An overnight success (38 years in the making)

Matthew Kidman

Centennial Asset Management

In this episode of Success and More Interesting Stuff, we introduce the good doctor Sam Hupert, founder and major shareholder of radiology imaging group Pro Medicus.

Sam has been talking business for as long as he can remember, thanks to his entrepreneurial parents. Even as a medical student he was exercising his commercial skills with a successful photography enterprise.

Once computers began to take off outside academia, Sam saw the possibilities for medicine. Over the years, he and the Pro Medicus team have exploited each advance in computing technology to build up a formidable lead over their rivals.

Asked to explain their success, Sam says, "I think we had a vision. I know a lot of people say that, but we did. And it was to build a better mouse trap in an area where we genuinely do good. We aid the clinical process, there's no question."

Out of a modest building in Richmond, Melbourne, Sam and his collaborators have grown Pro Medicus into a $6 billion global group.

Along the way he and business partner Anthony Hall have amassed fortunes of over $1.5 billion each. Despite the outrageous success, Sam thinks there is a long way to go.


Edited transcript

Matthew Kidman

From a modest two-storey residential building at 450 Swan Street in Richmond, Victoria, Dr Sam Hupert has turned medical group Pro Medicus into a global, multi billion dollar company.

After years of toil and a low point in 2011, the company's shares have rocketed 30,000% over the last decade. It is now worth $6 billion.

Along the way, Hupert and his business partner, Anthony Hall, have both become billionaires, although you would hardly know, given Dr Sam has never lost his delightful bedside manner.

Pro Medicus was formed 38 years ago in 1983 when Hupert, a practising medical doctor, saw an opportunity to exploit new technologies in medicine.

Hupert took Pro Medicus into medical imaging, eventually listing on the Australian Stock Exchange in 2000.

In 2005, Pro Medicus spread its wings and entered a partnership with global imaging group Agfa to take a range of software products global. In 2007, Hupert stepped aside as CEO, believing there were better people suited to growing the international-facing business. Unfortunately, the Agfa partnership faltered, and by 2010, he was back in charge.

Undeterred by the first offshore stumble, Hupert moved forward, buying a US company called Visage Imaging. Visage had developed compression technology that allowed doctors to view high-resolution medical images from any device. Identifying the limitless opportunity, the Pro Medicus team started to win contracts in the US, and they haven't stopped since.

I first met Sam soon after Pro Medicus listed on the ASX in 2000. He has always been more than willing to give up his time to explain his business. Welcome Sam. What's it like being an overnight success?

Sam Hupert

I wish it were, but as you said, we've been going 38 years. We had a good patch around the 2000s, and then we had a little bit of a stumble at around 2008, 2009, but we were able to regroup and take a business that was largely Australian-focused and make it a lot more global.

With the Visage acquisition, we all of a sudden went from an office in Melbourne, Australia to having an office in Melbourne, Australia, our largest office in Berlin in Germany, and a sales and marketing arm in the US.

So things changed pretty rapidly, but thankfully we were able to rejig not only the organisation, but the product set. As you mentioned, from about 2012 onwards, the US has become our main market and I think it's between 80% and 85% revenue and growing, simply because it's the biggest market and growing at the fastest rate.

Matthew Kidman

I'll come back to Visage. Let's go back with you. It's interesting because you're a medical doctor, but you've found yourself as a businessman, a highly successful one.

Can we go back and explore your early life and what was discussed around the dinner table? Was there business being discussed or were your family in the medical profession? What did your parents do and what did they talk about?

Sam Hupert

Both parents immigrated from Europe after the war, and my father was always a businessman. Back in Europe, he was. The war disrupted that, and then when he came out here, he was always in business.

So business was an actual part of our family history. Even though my parents were educated in Europe, clearly the continuing education here in Australia in those days was difficult. So business was the main thing.

I used to go with my father on Saturdays to his business. He was in textiles, which a lot of European immigrants were. I learned the ropes a little bit and always was fascinated by it. And even when I was in medical school, I was always keen.

Matthew Kidman

It was a great immigrant story where Mum and Dad have come along, made a small business successful, and my made sure their kids got the best education.

Sam Hupert

Yeah. Two of us. I have an older sister who is 20 months older than me, and certainly when coming from war-torn Europe, education was always front and centre of my parents' thought process. They were very keen that both of us not only went to school, but to university.

My sister is an accomplished maths teacher. I'd always, from an early age, wanted to do medicine.

My father tells me it was looking at pictures of anatomy in the old Encyclopaedia Britannica. One of the happiest days in their life is when they found out I got accepted into medical school.

Matthew Kidman

So were you always good at school or was it a grind? If you thought you could do medicine, it's not easy to achieve, you've got to get outstanding results to make that leap straight from school.

