4DMedical Limited (4DX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the 4DMedical Limited David Shulkin Investor Forum. I would now like to hand the conference over to Mr. Andreas Fouras. Please go ahead.

Thank you. Thank you, everyone, for your interest and being on the line today. It's my great pleasure and privilege to introduce to you today the Honorable David Shulkin, MD. Dr. Shulkin was the ninth Secretary of Veteran -- of the Department of Veterans Affairs. Educated at Medical College of Pennsylvania, followed by Yale University and -- by Yale and University of Pittsburgh, Dr. Shulkin has been Chief Medical Officer and CEO of large and esteemed health care systems in the United States. In 2015, Dr. Shulkin was nominated by President Obama to be Undersecretary of Health for the Department of Veterans Affairs, and then, in a rare event, was then further nominated by the Trump administration now to be the Secretary of the VA and its entirety. So as Undersecretary and then later as Secretary, Dr. Shulkin was responsible for hundreds of medical centers and the health care of 10 million veterans and the -- and as I articulated, is both an experienced health care leader in both the private and government systems. And so from there -- sorry, from there, I'm, as I said, very pleased and proud to be introducing Dr. Shulkin. And Dr. David Nayagam will be talking through some questions with Dr. Shulkin.

Thank you, Andreas, and thank you, everyone, for joining, and welcome Dr. Shulkin. It's a great pleasure to have you here in Australia. I hope you're enjoying your time so far, and thank you for making the time to speak with us.

So I think we'll just start, if we may, by asking you if you could please just articulate your view on the current state of the U.S. health care and what the current administration's near-term policy objectives are in that area.

Yes. Well, first of all, thank you for having me, and this is my first trip to Australia. What an amazing trip this has been. The people are wonderful and really I've heard so much about what's happening here, especially with 4D, but to come and visit and to see it myself is very meaningful. The U.S. health care system is in many ways probably similar to what the Australian health care system is going through in that people are coming out of the recovery period of COVID and looking forward to what that next period represents. In the United States, it's hard to really call our health care system a system. It really is a series of market verticals that have in some cases alignment of interest, in other cases a lack of alignment, but perfectly situated to keep the system going, but not from having major changes. So I see a lot of stability going forward in the U.S. system, primarily for 2 reasons. One is the economic pressures in the U.S. are lifting. And with that, I look largely at employment, since the U.S. health care system is largely either funded by an employer or the government. When employment is low, that means that companies are seeking competitively workers, they tend to not decrease health care benefits, and in fact, they look to augment or increase health care benefits. And then secondly, when you look at the government system, we are in a presidential election with a very, very divided Congress. So that means that it is less likely that we are to see major health policy shifts, whether it's in reimbursement or major health policy changes. When you look at whether health care is a big issue with a presidential election, most presidential elections, health care is generally in the top 3. In this year's election, health care is in the top 3, but primarily around political issues like reproductive rights. And so the big issues on restructuring the health care system are not likely to be addressed in this presidential election. There's a lot of speculation that if Donald Trump were to win or Joe Biden were to win, what would happen. I think in the Biden administration, you will continue to see a stability of the policies that currently exist. In the Trump administration, if that were to occur, President Trump has recommitted to repealing the Affordable Care Act, which is really a way to provide uninsured Americans with a government-sponsored insurance plan. But what that would be replaced with, my guess is it would look very similar or just [ he'd ] call it something different to claim a political victory. So I see a lot of stability going forward in the U.S. health care system. There are challenges in the system. Providers, that means hospitals and physicians, are under increasingly cost pressures, which means that they're looking to do their work more efficiently, primarily with improving labor productivity. I think that the pharmaceutical and device industry has really weathered some legislation recently that has only had very marginal impacts on a few companies. And so they're probably in as strong a position as they've been in a long time, without any real significant new threats coming to them.

That's a really great overview. Thank you. And then I guess, next, we'll turn to the Veterans Affairs, which is where you've had a large part of your career. So could you just -- for those listening from Australia, could you just tell us about what is the Department of Veterans Affairs, its size, its structure? What exposure do clinicians have within that department, patient numbers, admission, and really how does it differ from other public health care in the United States?

