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By Team Ace Investors

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Company Overview

4DMedical Limited (ASX: 4DX) is a global medical technology company that has created a step change in the capacity to accurately and quickly understand the lung function of patients with respiratory diseases. Through its flagship patented XV Technology®, 4DMedical enables physicians to understand regional airflow in the lungs and identify respiratory deficiencies earlier and with greater sensitivity as they breathe. This technology powers 4DMedical’s FDA-cleared XV Lung Ventilation Analysis Software (XV LVAS®), which is the first and only modality that can dynamically quantify ventilation throughout the lungs and its Computed Tomography-enabled counterpart software, CT LVAS™. It also reduces the risk of exposure to lower radiation relative to other diagnostic methods, providing a clear advantage when disease progression and therapeutic effectiveness need to be regularly monitored. XV LVAS® reports are prepared using 4DMedical’s Software as a Service delivery model using existing hospital imaging equipment or the company’s revolutionary XV Scanner, hence reducing the upfront capital cost. On 17 Mar’2022, 4DMedical unveiled its XV Scanner, the world’s first dedicated lung scanner, at the Prince of Wales Hospital in Sydney. 4DMedical is working with leading medical researchers to progress a series of clinical trials that will take the XV Scanner toward regulatory clearance by late 2023. In April 2022, 4DX commenced an important US-based clinical pilot, a key milestone in its plan to grow its global footprint. Clinical pilots form an important part of its commercialization strategy, allowing institutions to implement and trial the Company's end-to-end solution ahead of potential commercial integration. In June 2022, 4DX signed a nationwide contract with I-MED Radiology Network. I-MED is Australia’s largest outsourced radiology provider, with more than 250 clinics offering various diagnostic services to private and public hospitals.

Investment Rationale

4DX announced a significant milestone in its commercialization journey with the signing of a 5-year contract with the University of Miami

4DX made considerable progress in its commercialization journey, with the signing of a 5-year contract with the University of Miami to provide XV LVAS® ventilation reports.

On 5 April 2023, 4DX signed a 5-year contract with the University of Miami to provide X-ray Velocimetry Lung Ventilation Analysis Software) ventilation reports. The agreement with the University of Miami sets out a framework for further expansion of 4DMedical’s XV Technology® into the US market. Under the terms of the contract, 4DMedical will deploy XV Technology® at the University of Miami, enabling patient data to be processed on demand.
Importantly, this agreement includes minimum annual fees and represents a significant milestone in the commercialization strategy of the Company in the US, validating the efficacy and utility of XV Technology®.
On 13 April, the Company advised that the minimum guaranteed fees to be paid to 4DX under this contract will be in the range of AUD$1 million to AUD$1.5 million over the 5-year term. The minimum fees provide the University of Miami with defined volumes and types of SaaS scans. By mutual agreement, the Company will earn additional fees for additional scans beyond those covered by the minimum fees.
On 5^th May 2023, 4DX announced another significant milestone in its commercialization strategy, with the initiation of a commercial pilot at the Military Health System (MHS) within the U.S. Department of Defense. The contractual arrangement involves performing an agreed number of scans on full commercial terms and, if successful, has the potential to grow. While not immediately material from a revenue perspective, it validates the utility of XV Technology® to provide rich respiratory health insights across a range of lung diseases.

4DX unveiled its VQ product at the premier US lung conference

On 23 May, 4DX announced a significant technological breakthrough and milestone in its product development strategy, with its CT-based ventilation-perfusion product (CT: VQ) progressing to a developmental stage that allows for the release of early clinical data. The clinical data was presented at the annual conference of the American Thoracic Society (ATS 2023) in Washington, DC on 22 May 2023. The technological advancement represents a significant breakthrough in respiratory imaging by providing vascular perfusion analysis, without the need for either injected radioactive tracers or contrast media. Key highlights-

4DMedical has made material progress in the development of its CT-based ventilation-perfusion product (CT: VQ), which quantifies and visualizes regional ventilation and regional perfusion
CT: VQ represents a significant technological breakthrough in respiratory imaging by providing vascular perfusion analysis without the need for contrast
Visualizing and quantifying regional perfusion in addition to ventilation provides significant clinical benefit
4DMedical presented its first clinical data at the annual conference of the American Thoracic Society (ATS 2023) in Washington, DC

4DX raised A$45 million to accelerate the commercialization of its four-dimensional respiratory imaging platform

On 29 May 2023, 4DX completed a $25 million Share Purchase Plan (SPP) following the $20 million institutional placement. On 8^th May, 4DX completed an institutional placement of 22 million shares at A$0.91 per share to raise approximately A$20m to fund its commercialization strategy. The Company also announced a Share Purchase Plan (SPP) of approximately A$15m. The Company received valid applications for $25m worth of shares under the SPP. In recognition of the long-term support of its investors and to maximize growth opportunities, the Board has exercised its discretion under the terms of the SPP and determined not to scale back applications. The company raised a total fund of $45 million, comprising the Placement ($20m) and SPP ($25m) before costs. The total proceeds from the Placement and SPP will be used to accelerate the commercialization of 4DX's four-dimensional respiratory imaging software and also significantly strengthen its balance sheet. Funds raised left the Company with a strong on a proforma basis cash balance of approximately $79.6m after costs on 31 March 2023.

American Medical Association granted Category III CPT codes to establish reimbursement for XV LVAS®

In a recent development, the company also announced that the American Medical Association granted Category III CPT Codes to establish reimbursement for XV LVAS®. In Sep'2022, 4DX submitted a CPT application to the AMA CPT Editorial Panel for review, which resulted in the acceptance and release of two new Category III CPT Codes. Under the AMA's Category III code's early-release policy, these codes became effective on 1 July 2023, following the six-month implementation period, which began on 1 January 2023. The issuance of the new distinct Category III CPT codes by the AMA represents a major milestone towards advancing US reimbursement for XV LVAS®, as healthcare providers and facilities will be able to submit claims directly to payers identifying when XV LVAS® is ordered for patients to quantify their pulmonary tissue ventilation. Establishing a clear billing pathway and tracking utilization of the technology are critical components in achieving US commercialization success.

ACE’s Recommendation:

4DX made considerable progress in its commercialization journey, with the signing of a 5-year contract with the University of Miami to provide XV LVAS® ventilation reports. On 5 April 2023, 4DX signed a 5-year contract with the University of Miami. Under the terms of the contract, 4DMedical will deploy XV Technology® at the University of Miami, enabling patient data to be processed on demand. On 5^th May 2023, 4DX announced another significant milestone in its commercialization strategy, with the initiation of a commercial pilot at the Military Health System (MHS) within the U.S. Department of Defense. In June23Q, the company also announced that the American Medical Association granted Category III CPT Codes to establish reimbursement for XV LVAS®. The issuance of the new distinct Category III CPT codes by the AMA represents a major milestone towards advancing US reimbursement for XV LVAS®, as healthcare providers and facilities will now be able to submit claims directly to payers identifying when XV LVAS® is ordered for patients to quantify their pulmonary tissue ventilation. The company also recently raised A$45 million to accelerate the commercialization of its four-dimensional respiratory imaging platform. We believe that the recently granted Category III CPT Codes by AMA to establish reimbursement for XV LVAS® and a $45 million capital raise to accelerate its commercialization initiatives. We would like to recommend a BUY rating on the stock.

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