a revenue opportunity measured in billions of dollars.

More importantly, we're winning customers at a rate that's unprecedented in our sector.

Revenue naturally follows customer adoption.

Hospitals don't move quickly, but once they adopt a new clinical workflow they tend to remain customers for a very long time.

Our sales pipeline has never been stronger.

Our sales team has never been larger or more experienced.

Everything we monitor internally continues to improve.

If you believe customer growth leads revenue, then we're exactly where we want to be.

Henry Jennings:
So you actually see the short position as a potential positive?

Dr Andreas Fouras:
Potentially, yes.

There isn't an unlimited amount of stock available to borrow.

If we continue delivering strong operational results, and investors increasingly recognise the commercial opportunity, those short positions eventually have to be covered.

In that scenario the short interest can become an additional driver of share price performance rather than a headwind.

Ultimately, though, our focus isn't on hedge funds.

It's on executing our strategy.

If we keep doing that, the share price should take care of itself over time.

Henry Jennings:
We've just started a new financial year.

If we sat down together again this time next year, what would you hope had been achieved?

Dr Andreas Fouras:
I'd like to see us firmly established as the clear thought leader in lung imaging.

I expect we'll have well over half of the top 20 hospitals in the United States actively using our technology.

I'd also expect to see a number of major hospital networks and integrated healthcare systems adopting the platform.

Government customers are another important opportunity.

The US Department of Veterans Affairs is one example of the type of organisation we'd like to be working with.

More broadly, I'd like the market to view our leadership position as inevitable.

Once that happens, the discussion changes.

It becomes less about whether the technology works and more about the speed at which commercial adoption translates into financial performance.

That's where I'd like us to be.

Henry Jennings:
Europe is obviously another significant opportunity.

How important is that market?

Dr Andreas Fouras:
It's important for several reasons.

The first is diversification.

Healthcare systems differ across Europe, so building a meaningful presence there broadens our revenue base.

The second is influence.

Medicine is an international community.

Doctors attend conferences across both Europe and the United States, they publish together and they share ideas.

As a software company, network effects matter enormously.

We want clinicians talking about our technology wherever they are.

That's already happening.

When I attend conferences today, doctors regularly approach our stand and say they've been hearing about 4DX or VQ and want to understand what all the excitement is about.

That growing awareness is incredibly valuable.

From an economic perspective, Europe is probably around half the size of the US opportunity because reimbursement levels tend to be lower.

But when you're talking about markets measured in billions of dollars, half is still a very significant opportunity.

Having said that, our priority remains crystal clear.

The United States is the market that matters most.

Winning there gives us the credibility and momentum to win globally.

Henry Jennings:
And I imagine there are worse places to attend medical conferences than Madrid.

Dr Andreas Fouras:
Exactly.

I'll happily do my bit for the company from Madrid if that's what's required.

Henry Jennings:
Andreas, thank you very much for your time.

It's obvious how passionate you are about the business, and it's certainly one of the most exciting growth stories on the Australian market.

Investors often think of 4DX as a healthcare company, but in many respects it's really a software business with enormous scalability.

The opportunities ahead appear substantial.

Congratulations on everything you've achieved so far.

I look forward to catching up again in a year's time and seeing how much further the business has progressed.

Thanks again for joining us.

Dr Andreas Fouras:
Thanks very much, Henry.

I really appreciate the opportunity and, as always, the support from Marcus Today and its members.