Yes. Yes. This is where, of course, the U.S. is different than the Australian health care system, since we don't have a national health system. The closest that we do have is the Department of Veterans Affairs. The Department of Veterans Affairs has as its mission to serve those that have served in the U.S. military. That's about 20 million American veterans. As Andreas said, about 10 million of them currently get their health care in the Department of Veterans Affairs. That means that the VA is the largest integrated health care system in the United States. It has facilities in almost every congressional district in the United States, which means that there are thousands of VA facilities across the country. And therefore it is the largest employer of doctors, nurses, psychologists, social workers, physical therapists of any health care system in the U.S. About 70% of physicians who train in the United States will train at some time in the Department of Veterans Affairs, so it gives very broad exposure to the U.S. health care professionals throughout the country. In terms of the size of the agency, it's the second largest government agency. The Department of Defense is the first, then the Department of Veterans Affairs. It employs 405,000 people. It has a budget of $315 billion each year. So it is a very large system that has a very public stance because people care a lot about how our veterans are being treated. So therefore, it gets a lot of attention among our politicians and in the U.S. press.

I mean that's quite remarkable. It's the largest integrated system and employer in health care in the U.S. Probably makes it the largest in the world. So that's very impressive. I mean you've had obviously about an extensive career in private health before you came to the public side. What was it that brought you to serve in government? What was your reasoning there?

Yes. Well, the way I ended up in government, as many people who lead U.S. agencies find themselves in this situation, I was not seeking to enter government. I was running -- I was the CEO of a very large health care system in Northern New Jersey, and I was approached by the White House, and it happened to be during a time of crisis in the VA when many of our soldiers were returning from Iraq and Afghanistan and actually were overwhelming the capacity of the VA. So they had long wait times to get their care. And that really is not acceptable to the American public that people who serve should not be waiting long times. So it ended up that the current secretary and undersecretary were asked to resign and the White House was looking for new people to come in who could fix the system. And I was approached, and even though I had not sought this, when the President asks for your help, I feel that there's an obligation to help. And so I was willing to leave my job and to go to Washington, and that's the way that our government works, is that what are called the political appointees who run the agencies are generally private citizens who leave their industry, go into government for a set period of time and then return back to industry. And that keeps the ideas and the practices very fresh and also close to where the private sector is as opposed to having career-long government people run these agencies.

Yes. I mean the overcapacity issues were quite well known, and by outsourcing some of the patients to third-party providers, I think you were able to address some of that in your time...

Yes. Yes, that's right. Part of the solution of fixing the wait time crisis was using technology, using the people who worked in the VA more efficiently, but also creating a system where veterans could go into the private sector to get care if they were not getting their needs met in the VA system.

So can we now talk about the -- one of the main issues that we're here to discuss today is patients with respiratory conditions, as it relates to 4DMedical. So there are a lot of people within the VA who are veterans who have come back from theaters of conflict where they've been exposed to toxic burn pits. Could you just tell us a little bit about what are toxic burn pits and what is the PACT Act, which is something that has been brought forward in recent times to address this challenge for veterans?

Yes. Throughout the history of military conflicts that the United States has been involved in, there's often been some type of exposure or harm that has been discovered that, at the time, we didn't know about but that veterans continued to suffer with. And so in World War II, we saw the use of mustard gases and in some cases radioactivity, where veterans had significant health consequences. In Vietnam, the big toxic agent that became known about later was Agent Orange, that affected millions and millions of American veterans, particularly with its link to cancers. We saw in the Gulf Wars something called Gulf War syndrome, where veterans came back with all sorts of symptoms that were unexplained but clearly related to some type of environmental exposure. But in Iraq and Afghanistan in particular, which our conflict, which lasted 20 years, it has become known as what is called the burn pit exposures. And that relates to the fact that it was common practice, and unfortunately still exists in the U.S. military, where when troops are overseas near a base, they will commonly burn the [ refuse ] and the trash and the jet fuel and old computers and things that they don't want to have around in a landfill, they will burn them. And that smoke that comes out of burning whatever it is that they're burning, unfortunately is located close to the base so people end up breathing it in. And that has exposed millions of veterans to potentially adverse health consequences that have now been studied. And so in 2018, after years and years of fighting to get these veterans the type of care that they needed, the U.S. Congress and President Biden signed what is called the PACT Act. The PACT Act gives this type of benefit of both a financial benefit and a health benefit to 3.5 million veterans who previously were not eligible for this type of care, so that they can now enter the VA system and get the type of care that they need because of these exposures.

