Nano-X Imaging Ltd. (NNOX) Earnings Call Transcript & Summary

My name is Ran Poliakine. I'm the CEO of Nanox. And today, I will tell you a bit about our company. The name of the company is Nanox, and the topic we are going to address is early detection. Just to start, I would like to give you an executive summary of where we stand. So this is kind of capturing a lot of information. We don't need to follow all of it. But what I would like to do is really to make 2 points clear. The big problem that we are solving is that there are not enough medical imaging system in the world despite the fact that everybody understand that medical imaging is very important and despite the fact that the technology was invented over 100 years ago by Wilhelm Röntgen. Mainly speaking, Nanox is solving this problem. We have a technology that actually take generations forward the imaging capabilities and making this medical imaging affordable, accessible and available. The origin of this technology is in Japan. It's nano technology, which is called cold cathodes. I would like to say, and I will get to much more detail later, that Wilhelm Röntgen X-ray is hot cathode. This is a very aggressive device that needs to work at 2,000 degrees Celsius. And what to -- and because of that, it's very expensive, expensive to build, expensive to maintain, expensive to service. What we did, we actually jumped the generation into cold cathode. This is simply a very, very -- a room temperature, I would say, device. And because of that, the cost of it is much lower. And as you can see on the right side of the screen, this is a full-body scanner. This full-body scanner is estimated to be $10,000 only, which is way below any other alternatives. Because of that, the company have decided to embark on a global mission. This global mission is placing 15,000 units globally, not only in countries that has already good health care system but also in countries that has nothing. Not only that, we've decided to do that with a business model which is not CapEx but rather a service model. And we're very, very fortunate to do that with partners. Our partners to date are Fujifilm, Foxconn and, of course, SK Telecom. And I will touch upon that very, very soon. Overall, our mission is to bring a better health care. We call it democratization of medical health care. And we believe that in 4 years from today, we can be in a situation where thousands of our units are placed, connected via the Internet to the cloud. And in the cloud, there is a connectivity between diagnostic and patient. And I think post COVID-19, everybody understand that there is an ability to separate between physician and patient. And we also understand, I believe, that what's happening in Africa impacts very much what's going on in New York City. So with that, let me start with a story. So if you ask any oncologist, what is the best way to fight cancer, they will tell you early detection. Why? Because if you can find cancer when it's small, you can take care of it. Now the big paradox is that the technology is already there. With X-ray that was invented 100 years ago, you can simply do that. It's not being used for that purpose because of the fact that it's too expensive to maintain, buy and service. In fact, 2/3 of the world population today do not have any access to medical imaging, which is crazy if you think about it. The technology was invented 100 years ago, and everybody acknowledged how important it is. It's expensive, and you can see it in this slide, simply because it's very, very heavily depending on what we call thermionic or hot cathode, and I'll touch upon it in a minute. The device is very cumbersome, a lot of moving parts, a huge amount of servicing and overall, not practical to go in scale. This person, his name is Wilhelm Röntgen. He invented X-ray 120 years ago. And he did a good job, a good job because nothing has changed so far in terms of the X-ray source. It's still thermionic, and it's still analog. This is a modern hot cathode tube. What you can see here is very, very similar to what Wilhelm Röntgen actually invented. It's very analog. What you see is the red dot represented 2,000 degree Celsius, that you need to bring up this filament before electrons are extracting. And this is a very, very aggressive device, so much that even though the hot cathode tube itself cost about $150,000, when you put it into a modality, for instance, of [ SiC ] or sophisticated image capturing, you need to invest many more monies in order to keep it alive. You need to put it in a basin of oil. You need to make sure that it's rotating because you cannot simply afford to put multiple tubes together. And overall, our point is that despite the fact that cancer and other disease is very, very important and everybody understand the value of medical imaging, this technology is not scalable. Nanox paradigm is very simple. If you take something that is hot and you make it cold, and by that, eliminate most of the costs associated with that, you can envision that like other things in medical, you can all of a sudden have a very, very low-cost, low-footprint device that is a full-body scanner, yes, a little bit like Star Trek, that you can place in a GP offices or community clinics or urgent care units, and by that, drive forward health care. Well, this is exactly what Nanox did. On the right side, you see our product -- this is a core product. This is a semiconductor made by Nanox. It's nanotechnology. And it's provided true alternative to what was invented 100 years ago by Wilhelm Röntgen, only it's operating in room temperature. The best analogy is like LED versus Edison light, the same way that Edison light is projecting light based on thermionic effect, and LED is projecting light in room temperature. We do the same. Now in our case, in radiology, the implications are huge because we can eliminate a lot of the cost and increase efficiency. This is what we call deep technology. I mean Nanox is deep technology. What you see here is our factory in Japan. As we'll tell you later, we are building, as we speak right now, an additional factory in Korea. This is a semiconductor. And we are, to our knowledge, the only company in the world that are using in mass production this field-emission technology -- nanotechnology on wafers to create this X-ray source. Technology is