Supported by its long history, global network and aggressive investments into R&D, DRTECH has released a series of world-first innovations set to transform the medical imaging industry. In this interview for The Worldfolio, Mr. Seonghyun An, CEO of DRTECH, delivers a compelling analysis as to the path and future expansion plans of his company.
South Korea currently finds itself in a unique demographic predicament; it is poised, within the next two years, to become one of the first super-aged societies globally. This transition carries with it a slew of economic challenges, while concurrently sparking possibilities for the medical device sector to pioneer innovative solutions. From your perspective, what would you identify as the principal challenges and opportunities emerging from these unique demographic shifts?
On the side of opportunities, it is observed that an individual's medical costs tend to escalate significantly once they attain the age of 65. It is estimated that the healthcare expenditure between the ages of 65 and 80 surpasses the total spent from birth up to the age of 65. This implies that a 15-year span incurs more expenses than the preceding 65 years of one's life. As society gravitates towards this super-aged trend, the demand for medical services will inevitably increase, thereby presenting us with an undeniable opportunity.
However, I recognize the negative implications for society, primarily reflected in a pronounced population and domestic labor shortfall. The pool of economically active individuals is dwindling, a situation further exacerbated by Korea's existing challenges with birth rates. Historically, nearly a million newborns were recorded annually in South Korea, yet last year, this figure plummeted to a mere 265,000. This represents less than a quarter of the previous rate. Our aspiration is that by fostering the development of medical devices, we can equip the aging population to maintain health, mobility, and economic activity. This endeavor would undeniably boost the economy to a certain degree.
In the past five years, the South Korean medical industry has witnessed one of the world's fast growth rates, exceeding 10% annually. Consequently, Korea has secured its position as the tenth-largest global market for medical devices. However, despite these achievements, critics argue that the Korean medical device sector remains in its nascent stages and is heavily dependent on foreign technology. Do you agree with this criticism, and how do you envision the evolution of the Korean medical device sector in the foreseeable future?
Our primary business domain resides in diagnostic imaging, a key facet of the diagnostic process. This involves the use of x-ray, ultrasound, or other imaging techniques that provide visual insights into the body beyond what our eyes can directly observe. When you mention our reliance on foreign technology, I presume you're referring to techniques such as Computerized Tomography (CT) scans, Magnetic Resonance Imaging (MRI) scans, or Automated Breast Ultrasonography (ABUS).
Speaking of MRI or CT scan devices, these are rather high-priced. The industry has been predominantly commanded by GE, Philips, and Siemens, the top 3 global medical device manufactures which we often abbreviate as GPS, for over a century. The high cost of their devices inflates their sales figures, which leads their long-standing market dominance, and consequently, they can access considerable capital resources we cannot match.
Markets with comparatively lower prices might result in smaller-looking sales figures, but it is in these niche areas that Korean companies truly excel.
For example, Korean companies have made remarkable strides in the global market, particularly in the field of flat panel detectors (FPDs) for X-ray diagnostic imaging. Korea is home to three major FPD companies, and DRTECH stands proudly among them as we introduce our unique technology and products to both the global and Korean markets.
In 2020, DRTECH achieved the largest market share for sales of general radiography FPDs in the domestic market. I believe this success can be attributed to our global brand presence and the expertise we have acquired from it. These factors have positively impacted the perception of our product and brand, as well as the decision-making process of our domestic customers.
Moreover, I firmly believe that in the not-too-distant future, Korean companies will significantly contribute to the total medical devices market in Korea. As more companies expand globally and develop new and innovative products, the dependency on foreign technology will decrease. And one day, Korean companies will stand shoulder to shoulder with giant multinational companies such as GPS, as they continue to develop cutting-edge solutions that compete on a global scale.
How competitive do you believe Korean medical firms to be on the global scale and what subsegments or applications do you believe Korea has the highest growth potential in?
I myself come from an IT background, having worked for LG Display, where my position involved the development of LG’s LCD and OLED business. When we talk about medical devices, we must recognize that they are essentially IT devices with additional medical applications. Throughout the production process, from the internal components to the external coatings, we rely heavily on digital technology. In this regard, Korea possesses a robust IT infrastructure and technological expertise. While we may not possess extensive medical knowledge, we excel in the supporting technologies and possess the necessary resources to apply them effectively. This is where our potential lies.
