CEO REVIEW

Our vision is to make clinical diagnostic ultrasound easier to learn and simpler to use by providing clinicians around the world with real-time support from the classroom to the clinic.  With the global market for artificial intelligence (AI) based ultrasound software expected to be $1.3bn by 2028, AI remains a key element of our approach, as we expand both our simulation and clinical sales operations.

Based in Cardiff (UK), Alpharetta (US) and with representation in Beijing (China), the report below details the progress made in 2022 and the key challenges faced during the year.

SIMULATION (Classroom)

Training medical professionals in the specialist skills required to competently scan a patient using the diagnostic capabilities of ultrasound remains a key foundation stone of our business. We design, develop and sell some of the world's leading hi-fidelity ultrasound training systems and consider ourselves one of the world's leading companies in this growing market.

In 2022 simulation revenue increased by 28% to £9.4m (2021: £7.4m) and we now have four ultrasound simulation-only platform technologies focussed on the following markets:

·      ScanTrainer - obstetrics and gynaecology (OBGYN)

·      HeartWorks - echocardiography and anaesthesiology (ECHO)

·      BodyWorks - emergency medicine, critical care and point-of-care (PoCUS)

·      BabyWorks (officially launched in the US in January 2022) - neonate and paediatrics

During 2022, the majority of the simulation revenues came from our ScanTrainer, HeartWorks and BodyWorks platforms. In 2023 it is anticipated that BabyWorks will materially contribute to the simulation revenue stream, as we open up this new market.

The four ultrasound training platforms are, in the main, high value, capital equipment sold to the global medical institution market, through our direct sales forces in the US and UK and a network of 23 resellers covering 33 countries in the rest of the world. To date we have sold c. 1,500 simulators into over 750 medical institutions around the world.

Research & Development

During the year, the simulation R&D team focussed on four developments:

Launch of BodyWorks 4.0

In October we launched the latest version of our BodyWorks ultra-realistic female patient simulator for PoCUS scenario training with updated and enhanced images and an expanded range of modules to teach novice users how to develop ultrasound skills and competence in a non-clinical environment.

The first set of cardiac pathologies for the BabyWorks simulator

In November we launched the first suite of cardiac pathologies for the new BabyWorks augmented reality simulator which aims to aid medical trainees in the diagnosis and understanding of three important cardiac pathologies in the neonatal and paediatric intensive care settings. Further suites of pathologies are expected to be developed and launched during 2023.

Range of e-learning modules

With medical professionals needing to continually build their learning and confidence, during the year we collaborated with a number of experts in their field to create five distance learning courses that provide high quality continuous education and improvement within ultrasound and healthcare. Sold as an integrated package or as an individual license, we expect to continue to roll out these modules on our simulator platforms during 2023.

New endometriosis module for ScanTrainer for launch in 2023

It is estimated that 10% of women worldwide have endometriosis. The ScanTrainer endometriosis augmented reality training module will support clinicians in learning how to locate and identify endometriotic disease in the ovaries, bowel and bladder using transvaginal ultrasound. The new module is expected to launch in May 2023.

Territory Review

Simulation revenues again grew strongly during the year, with revenue increasing by 28% to £9.4m (2021: £7.4m). However, there were significant variations in the performance across our three sales regions:

United Kingdom

Revenue increased by 96% to £4.9m (2021: £2.5m)

The UK had its second consecutive record year, with NHS spending on our simulators continuing to grow across all product lines. As indicated in our interim report in August 2022, we had a high number of one-off, individual orders from a UK NHS training initiative that totalled c.£1.9m over the full year. Although all our simulator sales are considered one-offs, if we exclude these exceptional orders, the UK like-for-like revenue would have been £3.0m, representing a growth of 15%. With a broad product portfolio, there remains good scope for growth within the UK and there continues to be strong purchasing interest in all our simulation products.

We therefore look forward to continuing the growth of the UK direct to market business in 2023.

North America

Revenue increased by 3% to £2.8m (2021: £2.7m)

Sales in North America grew to a record high of £2.8m, but this was a disappointing performance relative to our expectations, as a high number of capital expenditure funding freezes were implemented by the larger teaching hospitals in the US, resulting in cancelled or delayed purchases of our simulators in the second half of the year. Although this loss of revenue was compensated for by a £0.3m positive exchange rate variance, the like-for-like US dollar sales during the year were down 9% to $3.4m (2021: $3.8m).

