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

Steve Halper with equity research at Cantor Fitzgerald. We're very happy to have with us today Ran Poliakine, who is the Founder and CEO of Nanox. My colleague and I -- Kyle Mikson, initiated coverage today of Nanox within the life science tools and diagnostics space. Our rating is overweight and a price target of $70. Nanox is a very exciting story with tremendous growth opportunity in front of us. Ran is going to go through the company's presentation. And if there's time at the end, we'll ask some questions. [Operator Instructions] Ran, thank you so much for participating in our virtual health care conference, and I'll turn it over to you now.

Thank you very much, Steven, and good morning, everybody. I'm going to tell you the story of Nanox. So hang on, let me -- I have some technical challenges. Okay. Okay. So this slide that you can see on the screen actually is a snapshot of Nanox. Again, my name is Ran Poliakine. I'm CEO of the company. I think to understand Nanox and put everything in context, let me just make a statement. There is a huge global shortage in medical imaging devices. When everybody appreciates that medical imaging becomes more and more important in health care, the technology itself was invented by Wilhelm Röntgen 100 years ago, and yet, they're not enough. Why? Because it's very expensive. It's very expensive because the core generator of X-ray by Wilhelm Röntgen is based on thermionic effect, very, very hot. How hot? Over 2,000 degrees Celsius. In short, Nanox has the answer. We're doing exactly what Wilhelm Röntgen invented, but we are doing it with nanotechnology in room temperature. And because of that, we can eliminate huge amount of the cost and create accessibility and very low cost device all the way to $10,000 in mass production, and this is a full-body scanner that you see on the right side of this slide. Now this technology was originated in Japan. Sony invested over $1 billion over the years. And 8 years ago, we bought basically the people and the know-how to move it from [ flat-panel ] display into an X-ray source. Many patents. Very high barrier to entry. And I'll talk about it later, but instead of just being a technology company, we've decided because of the impact that this technology may have to embark on a global campaign, where we are going to place 15,000 units in the first wave of those scanners globally, not only in countries that are rich, but also countries that are poor. We're going to connect each one of those scanners via the Internet to the cloud. And at the cloud, like the 21st century, we're going to provide transactions with AI annotation companies and radiologists and HIPAA-compliant services and more and more. All of that we want to do before 2024. And with that in mind, we invited, prior to COVID-19, many customers to see the product that we have built. We have a product in Israel. And they've seen it. They liked it. And then we said, you know what, instead of CapEx model, we're going to disrupt this market with a pay-per-scan model. What it means? It means that subject to minimum number of scans, minimum number of dollars, we would connect it to the service. So for instance, in Australia, we put 1,000 of those; in America, in some places, 500, another 500, and so on and so forth. And I can tell you that this has been very, very easy sale because the value proposition here is huge. And we are very lucky because we're sitting on more than 5,000 units obligated by contract. And not only that, there is a letter of credit that is going to obligate our service providers for the minimum scans per day. I'll touch upon it. One last thing, we have partners. Those partners are big partners. Fujifilm, Foxconn and, of course, SK, which is the second largest conglomerate in Korea, they are all really taking active part in our lives. And that actually helps us a lot, but also it mitigates a lot of the risk. I just came back from Korea, and I can tell you, this is a very, very important project for SK, for instance, and I feel very confident that we are going to embark on this global vision with very strong starts. I will tell you that last year, we did --I mean, still this year, we had a cross-over funding, and I'm sure you know that we went public about 2 months ago. And this is actually the snapshot of where we are, and let me start from the beginning. So the next slide is actually showing you -- when it's going to upload. It's talking about preventive screening. I mean if you'll ask any oncologist, what is the best way to find cancer or to fight cancer, they will tell you, simply, early detection. Why? Because if you can get cancer -- find cancer, when it's very small, you can take care of it Now the big paradox here is that this technology exists. Namely, WHO came out and said, listen, X-ray can do that. Nobody is using it because of the cost. In the next slide, I'm actually talking about accessibility and availability. So 2/3 of the world population do not have any access to medical imaging, which is crazy if you think about the fact that we all understand that what's going on in one country post COVID-19 affecting very much other countries. I don't know why the slide is not uploading. Let's wait. But in the meantime, yes, in the meantime, I will push to the next slide, which, hopefully, will be uploaded. Steven, are you -- like me, you don't see the slides, right?

