Is Pro Medicus eyeing a takeover of Volpara Healthcare?

Both Pro Medicus and Volpara are working to capitalise on the U.S. FDA’s tightening breast cancer screening standards.

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Pro Medicus Limited (ASX: PME) shares are up. 2.8 per cent to $22.34 in morning trade after the medical software provider updated the market on its performance for the half year ending December 31 2019. 

The company is eager to emphasise the second half of the financial year is traditionally stronger than the first half. This is because the timing of new client wins may also be partially reflected in the first half, but the entire second half. It also flagged the RSNA Conference in Chicago as a significant expense it meets every first half, which does not occur in the second half. 

As such shareholders will hope management is not buttering them up for a softer-than-expected result for the six months to December 31 2019.

New product developments 

It also revealed that its AI (Artificial Intelligence) Visage Accelerator program had made excellent progress. Its developers have created an in-house breast density screening AI algorithm to assist in the detection of breast cancer. The tech can be integrated to its core Visage 7 platform and it has made a submission for commercial approval with the U.S. healthcare regulator the FDA. 

Another ASX-listed business benefiting from the U.S. regulator’s tightening demands on breast cancer screening standards is Volpara Healthcare Technologies Ltd (ASX: VHT).

Volpara’s software also helps medical professionals screen breast density as a key indicator of a patient’s assessed risk of developing breast cancer. 

It’s possible that Pro Medicus views Volpara as an acquisition target given the two businesses are operating in similar spaces in the U.S. healthcare market. 

However, the near 40% fall in value of Pro Medicus’s scrip from $36 to $21.80 over the last four months means any scrip funded or cash and scrip bid will cost its shareholders a lot more now. 

Merger and acquisition activity could be on the minds of Pro Medicus’s management team given how eager they seem to support it’s valuation. 

Still, Pro Medicus’s founders can hardly complain about the share price falls after they managed to sell 1 million shares each at $36.10 per share just last September.

The buyers of the shares offloaded by block trades are unknown, but they’re now deep underwater on their investments.

It’s possible the buyers were index-tracking funds that pay zero regard to valuation, or even institutional investors who don’t pay much more regard to valuation themselves. 

Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Pro Medicus Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of VOLPARA FPO NZ. The Motley Fool Australia has recommended Pro Medicus Ltd. and VOLPARA FPO NZ. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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