(Bloomberg) — SoftBank Group Corp.-backed AI Medical Service Inc., which specializes in endoscopy analysis, is taking steps for a possible initial public offering in Tokyo as early as next year.
The Japanese startup, which develops software to scan endoscopy images and identify potential cancers, has selected a lead manager for the IPO and is in talks with the Tokyo Stock Exchange, founder and Chief Executive Officer Tomohiro Tada said in an interview.
The company — whose peers include US-based Iterative Scopes Inc. — will begin supplying software that detects potential stomach cancers to medical institutions later this year at a monthly subscription fee of about 200,000 yen ($1,500) including updates, Tada said.
AIM’s IPO plans underline continued investor appetite for medical technology amid a broader tech downturn. Venture capital investment in medical diagnostics grew 78% from the previous year to $5.8 billion in 2021, trailing only media and semiconductors, according to Brendan Burke, a senior analyst for emerging technology at PitchBook. VC investment in the sector remained robust this year with $1.2 billion invested in the first quarter, he said in an email.
“When the timing is right, yes, we do want to go public,” Tada said, adding the IPO plans are in flux and could still change, depending on market demand and regulatory talks. “It doesn’t have to be in Tokyo. Depending on how our business expansion goes overseas, a Nasdaq listing could be in sight.”
Gastrointestinal cancers, which account for more than a third of cancer deaths worldwide, have been a focus of investor attention. Iterative Scopes raised over $194 million and achieved a post-money valuation of $700 million in its Series B fundraising in January, Burke said. Doctors miss signs of early stages of such cancers in an estimated 20% to 40% of cases, Tada said.
AIM’s subscription model — a departure from the industry’s norm of a one-time payment — intrigued SoftBank, which led an 8 billion yen funding round in April and made AIM the Vision Fund’s third investment in its home country. Agreed upon after a 30-minute Zoom meeting between Tada and SoftBank founder Masayoshi Son plus two weeks of intensive email exchanges between the two firms, the sum was 60% more than what AIM was initially looking for.
AIM is targeting contracts from 1,000 hospitals in Japan. Its product launch will hinge on expected approval from Japan’s Pharmaceuticals and Medical Devices Agency later this year, Tada said. The company declined to provide a revenue forecast, saying that pricing could change depending on the terms of regulatory approval.
The majority of doctors remain skeptical about the role of algorithms in medical imaging and diagnoses. A total 95% of radiologists polled in a 2020 study presented to the US Food and Drug Administration said artificial intelligence is either “inconsistent” or “never works” in routine clinical care. A subscription model also will be new to many.
But Tada sees vast untapped demand. He estimates the global market for AI diagnostics to be five times Japan’s and is working to sell AIM’s technology overseas. The company set up an office in Palo Alto, California, in January and one in Singapore this month. AIM’s international rollout starts in 2023, with eventual targets including Taiwan, Hong Kong, Thailand, Vietnam and India, he said.
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