Yes, there's a slight delay in the slides coming up.

Okay. So let me keep going, okay? I mean what I'm trying to tell you -- I will describe. I'm trying to show you under the hood of the 21st century CT machine. This is, like you see here, a super cumbersome device, a lot of moving parts. Actually, it looks like my garage from the '70s, to be honest. And this is something that you need a technician to operate, and you need a basement to put on, and you need connection to [ connect this ] -- to drive it. So in other words, it's not really scalable. Now the invention itself is very good. This person here that I'm trying to upload, Wilhelm Röntgen, used to live among us 120 years ago and did come up with this beautiful idea that if we can heat up the filament to about 2,000 degrees C, we can extract electrons from there. And if they collude into an anode with a different potential, you can have something. He didn't know how to call it. So he called it X-ray. And you know what, this is a good invention because for the last 100 years, nobody changed it. So what you see on the next side is a modern hot cathode because it's hot, because it's very aggressive, it's operating under heat generation of 2,000 degrees Celsius, and it's basically burning everything. However, it's working. And this is a modern hot cathode tube, and you see the red dot is the filament. At 2,000 degrees C, the electrons are departing from the filament. And if this anode is generating potential differences, those electrons will collude onto this rotating anode. Why rotating? Because otherwise, it would be burned off and create X-ray. Again, super aggressive, very hard to keep alive if you need high density and for a long time. And that's why, while this hot cathode tube costs only $150,000, when you put it in a modality of X-ray like tomosynthesis or CT, you may need to add a couple more millions because you need [ machine oil ], et cetera. So overall, guys, this is not a scalable solution. Despite the fact that everybody wants to fight cancer and health care organization pushing globalization, it's not really a scalable solution. Now the Nanox paradigm is very simple. I mean what we're saying is just like in other areas in medical, when we can miniaturize and namely move from hot cathode to cold cathode, we can envision something very small footprint, very low cost, which propels the universe with those not in the main campus of hospital, but actually GPs' offices and urgent care units, get us data gathering and provide value to all participants. And that's exactly what Nanox has done. So the next slide is showing you this little semiconductor on the right side. The semiconductor is a size of 1 centimeter by 1 centimeter. And this can do everything that Wilhelm Röntgen did with the thermionic effect. Only it can do that in room temperature. I will wait for this to be uploaded and you can see it. And in the meantime -- here it is. I will move already to the next one, which is really to say, this is not only an idea. We have one factory in Japan that is operating. What you see in the next slide is actually the factory. And we are, to our knowledge, the only company in the world that took this $1.1 billion of Sony with the people, with the know-how, translated this into a workable MEMs nanotechnology solution, and we are, to our knowledge, the only company that can do that today. Moreover, because of the huge demand, as I said before, we have so many customers, we are opening up together with the help of hynix or SK, a big facility, automated facility in Korea because we believe that for the next 100 years, the global market will demand many more of those little semiconductors. The next slide is showing you a little bit how it's different. So on the right side, you'll see in a minute, you'll see a chip under the microscope. The idea there is that we have hundreds of millions of nano-electron gun. Every one of those holes represent a place where an electron can depart with minimum surface energy. It's like LED versus Edison light, actually. And of course, on the left side is the legacy system that you need kilowatts to actually activate it. The next slide is what you can do with that. And this is something we're so proud of. And again, I just came back from Korea from our factory. And I was holding in my hand a new version of something that is 10 centimeters in height and maybe the weight of an [ apple ], 40 grams, that can replace totally something that today weighing 100 kilos and 1 meter in height. So something that you can hold in the palm of your hand. And this is actually a true product that we delivered to our customer, one of our customers. And it's working. And this is a digital revolution that we're talking about. Now the next disruption, and this is where the investment houses should really pay attention, is our ability because of that, because of the fact that this is semiconductor, to move from $150,000 average cost to something that is less than $100 in mass production. And this is what happens when you move from one-off thermionic kind of 19th century