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

Good morning, and welcome to the next session of Oppenheimer's 31st Annual Healthcare Conference. I'm Mike Ott from the MedTech research team. Next up, we're very pleased to have Nano-X presenting all the way from Israel. And if you have any questions, and I see a number already on the Q&A dashboard, please e-mail me, and I'll pose them in the final 5 or 10 minutes. Now I'll turn it over to Nano-X's Founder and CEO, Ran Poliakine.

Thank you very much, Mike, and it's a pleasure to be in this Oppenheimer Conference. It's a pleasure to talk about Nano-X. My name is, as you said, Ran Poliakine, and I'm the CEO and Chairman of the Board for Nano-X. And it's really my pleasure to tell you a bit about Nano-X, the company. I mean, thank you for taking the time to hear about it. Some of you, I'm sure, already familiar with the story. And for those audience, it will be like an update. And for those audience that this is the first time, hopefully, we'll keep you interested through the presentation. Now I will try to make it brief enough, so we'll have time for Q&A. And let me focus on this slide, and this slide is basically telling you the story of Nano-X at a glance. So I founded Nano-X to address a significant unmet global need of medical imaging. The reality is that 2/3 of the world population do not have any access or do have very limited access to medical imaging, while everybody agreed that medical imaging is a key foundation for good health care. And also despite the fact that this technology was invented by Wilhelm Röntgen over 100 years ago. What we are doing basically, we've created technology that is so disruptive, that it's allowing us actually to create a global network of full body scanners, all connected via the Internet or the cloud, and for the first time, actually provide the mass deployment of medical imaging of multi-utilities, I would say, or multi-usage full body scanners that are all connected to the cloud to different services like radiologists and AI annotation companies, et cetera. Now this is not only a dream. On the right side, you see our device. This is a device that we already demonstrated together with radiologists at the RSNA show this year. And I think what's also very unique about this initiative that we took is that: Number one, we have a fantastic ecosystem partners, companies like Fuji, Foxconn, SK Telecom and others. The second one is that our business model is quite disruptive. We're actually allowing partners to connect to the service without paying any of the CapEx. So our business model is very disruptive. It's a SaaS business model. We are connecting our service providers into the service and allowing them to conduct their business while paying us a minimum agreed paper scan fees. And that's very disruptive, especially in the medical imaging domain, which was highly dominated by CapEx expenditure. Now our plan is very simple, we want to take this type of devices. And by 2024, we want to put 15,000 of those globally, not only in developed countries but also in developing countries. And we feel very good about the progress because as we stand today, we already have over 5,000 units that are committed in 13 countries or subject to regulatory approval and acceptance test, all of which partners are willingly and eager, actually, to carry out this vision and basically prepare their own territory with our devices while providing the service. So I think, again, we have -- the need is there, the 2/3 of the world population that do not have access to medical imaging, we have a disruptive technology that originated in Japan that enabled us to actually move from analog to digital and by that, saving a lot of money. Our goal is actually to build it into a global network of minimum 15,000 units by 2024. The business model is more a SaaS model. And the way we approach it is -- or feel good about it is simply because we already have many customers that signed in. So now it's really execution time. Now in terms of -- that's the next slide there. In terms of the progress, as you well know, the company went to an IPO around August time frame. And since then, it looks to us like many years already passed, but anyways, it's only 7 months or 6 months. And we managed actually to sign additional significant deployment agreement with a Mexican player by the name of SPI to deploy additional 630 Nanox.ARC systems in Mexico and Guatemala. Obviously, we raised at the IPO over $190 million. In October, we announced as part of our ecosystem, the partnership with the company by the name of Ambra Health, which is one of the largest IT health care software in the U.S. at least, and they're going to enable us to really reach out to many consumers. In December, we had a big, big milestone, which was for the first time ever, we demonstrated the technology as well as demonstrated the device to the market in real streaming of live video from Israel, that was as part of the RSNA show. And to that demonstration, we also brought some American radiologists that actually, I think, validated and gave a very good feedback on what we can do with this technology. And specifically, why Nano-X in certain modalities is very, very impressive versus what exist in the world today. So that was in December. In January, actually, we expanded our ecosystem by announcing what we call second opinion program together with USARAD, which is one of the, I would say, dominating radiology groups in the U.S., partly backed by Siemens. We further on completed the recruitment of a full management team that will help us with the execution. And in February, we allowed some of the early investors, non-Director and officers, to participate in a secondary offering, which basically switched from very old private investors to some institutional investors. So what that's in a nutshell, the last 7 months. Again, going back to the basic, the reason of being for Nano-X and the reason that Nano-X is, I believe, are taking a lot of attention in the marketplace is simply the fact that the problem that we're trying to solve is huge. Medical imaging is a key component of health care. There are not enough accessibility into medical imaging technology today. It's not accessible and not affordable. In fact, over -- according to World Health Organization, 2/3 of the world population do not have access to medical imaging. That is sufficient. And for