well protected, a lot of know-how. And actually, the original [ dock ] is -- back in the days in Japan, this project was developed by Sony. And we actually bought the know-how and the [ picker ], the group, that developed that and started this 8 years ago. This slide is actually very interesting because it's showing you the difference between, on the left side, the legacy system. This modality, again, is based on one filament that you bring up to 2,000 degrees C. And then electrons are starting to embark from this filament, very aggressive. And on the right side, this is under the microscope of our chip. You see 100 million nano-cones. Each one of them can emit 1 electron at a time. Surface energy is very minimal. And overall, you can see -- or you can envision that we are redistributing the lot between one to many, many little nano-cones, electron gun. And because of that, the power requirements is minimal. Because of all of that, this is a product we did. On the left side, you see Nanox action-size tube. So we took something that today is 1 meter and 100 kilos and made it into a very, very simple 10-centimeter beautiful tubes that can do everything that the huge analog tube can do. And because of that, we can also achieve efficiency. And this is the key point of the structuredness. What you see here is the legacy tube, which is $150,000, going down all the way to approximately $100 when you do Nanox tube in mass production. So when you can move from $150,000 to $100, you can change the world. You can -- because now you can envision placing many of those little flashlights around the globes in places that do not have anything or in places that do have some modalities of medical imaging but not in urgent care units, not in nursing home, not in the GP's office. And basically, this is the disruption we're doing. In a more holistic way, we are, like many things in health care, like ECG or like ultrasound, that 20 years ago, you need to go -- you needed to go to the hospital and to be checked by a very, very large device that now -- and now actually for ECG, it's Apple Watch or Samsung Watch. And in ultrasound is something very, very minimal in size. We're doing the same for radiology by moving the technology from hot cathode to cold cathode. So we're moving from analog to digital, large and complex to small footprint and something that cost millions of dollars to thousands. This slide, we like to call it the beauty and the beast. On the right side, you see our first prototype in Hadassah Hospital in Israel, which is a prominent hospital in Israel. And you can see that this is a very, very small footprint. This arc is moving along the bed, 70 kilos in size. And on the left side, of course, the legacy system. Now let's talk about quality. Let me just say that X-ray is actually just like LED and Edison light. Light is light. We can achieve the same exact performance, if not better. And in some modalities, we can achieve a reduction of the radiation. This is another slide of a human shoulder. It's a beautiful image for a radiologist. And on the left side, I put here some slides of the lung. This is just to explain that if you can take an excellent 2D images, you can reconstruct them into a video feed, and that's what you want to do, in that case, specifically, when you're looking to detect COVID-19. Yes? Nanox and the X-ray source of Nanox is absolutely capable to detect what radiologists are looking to see in COVID-19. So with all of that, we did this full-body scanner. This is the latest design. This is a little arc that is not big. We put inside multiple of those tubes, the Nanox tube, those little tubes that I explained before. And what we can do, we can move the patient in relationship to the source so we can focus in different body part. And then we have something we call the [ Nanox Atlas ]. We have a recipe of projections coming from different angles that overall provide the radiologist after reconstruction a beautiful image that the radiologist can determine diagnostics from. In terms of regulatory approval, and I will talk about it later, this is a medical device. You need to go through a regulatory clearance, FDA in the U.S., CE in Europe and many others in each country where we have contract with. I'm very pleased to tell you that we have 11 countries that we signed contracts with. And because of that, we need to get clearances to go to business in each one of those countries. Specifically in the U.S., we submitted the initial submission of single source to the FDA. And we expect that overall, in multiple touches during the first half of next year, we'll be ready to go to prime time. In terms of our plan, our plan is actually pretty vast. We want to put or place 15,000 units globally. We want to do it in the next couple of years or 3 years. We want to be in a position that each one of those scanners, regardless of the country, in Africa, India, Asia, Western world, is connected via the Internet to the cloud. And in the cloud, we want to train the magic. The magic will be the connectivity into AI companies that can annotate a radiologist and health care organizations and all of that in order to provide disruption in this market that is much needed. And with that, I would like to hand it over to our CFO, Itzhak Maayan, that will take you through the details. Itzhak, please. I think we're waiting for our CFO. Okay. Okay. He just said that I will need to continue that. So with that, I will continue. Anyway, this slide is giving you a time line of key milestones. This is really capturing what I said in more organized way. So as I said, we started this venture 8 years ago off the activities in Sony. We have developed in 8 years the source, the tube and the full system. Last year, in June '19, 2 very important company acknowledges our development and decided to partner with us. One of them is Fujifilm, the other one is SK Telecom. Both of them invested and also created some kind of partnership. Early on this year, just before the COVID-19, we embarked into crossover funding. We submitted our FDA, and we started aggressively to offer this -- like a presell to offer customers this proposition. So customer, just prior to COVID-19, came to Israel, saw the prototype, played with it, saw the limitation and also the feature, and they've decided that they want it. And when they want