Sam Hupert

I wasn't a genius and I wasn't a plodder. I was somewhere in between. If I had my time again, I'd most probably study more, if I had to be frank. But I got in and I focused when I needed to.

I didn't dux the year by any means, and I didn't come the bottom. I was somewhere in between. I was always focused on getting the degree and practising.

But even in medical school, I'd started my own business, so I had experience in business, a small level anyway, at an early age.

So I always had this thing in the back of my mind that I would always want to A, work for myself, and B, do something in business. But could I combine it with medicine?

Matthew Kidman

And can you give us some colour around that business at university?

Sam Hupert

Yeah. I used to have quite a successful professional photography business. I specialised in fashion and photographing children. At one stage I took a year off and people flew me all over Australia to do bespoke work for their large murals of children and other bits and pieces.

So it became a sizeable business for a part-time student. I had other photographers working for me, and that's when I learned some of the basic profit and loss responsibilities and all of that sort of stuff that I think held us in good stead when we started Pro Medicus.

Matthew Kidman

You were into imaging all the way back then — just different type of imaging.

Sam Hupert

I didn't see the connection between the two. It was more that I liked the artistic side of photography and a bit of the technical side. I think it all started when I was meant to be going skiing when I was about 12 and I had an issue with my knee.

It was a growth-plate issue that was fairly common in teenage boys, and I couldn't go. My father bought me this old, very rudimentary enlarger, almost like a bulb on a stick.

That piqued my interest and I started developing my own black and white photographs, like people did in those days.

Then one thing led to another. But I never imagined I would take that photographic skill and use it in business. But certainly we did, particularly in the early days when we started.

Matthew Kidman

How long was the medical degree when you did it? You're at Monash. You took a year off, you said. So is that six or seven years in total? With the year off?

Sam Hupert

I started medical school straight from school. That wasn't unusual, and it was six years straight: three years at Monash, then fourth year onwards in the hospitals. All our lectures were at the Alfred Hospital. So we were a close cohort. The year off was actually once I'd done my residency and I took a year off medicine before I started my own practice after that.

Matthew Kidman

So you walk out of university — did you go and work for yourself straight away?

Sam Hupert

No, I did a year residency. I went to PANCH, Preston & Northcote Community Hospital, which is now Northern Hospital. It used to be in Preston. And it was an unbelievable year clinically because it was just such a busy hospital.

It was the first hospital off the Hume Highway. So every major accident would come through and it was incredibly good training. Then after that year where I then was qualified, I could go out and start my own practice.

It's very different today. You have to do additional courses, but then there weren't any additional courses for GPs.

I took a year off and then after that, I worked as a locum for someone. Then through him I found a greenfield site in Elizabeth Street, Coburg. I just put out the shingle and started the practice.

Matthew Kidman

Did the patients walk in or was it nerve-wracking?

Sam Hupert

Oh, slowly. There wasn't a doctor really in that area. It was a nice mix of patients. A lot of Italian families. There were some Australian families and it was all very local. It was quite a small street.

There's a Woolworth village across the road because the old Kodak estate has been redeveloped. That was right next to me. So I had quite a good following and built quite nicely.

I was just in a shop front and then the maisonette next door came up for sale, and I bought that and the patients came and helped me move my desks and everything into it. So it was like a different world to what it is today, to be honest.

I was there for a number of years and that office became the first Pro Medicus offices. We used my surgery for a few years before we moved out to Fitzroy and then where you find us now, in Richmond.

Matthew Kidman

Were you a good doctor? Were you talented at what you did?

Sam Hupert

It's an interesting question. Was I the most academic doctor? No. Did I have a good patient rapport? I think I did. So I had a pretty loyal following of patients and I'd like to think I didn't make too many mistakes.

In those days, if there was something a little unusual, I would usually refer them on. There were a good group of specialists at what was then Sacred Heart Hospital, now John Fawkner. So I wasn't too far from that.

But no, I didn't have any mishaps on my watch that I knew of, so I suppose, yeah. Patients seemed to be quite... A few seemed to be loyal. So I don't know if I was the best, but I wouldn't say I was the worst either.

Matthew Kidman

You sound like you enjoyed it. Correct me if I'm wrong, but you were only there for three or four years before you started your own business again, in the technology era. I'm not sure whether that was Pro Medicus in '83 or it was named something else, but you didn't stay a GP for long.

Sam Hupert

It wasn't that I wasn't enjoying it. What happened is I met co-founder Anthony Hall a few years earlier at a wine tasting. It was almost like a scene from that movie Sideways. The two of us were called in to taste a range of burgundies by an importer.

We didn't even know each other and we were sitting across the table. Then eventually after a few minutes of tasting and spitting out wine, we asked each other some questions and he was then the president of the Yarra Valley Wine and Food Society. He wanted me to become a member of that.

