Medical AI Companies with Soaring Stock Prices This Year: The Background of Relay Capital Increases

Since the Emergence of ChatGPT Last Year, Funding Concentrates on AI Development Companies
Domestic Medical AI Firms Aim to Resolve Financial Risks Through Large-Scale Capital Increases

Following Lunit, Deepnoid, and Noeul, which are developing medical artificial intelligence (AI) technologies, Lifesemantics has resolved to conduct a rights offering. Since OpenAI unveiled ChatGPT at the end of last year, global IT companies have been competing to develop technologies to dominate AI markets in various fields. As the pace of AI technology advancement accelerates with massive capital investment, it is interpreted that domestic medical AI companies have launched a relay of capital increases to raise funds for market dominance. The sharp rise in medical AI-related stocks this year also influenced the decision to increase capital.

Lunit, Deepnoid, and Other AI Companies Sequentially Resolve Rights Offerings

According to the Financial Supervisory Service's electronic disclosure system, Lifesemantics resolved a rights offering with a general public subscription for forfeited shares worth 20 billion KRW to raise funds for medical AI solution research and development and clinical trials for digital therapeutic devices. They allocated 0.53 new shares per existing share. The planned issue price for the new shares is 3,680 KRW. The final issue price will be confirmed in mid-November.

Lifesemantics plans to use 5 billion KRW of the raised funds for research and development. They have started clinical trials to evaluate the efficacy of software that assists in skin cancer diagnosis. The Ministry of Food and Drug Safety approved the confirmatory clinical trial plan for the skin cancer image detection and diagnostic assistance software developed through the Doctor Answer 2.0 national project. They are also developing 'Hair Density Analysis Software' and 'Hypertension Complication Prediction Software.'

They allocated 2 billion KRW for establishing local subsidiaries to expand overseas for the non-face-to-face medical platform 'DoctorCall' and the respiratory rehabilitation digital therapeutic device 'Redpill Soothe (DTx).' The capital increase will also fund domestic and international clinical trials for digital therapeutic devices.

The company explained that it will enhance the commercial value of core technologies through research to improve existing solutions and services and expand their usage. They developed H.AI, a solution that analyzes health checkup data with AI to predict future disease risks. Using AI, it analyzes and provides detailed reports on the two-year risk probabilities for 12 diseases, including severe diseases such as cancer and cerebrovascular diseases, chronic diseases like hypertension and diabetes, and cataracts and osteoarthritis.

Part of the raised funds will be used to repay the 14.5 billion KRW worth of the '2nd convertible bonds' issued in December 2021. From December 1 to September 2026, early redemption rights can be exercised every three months. Since the conversion price exceeds the current stock price, investors may request early redemption.

Earlier, Lunit held a board meeting on the 23rd of last month and resolved a large-scale rights offering exceeding 200 billion KRW. Over 70 billion KRW was allocated solely for research and development. Approximately 70 billion KRW will also be invested in expanding overseas personnel and capital contributions to overseas subsidiaries. Lunit aims to use the raised funds to transform into a medical AI platform company that treats cancer by supporting patient diagnosis, treatment, and monitoring.

Lunit's stock price has risen more than 650% this year. Even after the large-scale capital increase resolution, it continues a steep upward trend, increasing the likelihood of a successful capital increase. At the time of the board resolution, the planned issue price was 108,700 KRW, but the current stock price exceeds 220,000 KRW.

Deepnoid, whose stock price has risen 410% this year, is also pushing for a capital increase. Deepnoid developed DEEP:NEURO, an AI imaging solution for cerebral aneurysm diagnosis, and DEEP:FACTORY, a deep learning-based machine vision solution. They plan to raise 30 billion KRW to be used for facility funds and research and development. They will expand CPUs needed for product development and advancement, GPUs for AI training, large-scale training data, and storage equipment for AI training data.

Noeul, a diagnostic testing platform developer, has been undergoing procedures to raise funds through new share issuance since July 4. The issue price was fixed at 6,920 KRW. Considering the current stock price of 12,200 KRW, high participation is expected in the subscription for existing shareholders over two days starting on the 14th.

Noeul developed the MyLab platform, which diagnoses diseases by analyzing blood and tissue cells based on embedded AI technology and proprietary solid-state next-generation staining and immunodiagnosis (NGSI) technology. They plan to raise 48.6 billion KRW through the capital increase and invest over 20 billion KRW in developing next-generation MyLab, AI cancer diagnostic solutions, and cartridges.

Opportunity to Resolve Financial Risks...Minimizing Share Dilution Due to Stock Price Surge

The background for medical AI developers raising funds consecutively is closely related to the global AI boom. Interest in AI has increased since ChatGPT, and AI developers are raising funds relatively easily despite central banks' interest rate hikes worldwide. They compete to complete technologies faster than competitors based on massive research and development funds. Medical AI companies are recording large-scale losses as they hire research personnel and invest in development costs for technology advancement. Without leveraging the opportunity of rising stock prices driven by growth expectations to raise funds, it is difficult to cover research and development expenses from earnings alone.

Lunit reported operating revenue of 16.4 billion KRW and an operating loss of 12.4 billion KRW in the first half of this year. Although the increase in operating revenue is faster than expected, it is anticipated that the breakeven point (BEP) will only be reached after 2025. Considering annual expenses exceeding 60 billion KRW, it is challenging to sustain operations until next year with only 5 billion KRW in cash reserves. Park Jonghyun, a researcher at Daol Investment & Securities, explained, "They will raise 110 billion KRW in operating funds through the rights offering," adding, "This secures the necessary operating funds until the breakeven point is achieved, mitigating risks."

Not only Lunit but also few listed medical AI research and development companies are profitable. Deepnoid recorded 400 million KRW in sales and a 3.7 billion KRW operating loss in the first half. Noeul posted sales of 1.5 billion KRW and an operating loss of 7.2 billion KRW in the same period. Lifesemantics recorded an operating loss of 4.3 billion KRW in the first half, more than four times its sales of 900 million KRW.

Considering the steady inflow of research and development funds to strengthen competitiveness, companies have no choice but to consider various funding methods such as issuing new shares or convertible bonds and borrowing from financial institutions. Fortunately, stock prices have risen sharply. This presents an opportunity for management and major shareholders to raise funds while minimizing the risk of share dilution. Kim Choonghyun, a researcher at Mirae Asset Securities, said, "The valuation burden from the stock price surge and subsequent stock price adjustments are essential hurdles for innovative companies," adding, "Rather than fearing stock price adjustments, it is important to prepare financial strategies to cope with cash depletion."

This content was produced with the assistance of AI translation services.