it, we signed what we call a SaaS model, which is a service model. Basically, we tell them, you don't need to pay any CapEx, but rather, we're going to connect you to this service. And we're going to connect you in a way that you'll pay per scan. In, I think, February, we partnered with Foxconn, Foxconn being the -- one of the largest manufacturers in the world. Other than iPhone, they do have big activities in health care, and they have took on the challenge to make those units quickly and in high quality. From then, what happened, of course, is that we went into the public offering. We completed the crossover funding. And what we're doing now actually, we are following our plan. Our plan name is to make those units to service our customers subject to regulatory approval. And hopefully, within a few years, 2024, to have 15,000 units placed globally, making a better health care. Now I want you to understand that this is a disruptive technology. It's a little bit like LED versus Edison light. And in that case, we're not going to fight the big guys. We're going to enable them, our technology, in a way that will increase the market, in our opinion. Because when you can reduce total cost of ownership and you spread many more medical devices, connect them to this cloud, some of the units will be made by Nanox, but many others will be the underlying technology of Nanox will serve, in our opinion, the big guys like Fuji, Hologic, Samsung, Philips and the like. So our approach is, on one hand, to provide our technology as an open source to anyone that want to play with it in exchange to royalties; and on the other hand, to go on our own agenda, which is 15,000 units as the first wave and Medical Screening as a Service overall. The main business model that we have called MSaaS, and this is a very, very, I would say, attractive business model to everybody, from one hand, we can reduce the total cost of average scan from something like $300 to $40, again, $300 to $40. We can do that because of our cost of investment. Again, going back to the beginning, our device cost much, much less than any other authentic device. And the way it's done, we're placing the machines. We're asking our partners, which are service providers, to commit to a minimum number of spend, minimum number of dollars per scan. We allow them to make profit. We allow the AI company to make profit. But overall, the cost is about $40 per scan. What you can see from this, that this is a very healthy business because our units are shift and installed estimate to be around $15,000. And you can see that based on a very conservative assumption of 20 scans per day, you can get to a very healthy, I would say, ROI on your investment, which is in months rather than years. Of course, we are going to push and try to propel this market. But I want to tell you that today, we have about 5,000 actually units, 4,520 units. That was a little bit a few weeks ago that are already committed by customers in 11 countries, and I'll touch upon it in a minute. And that actually provides for a meaningful, I would say, obligated revenue of service for a long term, 3 years minimum, subject to local regulatory approvals and accepted tests in the said territory. The next slide is actually connecting the model into, I would call it, reality. So as you can see, we already, as I said, signed and committed -- we have commitments for over 5,000 units by customers. Those commitments, as I said, are pending by local regulatory approval and the acceptance test. You can see the countries. You can see the distribution of systems. And I can just tell you that in each country we chose after a lot of negotiation, what we believe to be the appropriate partner, partners that are already in the field, they know their own local market, and they are capable financially and otherwise to carry out our business model. And not only that, we also ask them to provide a standby letter of credit to support their activities in terms of minimum quantities. In the bottom of this slide, you see additional 5,500 units, so total more than 10,000 units on a presell, okay? And those we launched 2 very important partners. One of them in the bottom is SK Telecom. I just came back from Korea actually. SK Telecom, which we'll talk about in a minute, have decided to support this company and this vision and committed under our collaboration agreement to place about 2,500 units in South Korea and Vietnam, operate them and actually be our service provider for those countries. In addition, in the U.S., we have a very important partnership with a company called USA Radiologists, which is a Siemens-backed company. Now the U.S. is a major market for us, and it's important for me to mention that our approach there, again, is not going after the big campuses. We're not trying to fight in the basement, the big city of the giants because those agreements are long term, and it will be very hard to penetrate. Instead, we have a very, very attractive low-hanging fruit in the urgent care units, community clinics, outpatient imaging centers. Those are places that needs very much medical imaging. They do not have the money or the infrastructure to invest in CapEx. And more important, they do not have the radiologists on the premises to give diagnostic. What we do for them, we're basically connected to the service. And again, think about it. On one hand, there's a CPT code. And our device today, in our opinion, can meet tens of different CPT codes. What we can do for them, we connect them to the service. We provide the device for free. And they need simply to commit to a minimum number of scans at $14, which is way below any CPT code. And that's a very attractive model. Not only that, we are connecting them, if they want, to our radiology [ store ] in the cloud. Our radiologists in the U.S. for now are the group of radiologists from USARAD, again, Siemens-based company that is very active in distributing and supporting our cause in the U.S. And let's talk a bit about Asia. This is a conference in Asia. We just came back from Korea after a very successful trip. I would like to talk a bit about strategic alliance with SK Telecom that is getting deeper and deeper every day. So as everybody I'm sure know, SK is the second largest conglomerate in Korea, very, very important in Korea and Asia. They have a social