Anthony worked as an analyst programmer and had come out of La Trobe University. In those days, they used punch cards or paper tape readers. It was only years later where one day I had this idea that I knew nothing about computing and the IBM PC wasn't released or invented yet.

All computers were these little hobby kits. I thought this was going to be the new form of literacy. I wasn't a tech head. I didn't know anything about the parts. I just thought, "I need to know something about it. Anthony's in the industry. I'll speak to him."

Long story short, when I first rang him with this idea, he thought I'd gone crazy. In retrospect, he most probably was right. I didn't know what I was talking about.

I just said, "Look, doctors need computers. You're a programmer, I'm a doctor. It's going to be the future. What do you think?" After a bit of convincing, he finally agreed.

Then we set about trying to assess the market and what would doctors really want, and they'd only want to go with brand-name hardware, and started developing the idea. Then we decided we needed to find out how do we get the hardware?

So we applied to become a hardware reseller for what was then the second-largest computer company in the world: Digital Equipment Corp, or DEC. They were second to IBM, and after a whole lot of to-ing and fro-ing, and writing business plans, there was someone in DEC that believed in us. He used to sell electrocardiology equipment, so he dealt with doctors. He backed us and we became a dealer.

Matthew Kidman

Anthony Hall is your business partner to this day, and the other major shareholder in Pro Medicus. What made you think computers were the future?

Sam Hupert

I just looked at it and I thought I know nothing about it, and people are going to start using these things. Originally most of the use was around either basic programs or it then morphed into accounting.

A lot of early programs were designed for accounting functions. And at that stage doctors literally had their accounts in a shoebox. And I thought, hmmm, something's going to change here, and eventually this is how they're going to do it.

So our first move into computing in health was all the business management side. Billing really. Clinical records didn't come until much later, because the computers weren't sophisticated enough.

Matthew Kidman

So you had the hardware business; you did the deal with the computing company. Then you had to go out and sell. Did you split your roles there? Was Anthony a good salesperson, or was that left to you? How did you divvy up the work?

Sam Hupert

Well, there was one big step in between and that was to actually write the program. It was huge. I thought, "Programming — just twiddle a few lines, just write a bit of code, and it all happens," but clearly not.

It was really expensive because A, you needed a computer to do the programming on, and B, a lot of the programming languages and compilers that you used to buy in those days were all designed for big enterprises like banks.

So you could spend, in those days, a million dollars just setting up a development environment, whereas today you just go on the cloud and the net. A lot of it is open source and there's no such barrier.

So what happened was after we became a dealer for DEC, they won a very large tender with the New South Wales government for their hospitals and government health.

And like a lot of organisations, they saw the market as a pyramid, with the big hospitals on top and all these GPs and specialists on the bottom of the pyramid, and they didn't have a solution for that.

So after about six or eight months of negotiation, we finally made a deal where they provided all of that development environment, using their mainframe in Box Hill and everything.

We didn't have to pay for it, because how are we going to get pretty much a million dollars out of the gate, even with our own earnings? So that was really fundamental in setting us up.

We even called the product DEC Medicus, before Pro Medicus. Basically we committed to selling it on the DEC platform, using their hardware and going out for the market.

About 18 months later, or maybe a bit less, we had the product. There was a big GP conference at Moonee Valley racecourse, believe it or not.

That's where we debuted the product and the rest is history. But it allowed us to fund the development ourselves without having to go out. And so we never had any debt.

Anthony gave up his day job, worked on programming full- time. I still worked in medicine, plus started to do the pre-sales and everything else. Then once we were at that conference, I split my time between medical practice and the business.

And then it was just getting impossible. I was always running late for one or the other, and then decided, much to my parents' dismay, that I would go full-time into the computer business with the thought that if it didn't work, I could always go back to being a doctor.

Matthew Kidman

Anthony was in charge of writing that code. You were in charge of distributing and selling it to potential clients.

Sam Hupert

Yeah. My original role was to specify what a practice needed, because I knew, I was a practitioner, so it was to help define the spec. And I think we had pretty well-delineated roles.

Anthony was, on the whole, technical side. He knew people, ex La Trobe, that would work for us after hours. And it's not like today; there was no internet.

He would go around to everybody's place with a big floppy disc and give them the latest updates every night to work off. It was a very different world back then.

So he was technical and I did all the business marketing side. And once we got too busy, we moved from my practice in Coburg to a rented office in Johnson Street, Fitzroy, close to Brunswick Street. We hired our first staff member, and slowly built from there.

Matthew Kidman

And did you start building out the product list? Because you said you started on billing; that's where it all began. And then you obviously started to build out the product list to form Pro Medicus.

