Do You Have a Quiet H.E.R.O. In Your Portfolio Protecting & Fighting For You? [Japan’s #1 PACS Medical Image Management Cloud Software Leader & Leading Cybersecurity Cloud Infrastructure Company]
"What the world needs now is a quieter breed of hero, one actively fighting for a world in which rescues are no longer required." - Dan Heath
In his insightful book Upstream: How to Solve Problems Before They Happen that drew on insights from hundreds of interviews with unconventional problem solvers, Dan Heath shared that so often in life, we get stuck in a cycle of response. We put out fires. We deal with emergencies. We stay downstream, handling one problem after another, but we never make our way upstream to fix the systems that caused the problems. The police solve crimes, doctors treat patients with chronic illnesses, shelter is provided for the homeless. But we would all rather live in a world where crimes are not committed, diseases do not develop, and people do not lose their homes. So why do our efforts skew so heavily toward reaction rather than prevention? The need to prevent problems is perennial in our professional and daily lives, and we have the capacity to solve some of our thorniest issues - if only we start to think about the system rather than the symptoms. If only we start to think upstream.
Heath illuminated the vision that the world needs a quieter breed of UPSTREAM hero. UPSTREAM business models and strategies have also forged the enduring and exponential growth trajectory of our quiet H.E.R.O. innovators.
Case Story: Japan's #1 PACS Medical Image Management Cloud Software Leader & Leading Cybersecurity Cloud Infrastructure Company
[Week (21-25 Sep): +4.5%]
Another UPSTREAM story in our portfolio companies in the Fund is Japan's #1 PACS (Picture Archiving & Communications Systems) medical image management cloud software leader & leading cybersecurity cloud infrastructure company, which is up % since the inception of the Fund on 28 August 2020, versus MSCI ACWI World index/NASDAQ -5.1%/-6.7% over the same period. The rising dividend-yielding company has also compounded 866% in capital gains in the recent 5 years vs MSCI ACWI World index +42.9%.
The company PACS medical information cloud service captures the opportunity to store medical image information outside hospital facilities. In addition, if there is patient's consent and a public setting between medical facilities, it is possible to seamlessly refer to images and reports of patients at other facilities, and from April 2018, it is possible to perform image diagnosis outside the facility without installing a dedicated equipment or communication device. The number of contracted facilities has expanded to over 1,000, taking market share away from conventional on-premise PACS medical equipment manufacturers such as GE Healthcare Japan, Fujifilm Medical and Canon Medical Systems. The number of stored medical images and other examinations exceeds 177.794 million (FY2015: 52.1 million) and the total number of patients who stored medical images is 31.187 million (FY2015: 10.3 million). The monthly usage fee starts at a minimum of 50,000 yen, but the fee is a pay-as-you-go system based on the expected amount of image data accumulated for five years after introduction.
The company has added new cloud services to improve the added value and network effect of its medical cloud platform. These include:
(1) Medical radiation dose management (MRDM) system MINCADI to record, optimize and control doses per patient, medical filming conditions for each inspection by automatically getting information from medical images and diagnostic inspection equipment (PET/CT equipment, SPECT/ CT equipment etc). The company is Japan's #1 leader in MDRM. MRDM was covered by insurance as an installation standard for some facilities when the medical fee was revised in FY2018, and for X-ray CT diagnostic equipment and X-ray fluoroscopy for circulatory organs from April 2020. It is expected that radioisotopes for medical care will be obligatory. Therefore, the use in medical facilities is expected to increase.
(2) Cloud information infrastructure service that connects specialists such as radiologists who perform remote image diagnosis (interpretation) and medical facilities that require image diagnosis. The company commands Japan's #1 market share leadership in teleradiology infrastructure services with over 1,400 radiologists registered (about one-third of radiologists in operation) and the number of monthly medical image examinations transmitted over the cloud service was about 200,000 cases and accounts for about 34% of the market share.
In May 2020, the company announced that it is partnering with Japan's dominant #1 online medical platform giant to provide AI-powered diagnostic services to reduce the burden on doctors, prevents misses, and enables efficient and accurate diagnosis. As the first step, the company announced that it has launched its first medical image analysis software "EIRL aneurysm" developed by an AI startup on its AI platform and will launch service in June 2020. The software automatically detects suspected cerebral aneurysms from MRI images of the brain, and has also obtained pharmaceutical approval in October 2019.
In its cybersecurity (information infrastructure) business, the company specializes in next-generation firewall products to act as a defence against the growing sophisticated cyber attacks, as well as in cyber forensics products, intrusion prevention appliances, website vulnerability audit tools, next-generation mail security products, and EDR (endpoint detection & response) products. The company has accumulated deep industry know-how in the rapidly-changing yet highly fragmented cybersecurity field to identify next-generation products with high technical capabilities, competitiveness, and growth potential and provide a one-stop solution ranging from just product sales to system construction to maintenance support, operation and monitoring services.
The company started off in 1984 as a subsidiary of the trading company Sojitz and was later spun off as an independent company, first on JASDAQ in 2005 and subsequently the second section of the Tokyo Stock Exchange in 2010, and the first section of the Tokyo Stock Exchange in 2013. Led by current CEO Mr. Y who was seconded to the firm in 1987 and became the CEO in 2000, the company transformed from a diversified and uncompetitive IT system integrator services "subcontractor" company into a focused market leader specializing in cloud-based medical information & image sharing network and cloud-based cybersecurity infrastructure solutions. The company was also the quiet innovator to co-develop the first system that became the foundation of Rakuten Market (Rakuten was listed in April 2000) that everyone knows now. As a result, the company received not only a capital investment in February 2001 from Rakuten, but also important cultural DNA infusion from Rakuten's founder Mikitani-san in the period when Mr. Y is leading the firm as the CEO. The company later led a management buyback of the 31% stake held by Rakuten. The company also actively recruit women and international students to add diversity to its human capital resources.
CEO Mr. Y shared: "When I became CEO in 2000, we were not top runners in the IT field. So what do we do? What we need to do to get into the market is simple. If we can step into challenging fields and technologies that even top runners can't reach, and establish a business there, we will surely be able to grow. With that in mind, I aimed to enhance the power of each and every employee at the forefront of business. I thought that if we had the power to think independently and drive business, the company as a whole would grow. Employees closest to customers listen to issues and be sensitive to market needs. Connecting this to business makes the company stronger. As CEO, I thought we should value the sensibilities and thoughts of our employees. In order to realize this, it is essential to create a climate that creates a bottom-up. I wanted to understand the employees I worked with, so I had an interview with everyone. When I became president, there were about 180 employees, so it took me a few months to finish the interview with everyone. I still want to understand each thought and personality, and I always participate as an interviewer for the final interview for new hires. I believe that the essential condition for creating a bottom-up climate is to have everyone have a sense of ownership. We started a morning meeting once a month where all the employees come together. It is a place for all employees to share updated information, such as the performance of the company and each division, and the newly challenged business. I want all employees to think about the company as their own thing by touching information that is shared by management."