that reason, when we bring a solution that is both affordable and accessible is something that gets a lot of attention. Now to understand what we do, you need to understand the fundamental of technology. So Wilhelm Röntgen actually came out with something called hot cathode. It's an analog filament that is being brought up to over 2,000 degrees C. And at that point of time, electrons are willing in a way to depart from the filament and collude into an anode to create the X-ray particles. This is a very analog, very, very hot device. And we are replacing it with semiconductors, which is called cathode. And what you see on the right side, I will not get too technical, but basically, that tiny little chip is actually responsible of hundreds of millions of little electrons that can depart from the semiconductors, all in room temperature. And when you can do that, you can also control digitally the flow of electrons and you can reduce dramatically the effort to cool it down, which cost a lot of money. So that's a fundamental kind of technology. And by the way, this chip, now because it's so small, we can put into this little tube. This is Nanox tube. It weighs like can apple. I don't know if you can get it. It's about 11 centimeter in size, and it can do everything that the tube of 1 meter and the 100 kilos can do with the old technology. Now the next slide is actually taking us through the economics. And again, why Nano-X possibly can be really a game changer in the economical value or economical value creation, I would say. And that's simply because of the fact that the legacy system, only the tube itself, cost average, about $150,000, while this tube from Nano-X estimated to cost in mass about USD 100. So when you can change from $150,000 to $100, then you can now understand better our mission to propel the globe with those little tubes because it's only $100 per one. And that's really putting us in a position that we feel is very attractive because from one end, we can make those devices in a very low cost. We can now offer them as a SaaS model without the burden of a CapEx model, and we can move the industry to separate between the patient and the physician over the cloud, which is something that is very much belongs to what's going on in health care, especially post COVID-19, which I believe people realize that you can actually speak over the Internet and create diagnostic without physical -- being physically in the same place. So that's really -- this slide is really talking about the fundamentals of economics. The next one is really talk about our system. And again, our system is based on those little tubes. What we did, we've assembled some of those tubes into this ARC, okay? We call it Nanox.ARC. And what we can do, we can control the projection of images from each one of these little tubes digitally, and we can control the area of the body that we are scanning, the amount of energy. Soft tissue require different energies and heart tissues. And also the combination, and this is what we call [ Nanox Atlas ]. This is a recipe of which tube is activated for how many milliseconds. By the way, overall, it's -- in some modalities , it's way less radiation than anything that we know as an alternative and data system. So it's a new breed of medical imaging using our technology. Potentially, we are offering this in most modalities in a much, much lower cost, less complex and smaller imaging system. And the idea here is to use these devices and ship thousands and thousands of those, not only to the big hospitals, but actually to start with the community clinics or every remote clinics that have Internet is okay. Because what we need to do locally is only the scan of the patient and the diagnostic via AI and by physical radiologist, it's done over the cloud. And that really the disruption, and that's what we're going to do. Now as I mentioned before at the RSNA show, this is me, by the way. I was physically presenting images on both 2D and 3D. I used the concept device that we are building. And by the way, we are building right now, and I'll talk about it, 1,000 of those in Israel. I demonstrated the technology, but I think what is even more important, we brought 2 radiologists, certified radiologists from the U.S. One of them at least is totally not connected to the company that basically gave their opinion, which were very high, on the images we could acquire in this exercise. Now following this RSNA, I must tell you that in some ways, when people and investors and big companies from the top health care companies actually realize that we have something real and it's working and they saw it in live, the room for speculation went down dramatically. And we experienced, I would say, flood of incoming calls from -- and interest from different countries, different health organization, not-for-profit organizations, big hospitals, a lot of research areas. And what we're doing now while executing our plan, we are also entertaining those interest levels that came from the industry. Now in this slide, just for you to know, we took an image of my hand on the left side, and we put it as an iconic thing against Röntgen's life from 1895. And on the right side, this is a 3D reconstruction image of Nano-X that was superior in many aspects based on the radiologist's report and when they compared it to the other modality they had. The next slide is really very exciting, and this is for you, investors, that are already following us. We promise that we are going to make those devices en masse. Part of the story of Nano-X is really the ability to create accessibility. And by that, we need to make many. And what you see here is the first batch of production that is in Israel. I mean, following COVID-19, we mitigated our plan, and we are doing the first full assembly and testing in Israel while the components are coming from different countries. And the good news is that we are well underway to ship 1,000 units out of this production facility in Israel. We're doing it 100 first that are going for all kind of IRBs, regulatory demonstration, et cetera, and then 900 that are going for deployment. This is all happening as we speak. Actually, we had a company event yesterday in the factory when we celebrated. Actually, even many more of those devices in the production floor. And that's something very exciting because we turn this from a prototype into a production-ready product. We