Home Deep Analysis Nano-X Imaging Stock: Too Much Controversial to Buy (NASDAQ: NNOX)

Nano-X Imaging Stock: Too Much Controversial to Buy (NASDAQ: NNOX)

by WOOWinvest
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Nano-X Imaging Stock: Too Much Controversial to Buy (NASDAQ: NNOX)

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After careful review Nano-X Imaging Ltd. (NASDAQ: NNOX) history and controversy, I’m still having a hard time justifying the current valuation, even though it’s down 90% from its peak.While the stock’s downside momentum has eased, I recommend investors stay Until the company can de-risk its story, I’ll be on the sidelines.


I am approaching Nano-X Imaging Ltd. as a potential bottom fishing candidate. It has certainly been a roller coaster ride for investors. Nano-X went public in August 2020 and quickly tripled from its IPO price within a few weeks. Shortly after, however, Citron and Muddy Waters launched a brief attack, widely claiming that the company was built on Steam software and was “Theranos 2.0”.

NNOX Chart Patterns

Figure 1 – NNOX shows interesting chart patterns (Author created using price charts from stockcharts.com)

While the company didn’t directly condemn the brief presentations, it did schedule a live demonstration of its technology at the 2020 Radiological Society of North America (RSNA) meeting in December. A successful demonstration of the prototype has helped restore investor confidence in part, with shares reaching as high as $95 in early 2021, giving the company a market cap of nearly $5 billion.

Unfortunately, this was a high for NNOX stock, as repeated FDA delays and a stock market correction caused the stock to drop to a low of $8 recently. Since hitting $8 in March, the MACD indicator has seen a positive divergence as shares attempt to form a sustainable bottom, break out of a 2-year downtrend and challenge the 150-day moving average.

Against this interesting technical backdrop, I’d like to revisit the company to see if it’s fundamentally making any progress to justify a shift in investor sentiment and/or successfully counter analyst criticism.

Delays, delays and more delays

One of my biggest problems with the Nano-X story is its long history of latency. At the time of Nano-X’s IPO, it was initially planned to submit and receive FDA approval for its multi-source Nanox.ARC X-ray device by the fourth quarter of 2020:

“We will continue to optimize and develop more features of Nanox.ARC and plan to file an additional 510(K) application for multi-source Nanox.ARC in the fourth quarter of 2020 under the third-party review program, which, if approved, will become Our commercial imaging system.”

– F-1 quotation submitted during IPO

With the fourth quarter of 2020 approaching and past, even its single-source Nanox.ARC has not been approved by the FDA, and the company delayed its commercial launch to the first quarter of 2022:

“We first demonstrated a working prototype of Nanox.ARC in February 2020, and if approved by the FDA and authorized by similar regulators in other jurisdictions, we aim to ship 1,000 Nanox by the end of the first quarter of 2022 systems, with the goal of completing the initial deployment of 15,000 Nanox systems by the end of 2024.”

F1 offer submitted during secondary offering in February 2021

Finally, in April 2021, Nano-X finally received FDA approval for its single-source Nanox Cart X-ray system, nearly a year after it originally filed its 510(K) application. However, with the Q1/2021 results released on May 11, 2021, the company pushed the commercialization date further to sometime in 2022 due to a shortage of high-power ceramic tubes:

“As a result, while the company does not expect to achieve its previously announced milestone of 1,000 multi-source Nanox device shipments by the first quarter of 2022, the company believes it will be able to make progress during the year to reach the milestone if multi-source Nanox.ARC receives FDA approval. Approved and authorized by other similar regulatory agencies, the 2022 multi-source Nanox device shipment milestone will reach 1,000 units, and possibly more.”

Quoted from Q1 2021 earnings release

Additionally, the multi-source Nanox.ARC 510(K) application appears to be running into delays again. The company originally filed a 510(K) in June 2021, but withdrew the filing in January of this year, replacing it with a Q-Submission (Q-submissions are requests for feedback and meetings). It is conceivable that the timeline for commercialization is further delayed, as Nano-X still needs to pass the Q-Submission before resubmitting the 510(K).