There is an exception, however, in the case of MRI scanners, which demand both significant capital investment and specialized skills. Nevertheless, Korea has already established a dominant presence in the market for smaller devices, such as dental CAT scanners. During my visit to a dental trade show in Germany last year, I noticed that Korea has now joined the top echelon of dental device manufacturing, previously dominated by Germany, Italy, and Finland.
Korea's remarkable progress in IT technology has had a significant impact on the development of implant and dental imaging markets. Leveraging its expertise and innovative solutions, Korea has emerged as a global leader in these sectors, revolutionizing dental healthcare and implant procedures. Speaking of dental industry, Osstem, one of Korea’s renowned dental device companies, collaborates with us to integrate our detectors into their dental CT devices. It is expected that this collaboration will increase global position. Dental devices are an industry where Korea has demonstrated strength and is poised to exert its dominance. I believe that X-rays and ultrasounds will follow suit and become strong points for Korean companies.
Apart from devices requiring substantial capital and specialized knowledge, Korea exhibits tremendous potential, particularly in COVID-19 diagnostics, beauty, and aesthetic treatments. I believe the sky's the limit for our success in these areas.
The field of diagnostic imaging is poised for remarkable transformations with the advent of artificial intelligence (AI). Just a few weeks ago, there was a report on ChatGPT's ability to accurately diagnose and identify cancer cases that had eluded doctors. Looking a decade into the future, how do you envision the impact of AI on your field?
To provide some contextual background to this technology, I would like to highlight the renowned go player, Mr. Lee Sedol. His match against the AI program AlphaGo in the Google DeepMind Challenge Match sparked interest in the practical applications of AI in various industries. While many initially thought that medicine and law would be the first sectors to embrace AI, it was later realized that monetizing the technology in the legal field posed challenges.
As a company dedicated to producing X-ray medical devices, our primary goal is to generate clear diagnostic images. To achieve this, we enlisted the expertise of renowned professors from KAIST University, who were well-versed in deep learning and AI studies. Collaborating with them, we successfully applied deep learning and big data techniques to the imaging data sensors. This innovation enabled us to minimize noise and create significantly clearer images, aligning with our ultimate objective.
In our pursuit of integrating digital tools into our devices, we have received recognition for our efforts, including an award from Congress and the SME Foundation. Specifically, we have successfully incorporated deep learning AI technology into our dental detectors and have even exported these detectors to Japan a very tough market for Korean companies to enter. As the first Korean company to achieve this feat, we have garnered recognition from the Korean government.
Our company has a track record of meaningful overseas exports through our advancements in AI technology. As a result, I firmly believe that we have made significant contributions to enhancing the competitiveness of the medical device industry in Korea.
Traditional diagnosis equipment such as mammographic scanners has certain hurdles and challenges to overcome. In the field of mammography, for example, varying breast density can create different image qualities, thus creating uncertainties. If you combine these problems with new technologies such as 3D mammograms it can be difficult for medical practitioners to utilize new tools and accurately diagnose a patient. How is your company facing these challenges, not only in terms of image quality, but also in training staff to utilize your products?
Breast cancer is undeniably a major concern and fear for women worldwide. To prevent the worst-case scenarios of mastectomy or death, early detection is crucial. Detecting cancer at its smallest stage increases the chances of successful treatment and patient survival. Therefore, it is imperative to ensure high-quality and clear imaging. It's important to note that there are two types of breast abnormalities: malignant and benign. Our objective is to identify microcalcifications at the earliest possible stage, even if not all microcalcifications are cancerous. Clear visualization of these calcifications is essential in determining their benign or malignant nature. We believe our products offer exceptional image quality, enabling the detection of these microcalcifications.
In the mammography breast screening industry, a company called Hologic from the United States currently holds a dominant position, capturing 50% of the global market share in mammography devices. Their success can be attributed to the development of a direct-type detector. However, our company has also developed a direct-type detector, which positions us to compete with the industry's major players.
It is important to acknowledge that women often experience discomfort during the mammography procedure itself, as the process involves placing the breasts in the machine and compressing them for approximately 8 seconds. My wife, for instance, found it to be one of the most painful experiences she had ever encountered. If we were to imagine a scenario where a man had to place his genitalia inside a machine and endure firm compression for 8 seconds, the discomfort is evident! Recognizing this concern, we have designed our product to require only 4 seconds of compression instead of 8. We believe this shorter duration will contribute to surpassing the performance of our competitors’ machines.