turned it into -- from an idea into reality. And those devices are going -- to later on going to get tested and then into boxes and they're going to be shipped to different destinations. And again, just to remind you, we already signed in 13 countries. So we have many customers waiting for those devices, subject to regulatory approval, which I'll touch upon in a second. Okay. So in terms of business model, I will not dwell only too much, but the one that follow us knows that we're shooting at mainly SaaS model. Basically, part of the affordability is staged for average of $14 per scan, regardless of the location of the body. And then if you add up to that our radiologist, you'll end up with less than $40 for a total diagnostic on a global basis. And that's very, very different than what the market is offering today. Not only that, we are assuming that each one of those devices will generate a minimum of 20 scans per day, which is much less than the industry average. And more than that, we committed our partners, as I told you initially, they need to commit to a minimum scans per day over a period of time to get the device for free. So we set it up at 7 scans per day, which allow us still a very nice ROI, which is way below 1 year. So all of that about the business model. This business model is carry out through a platform. So again, this is a cloud-based platform that is connecting each one of our 15,000 units that we're about to build through the Internet, into the cloud. In the cloud, we are directing the images to some reconstruction image systems and AI annotation systems, of course, radiologist to complete the transaction. Now every country has different policies, but overall, it's the same platform. In terms of regulatory clearances, so it's not a surprise. That's a very, very big topic for the company, which we feel very confident as a management team that there is no reason why we should not complete different regulatory clearances in different countries and go about our businesses. It's taking some time, but it's -- like every medical device company, we will need to clear our device before we operate it. Basically, we are focusing our efforts first on the FDA. And the FDA, the focus is based on 2 steps: One is the steps that we are very much hoping that is going to be concluded, which is a single-source product, which has basically brought the technology to the level of clearance. And the second one, of course, is the actual product that you saw, the multisource that we are about to submit with the hope to get the clearance under 510(k) route within a few -- within, let's say, less than 4 months. All of that will put us in a timetable that will allow us to ship a lot of units already this year and start to operate them towards the end of the year under a cleared regulatory path in the U.S. and in other countries like Asia and Korea. And even the SEA, we're going to submit, but it may take a little bit longer. So that's where we are there. Just a little bit more details, I think. So again, the FDA discussion that you see on the chatter right now are all related to the submission from last year of the single source. And that's something that we believe that we submitted also requested information, and we should expect to complete this clearance process. And the multisource Nanox.ARC system is something we plan to submit soon. And that actually will be a system level, and that's what we need to clear in order to start making business in the U.S., let's talk about the FDA. So that's all our plan to happen still within this year. And therefore, our mass shipping quantities are planned for the second half of this year and into Q1 of 2022. I don't want to tell you too much about all the delays that we experienced because of COVID-19 because I believe that we overcome them. And this timetable is meeting also the limitations of the delays. This slide is just detailing the 13 countries that we already signed contracts with. Again, these are binding contracts that are subject to regulatory approval and acceptance tests, they're all based on the same business model. We're talking about 5,150 units in different countries, as you can see the details. And then we have 2 strategic deals that are less binding in terms of the terms, but are very strong in terms of the intent. One is with SK Telecom for Korea and Vietnam for 2,500 units; and the other one is for the U.S. together with USARAD for 3,000 units deployment, mainly in urgent care units. So all of that is in the work. And subject to regulatory clearance, we'll move forward with that. Just to summarize. So again, as audience, you will be able to differentiate between the promise and one -- what we are actually doing in this company in 2021. So these are a few operational goals that we put -- we've determined to ourselves that we want to touch. The first one is, of course, to complete the product and take it to market the Nanox.ARC and cloud. The second one is to funnel as a global supply chain, including the chips, tubes and assembly to meet the very big demand we have. And some of you, I'm sure, saw that we announced the ramp-up and the investments we're doing in Korea this day. So we're building a state-of-the-art factory that will serve Nano-X for the next many years with a big capacity of both chips and other parts of the system. We want to secure regulatory approval in the U.S. and other territories still within this year. We want to establish the organization infrastructure. And we're talking about logistics, training, all of that, and all of that is in the making. We want to work with our customers to develop their readiness. I mean, it's not good enough to sign a contract. Of course, the SOW of the contracts, it's a lot of work, and we have people doing that on a daily manner with all of our customers. We want to transform existing sales pipeline into new sales agreement. And here, I want to share with you, we have a very healthy pipeline. What we want to make sure is that the next pipeline that we get into sales agreement already happening when we're actually delivering the product, so that will wait a bit. And of course, the partnership with strategic partners will be expanded, and I can only confirm that we are talking to everybody in the industry. So with that in mind, Mike, I think I'm just on time, and we still have 7 minutes for questions. So I'm very happy to answer any questions.

