Aiforia - Automating pathology with image recognition software

Aiforia (Artificial Intelligence for Image Analysis) is a Finnish software company focusing on automating pathology. Their software is used to aid pathologists in tissue analysis. Their software can, for example, quantify the number of certain cancer-diagnosis related cells and highlight them in a scanned image of a tissue sample. Pathologists can then check if the cells are correctly identified and write their report for the doctor treating the patients. Pathologists can create their own image recognition models by annotating their tissue sample slides, so they don’t need to wait for ready-made models that software providers need to push through regulative approval processes.

Demand for automation in pathology seems clear: population is getting older and living longer, which unfortunately brings more cancer cases to medical services. There is already a shortage of pathologists and meeting the demand of cancer diagnostics creates a need to improve productivity in pathology laboratories. Cloud storage has gotten cheap enough quite recently (tissue sample slide images have pretty huge file sizes) and COVID pandemia gave laboratories a reason to start going digital (you need to have tissue slides scanned to digital format to work remotely - pathologists used to look at their images with microscopes). Adding to these market drivers is the recent increased interest in AI & automation. Together these changes seem to have now triggered the first wave of investments in digital pathology and related AI-solutions.

Aiforia started from medical research / education segments and already had a global customer base in this segment when they did their IPO late 2021. Since then, their entry to the clinical market (which has the big revenue potential) has progressed steadily. Mayo Clinic (USA, often ranked #1 hospital in the world) begun Aiforia’s clinical use in breast cancer diagnostics in March 2023. Aiforia has also signed clinical deals with a NHS trust (UK), Veneto Hospital district (Italy), City of Hope & Wake Forest (USA, including pre-clinical use and clinical use), and many large pharmaceutical companies (10+ large customers in the segment). While there is a varity of players competing in this market, Aiforia has gotten really strong reference cases (especially Mayo Clinic) and seems to have a competitive solution.

The customers Aiforia has already won have significantly broad & high volume use cases and we believe that each of their existing ~3 large clinical customers have revenue potential of at least a few MEUR per year. Aiforia’s 2022 revenue was just below 2 MEUR and hence their growth is largely dependent on especially how fast they can expand their existing customers. New customer wins are naturally also important, but their near-term growth is leaning heavily on a selected number of existing customers.

At the flipside of the potential and good market momentum in an attractive market, Aiforia is at their early stage of growth and still burning cash. With our current estimates cash would run out early 2025. Their growth is also difficult to forecast and long term development of their competitiveness & market is naturally really hard. However, if their good market momentum continues, we see a good likelyhood that the needed growth capital would be available at reasonable terms and dilution.

We published our latest report after their H1’23 report today, feel free to take a read / ask us questions / add your thoughts here :slight_smile:

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Thank you, Antti and Frans-Mikael! :pray:

You produce excellent analysis and material, and you explain things very clearly and realistically. It’s enjoyable to read investment-related content like yours that is both pleasant to read and easy to understand.

You don’t need to answer my question if you find it irrelevant, but when you analyze a company like this or, I apologize, when you begin analyzing a company like this for the first time, how do you familiarize yourselves with such a company and its industry, which can be very difficult to understand unless you work in that field?

I hope my message and question are clear.

Thank you in advance for your response! :slightly_smiling_face:

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New english content on Aiforia :point_down:

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Aiforia published a blog post summarizing year 2023 :point_down: a few interesting pieces of information:

  • “The Veneto Region Health Authority in Italy selected Aiforia as a partner for AI-assisted diagnostics in its clinical pathology laboratories. The full clinical workflow has now been installed and is in pilot use.”
  • "We expect to launch our first IVDR-approved AI model next year. " (Regulatory approvals have been stuck for a while due to EU MDR-legislation update that became effective in May 2022)
  • "Short-term targets for 2024–2025 will be published in January. " (More visibility incoming to how the company sees its business developing - 3/4 of the previous short term targets were reached and the 4th one almost, so compan’ys track record with these has been so far pretty good)
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Aiforia uppdaterade sina affärsmål och här kommer analytikernas kommentarer i frågan. :slight_smile:

Aiforia updated its short- and mid-term targets and provided specified strategic priorities, which in the big picture were largely in line with our expectations. Aiforia in practice achieved its previous short-term targets, and the new targets concretize the business progress in the short term. The company is also aiming for positive profitability by the end of 2027, which is in line with our forecasts.

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