Regarding 3D technology, it is a complex subject, but let me provide an analogy to facilitate understanding. Imagine you are searching for an enemy whom you suspect is hiding behind a tree. If you were to take a picture of the tree directly in front of you, it would not reveal the presence of the enemy. Instead, a 3D scan of the tree having images taken at various angles would provide a tomographic view, enabling you to identify the enemy concealed behind it. To achieve this tomographic view, we have adjusted the sensor to capture images from various angles in the range of 50-degrees, taking multiple pictures of the same breast. Currently, we are implementing this technology in our device which we are planning to launch later this year. Also, following the launch of the Tomo system, DRTECH plans to expand its 3D imaging capabilities to develop a differentiated CBC Diagnostic system that encompasses Tomo, low dose and dynamic technologies.
To educate healthcare professionals to utilize our products, we provide initial on-site training for domestic customers and regular online and off-line training for our global partners whom educate professionals that use our products. Additionally, we have a dedicated customer service team that promptly responds to our customer inquiries. Furthermore, our primary goal in product development is to ensure that our products are user friendly as possible. Our products are developed to be intuitive, enabling easy use by staff members of any skill level.
Over the past years, your company has experienced rapid growth. From 2017 to 2022, sales jumped from KRW 38 billion to 89 billion, an almost 200% increase. What were the main reasons for this impressive growth?
Capital plays a crucial role in product development, and there is a significant disparity in trust between listed and unlisted companies. Listing on the stock exchange allows access to substantial borrowing opportunities. When a company goes public and offers stocks, it attracts investment, as its information becomes available to the public, fostering greater trust and confidence among potential investors. While investing in research and development (R&D) may temporarily reduce profits, I firmly believe that reinvesting in R&D is essential for achieving sustainable growth.
While our shareholders may not be entirely satisfied with this approach, I expressed my perspective on growth during the last general shareholders meeting. With the capital obtained from shareholders, we have invested in human resources to drive the development of numerous products. These products, fueled by the capital infusion, have also contributed to our sales.
DRTECH has expanded to the United States of America with two bases, including a service center and your headquarters in Ohio. You also have a factory in China as well as a direct presence in Europe. How important is international expansion in your future strategy, and what markets will you prioritize in the future?
The United States was our initial target market due to its large market size. We currently hold approximately 35% market share in the sale of X-ray devices in the US Veterinary Market. We have also established a strong partnership with a reputable Veterinary total solution provider in the US. We manufacture diagnostic products for them, which they sell under their brand name, and their recognition of our product quality has been instrumental.
When it comes to our internationalization efforts, Korea has limited resources and a small population. Our human capital is our most valuable resource; therefore, we prioritize investments in education, R&D, and export opportunities. The Korean medical market has limitations, and achieving economies of scale within the domestic market is challenging. Consequently, expansion and exportation are necessary. To enter markets like Southeast Asia or Africa, FDA approval in the US or CE certification in Europe is imperative. Without these certifications, even selling our products in developing countries becomes challenging. Hence, we started by targeting the US market and gaining recognition there.
In terms of market importance, the US takes precedence, followed by European countries and Japan. Although Japan is a relatively closed market, we still consider it significant. While we initially focused on advanced countries, our export efforts have now expanded to encompass 60 countries in total, including both developed and developing nations. Recently we entered the African diagnostic market with a large presence in Tanzania especially. Additionally, we have established corporate entities in the US, China, Europe, and Japan, solidifying our presence in these regions.
Imagine that we come back for a new interview in 2030. Is there a goal or ambition that you would like to have achieved by then?
First and foremost, it is worth mentioning that I will be part of our super-aged society by the time we reach 2030!
As for our company's aspirations, reaching a market capitalization of around KRW 6 trillion is our hope. Currently, our company is valued at approximately KRW 130 billion. Achieving the status of a unicorn company, which is valued at over KRW 1 trillion on the stock market, is a significant goal for us. In terms of profitability, our net profit last year amounted to KRW 5 billion. Looking ahead, we anticipate that our profit will scale to around KRW 100 billion by 2030.
Within our product portfolio, we are proud to possess 3-4 products that have earned the distinction of being world firsts. Our company remains committed to continuously developing unique and exceptional products that will propel us to the forefront of our industry. Our aim is to secure the number one position by offering innovative solutions that set us apart from our competitors.
Lastly, my personal aspiration is to assume a position where I can provide vision and guidance to our employees, leading them towards a prosperous future. Creating an environment that fosters growth and empowers our team members is a fundamental objective for me.