Great. Thank you so much, Ran, for that helpful overview. Obviously, the hot button topic on the minds of many investors and you did speak to it, I know in your slides, but I have to just push a little more to the extent you know. On your 4Q call earlier this month, you said you guys submitted the response to the FDA for the single-source 510(k), and then spoken directly to the FDA examiner, which seemed like all very positive traction. We had optimistically thought you might hear as soon as a couple of weeks or mid-March, though realize, obviously, there's still a global pandemic going on. Any update or additional details you can share on any of the latest dialogues you've had with the FDA since your call earlier this month?

Absolutely. So we are working constantly with both the FDA and the third-party evaluator. Basically, we submitted everything that is needed, and we've got the confirmation that what we need to submit was done. The clearance itself is based on the third-party consultancy clearing to the FDA and the examiner giving us a clearance, which is expected any day now. So we expect as management team, and we believe that we completed everything in a good order. And we do not foresee any further delays. But it's FDA, it's a pandemic, and we do not control their timing. From the company's point of view, I'm very happy to announce that we did everything needed so far to comply with all of the requests, and we did it in a very, I believe, very professional levels. So they have everything they need in order to clear it. Again, I just want to remind everybody that this is an imaging system that is cleared day in and day out, and we did not see any difference on this 510(k) for Nano-X, and that's why we're very optimistic that we're on the right track there.

Okay. And then on the multi-source, if I read that slide correctly, it looks like you still expect to submit that 510(k) here in 2021, right?

Oh, yes. No change before. I -- we expect to get it cleared within 2021. Tell you that we have in our factory, and you saw that we have many units that are already operating and working. And I believe some of Oppenheimer's guys saw that in the context of the secondary. We have our factory with machines. And what we do now, we document, we test and we'll submit. And based on this submission, we should expect 3 months after or maximum 4 months a clearance. And that's happening very, very soon.

Excellent. And you mentioned today the event at your Israeli factory yesterday, it sounds like you're also tracking to the shipment of the first 1,000 devices starting later this year and then concluding by the end of first quarter '22 next year?

Absolutely. I think from shipment point of view, we'll be ready. Just to be clear, what we do is the final assembly is done in Israel. All the molded material, all the tubes. The chips are done overseas. We found it very challenging actually to ramp up production remotely when you cannot even go physically, let's say, to Taiwan without quarantine, et cetera. So what we've done, we mitigate this plan. We found a very, very high-quality production house here in Israel. And we are shipping all the parts, we already shipped from China and from Korea and Japan. And the final assembly is done in Israel, including testing. And this factory is, of course, certified to a medical device factory. So that's okay. What we've decided to do is to make the first 1,000 units in Israel, ship them on time. And during 2022 and when the skies will be open, to actually shift to a second source or main second source, which is Foxconn, of course, which is the partner we originally plan to make the product with.

Okay. That makes a lot of sense. And then in the maybe 2.5 minutes or so we have remaining, last week, you announced that your Korean factory would be online by the first quarter at '22 to manufacture digital sources, obviously, still in the planning stages today. What do you see as the key next steps to bring that facility online, given some of the challenges with COVID [indiscernible]

Yes, it's only money and time. I mean we spent -- this year, we're going to spend $40 million. It's heavily CapEx investment in land, in building clean rooms and equipment. All of that was already bought. Now we are assembling and building physically the factory. It should be launched during November time frame of this year, and the ramp-up should start in November, completed by Q1 of 2022. Just to make sure everybody understand, we do have capacity in our factory in Japan now. The capacity is for thousands of units. So we have no problem of capacity. However, given the fact that we believe that Nano-X will sit in every clinics in the world actually, and we believe that the markets within health care and other markets for the digital stores are huge, we envision this to become much, much greater. And for that end, we wanted to get ready with a state-of-the-art, high-end -- really high-end production facilities that can take care of much higher capacity, and that's what we do.

Okay. I think with that, we're out of time. But thank you so much, Ran and Nano-X for being with us at our Oppenheimer conference today. Good luck with everything. Take care.

Thank you very much. Thank you.