Sam Hupert

Yeah. Originally the computers were like character-cell — they just showed green text or white text or whatever colour you bought, but they didn't show graphics.

Most of it was around the billing side. And in Australia, billing in medicine is quite convoluted and bespoke to Australia, how you get Medicare rebates and workers' compensation.

A general accounting program, which a lot of people tried to sell in those days, just didn't work. So pretty much all of our work was around billing. And we did a lot of general specialist surgeons, a lot of plastic surgeons, and got into radiology about two, three years out.

And the reason for that is, radiologists used to have multiple receptionists at their front desks, and often they'd have multiple clinics, so that the actual size of the deal was much, much bigger than let's say a specialist that had one secretary, and they would use the computer for word processing rather than typewriter and things like that.

It was only once you started to get more sophisticated graphics that you could do things like the scheduling and all the other bits that we now do as a more holistic suite. Back then, computer power just wouldn't allow it.

It was pretty much billing for the first, I'd say at least 10 years, and then we then morphed into a broader suite of product, but really all around practice management.

Matthew Kidman

And was it always a profitable enterprise outside that initial development cost?

Sam Hupert

Yeah, so Anthony and I funded it by ourselves. It was always profitable and never had any debt.

Matthew Kidman

Which is a great sign for business.

Sam Hupert

Yeah. Very different to today, where you have venture-capital funding. Those sorts of things weren't really around. And we were both very conservative financially.

For us, we just thought that's the way to do it. And there really weren't many options other than going to the bank, and firstly selling your house, or mortgaging your house to get a business loan, but today it's very different.

Matthew Kidman

If you were doing the same today, would you have fast-tracked it, or was the technology not there to do what you wanted to do? Could you have done it quicker with external funding?

Sam Hupert

Doing it the way we did it is more in our DNA. We're both quite conservative financially. And I think, as you said, the technology really wasn't there.

After we started with DEC, IBM released the first XT personal computer, and it had a 10 megabyte hard disc and everybody was agog. It's very different today.

There was no internet, and even when the internet came many years later, it was on this dial-up modem. You'd take the phone and put it into a thing that looked like earmuffs, and it would crackle away and connect and get an incredibly slow connection that you could do a little bit of typing through. So the technology wasn't quite there then.

But what did happen, we were very early on in the internet, I think we got our first domain name in 1993. No one had even heard of the internet.

And we became a research affiliate of Melbourne University to enable us to get a domain name. And we made it Pro Med instead of proMedicus.com.au, because you used to have to type it in every time, so it was a lot easier just typing Pro Med.

It was a different time, different technology, but clearly once the internet became more ubiquitous, we were in there early and we started what we called ProMedicus.net, which was a secure messaging system that allowed radiologists to send the typed reports encrypted, so they lodged into a medical record. And we were a little bit before our time on that one, and that's still a good little business running today.

Matthew Kidman

Go forward to 2000. You decide to list on the ASX. You got a very nice profitable business, great returns. What made you list? What was the drive behind that, given that the business was producing good returns for the founders and self-funding?

Sam Hupert

There were a few things. One, it was just before the tech wreck, and we looked at all these other companies around us and things were changing rapidly for them in terms of becoming public. Two, we had a very small staff, but loyal staff. And when you want to reward them with some equity, how much was a share in Pro Medicus worth? No one had an idea.

We thought listing would put us on the radar a lot more, which it did. Our problem was we were so small, one of the investment banks came to see us and said, you guys are too small, you need a CFO.

And we went, CFO, oh, hang on a minute, and went out and then started to build up a bit, and thankfully we were able to list.

But one of the funny things was, literally the weekend we were about to let the markets know we were listing — we already had our brokers that were going to do the IPO, they were JBWere, now Goldmans, we had our board, everything — that weekend, the tech wreck occurred.

Matthew Kidman

April 2000.

Sam Hupert

Yeah. All this work and all this money, and we thought the world had ended, but thankfully the weather cleared within a few months and JB contacted us and said, "Look, there's an appetite for your stock. And guess what, when you weren't fashionable before, you are very fashionable now."

And we said, "Why is that?" And they go, "You make money." We went, "Huh, that's a good thing." Because pre tech wreck, making money was almost a sin, whereas post tech wreck, it was a good thing.

And we got the company listed. And as you mentioned in your preamble, we got away to a good start. Hit a bump in the road a few years later, but thankfully we're in a better place now.

Matthew Kidman

And it gave you time to get a CFO, no doubt.

Sam Hupert

Yeah. It was interesting, because one of our bigger radiology clients was a business manager and had spent a lot of time with us. They were the most well-known group in Victoria at the time. There were no national groups — that came many years later.

He was at a loose end and he was a qualified accountant. We approached him, and he came and joined us and was our CFO for a number of years after we listed. We were just fortuitous.