technology into a 21st century technology of MEMs semiconductor. So when you can do that, when you can just hold something in your hand that costs less than $100 versus $150,000, 1 meter, you can now understand that the possibilities of propelling the global market with those little [ flashlights ] taking screenings of patients wherever they are, rich countries, poor countries, and upload these to the cloud is very, very feasible. The next slide is actually telling you again that our ability to do what was done in ultrasound, ECG and other things, namely, to move from big to small, analog to digital and millions to thousands has to do with the transformation of radiology, from hot cathode to cold cathode. Because when you can do that, again, you eliminate most of the cost. The next slide is what we like to compare. This is under the hood of our system in Hadassah Hospital on the right side just last year. It's a 70-kilo device. This arc is moving along the bed, taking beautiful image projections versus the one on the left side. And the next slide actually is showing you the X-ray that was done by some radiologists. We'll talk about it later. But our value proposition for the world right now is a very low cost and amazing business model with the same performance of any X-ray. If it will come up, you'll see the -- this is the way radiologists actually compare to the images. And I just want to -- this is -- just want to make a point that you understand that if you can take excellent 2D images, you can reconstruct them like we're seeing in the next slide on the left side. This is something that was done, especially for COVID-19. These are many images of 2D [ that they run ] that we reconstruct on the left side to detect for this patient, specifically COVID-19 symptoms. So you see it on the left side. So our product, and that's what we have already completed in Israel as a prototype is basically taking a few of those little tubes, put them in this arc and control separately each one of them, not only on or off, but also in different level of densities. What it means? It means that the same arc can rotate in my hand, my chief soft tissues and heart tissues. And that was never done before in areas of 3D tomosynthesis. That's very, very unique to us. And the next slide is actually talking about the regulatory paths. As I said, we are going to -- we already signed contract in more than, I think, 11 countries. And of course, it's a medical device. We need to get clearance. We believe that during the first half of next year, not only will we get the FDA clearance via 510(k), but also we'll get other countries where we sign contract and we'll start our business. That's our belief. Of course, FDA and regulatory is always timing type of risk. But we feel, based on also our previous experience, that this is a very reasonable assumption. With all of that, let's talk about our plan. So we talked to you about the huge need globally. We talked about hot cathode versus cold. We demonstrated that from big, we made it small and low cost. And now let's talk about what is the best way to make global impact with that. And we've decided that we should not wait. We should embark and actually place 15,000 units everywhere, that actually is the first wave, in places not necessarily like the main campuses but actually community centers and clinics and urgent care units and countries that do not have anything, connect them via the Internet to the cloud and run pay-per-scan model versus CapEx model. So this is kind of what we are trying to do. We are very, very bullish on this impact. I mean other than -- more than money, the impact would be very, very significant because all of a sudden, you can connect to a radiologist from New York with patient in India or in Kenya or in South Africa. The next slide is actually just giving you a time line very quickly. As I said, 8 years ago, initiated that we moved this technology, the Sony technology, placed it on a chip to human system. Last year, we were managing -- after 2 years of due diligence, actually, SK and Fuji, for their own reasons, decided to become partners and invest in the business. For Fuji, they are one of the largest medical device players, and they're OEM partners for us for their own application. And for SK, it was clear that 5G will be the enabler to upload those images, and then they're very much into social impact these days. Plus, they have ties into APAC market in a way that can really take us together with them into a new era. We also invited Foxconn. You know them, I think, as the iPhone manufacturer, but in fact, they have also other facilities for medical device. And after a lot of due diligence, they invested in the business and committed to become our chosen manufacturer at the set cost. And then we started to bring customers to see the product itself. And you know what, it was a very, very interesting experience because our customers from different countries sent their radiologists and operators and wanted to see this -- how is it possible that with $10,000 in mass production, it can do so many