South Korean Medical AI Firms Face Restructuring Amidst Mounting Losses
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the burgeoning medical artificial intelligence (AI) industry in South Korea is bracing for widespread restructuring as leading companies struggle to achieve profitability,with Lunet Corp. initiating workforce reductions and others exploring asset sales.
Lunet, a prominent player in the Korean medical AI sector, announced on Thursday, June 6th, plans to reduce its workforce by 10-15% through voluntary recommendations. This move signals a significant shift for the company, which has consistently reported substantial operating losses despite increasing sales, and reflects a broader trend within the industry.The restructuring is aimed at curbing costs and transitioning towards a sustainable, profitable business model.
The Weight of R&D and Regulatory Hurdles
For years, South Korean medical AI companies have prioritized research and advancement, resulting in significant investment but limited financial returns. Lunet’s operating costs have surged, climbing from ₩22 billion in 2022 to ₩39 billion last year, while the company recorded an operating loss of ₩67.7 billion in 2023, despite ₩54.4 billion in sales.A key contributor to these losses is labor cost, accounting for 60-70% of total expenses, according to Park hyun-sung, Lunet’s Managing Director and CFO.
“It has become a medical AI company that is recognized worldwide through R&D investment, but now it is indeed time to move the center of gravity from growth to profitability,” Park stated.
The challenges extend beyond high operating costs. the current regulatory landscape presents a significant obstacle to profitability. The process of introducing AI-powered diagnostic tools into the Korean medical market often involves navigating the government’s new medical technology evaluation system, which typically results in non-payment for initial deployments. Moreover, widespread adoption requires convincing both physicians and patients of the value of AI diagnostics, a process intricate by the need for informed consent and potential disputes over insurance coverage. As one industry official explained, “If you want to use AI solutions, you need to get the consent of patients and guardians every time.”
Industry-Wide Contraction and Asset Sales
Lunet is not alone in its financial struggles. Several othre leading medical AI firms are facing similar pressures. Viewno reported ₩25.9 billion in sales and ₩12.5 billion in operating losses last year, with annual employee salaries (excluding executives) reaching ₩12 billion. JLK, Deep Nide, and Core Line Soft collectively accounted for approximately 50% of the industry’s total operating losses exceeding ₩10 billion last year.
In response to these financial strains, companies are increasingly turning to business reorganization and asset sales. Viewno recently transferred its bone age analysis AI solution, ‘ViewNomed Bone Age,’ to My Hub for ₩2.7 billion. Earlier in March, Core Line Soft sold its pulmonary nodule detection AI solution, ‘View Noed Rung Citi,’ for ₩3 billion. Viewno is now focusing on its ‘Harget’ brand, shifting away from direct business-to-hospital (B2H) transactions. The company is also exploring new revenue streams, with its kiosk-type ECG device, ‘Heart K30,’ targeting public offices and corporate sites.
A Glimmer of Hope: Sear Stechnology’s Success
Despite the prevailing challenges, there is evidence that profitability is achievable within the sector. Sear Stechnology (458870) has emerged as a pioneer, successfully turning a profit for the first time among domestic medical AI companies. Its wearable AI diagnostic monitoring system, ‘Think,’ generated ₩12 billion in sales and ₩900 million in operating profit in the first half of the year. Sear Stechnology’s success is attributed to its strategy of integrating AI solutions with insurance costs, reducing the financial burden on patients and facilitating wider adoption.
The restructuring wave sweeping through the South Korean medical AI industry underscores the critical need for a sustainable business model. While innovation remains paramount, companies must now prioritize profitability to ensure long-term viability and realize the full potential of AI in healthcare.
