Venture capitalist Tom Loverro predicted an impending mass extinction event for early and mid-stage companies last year, forecasting that the years 2023 and 2024 would surpass the impact of the 2008 financial crisis on startups. According to PitchBook, over 3,200 startups worldwide closed last year, resulting in more than $27 billion in lost investment funds. Despite this global crisis, South Korean startups are garnering attention for their technological prowess, acknowledged by major domestic IT giants and honored with the CES Innovation Award. ChosunBiz conducted interviews with some of these startups to explore their distinguishing factors. [Editor’s Note]
According to Rock Health, American digital healthcare startups secured $6.1 billion in investments in the first half of 2023 (224 deals), significantly lower than half of the previous year’s figure ($15.3 billion, 579 deals). Notably, two out of the five companies listed as IPO candidates operate in digital musculoskeletal care, or digital MSK.
Digital MSK involves leveraging technology and digital solutions to enhance the diagnosis, treatment, and care of musculoskeletal system disorders, covering bones, joints, muscles, and related tissues. A report from Grand View Research reveals that the global digital MSK market was valued at $2.98 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 27.4% from 2021 to 2028.
In South Korea, startups like Exosystems, founded by Lee Hoo-man, a former research fellow at the Electronics and Telecommunications Research Institute (ETRI), have entered the digital MSK market. Established in 2017, Exosystems gained industry recognition for developing digital therapeutic devices tailored for musculoskeletal system disorders. Their flagship product, ‘exoRehab,’ introduced in 2019, is a wearable device that measures knee range of motion (ROM) and muscle bio-signals (EMG) to personalize exercise programs and provide electrical stimulation for rehabilitation.
Exosystems has secured investments exceeding 5 billion won from Kakao Ventures, SBI Investment, Laguna Investment, Korea Technology Finance Corporation, and Sparklabs, highlighting its technological expertise. This year, the company is preparing for the official launch of ‘exoPill,’ which builds on the strengths of exoRehab while addressing its limitations. While exoRehab focuses on the lower body, exoPill enables rehabilitation therapy for various body parts. Responding to user feedback regarding the inconvenience of attaching and detaching the belt in exoRehab, exoPill is designed to be as small as an egg, minimizing its volume and allowing for easy adherence directly onto the body.
However, Exosystems has shifted its focus to advancing its Muscle Function Index (MFI), an artificial intelligence technology developed in-house to measure and evaluate biomarkers associated with muscles using electrical signals from the neuromuscular system. Their application of MFI in the ‘Sarcopenia Diagnostic System’ earned them the prestigious Minister of Science and ICT Award at the Korea Invention Patent Exhibition 2023. This system offers a quantitative analysis of the neuromuscular system’s function, enabling the assessment of sarcopenia risk and facilitating tailored medical care delivery to patients. Exosystems continued to receive recognition in the Digital Health category at CES 2024, showcasing digital therapeutics (DTx) integrated with MFI.
In an interview with ChosunBiz on Feb. 14, Lee emphasized, “Our ultimate goal is to establish MFI as the global standard for diagnosing musculoskeletal system disorders,” adding, “We plan to start with high-incidence conditions such as sarcopenia and gradually expand our focus to include other rare diseases.”
There has been a considerable change in the business direction. Could you explain what brought about this shift?
“Do you recall Samsung unveiling the Omnia before the Galaxy series? Similarly, exoRehab played a pioneering role in shaping Exosystems’ business direction. The introduction of exoRehab provided numerous lessons during its development and sale. Among the most significant were prioritizing software over hardware and focusing on B2B rather than B2C. Both were cost-related insights. While we did enhance new hardware with advanced software, creating the exoPill based on feedback from exoRehab users, the continuous development of sophisticated hardware and associated costs were concerning. Hence, we pivoted towards software development. The decision to emphasize B2B over B2C stemmed from the perceived pricing challenges for consumers. Lowering prices required mass production, a formidable challenge for a startup. It was indeed a tumultuous journey, but exoRehab allowed us to assess market demand as it generated revenue in the hundreds of millions of won with only around 200 prototype units.”
When do you expect exoPill being ready for the market?
“We secured approval from the South Korea’s Ministry of Food and Drug Safety at the end of last year. Now, we are working on the steps required to qualify exoPill for medical insurance coverage. Efforts to integrate MFI into exoPill are also underway. Our goal is to successfully complete all tasks as scheduled and introduce exoPill to medical institutions nationwide by the end of this year.”
With MFI, Exosystems entered the diagnosis domain. What led to this decision?
“Currently, traditional physical function assessments are used to diagnose musculoskeletal system disorders. These assessments take into account factors such as walking speed, balance, and muscle strength. However, inconsistencies in results assigned by different physicians can lead to discrepancies. For patients who are unable to sit or walk, conducting these assessments is nearly impossible, presenting challenges in obtaining accurate diagnoses and prescriptions. Such difficulties can result in patients’ struggles to secure insurance coverage.”
How does MFI work?
“When exoPill sensor is attached to the skin, it sends neural stimulation to the neuromuscular system from the device. By analyzing the signals from the neuromuscular system in response to this stimulation, it quantitatively evaluates the patient’s neuromuscular system.”
What are the plans for monetizing this technology?
“We are planning to develop MFI for various diseases and integrate them into multiple DTx as part of our revenue model. This year, our focus is on finalizing MFI for sarcopenia. If AI diagnostic solution featuring this MFI is selected as one of the ‘Innovative Medical Devices’ designated by the South Korean government, we anticipate potential sales within the year. Additionally, we are collaborating with the global pharmaceutical company Roche to develop MFI for Spinal Muscular Atrophy (SMA).”
Any update on the progress of investments and the IPO plans?
“We’re consistently generating revenue through separate ODM businesses, while also advancing the development and refinement of MFI-related technologies. With cash reserves exceeding our previous investments, we’re in a comfortable financial position. However, given the significant milestones anticipated this year, we’re considering a Series B investment in the near future. Regarding IPO, we prefer to exercise caution when it comes to specifying the exact timeframe.”
It seems only natural that you are also considering international expansion. Are there any specific regions or countries you’re looking to prioritize?
“Considering the vastness of the North American market, our initial focus is likely to target the United States. While the exact timing remains uncertain, we’re committed to gradually preparing for FDA approval. Similar to South Korea’s ‘Innovative Medical Devices’ program, the U.S. also offers supportive initiatives in the biomarker field.
When discussing our potential entry into the U.S. market, it’s worth noting that there’s another company in a similar field that has already attracted considerable attention: Hinge Health. Nevertheless, we are confident that Exosystems maintains a technological edge. To support this, we are actively pursuing avenues such as presenting research in prominent global journals. We eagerly anticipate forging strong partnerships and competing with Hinge Health when the opportunity arises.”
