Lunit, a domestic medical artificial intelligence (AI) company in its fourth year of listing, has succeeded in growing its top line, but expanding losses and dwindling cash are increasing management uncertainty. Although it has expanded its business scope through global partnerships, mergers and acquisitions (M&A), and selection for state-backed projects, its cash-like asset is rapidly decreasing amid continued annual losses. Lunit has postponed its timeline for turning a profit three times and is now targeting 2027, but many say that will be difficult to achieve with its current financial structure.
According to the industry on the 13th, Lunit recently completed a restructuring that cut 15% of its total workforce to reduce labor costs, but concerns remain over turning a profit and being designated for administrative issues due to mounting losses. In particular, additional expense is inevitable in the integration process with New Zealand's Volpara Health Technologies, acquired last year, raising the possibility that its remaining cash could run out within this year.
◇ Growing losses cloud 2027 profit-turn timeline... risk of pre-tax continuing operations loss ratio
Lunit has posted losses every year since its initial public offering (IPO) in 2022. After 50.6 billion won in 2022 and 42.2 billion won in 2023, last year's loss widened to 67.6 billion won. DAOL Investment & Securities projected Lunit's operating loss in the third quarter of this year at 19.2 billion won, up 16.5% from a year earlier, with the full-year loss expected to reach 80 billion won.
A profit turn in 2027 is also uncertain. According to the consensus from financial data firm FnGuide, Lunit's losses are expected to widen to 46 billion won in 2026 and 10.5 billion won in 2027. Analysts say that even if sales of the company's flagship products, the AI cancer diagnosis platform "Lunit INSIGHT" and the AI cancer treatment biomarker platform "Lunit SCOPE," increase, more time will be needed to turn a profit.
Falling confidence in the corporations is also an issue. Lunit Chief Executive Seo Bum-seok set targets at the time of listing for 100 billion won in sales and a profit turn in 2024, but he pushed the timeline back to 2025 and then 2027, drawing complaints from shareholders. Lunit's shareholder community is flooded with reactions saying, "We no longer have confidence."
Lunit, which listed in 2022 under the special technology growth track, had been exempt from the regulation on losses from continuing operations before income tax deduction (pre-tax continuing operations loss ratio), but as it enters its fourth year of listing this year, it is now subject to the rules. If the ratio of pre-tax continuing operations loss to equity exceeds 50% more than once during two of the three years from this year through 2027, it will be designated for administrative issues, and in the worst case, it could lead to delisting.
Last year, Lunit's pre-tax continuing operations loss ratio was 50.5%, already above the threshold. If the loss expands to the 80 billion won range this year as expected, the risk of being designated for administrative issues will materialize starting next year.
Its cash-like asset is also shrinking quickly. As of the end of last year, cash and cash equivalents stood at 66.4 billion won, roughly equal to annual labor costs. By the second quarter of this year, this asset had fallen to 41.7 billion won. Even after cutting 15% of higher-paid development staff, any additional expenditure would make it difficult to avoid a short-term cash crunch.
◇ Attempt to "hold on" through expense cuts and bond issuance... "only a short-term life support measure"
The company is seeking a breakthrough by expanding sales. It is jointly developing next-generation medical AI solutions with global corporations such as Microsoft (MS), GE HealthCare, Philips, and Fujifilm, but no revenue has yet been generated from these efforts.
With about 90% of total revenue coming from overseas, it is accelerating overseas sales expansion with subsidiary Volpara at the center. It recently completed a global organizational reshuffle by changing the Volpara entity's name to "Lunit International·America."
A Lunit official said, "We recently assigned headquarters sales staff to Volpara and are making all-out efforts to expand overseas revenue," adding, "The number of medical institutions that have adopted our products surpassed 4,800 last year, and we plan to expand that further."
However, additional expense burdens are inevitable due to increased R&D investment, cloud system buildout, and the execution of government projects. Recently, it was selected as an implementing institution for the Ministry of Science and ICT's "AI-specialized foundation model" project, which could also increase research expenditure.
Lunit is seeking funding methods that do not dilute equity instead of a paid-in capital increase. A 100 billion won private bond issuance secured by Volpara equity as collateral is being strongly discussed.
A company official said, "It is true that our cash situation will not be good starting next year," adding, "We are reviewing various funding methods in addition to issuing private bonds."
The industry largely sees this as helpful for securing short-term liquidity, but not a fundamental solution.
A securities firm analyst said, "Even if private bonds are issued, it will be difficult to avoid the risk of being designated for administrative issues unless losses are reduced to under 50 billion won starting next year," adding, "This year's financing is only a short-term life support measure, and if the current loss structure continues, a profit turn in 2027 is a distant prospect."
Another official added, "Issuing collateral-backed bonds could lead to a decline in investor confidence."