However, North America is a key market for the Group and we have therefore continued to invest in growing the US based sales and marketing operation.  We now have seven sales-related staff supported by a web-based clinical applications specialist plus an office-based support team in Alpharetta, Georgia. We believe we will see the benefit of this investment in 2023 and beyond.          

2022 witnessed the beginnings of a post Covid-19 resurgence in major face-to-face trade exhibitions in the US and with an encouraging start to the year and a solid pipeline of opportunities, we look forward to a significant improvement in the North American direct to market business in 2023.

Rest of the World

Revenue declined by 19% to £1.7m (2021: £2.1m)

2022 was a difficult year for the 23 resellers that sell our simulators outside the UK and North America. Positive sales growth in countries such as Japan and Germany were offset by the continued Covid-19 restrictions in China, the loss of revenue from our decision to stop selling in Russia, and a disappointing market in France, that constrained our joint sales venture with Skills Meducation, where we are in the early stages of part-funding an Intelligent Ultrasound only sales team. Although this impacted sales in 2022, we see a more positive outlook for China with the Covid-19 restrictions lifting and the recruitment of a new, experienced French sales team is expected to improve sales in France in 2023. 

With the increased range of products, a growing pipeline and anticipated sales growth from France and China, we look forward to a growing reseller market in 2023.

CLINICAL AI (Clinic)

Real-time clinical AI-driven software that makes ultrasound easier to use for medical professionals remains a key part of our 'Classroom to Clinic' vision, and although we are still in the early stages of commercialisation, clinical AI-related revenue for the year grew over 200% to £0.7m (2021: £0.2m).

Our products provide a range of real-time support to clinicians including real-time workflow enhancements that support faster, more standardised scanning, but importantly also support decision making, so that the stress of scanning is reduced and the 'burn-out' of operators being asked to increase productivity is minimised.

We now have three AI-driven software products available in the market:

·      ScanNav Assist obstetric AI software that is utilised by GE HealthCare as SonoLyst on their ultrasound machines

·      ScanNav Anatomy Peripheral Nerve Block (PNB) for real-time regional anaesthesia highlighting

·      NeedleTrainer that incorporates the PNB software to teach ultrasound-guided needling skills

Two major milestones were achieved in the year:

·      In July 2022, GE HealthCare launched the SonoLyst technology on the Voluson Expert 22 ultrasound machine, that utilises our ScanNav Assist AI software

·      In October 2022, ScanNav Anatomy Peripheral Nerve Block (PNB), our second AI product, received FDA De Novo clearance for sale in the US

We expect 2023 to be a year of significant sales growth in our AI related sales.

ScanNav Assist

Our ScanNav Assist AI technology drives GE HealthCare's SonoLyst X/IR software, the world's first fully integrated ultrasound AI tool that automatically and in real-time recognises the 21 views recommended for fetal sonography imaging.

Currently available as an optional extra on GE HealthCare's Voluson SWIFT and Expert 22 ultrasound machines, the SonoLyst software augments a sonographer's scanning skills, helping faster and more standardised scanning. Acting as a virtual on-board expert, SonoLyst automatically identifies the fetal anatomy seen on standard views and can be used to compare the image or view acquired to a standard criteria, ensuring exam quality and consistency. By automatically and in real-time supporting the sonographer in their decision making, the software also helps reduce the often-considerable stress of obtaining the recommended views.

The issue of burnout in scanning centres is increasing around the world and it is hoped that the adoption of this technology will help reduce this burden.

Our long-term agreement with GE HealthCare was signed in 2019. GE HealthCare is the largest medical imaging company in the world, have the exclusive rights to our clinical AI technology in the field of women's healthcare and have now launched SonoLyst on two of its Voluson ultrasound machine ranges. The launch in July of SonoLyst on the Voluson Expert 22 was a key commercial milestone for Intelligent Ultrasound, as this is GE HealthCare's premium ultrasound machine in their women's health range.

Over 30,000 ultrasound machines are sold annually in the global obstetrics market and GE HealthCare is the dominant manufacturer. We therefore expect to see increased SonoLyst sales throughout 2023 and beyond as SonoLyst continues to be rolled out on the Expert 22 system.