procedures. They came. They tested. They gave us comment. And most of them, I would say, actually signed what we call the MSaaS agreement, which is today providing us with over 5,000 units that are committed based on this pay-per-scan model, and we intend to continue with that. So what we do now? Following the IPO, all the groups are focusing on execution. We are getting our mass-production facilities together. We are getting our regulatory clearance in many countries together. We're getting our what we call [ Nanox.CLOUD ]. This is the clinical road map together, and we are starting to get the field ready for our product in many, many countries that we already are in [ working ]. The next slide is actually talking a bit about the addressable market. And this is just -- I will not get into it, but I will tell you that our technology is like LED in lighting. So GE Lighting distributed Edison-based lights and now they're doing it for LED. So the underlying technology, the way we look at it, will change from thermionic of Wilhelm Röntgen into Nanox. And because of that, we are going after the big guys and telling them, "Guys, this is open-source. Use it. If you utilize it into your product, we expect to get some royalties." And second point, we're not going after the main market of hospital because with our business model and accessibility, we can actually go after countries and areas in the U.S., let's say, that today do not have the infrastructure, the money or the radiologists on their premises to provide us with answer. The next slide is the main business model. We call it MSaaS, Medical Screening as a Service. Basically, just to give us some numbers, the global average cost per scan is $300. We're going to put it down to $40. So $300 average, we're going to put it down to $40. Our part of it is $14 only: $10, right to use; $1.5 for AI annotation companies; and additional $2.5 for the cloud storage and the maintenance. We have many customers that committed to this model. And what we have said basically is to confirm that the minimum 7 scans per day, which is way below the whatever average, which is 60, it's their commitment to us. So they need every machine to operate 7 scans per day, $14 minimum per scan. And with that, they're good to go. They need to break it up a little further. However, of course, 7 scans per day is not enough. We want to push them to 20. And this will make the math based on what we have today. We're talking about -- and given the fact that those contracts are long-term contracts, in full utilization, you're talking about, let's say, our plan is 15,000 units. Based on this model, it's over $1 billion net revenue based on that assumption. So there is a lot of room for making impact, but also very good business. The next slide is actually connecting the model with reality. So even though we didn't make many products, we have so many customers. What you see on the top side of this slide. These are all customers that committed in countries, and you see the different countries and different units. And I can only tell you that each one of the service providers, in our opinion, has the capacity, the financial capabilities and, I would say, they're eager to go on with this business model because this is what they believe can get huge traction in their own market. And so we're talking about all of those customers with a signed contract ready for us to pass the regulatory approval in their own country and start shooting scans. On the bottom of this slide, I want to talk about 2 very special other partners. One is in Korea, 2,500 units that was published as part of the collaboration agreement with SK. As I said before, SK is really focused on social impact. They have the infrastructure, 5G, and like every telecommunication company, they are transforming into health care because health care is also IT. So they took on the mission to propel, based on the same model, South Korea and Vietnam as well as other countries that are helping us in China to get into. The second one is the U.S. And in the U.S., I will show you in a minute where, for now, one major partner. It's a Siemens-backed company by the name USA Radiology. They're providing for us both the remote diagnostic and also the access to many, many urgent care units. And what we've learned, which is kind of very amazing to us, that instead of going after the big campuses where the [indiscernible] GE, Philips, Siemens are there for 15 years. If you go after the tens of thousands of urgent care units, outpatient medical imaging centers and you offer this model for the reason of cost, no cost involved, very little infrastructure, but more importantly, the reason of the lack of need for radiologists on the premises. Because our radiologists giving advice on the cloud, you're getting a huge reception. And that's what we see, and that's why we are present in the U.S., think that the 3,000 units that we agreed with the Siemens-backed company, USA Radiology, is going to be hardly enough. Everything is, of course, subject to getting the FDA, which is kind of a milestone, key milestone of