The ‘software as a service’ (SAAS) business model has taken off in the computer software sector over the past few years. Now, the same concept is gaining traction in medtech.

Take Volpara Health Technologies (ASX:VHT), a breast imaging software company.

Volpara’s share price has trebled over the past two years, and analysts reckon it could have much further to go.

There have also been a series of share issues along the way to fund the ramp up of its global presence, as the company soaks up investor enthusiasm for its prospects in the breast imaging sector.

This has included, most recently, outlaying $US15m ($22m) for a US provider of breast clinic management software. Volpara’s current $350m market cap could rise if it succeeds in achieving its growth ambitions.


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At present, Volpara is generating around US90c of revenue per breast image, a figure which it is seeking to lift to closer to $US10 as it boosts the sophistication of its offering.

In a briefing earlier this week, it confirmed that its cost-base, which is close to $NZ20m ($18.6m), will peak at the $NZ20-22m level over the next year or so, as it approaches the end of its present product development cycle.

This means its cash burn will slow, so that ongoing revenue growth will drop through to the bottom line.

As a result, brokers such as Bell Potter have pencilled in a 12-month price target of around $2.30, which is well ahead of its share price at present of around $1.60.

Morgans is a little more cautious for now, with a 12-month price target of $1.97.

Both brokers have a ‘buy’ call on Volpara, albeit with a ‘speculative’ warning, given its early stage of development and caution about it building out a sustainable cashflow.

An upgrade to its earnings forecast is prospective later next month when first half earnings are announced, which could give the share price a further lift.

The June and September quarters are typically the slowest for Volpara.

Even so, it is well on track to achieve its revenue targets as it moves into the December and March quarters, which are usually its strongest.

Volpara is now looking at expanding its offering in the lung cancer screening sector, where it has a presence in following its recent US acquisition.

WATCH: 90 Seconds With… Ralph Highnam, Volpara Health Technologies

The next cab off the rank may be IMEHXS (ASX:IME), which has a radiology and imaging management platform.

From its base servicing a series of countries in Central and Latin America, IMEHXS is moving to expand is footprint into North America and Oceania.

It has just finished a $10m placement at 4c, a slight discount to its pre-placement share price of 4.1c.

It is now trading at 4.5c on news of the raising.

Last month, IMEHXS won approval from the gatekeeper to the US market — the Food and Drug Administration — to launch its product offering in North America.

This will generate a significant uplift to revenues, if it succeeds.


Other medtech operators with an SAAS model include Mach7 (ASX:M7T) and ProMedicus (ASX:PME), while ImpediMed (ASX:IPD) is now seeking to evolve into the same business model.

ProMedicus is now a $3 billion company, thanks to a surging share price as investors have become more bullish on its prospects.

Mach7 is materially smaller, valued in the share market at around $100m, and its share price of 77c is around its fair value, according to broker Taylor Collison, which has a ‘speculative buy’ call on the shares.

It points to recent board changes and an increased emphasis on sales as potential earnings upside over the next few years.

IMEHXS is smaller again, valued around $40m, which will move closer to $50m once it finalises its capital raising program.

For its part, Impedimed has moved off long-term lows of 12c, touched midyear, to trade around 16c.

It has shifted away from selling its equipment upfront, in favour of an SAAS model, but investors may be waiting for clearer signs of success before rewarding the shares, given the time it has taken to build a sustainable business model.

Its market value is only around a quarter of what it was around four years ago as investors wait for its cash burn to slow.

Morgans has a 12-month price target of 26c, and a ‘speculative buy’ call on the shares.

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