We've always been a small unit in terms of staff numbers. We like it that way and it has worked for us. Back then, I think when we moved into our offices in Richmond, there were only eight of us.

And we had a meeting room and a boardroom, and Anthony said, why are we doing this? We're never going to have a board. But clearly things moved on from there.

Matthew Kidman

You're still in that building in Swan Street, Richmond, that two-storey building. It looks like someone should be living there, not running a business out of it.

Sam Hupert

Yeah. It used to be one of the old state banks, and we redeveloped it in the early '90s and moved in in 1995. It has been a great position. Richmond wasn't as central as it is today.

That whole area has really taken off, so it suits us well. Richmond is where we have our corporate offices, and that's where we do our development for the RIS practice management product, which was the original product that we still sell and run in Australia.

But most of our sales and marketing, most of our revenue now comes out of North America, particularly the US.

We run a global organisation, Melbourne and Berlin, and our office in the US in San Diego, but most of our staff work from home, wherever they happen to be, because our clients are sprinkled all across the US. The US now is most probably our biggest division, or becoming our biggest. Berlin next, then Australia — just a little less than Berlin.

Matthew Kidman

Let's go to that international foray. When you went with Agfa, and I think it was around 2004 or '05 that you struck that deal. A couple of years later, you stepped aside as CEO. Why did you take that option? You had global ambitions. The second part of that is, why didn't it all come together? By 2010, you were back in charge and effectively resurrecting the business.

Sam Hupert

A few things happened. Around the time we listed, we realised that the world, in radiology anyway, was transitioning from making a diagnosis on using sheets of X-ray film and hanging them up on a light box to doing them on screen.

I think two things precipitated that. One was the price of silver, and X-ray film was just one big bank of silver. It became untenable from a financial perspective. Also, computers and screen resolution were becoming powerful enough and suitable enough to allow that to happen, this concept of PACS (picture archiving and communication system), which is basically reading diagnostic images on screen.

The world did transition, but there were two camps of informatics. There was us — we had all the patient demographics, and from the scheduling, we knew what tests they were coming for. Then there was the clinical side, which is the software that manipulates the image and lets a radiologist make a diagnosis. They weren't really married.

So we wrote this middleware, and then we were looking for a partner. For various reasons, Agfa were very dominant, particularly in the hospitals here in Australia. They had WA Health and Queensland Health. They had some big implementations in New South Wales and Victoria. I made a deal with their head of healthcare for this middleware, and that was largely based in Australia.

He then got seconded by Agfa to become head of sales and marketing for their North American operation. It was through that that we started to take the product to the private market in the US. The hospital market had their own product. This was on the business management side — the billing, the scheduling. It wasn't the clinical side.

After a few years, we realised there was an impedance mismatch between us as a small company and them as a larger company, and that we needed to find our own clinical component or PACS.

We thought, "Well, let's go out. Do we build or buy?" Building would have taken too long. So we were in acquisition mode.

Around 2007, David, who was this person from Agfa, had come back to Australia and I'd spoken to him about when he comes back, maybe I'll step back a bit. He's had experience in the US. He's had experience with larger companies. We thought it was a good fit. We'd done business together and that had been successful.

Also our then chairman, Mel Ward, was very involved in the arts. He was chairman of the ballet, the Australian Council of the Arts and other business boards. I thought, "I've done reasonably well for myself and it may be time to give something back."

I said to Mel, "Could you use me on some of these? Could you use a hand somewhere?" And he said, "Oh, absolutely." That's why I stepped back. I was still involved. I just wasn't as operational.

Matthew Kidman

It must have been hard though, given you'd built the company from ground up, to step back and let someone else run it. That's a difficult decision to make.

Sam Hupert

It was and it wasn't. I knew someone else that was in an IT services business that had done it, and that was successful for them. I thought, "Well, I've been in the saddle since '83." We were already in 2007. "Maybe it is time for someone else to take it to the next level."

A few things happened in those few years. We were on the acquisition trail. We got very close to one company that was privately owned by four partners. It fell over literally in the last week.

I felt for David, because he'd worked tirelessly to get this deal over the line, but then almost by fluke, we found Visage Imaging. It was actually going to be sold to one of its competitors. It was right in the depths of the GFC.

I think the competitor most probably led it up to the altar then walked away on purpose thinking, "It will fold; no one will buy it." We just happened to be in the right place at the right time and did the whole deal.

Matthew Kidman

My understanding was Siemens was the competitor. If that's correct, it was a much bigger company with a much bigger balance sheet. Visage agreed to go with them, but a few things fell your way in the following couple of months that saw you back at the altar. Run us through what happened in those few months and how Visage came to be part of Pro Medicus.

