Medical Imaging Emerges as the Second-Largest AI Subsector, Accelerating Rapid Growth — Insights from the 2018 Primary Care Innovation Summit

Jiang Weina, Chief Analyst of the Pharmaceutical Industry at Guosen Securities

“Reflections and Research Methodologies on Big Data in Medical Imaging” Lecture

Conference: 2018 Primary Care Practice Summit

Location: Radisson Plaza Hotel, Huashengda, Hangzhou, Zhejiang

Presenter: Jiang Weina, Chief Healthcare Analyst at Guosen Securities

Below is a compilation of Jiang Weina’s insightful perspectives by VCBeat (WeChat ID: vcbeat):

I. Lessons from Abroad—Development of the U.S. Medical Imaging Market

II. Rising Stars—Development of China’s Medical Imaging Market

III. “AI + Medical Imaging: Opening a New Chapter in the Medical Imaging Market”

From June 9 to 10, the “New Structure – 2018 Summit on Innovative Practices in Primary Healthcare,” co-hosted by the National Engineering Laboratory for Internet Medical Systems and Applications, Sir Run Run Shaw Hospital affiliated with Zhejiang University School of Medicine, the Internet Medical Health Industry Alliance, and VCBeat, was grandly held in Hangzhou. The event featured six specialized forums, bringing together more than 1,000 top experts, scholars, industry talents, and investors from across China, and attracted coverage from over 30 industry media outlets.

Jiang Weina, Chief Analyst at Guosen Securities, attended the summit at invitation and delivered a keynote speech titled “Reflections and Research Methods on Big Data in Medical Imaging” at the sub-forum on Intelligent Imaging Development. VCBeat (WeChat ID: vcbeat) has compiled her remarks.

Jiang Weina categorizes the U.S. third-party imaging center market primarily into two types. The first is Teleradiology, a pure-service virtual imaging center that provides only remote interpretation services. Remote interpretation services target hospitals with existing equipment, where the imaging center connects experts with patient needs. By establishing a cloud-based medical imaging center and linking it with primary care hospitals, experts can complete diagnostic reports by reviewing images remotely.

The second category is the Radiology Imaging Center, which refers to independent medical imaging centers equipped with imaging devices. This type of imaging service provider caters to local hospitals in the United States that do not have their own imaging equipment. When patients require imaging examinations, they can go directly to a medical imaging center to purchase these services.

Jiang Weina noted that in 2011, ten years after the emergence of the independent imaging market, the U.S. teleradiology market accounted for only 10% of the overall image interpretation market, remaining a relatively small niche segment. Among the key players, NightHawk and vRAD were the two leading companies in the U.S. teleradiology market.

In 2009, the two companies merged into a single entity and subsequently went private, delisting from public markets. In 2015, the merged company was acquired by MedNax for $500 million. Based on a price-to-earnings (P/E) ratio of 10x at the time of acquisition, the merged company’s revenue in 2015 amounted to only $50 million, indicating a relatively small scale.

As the first company in the United States to provide remote teleradiology services, Nighthawk saw its operating profit margin decline from an initial 30% to 10% or lower. Furthermore, the merger of the two companies did not result in a significant improvement in gross profit margin.

Jiang Weina concluded that, as leading companies lack significant competitive advantages over startups, the U.S. teleradiology market has long remained relatively fragmented.

Regarding U.S. independent imaging centers that operate as remote, independent third-party providers, Jiang Weina holds the following views:

1. The Rapid Development of Independent Imaging Centers Is a Product of Synchronous Technological Advancements and Market Demand

Advancements in imaging technology, heightened public awareness of preventive care, and physicians’ growing recognition of and reliance on medical imaging have all contributed to the rapid development of independent imaging centers in the United States.

2.  Insurance institutions are the most important driving force for the development of the independent imaging center industry.

The U.S. healthcare system is predominantly driven by commercial insurance. Insurers aim to minimize patients’ medical costs, a need that independent imaging centers are well-positioned to meet by delivering higher-quality and more efficient imaging diagnostic services at lower per-visit charges compared to traditional healthcare institutions.