In January 2022, we announced we had signed an extension to our GE HealthCare agreement to enable GE HealthCare to utilise the ScanNav Assist AI software in a new segment of automated ultrasound image analysis, that is outside the Group's original agreement. As with the main agreement, the terms, product sales and the timings of the related product launches are undisclosed.

Future variants of ScanNav Assist that will support additional protocol-based scanning are in advanced development.

ScanNav Anatomy Peripheral Nerve Block (PNB)

ScanNav Anatomy PNB simplifies ultrasound-guided needling by providing the user with real-time AI-driven anatomy highlighting for a range of medical procedures. The device supports the performance of healthcare professionals who are suitably qualified, but who perform ultrasound-guided local anaesthesia procedures on a less frequent basis.

ScanNav Anatomy PNB achieved a major milestone in October 2022 when it was cleared by the FDA as a De Novo device for sale in the US. The De Novo regulatory process provides a marketing pathway to classify novel medical devices with a low to medium risk for their intended use, where there is no existing legally marketed comparable device.

The device supports nine common peripheral nerve blocks and is sold as a stand-alone screen that is plugged into existing anaesthesiology ultrasound machines to provide clinicians with real-time highlighting of their live ultrasound.  Users can also re-familiarise themselves with blocks that are carried out less frequently using the system's integrated 3D animations.

ScanNav Anatomy PNB is now available for sale in the UK, France, Germany, Spain, Scandinavia and the US. With over 25,000 anaesthesiology machines in operation in these markets, and ultrasound-guided peripheral nerve blocks increasingly being used as a prudent alternative to general anaesthesia as well as a method of concurrent analgesia (potentially reducing opioid usage). Our aim is to support anaesthetists, who are competent but less confident in the specialist knowledge of ultrasound anatomy, to perform nerve blocks and as a result increase the number of ultrasound-guided nerve blocks that they can perform.

A number of studies were released during the year to support the adoption of the system and 2023 will continue this focus, as we aim to educate and grow the market for ScanNav Anatomy PNB.

ScanNav Anatomy PNB is also available as a training simulator for medical learning on volunteers, prior to patient contact (see NeedleTrainer below).

NeedleTrainer

NeedleTrainer was relaunched to the market in September 2022 as a standalone needle training device incorporating the new GE HealthCare Vscan Air handheld ultrasound device.  Developed by the clinical AI software team as a spin-off from the ScanNav Anatomy PNB research and development, NeedleTrainer is a portable, plug-in system that uses a retractable needle and real-time, virtual image overlays to simulate needling non-invasively on a live volunteer, using the live ultrasound scan. This enables medical professionals to develop hand-eye coordination, optimum positioning, and accuracy in ultrasound-guided interventional procedures in a safe, realistic, simulated-clinical environment.

The system is sold with the trainer version of our ScanNav Anatomy PNB AI-driven software integrated into the device and is being sold into major simulation centres, anaesthesiology departments, emergency and primary healthcare.

Future ScanNav AI products

During 2022 the focus of the division remained on developing the partnership with GE HealthCare, commercialising ScanNav Assist, achieving FDA De Novo clearance for ScanNav Anatomy PNB and relaunching NeedleTrainer with the GE HealthCare Vscan Air handheld ultrasound system. In addition, the development team continues to work on proof-of-concept AI software to facilitate the automatic recognition of abnormalities within a general medical ultrasound scan, confirming that a clinician has correctly scanned the anatomical area of interest, and then flagging any areas of potential abnormality, so patients can be triaged to a specialist.

Challenges to the 'Classroom to Clinic' Business

Ultrasound continues to be a growing medical diagnostic tool, with increasing demand for training tools that can enhance a medical practitioner's scanning skills and clinical products that can assist sonographers.  However, there have historically always been capital expenditure limitations on medical training budgets for high value medical simulators and on the clinical side hospital funding can also be hard to access, with most purchases being made on a 6 to 18-month purchase cycle. This makes annual revenues harder to forecast, especially during times of government spending cutbacks, political upheaval, changes of government or pandemics when funds can be diverted to frontline care.