Sam Hupert

Two guys, two PhD computer scientists at (inaudible) Institute in Berlin, started the precursor of Visage. They developed a platform and were interested in visualising large datasets in health. That was the whole idea of their thesis and the platform.

They sold it to a company called Mercury Computer Systems, which is still around. They're based in Boston. They were publicly traded and specialised in software for the defence industry.

How did they get Visage? I think they were looking to build a life sciences portfolio as a second string to their bow. They set up a whole US organisation.

The research and development was done in Berlin and they pumped a fair bit of money into it, and bought another company that they tried to merge with it. That was all going along.

The Siemens acquisition came a bit before our time. When Siemens wanted to buy the Visage component, the people from Mercury or the CEO of Visage thought, "I can get more for it."

For various reasons, that deal fell by the wayside, but when they couldn't get back more for it, they re-approached. Clearly they couldn't come to an agreement between themselves and Siemens.

They kept going and then a number of months later, they were going to sell to a competitor in the imaging space, not as big as Siemens, but someone that works in advanced visualisation and was one of the bigger players at the time. There were two of them and this was one of them. We found out about it at the major conference that's on every year at the end of November in Chicago.

Literally at drinks, we were introduced to the CEO of Visage and he said, "Look, we're locked and loaded; due diligence is done. We'll be bought within the next few weeks." We said, "Well, look, if the deal falls over, here's our card."

Sure enough, next week we get back to Australia and we get a call. We've been told by their advisors they must either start to sell it or close it down by 1 February, 2009, for various reasons to do with the GFC and loss-making divisions. It was a very different world at that stage.

Because we had retained earnings in cash, we did the whole deal, including due diligence, in six weeks and closed on the last day of January.

Matthew Kidman

What happened to that other suitor? Why couldn't they conclude?

Sam Hupert

I'm not sure. I think it wasn't price. I know what we paid for it and we told the market. I think it was about A$5.5 milllion, which included currency and transaction costs. I don't think it was money, even if they would've paid double for it.

I think the suitor felt this was a way of getting rid of a competitor. I'm really not sure. But the fact that they walked away was probably one of the luckiest things that happened to us.

In hindsight, everybody says, "Boy, that was a deal," but at the time, we thought, "There's a lot of work to be done here. Great technology, but we still need to put a lot into it."

Matthew Kidman

In simple terms, that $5.5 million turned into billions over the next few years.

Sam Hupert

Yes. Outside the financial side, which again, the market knows, so I won't really comment about that, but yes, if I could find another company like that, I'd put my hands around it and never let it go. But I think there were a few things.

We saw the Visage technology and a good group of people. It was more than just the money. It took a few years to get to a point where we were comfortable with it because we were losing a lot of money on the investment in the first few years. The engineering was sensational, and the team out of Berlin was very strong.

The flip side of that, the US team was not up to par. When I came back in 2010, my first job was I went over to the US and literally blew it up. I kept two people and started again. I thought, "Better having nothing than what I had," and built it person by person. Thankfully it has worked really well since.

Matthew Kidman

You stepped back into the role of CEO in about 2010. What was driving that? Did you think there was an opportunity here and a lot of work had to be done rebuilding Visage and your own business?

Sam Hupert

Well, David was the CEO when we made the acquisition in about February 2009. Myself and other board members were instrumental behind the scenes and working out what we needed to do.

Operationally, there were a few things. We were redeveloping our core risk product and that development was running behind. We were losing money in the US and there was a concern that this thing might consume so much time and resources that it would kill us.

Then other things happened in the background, I think. Unfortunately, Mel Ward, our chairman, developed a terminal illness and passed away. The business just wasn't tracking in the direction we had hoped.

I think the board, and Mel in particular, approached me and said, "Look, you need to come back. This isn't working." I said, "Look, I'll come back for a few years. I'll do what I can. I can't promise anything, but I think I know what I'm doing." I'm still there, and the rest is history.

Matthew Kidman

That was a pretty tough time. Visage came along in '09, as you said, just off the back of the GFC. But by about 2011, Pro Medicus shares hit a low of around 17 cents. Today they're $57, $58 a share.

There was a real low point. I remember coming to see you as an investor. I think it was in 2012, and the share price had rallied a little bit to 40 cents, but you had a spring in your step and you thought you had something.

You had enough energy in your work, because you were five minutes late to that meeting. Obviously you were busy, and we watched you tell the arborist who was dealing with a tree at your little place in Swan Street for about 15 minutes where he should cut and what he should be doing and it's got to look just right. There was a lot of energy going on at that time and a lot of precision, but obviously the business picked up from that point after some pretty dark days.