impact agenda. They are one of the most advanced, I would say, communication 5G companies. They are dealing with many other things, including health care, education and things that are good for the world. They have seen the potential in Nanox, and they've invested a total of $25 million in 2 rounds. Their SK Telecom CEO, who is also the Chairman of hynix, by the way, Mr. Park, have joined the Board of Directors recently. We've decided to collaborate on a few areas. The first one, as I said, is 2,500 units that are going to be placed in the coming years in South Korea and Vietnam. We are establishing a fully owned subsidiary that will be there to support our production and our MEMs production. Now just again, for those of you that are not familiar, SK Group owns hynix. hynix is the second largest production of factory of MEMs for memory. It's similar in some ways. Some steps are similar to what we need. So we have access to huge amount of knowledge and support from there. And that's why we've decided to -- other than the factory in Japan, to build a factory in Korea to operate it by our fully owned subsidiary and to get the support from SK. In addition to that, I would say that the capabilities in terms of communication, AIs and innovation of SK is very much top of mind for us. And again, coming back from very important few days in Korea, I can tell you that this is going to play a major role in our future life. In this slide, I want to tell you a bit about the architecture of the system. We spoke a lot about the tubes, the hot cathode versus cold cathode, about our system. But I want you to be aware that, as I said, each one of those scanners is connected via the Internet to the cloud. And in the cloud, this is where the action happening. In the cloud, what we do, we are basically upload the images. We keep them based on the relevant HIPAA compliance or privacy compliance. And then we start the transaction with AI companies and radiologists and the health care organization, all in order to close the loop and provide a better diagnostic in near real time to the patient. We do that via coalition. So this is a slide I describe our global partnership. These are the partnership we've signed with to date. And as you can see on the right side, these are the deployment partners in each country. As I said, we have a local, strong company that knows what they're doing, that have the financial capabilities to carry out this MSaaS model. And we are very lucky actually to sign with major companies on that front. In the middle center, those are AI diagnostic companies. I mean, everybody is talking about AI. We've decided not to reinvent the wheel but rather to partner with companies that already have an FDA-approved clearance for annotation of AI diagnostic on different conditions like stroke, cancer detection, chest and head. And we are going to -- I mean, again, coming back from Korea, we're definitely going to add many more to this list. We found in Korea major AI activities. And on the left side, these are the strategic partners. These are the partners that not only give you credibility and the ability to expand your business, but in many ways, mitigating a lot of the risk we are going to have while embarking on this global mission. In terms of team, we've assembled a truly amazing team of people from Japan, Korea, Israel and the U.S. I will not dwell on it too much, but I would say that we have people from health care. We have people from semiconductors. We have people from manufacturers. We have people from international financing. And further on, we've established an Advisory Board because you need the scientific -- I mean, in some ways, Nanox is too good to be true. I mean, we're going to disrupt the world in a better way. And you need a very strong support of the scientific community. And I'm very, very happy to say that we have the best of the best radiologists, tester, innovators. You see some of them here. All of them, by the way, are not only supporting our goal but actually very active in different activities we're doing. For instance, we are actively working with Stanford and Duke University through Professor Rubin and Professor Pelc to provide all kinds of modalities and in Hadassah Hospital and so on and so forth. In terms of a snapshot of our financial, the company [indiscernible] and we feel that we have what it takes in order to embark on this mission. We do have over $200 million in the bank. Most of the money is dedicated to actually the manufacturing of those ARC systems. We want to go hard and fast. We want to do it quickly. And we need this cash. And in addition to that, we're going to build a world-class organization for delivery, delivery meaning training, regulatory approvals, service in the different countries. And of course, we're going to continue to develop the cloud and R&D for the system. So overall, I would tell you that Nanox is one of those companies that truly disruptive. I mean, the word disruptive, I think, is overused. But if you look at what we have from the deep technologies to the disruption of business model and then the ecosystem support from Fuji and from Foxconn, of course, from SK and many others and the ability to stand in front of you today and say that even though we didn't manufacture many units yet, we have a commitment for something like 5,000 units that are contracted and another 5,000 units that are contracted but not with the obligation. Like 10,000 units, is very, very telling in terms of the attractiveness of the model and the much-needed solution that this company is providing. Nanox has definitely first-mover advantage. In our opinion, we do have, after 100 years, a real change in the X-ray source modality. The global strategic partnership is very important. We have a very, very clear exception -- expansion plan with the right team. The business model is very, very attractive. And we do believe that the letter of credit that is supporting those commitment will give us a lot of comfort when we are going in different countries and place this network. So with that, I would like to thank you very much for the -- and I think I'm almost on time. Yes. For the time, I tried to do it in 0.5 hour. Clearly, a lot to be said about Nanox. And hopefully, you will hear about us in the coming years. I think control can allow. Hey, [ Anati ].