The purchasing decisions made by medical institutions in the high value sector of the simulation market remain broadly based on the quality of training combined with value for money, rather than simply the lowest priced solution. During 2022, we continued to respond well to competitive products and pricing and margin pressures by offering a variety of purchase price points, expanding our product extensions and increasing our e-learning options that can work in tandem with our hands-on training simulators.

To counter clinical funding constraints our clinical AI products are competitively priced and aim to either provide improvements to the workflow, destress the scanning process or enable more clinicians to confidently complete a procedure that will save a hospital money.

Although we continued to experience supply chain pressure during the year, we were able to increase our key component stock holding in 2022, as well as switch a number of our tracking sensors to an alternative supplier. This enabled us to successfully avoid any disruption to sales in the year and we believe it has also minimised the component supply risk for 2023.   It did however increase the amount of cash tied up in stock.

Simulation product cost of goods increased by approximately 6% during the year and as a result we had to increase the list price of many of our products. We continue to review supplier costs and overheads but expect the impact of price rises on our cost of goods in 2023 to be broadly similar to 2022, which we expect will result in a broadly similar impact on our end user pricing in the second half of 2023.

The AI-based ultrasound imaging software market is recognised as having significant global potential and as such there is considerable competition from both the existing ultrasound manufacturers and well-funded independent AI software vendors. With the revenue models for AI-driven software still in the early stages of commercialisation our two-pronged go-to market strategy aims to identify the most effective route to material revenues:

·      Our ScanNav Assist software is being sold through a royalty-based, 'on-machine' licence with GE HealthCare, whose established sales network can provide faster roll-out of our technology in the new ultrasound machine market; and

·      Our ScanNav Anatomy PNB software is being sold through our own sales network directly to the global pool of existing ultrasound machines via our own portable 'plug-in' real-time AI enabled device.

The challenge of recruiting high calibre AI software engineers eased in 2022 and we hope that the combination of attractive, flexible salary packages, and a flexible work environment in a vibrant university capital city will enable this to continue in 2023.

During 2023 we expect the restrictions caused by the pandemic to have fully receded in all our markets, but there remains a threat that the continued Russian invasion and occupation of Ukraine could escalate to the point where it impacts our other European markets.

The impact of inflation and interest rates on global healthcare spending is also of concern.

Quality Management System

Meeting the standards of ISO 13485:2016 remains a high priority for the Group, as we continue to ensure the consistent design, development, production, installation, and sale of medical devices that are safe for their intended purpose.

Workplace environment

One of the benefits of the pandemic was that it forced companies to operate remotely and enabled staff and companies to trial working on a more flexible basis. Once the full impact of the pandemic ended in 2022, we took the decision to continue to operate the company on a flexible basis, where appropriate. This has been well received by our staff and we believe it makes a significant contribution to the attractiveness of working for Intelligent Ultrasound. In our 2022 annual staff survey, over 90% of staff recommended the Group as a great place to work, with many citing that the Company has a great ethos and is doing rewarding work that is making a real difference to hospitals and patients around the world. 

As ever, our staff have been tremendous throughout the year, and I would like to thank them for all their hard work in enabling us to achieve a record year.

Shareholders

I would also like to thank our shareholders for not just supporting the £5.2m placing, but also supporting our vision that a currently small UK company can be a major player in the $1.3 billion AI related ultrasound imaging market and produce cutting edge AI software that will make ultrasound easier to use for medical professionals around the world.

Looking ahead

Five years ago, we embarked on our 'classroom to clinic' vision to specialise in providing medical professionals with real-time, hi-fidelity, augmented reality simulation for the ultrasound training market ('the classroom') and then follow them into clinical scanning and provide real-time, artificial intelligence-based, clinical image analysis software tools for the diagnostic medical ultrasound market ('the clinic'). 

With the important milestone of FDA De Novo clearance achieved for our second AI-driven product and an excellent partnership with GE HealthCare, we are well placed to turn our 'classroom to clinic' vision into commercial reality. A positive start in Q1 2023, a growing range of both AI and simulation related products, an established operational base, and a successful £5.2m placing increasing our cash to £7.2m, means we expect 2023 to be a year of continued commercial growth, as we drive the Group to our goal of profitability by the end of 2024.

Stuart Gall 

Chief Executive Officer