Sam Hupert

Yeah, it was difficult. It was almost like a perfect storm. The redevelopment of our core product in Australia, which had been funding all this acquisition, had gone off the rails for various reasons. One of my first jobs was to try and set it in the right direction. Big software projects are not simple. You can't just drag and drop one or two things and it works.

Then there was also the issue of "How do we manage the US?" And as I said, I came back in October and by February I'd literally blown up the team, kept two people who are still with us today, then rebuilt it. But the other thing we did is we changed the product and how we marketed it.

The product was really designed as an add-on to a 2D system. And when I looked at it from a business perspective, I thought, you can't make money out of this because the cost of sale is so high. Each one is, I don't know, US$160,000 or US$170,000, and you might sell one or two seats to an institution.

We really needed to take over the doctor's desktop. We need to change the paradigm and not only do all the simple 2D stuff, but all the sophisticated stuff that we could do that others couldn't.

And to their credit, the team in Berlin had already been thinking about all of that. And so there was an R&D cycle that had to take place and be funded, and then there was a market perception. Who is this company? Who's ever heard of them in the US? Why is it a better mouse trap?

So there were a few years where it was really, really tough. It was also hard rebuilding the US team, but we did it person by person. And pretty much everybody that we've had or hired in the rebuild are still key executives in the US team today. So that worked, and of course they then built out more.

One thing that helped us is when we bought Visage there was a business called Amira. It was based on the same streaming platform, but it was a toolkit for the universities and research organisations. And we sold that, I think it was in 2012, for about $15 million. So it gave us back triple what we paid for Visage, and that gave us enough financial runway to use that money and invest.

Matthew Kidman

And what was your first big contract?

Sam Hupert

It was big then, but today it would seem small. It was a guy that ran teleradiology — you know, remote reading — and the product is ideally suited to that. And it was the first one where we started to use the per-transaction model so you charge for what you use, which was also something relatively new to the market.

That got us on the map and proved the technology. Then we won Veterans Affairs, which we've recently renewed for another five years. Then we won a private group called Zwanger-Pesiri. And bit by bit, each deal was getting materially bigger.

And then we had a big reset in the market in May of 2014 when we won Sutter Health, which is one of the biggest health networks on the West Coast. They're based out of Sacramento, San Francisco, all the way into Palo Alto.

And that really reset us in the market because we competed against a good 30, 29 other companies. And people thought, who are these Visage people? No one's ever heard of them. Why they even here to compete?

Thankfully we were able to prove them wrong. And that really gave us a big step up. The rest, as they say, is history. So it's been a busy six, seven years since then.

Matthew Kidman

Over that whole journey, Sam, talking to you at investor meetings and the like, you always said, "Look, we think we have a two or three year gap on any competitors with this compression technology and what we offer."

So we sit here today in 2021 as we've outlined what the market's worth or the company's worth. Do you still all think you've got that lead time over competitors? And what is the next 10 years?

The last 10 years have been incredible. There was a low then a build, and now you've got a fabulous business.

Have you still got that gap on your competitors? And does the next 10 years look just as inviting?

Sam Hupert

We think we do. And we said it was somewhere around 18 to 24 months. You can't know. All you can know are there's certain data points like what you see in the market; what clients or prospective clients tell you.

Particularly if they go to the RSNA (Radiological Society of North America annual exhibition), they're always looking. They go to other trade and they come and say, "Well, we think you guys do this differently." And so you get that feedback and you get it in a competitive environment.

But what we don't know is what other developments are in someone's lab that may come out in years to come. But over the last six years, we don't think there's anyone that has the same technology, even back where we were six years ago. And the reason for that is the streaming platform is all proprietary.

The two guys from Berlin and their teams — a large percentage of the team's acquisitions — are still with us. They developed this new mouse trap and it's fundamentally different in how it handles the dataset to the standard.

It's not like we used a tool kit and got 80% of the way and then rounded out the other 20%. So someone that wants to copy us will have to work out A, how we did it, because we don't leave a roadmap. B, they're going to have to develop that technology. And it's not just one technology.

We talk about the streaming and it's the most explicable of the technologies we use, but it's an amalgam of 15 to 18 technologies that make up the platform. We then obviously try to ring-fence that with IP. So we have a patent portfolio that we are always building on.

And then we haven't stood still in those years. We're continually developing the product; we've expanded the product portfolio; we're looking at new horizons like AI (artificial intelligence) and how it fits in.

So as far as we can tell, we don't know anybody that has that technology. And even if they did in the lab, unlike a lot of other software, it has to go through a FDA (US Federal Drug Administration) regulatory cycle. It's not like a drug that takes years and years and years, but it's not inconsequential.

And then once they do that, then they have to harden it in the field by having it in a small site, then a bigger site, then a very big site. And we've already gone through all of that. We did that years ago. So it's possible for someone to try and catch us, absolutely.