Hi, Ran. [Foreign Language] Ran, the technology is so disruptive. Would love to just understand a bit about the sales cycle and any of the challenges that you've seen in convincing customers that it's real and reliable. I mean, it's so big that I just wanted to understand a bit more about that.

Yes. Sure. I mean, we say that the proof is in the pudding. So what we did prior to COVID-19, we didn't talk about the technology, but rather, we invited [indiscernible] to see the prototype, to go to the hospital Hadassah to play with it. By doing that, actually understanding that this device is actually real, but it also has some limitations like any other device. And only those customer that came to Israel and sit with us and got a full understanding of what we have today and what we're intending to launch, those are the customers that actually made a commitment. So in terms of sales cycle, I think that what we're looking at, we're looking at propelling -- or telling the story globally. I think post the IPO, this is a much easier -- I mean our phone is not stopping ringing. Big companies are calling us. We are trying to invite them either via Zoom, which is very [indiscernible] today or physically to come and see the device. We're explaining our business model. If they get satisfied -- and we send them to references. Basically, our Scientific Advisory Board is a key source of credibility. I mean, if you talk to our radiologists, they will tell you -- and even the CEO of USARAD, they will tell you exactly what we believe this technology can do and their personal experience from it. And with that, you move to the next stage, which is commercial. What we do, we need to understand the plans of our customers. How many they want to -- let's say, a country like Australia. How many units where -- what are the financial capabilities of our partners? Do they know how to serve it themselves? Are they're going to put together a team? Who's going to do the training? What are the compliances in terms of privacy, in terms of cloud? Is it a long process or short process to get the device approved? All of those things that are a lot of details but actually very important in order us to get to business. And then when we sign the contract, what we do, we actually send one unit. We let them test it. We connect in 5 units to the cloud. And only after everything is working, what we call dry run in Israel, and not only Israel, I guess, we start.

And then one more question. The Nanox business model is to produce these incredible machines, but fairly capital-intensive. I know you just had a spectacularly successful IPO, raising a lot of capital. What is -- how do you see the need to raise additional financing to achieve your growth objectives? Or do you feel you have enough to get to where you need to get in the near term?

Well, I think the plan we presented is aggressive, but we have enough funds that will serve to actually follow our plan. I just want to mention that the limiting factor of our expansion is not the manufacturing, not the capital. It's actually the ability of the market to observe so many units so quickly. Nobody today actually placed such an amount of devices altogether. And that's why we're going to take it slow. And given the fact that each one of the devices provided a very, very short ROI, and as soon as we get devices to the field, we expect them to provide ROI, I think that we are very safe in terms of cash. However, I think that we have a big vision, and there is a lot of big ecosystem out there. So there is no need for more capital. But I think that Nanox in the future will be looking at organic and nonorganic bold moves in order to kind of make even a further impact into the health care market. For that, we may need more capital.

And another question coming in is technology disruption is not just happening in CT and in X-ray. It's happening in ultrasound as well with companies like Butterfly Networks. It appears like a lot of the big imaging players are under attack broadly, and they haven't really invested sufficiently in R&D. And now they have to either figure out how to partner with the disruptors or acquire the disruptors like yourselves. You've talked about partnering in the past. What could you say about what a partnership model might look like, please?