The Volpara Health Technologies Ltd (ASX: VHT) share price has been a great performer for investors. Volpara shares are currently up 49% over the last 12 months and 276% since the company's IPO back in April 2016.
Volpara is a medical technology company that delivers artificial intelligence (AI) algorithms that assist in the early detection of breast cancer. Early detection of cancers improves survival rates and reduces treatment costs. Based in Wellington, New Zealand and founded in 2009, Volpara has since seen its technology and services used in 38 countries.
In this time, it has also re-styled its business into a software-as-a-service (SaaS) model with CEO Ralph Highnam recently stating a completion of a "move to SaaS pricing for all products".
Volpara's technology
Volpara has 3 main software services: VolparaDensity, VolparaLive and VolparaEnterprise.
VolparaLive
VolparaLive ensures that any breast screening images taken are of a high enough standard, before a patient leaves the clinic. This saves both the clinic's money and the patient's time, as 2–3% of women are traditionally recalled due to poor imaging. When this is the case, clinics are not reimbursed for return visits.
VolparaDensity
Denser breasts carry a much higher masking and breast cancer risk, which means not only is cancer more difficult to spot, it's also more likely to occur. VolparaDensity is used to help decide who should receive additional imaging by providing an automated, objective density score for each patient.
Trial results of this technology were recently published in the New England Journal of Medicine, which demonstrated that using VolparaDensity and referring patients to an MRI screening where required resulted in a significant reduction (50%) in interval cancer rates. The interval cancer rate is the number of cancers not detected at a screening, but found between screenings.
VolparaEnterprises
VolparaEnterprises is used by breast imaging managers and lead technologists to better manage staff, equipment utilisation and compliance. It aggregates data and allows secure access to Volpara's AI analytics.
Recent acquisitions and capital raising
In June 2019, Volpara acquired Seattle-based MRS Systems for NZ$23 million. MRS provides mammography reporting systems to over 1,600 hospitals and clinics. This acquisition gives Volpara much stronger US exposure, experienced local headquarters, and accelerated sales through cross selling.
The acquisition was financed via a capital raising, which saw Volpara raise NZ$58 million. The remaining cash is to be invested back into the business by increasing sales, marketing and resources for research and development (R&D).
Company performance
Volpara's HY20 results saw total revenue rise 197% to NZ$6.8 million over the prior corresponding period (pcp). However, this was largely attributed to its acquisition of MRS Systems. Additionally, 76% of this was subscription revenue, up 148% on the pcp. An operating loss of NZ$8.4 million was also reported, which was up 56% over the pcp due to the team expanding and scaling up for future growth. To help fuel this growth, Volpara has also made significant investment into its R&D rolling out a new product suite in December. Volpara has no debt and also reported negligible churn and an increasing average revenue per user.
Foolish takeaway
Volpara has a first mover advantage and competitive moat thanks to its intellectual property, regulation and its scale. With its gross margin recently increasing to 89% from 83% and an estimated total addressable market of US$750 million in annual recurring revenue, it definitely appears set to continue its strong growth.
The company trades on huge multiples and doesn't come cheap today, but I like Volpara and think it could pay off if you have a long-term focus.