And how well is it being implemented and how quickly is it being implemented? And I believe there's a list of presumptive diagnoses of [indiscernible] patients that would have been able to then enter the system. Is there a way that patients are able to be screened for those diagnoses, and can you talk about the screening process that occurs?

Yes. Well, this is -- in the veteran community, this PACT Act or this new coverage for toxic exposures is well known and discussed in the veteran circle, so that people are being encouraged who are eligible to apply for this benefit. We are seeing hundreds of thousands of people each month coming to the VA to start the process. The VA is doing what it can and prioritizing the processing of this paperwork. And so we're seeing hundreds of thousands of new people enter the VA system each month. And the process is simply that the veteran needs to be able to identify as being in one of these locations where a burn pit may have been located -- there are now lists of where these locations are -- and then have to have some type of symptom or potential health consequence that they believe is related to that time that they served. And then they will enter the process where they are screened and then people who need additional treatment are sent down certain health care paths.

And so I guess this brings us to 4DMedical and their technology, which is the Velocimetry and the XV LVAS scanning technology for respiratory malfunction. Could you tell us what is the opportunity, as you see it, for 4DMedical to assist veterans in this whole process of screening and treating those who have been exposed to burn pits?

You had mentioned earlier that the way that this new law is being implemented is that there is a list of presumptive conditions that give the veteran the right to enter the system and to get coverage. And many of these presumptive conditions are respiratory in nature. When you have a burn pit and you're breathing in toxic fumes or particles, the lung is the most likely target of the toxic exposure. And so, therefore, having the ability to evaluate and diagnose whether somebody has had respiratory injury is one of the key factors that VA needs to do and needs to do in an objective way. Currently, many of the conditions that VA studies do not have those types of objective measures. So a condition called constrictive bronchiolitis, which is the damage to the very small airways, is not picked up on CAT scans or x-rays or pulmonary function tests that typically are used to evaluate respiratory conditions. And so in order to diagnose that, today the VA would need to order an open lung biopsy, which is really a surgical procedure where you have to open the chest and remove a piece of the lung to look at it under the microscope. But what the 4DMedical technology allows is the ability to evaluate that accurately without an invasive surgery, and so therefore you can use that at a much, much broader level for scaling many more people, you can do it with less cost and you can do it with less morbidity to the veteran. So I think that there's a very important role here for the use of this technology, particularly in evaluating these respiratory syndromes that many of our veterans suffer from.

So if we stick with constrictive bronchiolitis for now, how do you see the 4DMedical scanner actually -- or sorry, the software that is derived from x-rays or CT scans, how do you see that being implemented within the existing VA workflows? Do you see it as something that's used upfront as a triage tool or something that's used by pulmonologists, by nurse practitioners? What is your sort of your view on how this would actually work within the system?

Yes. The law itself that was passed in 2018 requires that every one of these veterans be screened. The screening procedure today is primarily asking the veteran 2 questions: did you serve in an area where there were burn pits, and if so, are you having any of the following symptoms? For those that answer yes, that they are having breathing symptoms, respiratory concerns, the question is what's the best way next to screen these people. If they are to go ahead and to get today what would be most commonly an evaluation, which would include a low-dose CAT scan, the 4D technology can simply be overlaid over that to look for the types of conditions that aren't picked up today without the open lung biopsy. And so I think that there is a very sort of seamless workflow. It does need for a VA clinician, a doctor or nurse practitioner, to be able to evaluate which patients would be appropriate for this. But I think once they have the types of tools that they should have available to them, they'll be in a very good position to make those determinations.

How many patients do you think could be eligible for those sorts of screening assessments?