Lunit Secures US Foothold by Acquiring AI Company Volpara... "Significant Cost Savings from Secured Data" (Comprehensive)

New Zealand-Based Multinational AI Company
Acquired for 252.5 Billion Won... 97% of Sales in the US
Lunit's 3 FDA-Approved Products Also Boost Market Entry
"Owned Data Alone Valued at 300-400 Billion Won"

Medical AI company Lunit is making a direct entry into the U.S. AI healthcare market through the acquisition of Volpara Health Technologies, a New Zealand-based multinational company.

[Photo by Lunit]

On the 14th, Lunit announced that it had signed a contract to acquire Volpara, which supplies AI solutions to more than 2,000 medical institutions in the U.S., for $193.07 million (approximately 252.5 billion KRW). The target of the contract is all 254.37 million shares issued by Volpara, which is listed on the Australian Securities Exchange (ASX), and Volpara will become a 100% subsidiary of Lunit. The price per share is AUD 1.15, which is a 47.4% premium compared to Volpara’s previous closing price of AUD 0.78.

This acquisition marks the first time since its founding that Lunit has acquired a promising overseas medical AI company. Through this acquisition, Lunit will begin generating sales in the world’s largest healthcare market, the U.S., while securing its own AI solution sales network within the country.

Seobum Seok, CEO of Lunit, said, “Lunit’s acquisition of Volpara is the fastest and most effective way for Lunit to enter the U.S. market and an opportunity to accelerate the development of powerful solutions for early cancer diagnosis. During the acquisition process, which began in the third quarter of this year, we confirmed the strong commitment of both companies to conquering cancer, which I am confident will serve as a solid foundation for strengthening our partnership and pioneering the global market.”

Seo Beom-seok, CEO of Lunit, is making a presentation at the press conference held to mark the acquisition of Volpara Health Technologies.
[Photo by Lee Chun-hee]

This acquisition of Volpara is interpreted as a move following Lunit’s announcement in August, on its 10th anniversary, to seek ‘inorganic’ growth through mergers and acquisitions (M&A), moving away from traditional growth methods. In a shareholder letter, CEO Seobum emphasized, “It is extremely rare for a startup in the medical AI field to acquire another startup, and it is very rare for a domestic listed company to acquire a global company.”

Notably, the acquisition was swiftly completed in just over four months after the first proposal was made when the management teams of both companies met in North Carolina last August. At a press conference held that morning, CEO Seobum explained, “We were not the only ones to propose the acquisition; it was a competitive process. Completing it within three to four months was challenging, but we have come this far.” David Mechofret, Vice President of Global Business Development at Volpara, who attended the conference in person, said, “Many companies have introduced computer-aided diagnosis (CAD) technology, but there was insufficient investment to deliver adequate products and research results. In contrast, Lunit not only offers technology but also delivers products for customers and has excellent research capabilities,” explaining why Volpara chose Lunit among other potential acquirers.

However, even after this acquisition agreement, Volpara must hold a shareholders’ meeting by the second quarter of next year, obtain approval from 75% of shareholders, and complete related administrative procedures for the acquisition to be finalized. The company expects all related processes to be completed around April next year. After the final acquisition of Volpara, Lunit plans to delist Volpara from the Australian market to optimize resources and focus on business development.

Lunit plans to finance this acquisition through external borrowing and other means. Hyunseong Park, Lunit’s Chief Financial Officer (CFO), said, “Our goal is to raise funds in a balanced manner across three categories: cash on hand, debt financing, and paid-in capital increase. We currently have cash on hand and are focusing on acquisition financing.”

CFO Park also stated that the 200 billion KRW recently raised through a paid-in capital increase cannot be used for this acquisition. To use the capital increase funds for the acquisition, proof must be submitted to the Financial Supervisory Service during the preparation stage. However, since the Volpara acquisition was not yet on track at the time of the capital increase, providing such proof was difficult, which posed a limitation.

Lunit (left) and Volpara Health Technology logos
[Photo by Lunit]

Volpara, founded in 2009 in Wellington, New Zealand, is an AI platform company specializing in breast cancer screening. Although a New Zealand company, 96.5% of its current sales come from the U.S. market. Last year, its sales were 26.1 million New Zealand dollars (approximately 21 billion KRW), and as of the end of March, when the 2023 fiscal year ended, this year’s sales grew 34% year-over-year to 35 million New Zealand dollars (approximately 28.2 billion KRW). It is said to have an average annual growth rate (CAGR) of 63%.

This acquisition is expected to be a signal for Lunit’s U.S. market entry, which has three FDA-approved products but has not yet fully entered the market. Currently, Lunit holds three FDA-approved products, including the recently premarket authorized (510k) 3D breast tomosynthesis AI image analysis solution ‘Lunit Insight DBT,’ the AI emergency disease automatic classification solution ‘Lunit Insight CXR,’ and the mammography AI image analysis solution ‘Lunit Insight MMG.’

Volpara’s products are used in more than 2,000 medical institutions, accounting for one-third of all mammography screening institutions in the U.S. When counting medical institutions using at least one Volpara product, it held a 42% market share in the U.S. last year, establishing a solid position in the U.S. market. Additionally, its revenue structure is based on annual subscription models such as software as a service (SaaS) through long-term contracts with hospitals, which is expected to provide stable revenue streams going forward.

However, Volpara has recorded operating losses due to significant investment in research and development (R&D) since its establishment. Lunit stated, “However, the loss amount has been decreasing from 16.4 million New Zealand dollars (approximately 1.32 billion KRW) last year to 9.8 million New Zealand dollars (approximately 790 million KRW) this year. We will do our best to accelerate the turnaround to profitability through business and financial synergies after acquiring Volpara.”

Especially, considering Volpara’s subscription-based business model, it is emphasized that the company has substantial financial soundness. CFO Park said, “One of Volpara’s biggest attractive points is its contract structure. A significant portion of contracts are five-year contracts where all cash is received in the first year, but it is recognized as one-fifth per year on the financial statements.” Considering this cash flow, “it has already reached the break-even point on a cash basis.” He added that on the financial statements, the break-even point will be approached around next year, and the goal is to achieve profitability in the consolidated financial statements of Volpara and Lunit by 2025.

Lunit's AI imaging analysis solution for mammography, 'Lunit Insight MMG'
[Photo by Lunit]

In particular, this acquisition is expected to contribute not only to market entry but also to the advancement of AI medical device products that Lunit and Volpara already possess. Volpara holds about 100 million mammography images of Western women, including from the U.S., to develop precise AI models specialized for breast cancer screening. Continuous additional data acquisition is also possible. CEO Seobum emphasized, “(Volpara) is allowed to obtain data from all customer institutions, which is rare for companies like Lunit and others. Approximately 20 million data images are continuously accumulated every year.”

Currently, Lunit has considerable competitiveness by training on 300,000 data images for breast cancer diagnostic AI solution development, so utilizing Volpara’s data is expected to widen the gap with competing products. Lunit plans to use this data to enhance the Lunit Insight MMG and Lunit Insight DBT products and actively apply it to build autonomous AI through large-scale AI models.

Considering this data, it is also emphasized that even with the acquisition expenditure, Lunit will achieve significant cost savings. CFO Park explained the value of Volpara’s data, saying, “If one data image is valued at 3,000 to 4,000 KRW, then simply calculated, it amounts to 300 to 400 billion KRW.” He added that related incidental costs must also be considered and frankly, it is difficult to obtain 100 million data images without acquisition. The data Volpara holds alone effectively allows for full recovery of the acquisition cost.

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