The global artificial intelligence (AI) market is running hot, but domestic medical imaging diagnostic AI corporations are facing a cold wind. Early movers into the AI market are slimming down by cutting headcount and selling or liquidating parts of their business units.
According to the industry on the 21st, Lunit, a medical imaging AI corporation, is carrying out restructuring to reduce its workforce, aiming to complete it by the end of this month. A Lunit representative said, "We are cutting 10%–15% of our total workforce," and "We have prepared a compensation plan for those leaving, and we plan to complete the personnel adjustments within this month."
JLK also liquidated a subsidiary established for new drug development this year. The company said, "We completed a resolution to dissolve and appointed a liquidator through a board resolution on May, and the liquidation process is underway." VUNO has been overhauling its business by successively selling some business units this year, including AI for bone age analysis and AI for reading chest computed tomography (CT) images.
These are regarded as first-generation medical AI corporations in Korea. JLK in Dec. 2019 became the first among domestic medical AI corporations to list on KOSDAQ. VUNO entered KOSDAQ in 2021, and Lunit in 2022. Each developed AI software that analyzes medical images to analyze and diagnose diseases and succeeded in commercializing it. All showed rapid growth by leveraging AI technological capabilities to attract investment. Because each company's products target different disease groups, they split the market and grew together.
But successful commercialization and management performance have emerged as common challenges. Including these, all AI corporations in the domestic healthcare sector are still operating at a loss. The listed corporations have begun management efficiency efforts to cut expense to turn profitable.
The industry points to regulations on "loss from continuing operations before income taxes," commonly called pre-tax loss, as a key backdrop. An industry source said of the restructuring at Lunit, VUNO, and JLK, "Each corporation has various reasons, but I think the common reason is the issue of controlling expense due to pre-tax losses."
The Korea Exchange (KRX) designates a KOSDAQ-listed corporation as an issue under management if, over three years, the ratio of pre-tax loss to equity exceeds 50% two or more times. For technology-special listing corporations such as medical AI corporations and biotech corporations, designation as an issue under management due to pre-tax loss criteria is deferred for three years. If they fail to meet the pre-tax loss criteria for two consecutive years after the grace period ends, they may be designated as an issue under management starting in the fifth year after listing.
The recent management efficiency moves by companies are effectively desperate measures to prepare for the risk of being designated as an issue under management and delisted. An industry source explained, "If losses continue for a long time, there is also the problem that future funding (capital raising) becomes difficult, so there is a financial reason to improve."
Some in the market worry about a slowdown in domestic medical AI corporations and question whether there are limits to their business models. That is because no company has yet been assessed as commercially successful.
In fact, among domestic medical AI corporations, there have been complaints that the National Health Insurance reimbursement applied to medical AI in Korea is low. Entering global markets, including the United States, and being listed in each country's insurance system to generate medical revenue is the breakthrough, but the barriers to entry are high and visible results have not emerged. As more AI corporations are challenging the medical field worldwide, competition has grown even fiercer.
As conditions in domestic and overseas markets have worsened, medical AI corporations are clinging more to winning government policy projects. With the Lee Jae-myung administration making big-ticket investments in AI, competition has heated up for large policy project awards. A source in the AI industry said, "It takes time to deliver results in the global market, but winning government projects shows up in short-term results and is interpreted as a positive in the market, so each company is competing to seize this opportunity."