Matthew Kidman

But you might be six years ahead rather than the 18 months.

Sam Hupert

Again, putting a timeframe on it is very difficult, but we're not standing still. And one of the things when we bought Visage that was so refreshing is their view was so similar to ours, the mentality.

In software, there are only two sorts of people: quick and dead. And you don't want to be dead.

So you've got to keep moving, and you've got to increase the pace of movement. And I think we've been able to do that over the years and it's our number one focus, because that's our best form of defence.

Matthew Kidman

You've built a stunning brand in North America. Is it a global business? Can you do the same in Europe? Can it come back through Asia? Is it a business that can keep on growing as long as you do have that edge for many, many years to come?

Sam Hupert

Absolutely. The technology is ubiquitous. It can work anywhere. One of our first clients was a two-man radiology practice near Tullamarine Airport here in Melbourne. As you know, we do a lot of the top hospitals in the US, and it's exactly the same software. There's no difference.

The software can work up and down the scale. Unlike the practice management and the billing, which is highly localised because of how governments and payers interact, this can go anywhere. So we do have it in Germany. We can sell it into the far east, Middle East.

It's purely to do with bandwidth and what are those addressable markets? And in the US, not only is it the biggest market by a long shot, it's the most active as well. So that's why we're clearly very focused there, but it's not our sole focus by any means.

Matthew Kidman

And what about yourself? It's been a long journey, as we said — 38 years. You stood off for three years as CEO, but you seem as sharp and as focused as you've ever been. Do you see the next decade as a journey that can keep going?

Sam Hupert

Clearly as part of all succession planning, which any good business needs to do, you need to build a team around you. And people sometimes ask me, "Well, what happens if you get hit by a bus?" And I think of something a little less macabre like what happens if I want go on an extended holiday? I'd like to stay alive.

I think obviously I've still got petrol in the tank, but my role is changing, as you would expect as we grow. And I think building the bench, as they call it, is very important. I think that's a key part of our focus as a company at the moment.

There's no plans for me to not continue what I'm doing, but obviously in time it would make sense. I'm getting a little long in the tooth, but not too long.

I'm going to turn 67 at the end of the year. Still young enough to make a mess, as they say. I think I'll be around for a while, but obviously building the bench and then transitioning my role when it makes sense.

Matthew Kidman

And have you ever assessed what kind of leader you are? There's been a business that's been built around the world through acquisition; you've had to deal with people in different locations.

There was a moment for two or a few years where things were very tough and you had to rebuild the business. There was a moment early on when you had to start a business. And you've kept keeping on through that whole period.

And as you say, a lot of people have stayed with the business, so they obviously enjoy it. Give us a feel for what type of leadership you've provided and why it has worked.

Sam Hupert

Well, it's very hard to look in the mirror and comment on yourself, but look, I think we are conservative financially. So we are a safe environment for people to work. We do take calculated risks, but it's not like feast or famine one day or the next and people worrying whether they're going to get their next paycheck.

But I think it's more than that. I think we had a vision. I know a lot of people say that, but we did. And it was to build a better mouse trap in an area where we genuinely do good. We aid the clinical process, there's no question. And I think a lot of people are very keen to do that.

So keeping the team together is not just about the business and the market cap and the money. It's also, what are we actually doing? And what impact does that have? And can we see that impact and feel that we are part of it?

Being a doctor, that's helped a lot. It's really, really very important. And also, I think I have reasonable business skills and I don't interfere in certain areas, because even if I wanted to, I couldn't.

So unlike Anthony or Malte Westerhoff, our chief technology officer, I couldn't write a line of code to save myself. I never could and I never will. I know the areas where I can have some influence and rely on these others where I don't.

I think they're the main things. Just sharing the vision that we're actually doing good and that we've got something that others haven't, I think really helps. And as I said, being a doctor and keeping the team small is the other important thing.

We have a small, highly multi-skilled sort of workforce. And I think that that works really well. People feel that they're doing more than one thing. They're not stuck in a rut, because that clearly is important.

Matthew Kidman

Well, it's been a fabulous business from an investor's point of view. Not only has the share price gone from about a dollar when it listed to closer to $60 today. But as we said, in 2011, it hit 17 cents.

But it's also been a business that hasn't required a lot of external capital, which has been a terrific outcome. Thank you very much, Sam, for your time today. We wish you all the best over the next decade, and here's to another 30,000%.

Sam Hupert

Thanks very much. Thanks, Matt. Thanks for having me on.

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Matthew Kidman
Principal and Portfolio Manager
Centennial Asset Management

Matthew is the Principal and Portfolio Manager at Centennial Asset Management. Prior to this, Matthew was the CIO at Wilson Asset Management between 1998 and 2011, achieving 18% p.a. over the period.

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