Driven by the vigorous promotion of China’s tiered diagnosis and treatment system, tightening medical insurance funds have led to increasingly stringent cost-containment measures, resulting in lowered fee standards for imaging services.

3. No National Leader Has Yet Emerged Among the Leading U.S. Independent Imaging Centers

After three decades of development, according to statistics published by Radiology Business Journal in 2017, only two companies—RadNet and CDI—operated more than 100 independent imaging centers.

Leading enterprise RadNet achieved operating revenue of $922 million in 2017, with a net profit margin of 1.4%, and its revenue scale accounted for only about 2% of the overall U.S. independent imaging center market.

The Chinese medical imaging market is categorized into two major segments. The first comprises remote image interpretation centers that provide services only (without hardware), while the second consists of independent medical imaging centers equipped with devices (with hardware).

Jiang Weina stated that, compared with the U.S. market, China’s medical imaging market is still in its early stages, with incomplete construction of imaging informatics infrastructure and a low rate of data sharing.

According to a survey and analysis by VCBeat (WeChat ID: vcbeat), 73% of investors in China remain optimistic about the medical imaging market. Financing rounds ranging from millions to tens of millions and even hundreds of millions of yuan are commonplace. This indicates that investors are paying close attention to the specialized vertical segments of the medical imaging industry, where interest remains high.

Remote image interpretation centers can address the pain points of hospitals, patients, and physicians; demand is robust, and market entry is relatively easy. The core key to the development of remote image interpretation platforms lies in acquiring substantial patient traffic or imaging data sources, which favors companies with extensive channels for obtaining medical images.

In addition, Jiang Weina highlighted the issue of homogenization in China’s remote image interpretation market. She noted that because remote interpretation centers lack economies of scale, it is difficult to develop scalable, chain-based interpretation platform services. The fundamental solution to this homogenization lies in segmenting the medical imaging market by type and tailoring the content delivered accordingly.

Through AI technology, machines may be able to interpret data that is imperceptible to humans. For instance, although an electrocardiogram (ECG) is presented as a single line, machine interpretation can provide physicians with a novel perspective, helping them conduct an in-depth analysis of the patient’s physiological status.

Regarding the future of remote image interpretation services in China, Jiang Weina stated, “We are more optimistic about remote interpretation platforms that have a foundation in imaging resources and have evolved from equipment manufacturers or information service providers. Securing high-quality image sources and providing differentiated services will be key to the development of online medical imaging interpretation platforms.”

Compared with remote reading centers, independent medical imaging centers have certain traffic entry points, more stable film sources, and it is easier to achieve standardized services.

Currently, insurance and financial institutions, internet companies, real estate firms, and healthcare enterprises are actively entering the independent imaging center market through capital strategies. Siemens Healthineers has partnered with Meinian Onehealth to co-establish imaging centers, while Ping An Good Doctor has invested in and established four independent medical imaging centers.

According to statistics from China Digital Healthcare Network, the market size of China’s medical AI sector reached RMB 9.661 billion in 2016 and is projected to reach RMB 20 billion in 2018, accounting for 20% of total artificial intelligence investment and becoming the most heavily funded subsector. Jiang Weina stated that as the largest segment of AI investment, healthcare has attracted a steady influx of capital market participants.

According to Global Market Insights, drug R&D accounts for the largest share of the global AI in healthcare market by application, at 35%.Meanwhile, the intelligent medical imaging market is the second-largest segment and will grow at a rate of over 40%, reaching a scale of $2.5 billion in 2024, accounting for 25%.。

Furthermore, Jiang Weina stated that areas such as diabetic retinopathy and small pulmonary nodules—where diagnostic criteria are relatively standardized and widely recognized—as well as the acquisition of novel signals or features imperceptible to the human eye, will become focal points for capital market attention. She firmly believes that algorithms in “AI + medical imaging” are relatively mature and are poised to become the most rapidly deployed AI application scenario.

Regarding the potential of medical imaging to guide future diagnostic and therapeutic workflows, Jiang Weina believes this will be a focal point of shared interest for both physicians and government authorities. She stated that medical imaging aims to provide clinicians with clearer direction through structural assistance and functional diagnosis, which could culminate in a detailed and efficient clinical guideline.