Pro Medicus imaging business soars but Australian medical industry hurting from outdated imaging systems

Pro Medicus, led by Sam Hupert, has grown into a major imaging and associated technology company. Picture: Stuart McEvoy

This is a business story that will inspire but disappoint all Australians. We have become the global leader in a significant area of medical diagnosis and communication – imaging and associated technology.

The Australian doctor and software operator who developed the technology still head and control the listed company that owns it – Pro Medicus.

The company’s imaging systems are sweeping the US and will extend into Europe. Naturally the two Australians became billionaires, but sadly the majority of the Australian medical industry still suffers from being lumbered with outdated imaging systems. (Perhaps if it is marketed to Canberra as US technology rather than Australian and Melbourne technology we might follow the US and embrace it.)

Let me share with you this amazing Australian story that started in 1983, when a youthful Sam Hupert and Anthony Hall combined to offer hospitals, doctors and other parts of the medical profession better paper-based systems.

The company floated in 2000 capitalised at $115m, raising $23m from the clients of JB Were at $1.15 a share. The business has never raised another dollar from the public, although there have been staff issues. Over the years, Hupert and Hall sold down their combined stake to 52 per cent (26 per cent each). Today, Pro Medicus is capitalised at $6.4bn.

Back in 1983 computers were huge machines and the internet was not on the agenda. Imaging such as X-rays came via paper-based photographs. The large computer companies were anxious to have the medical profession use their hardware so they helped Hall and Hupert develop systems based on their computers.

The photography processes had a similar view. This enabled Hupert and Hall to develop the Pro Medicus business with the minimum of capital. JB Were agreed to float the company around March 2000 – just when the dot.com bubble exploded. The float was deferred but resurrected in September 2000 and the shares opened at a small premium.

By this time Hupert and Hall had realised the potential of the internet to transform medical imaging communication. But those initial images were only two-dimensional.

In 2007 at a Chicago exhibition, the Australians saw a company called Visage which had three-dimensional technology. They were told by the managers that the business, which was owned by a US defence equipment company, was being sold.

Hupert and Hall let it be known if the deal fell through then ProMedicus would be a buyer. The deal did fall through and ProMedicus bought Visage for just $5.5m in a quick sale.

Knowing how to adapt the Visage technology for modern imaging and medical communication enabled Hupert and Hall to transform Pro Medicus into a $6.4bn company. Essential to the transformation was a Berlin-based research unit that came with the Visage purchase.

To succeed in the US, you must have a team of people to get through the regulatory hurdles and help the buyers of the technology to implement it.

Pro Medicus suffered initial losses before mastering these techniques. During this period of technology development and marketing, one might have expected that a major medical company might have made a takeover bid. But it never happened, so Pro Medicus was given the space to develop its technology and its ability to implement it.

In the past few years, the company has sold its FDA-approved imaging software to US hospital/health networks including Novant Health, Mayo Clinic, Yale New Haven Health, Duke Health, Partners Healthcare, Medstar Health, NYU Langone and University of California. Many buyers include teaching hospitals so the doctors that learn on Pro Medicus’s technology help spread the word when they graduate and start working.

The key to Pro Medicus’s technology is that huge data files (such as CT scans) can be seen instantly on doctors’ desktops, iPads and iPhones, leading to faster and more accurate diagnoses and much better productivity. Crucially, the images do not have to be downloaded before they can be seen, so viewing is instantaneous. The images are totally interactive (images can be moved around) and streamed in real time.

Earlier this year, Pro Medicus shares were selling at half the current price of about $61, but recent US contracts alerted the market to the enormous growth ahead. Bell Potter estimates that Pro Medicus earnings per share will rise from 29c to 80c in the next three years, with lots more to come. But even after such a huge rise the Pro Medicus price earnings ratio is still about 76.

The market believes the potential is huge. Pro Medicus signs each contract on the basis that the hospital or medical provider enters into a take or pay contract for the bulk of the estimated usage. If it is used at a higher rate, it is then charged by a service-by-service basis. These five-year contracts therefore provide a base revenue for Pro Medicus. As the technology has become better accepted, the market price has risen, and the level of profit is very high.

The greatest risk the company faces is that somebody will devise a better system of image transfer. The name of the game is to be constantly looking around the world for new developments in their early stage.

The Pro Medicus lesson for those pioneering new technology is that it is not enough to develop a technology, you must devise a way so people can implement it efficiently. In many cases, the implementation is as important as the technology itself.