the company, I would say. I'm trying to move to the next slide and let's see. So this is -- again, going back to SK Telecom and the fact that they are a super important part of our life. Again, came back from Korea last week. We have a big team there. We have a support team from SK hynix. SK hynix is the second largest mass manufacturer company in the world that are helping us to build our own factory there. We have a big tailwind from the CEO and Chairman. And I believe that this is very much going to help us to succeed and mitigate our risks. I think the next slide and the next couple of slides, actually, just talking about the architecture. So far, I talked about technology and the hardware, but I'm sure you understand that everything is going in the Nanox trial, which is fully developed, basically every scanner, there's connectivity to the cloud. And in the cloud, what we do, we are partnering with third parties like AI annotation companies that already got their FDA approval, and they're sitting, waiting for images to be scanned and annotate. We already signed with 5 of those, and we're going to continue. And the idea is that they annotate, we pay them $1.50, and that's it. The value proposition for the patient and radiology is much higher. The same with radiologists. And with that, I want to just talk about -- a little bit about ecosystem and about the fact that our story is based on partnership. I mean we're coming and really disrupting the other one. We could not do that alone. We don't do it alone, actually. So in the next slide, when it would be uploaded, you see on the right side -- and it's got a global partnerships slide. On the right side, these are the service providers that we talked about before. These are the guys that will operate their day-to-day business. They are indisputable in their markets. They have the connection, financial capabilities and they took on the mission of scan physically with our devices. In the center, like I said, these are the -- so far, the AI diagnostic companies that we signed off with, and it's very, I think, impressive because if you have someone that has suspicious something in the chest, you can use immediately Qure.ai, get their annotation and send it to the radiology. That's part of the power of our cloud. And of course, on the left side, these are the strategic partners that we've discussed, and each one of them is coming to play for their own very strong reasons that are not only financials. When you have a big dream, you need -- and you want to execute it, you need a team. And what we have really -- again, I don't want to flatter ourselves, but we do have an amazing team, people that came from -- exit with medical companies, with semiconductor experience, with chip experience, with Korean experience. And all in all, we feel that we have what it takes in order to execute our plan, including also an amazing scientific advisory board. These are people that are actually working with us daily. And as we speak today, we have a job conducted with a professor from Stanford and in Duke University. And Michael Yuz, CEO of USRAD, has been very, very helpful. And Peter Dawson from the U.K., very, very well-known radiologist, is actually working on what we call the minimum package for urgent care units. All of that is very, very attractive, and we feel strongly that the scientific community will know what to do with our technology. The next slide is just a financial snapshot. I don't want to repeat it. Just to say a note that enough money in the bank in order to execute our plan, and we feel that with that amount of money, we're good to go until we are self-sustained. With that, I will just try to summarize in interest of time. So we talked to you about hot cathode versus cold cathode. We talked to you about this technology, nanotechnology that was originated in Japan. We talked to you about the need, huge need. We talked to you about the ability to eliminate most of the costs that are the limiting factor from global spread of medical images. Despite the fact that it's so important, we demonstrated our ability to build one, we demonstrated our ability to attract so many customers that came to Israel and committed long-term commitment in totaling hundreds of millions of dollars, obligated subject to regulatory approval, and we talked to you about the big tailwind that we have from companies that are not doing it only for the good business, but actually they feel strong commitment to make a change in the health care market globally. With that, I would like to thank you for your attention, and I think we have a bit of time for questions.

Well, Ran, thank you so much for the comments. Unfortunately, we have less than 1 minute. I want to thank you for participating today. Again, if investors have any follow-up questions, please feel free to e-mail me, steven.halper@cantor.com, and I will make sure that the questions get back to the company, and we'll get to an answer as soon as possible. Ran, stay safe. Thank you. We appreciate the time today.

Thank you. And thank you very much, Steven. Thank you.