“Right now, we’re just saying what we’re seeing in the press release and earnings right now. The only thing I’m going to say is that we’ve changed the way we communicate with the FDA. Had a day-long conversation with the Q sub and we’re awaiting FDA approval Q sub and submit, okay?

Over the past few months, we have provided all the information we have requested. After our last 2 meetings with the FDA, they asked for a lot of additional information. We have actually shared this information with the FDA. And now, we’re waiting for the good ones. “

CEO Erez Meltzer on Q1 2022 earnings call

So basically, based on the original IPO timeline, the FDA approval of the multi-source Nanox.ARC is 2 years late, it’s not clear if/when it was received.

Is technology really disruptive?

A good article on the competitive landscape was written by Finding Diogenes, who noted that Australian competitor Micro-X filed a 510(K) for its Rover Mobile X-ray machine on June 11, 2020, and received Cleared on July 20, 2020, so much quicker than the turnaround Nano-X has experienced.

What I find interesting is that Nano-X seems to be the only company focused on MEM (Micro Electro Mechanical Systems) solutions, while most of the recent literature seems to be focused on CNT (Carbon Nano Tube) technology. In fact, Micro-X, the company mentioned above, uses CNTs to power its mobile X-ray machine. It’s odd that a breakthrough technology doesn’t have scholarly articles about it.

By the way, in Diogenes’ article, he mentions a third competitor, Carestream, which has a mobile X-ray system on the market. In fact, after careful due diligence, Micro-X appears to be the manufacturer of the Carestream Nano.

Micro-X is Carestream's OEM manufacturer

Figure 2 – Micro-X is the OEM manufacturer for Carestream mentioned in the previous article (Introduction to Micro-X Investors)

Investors simply cannot make an educated assessment of Nano-X’s technology without more information or disclosure.

Short selling controversy

As we mentioned in the introduction, Nano-X was targeted by short sellers Citron and Muddy Waters shortly after its launch. While I don’t like these zealous short sellers, I do know one thing from my years running hedge funds: there’s smoke, and there’s usually fire. These short-sellers rarely target well-run companies because they can easily be sued for defamation and stock manipulation.

A common theme between the two brief reports was that they questioned Nano-X’s pre-orders. Nano-X claims to have pre-ordered more than 5,000 machines worldwide, pending regulatory approval.

Nano-X Pre-Order - Short Selling Controversy

Figure 3 – Booking book for NNOX (Nano-X F1 archive)

Yet even cursory due diligence on some of these clients can raise serious red flags. For example, shortly after the IPO, Nano-X Media announced that it had signed a seven-year agreement with SPI Medical SA de CV (Mexico) for 630 Nanox systems in Mexico and Guatemala. However, a Google search for SPI Medical returns a very humble “Hello World” page. Another customer, Gateway Group in Australia, distributes consumer products and soft drinks. There is little experience required to distribute medical imaging equipment. The list goes on.

I have to agree with the short seller’s analysis on this controversial topic. How do legitimate medical imaging companies order X-ray and CT machines without FDA approval, clinical trials, side-by-side comparisons of images, etc.? If these are not legitimate customers, why are they being heavily promoted in Nano-X presentations and marketing materials?

Coming back to Micro-X, the Australian company has an existing mobile X-ray machine that went on sale in 2018, with Micro-X generating just $3.6 million in revenue in fiscal 2021 (Figure 4). After 3 years on the market, a competing X-ray machine has only achieved $3.6 million in revenue! The explanation I can think of is that the X-ray machine’s sales cycle is much longer than assumed in the Nano-X presentation material.

Micro-X's mobile X-ray machine rakes in just $3.6 million

Figure 4 – Micro-X’s mobile X-ray machine only made $3.6 million in revenue (Introduction to Micro-X Investors)

Valuations are still too high

Although Nano-X has fallen sharply from its peak and recently traded at $11, it still has a market cap of $570 million. For a company that hasn’t generated any significant revenue yet (its 2021 revenue is $1.3 million), I think that’s too rich. Since we’re halfway through 2022, it’s highly unlikely that Nano-X will get FDA approval for its Nanox.ARC multisource device and record any product revenue in 2022. Consensus revenue for 2023 is $34 million and market cap/revenue is 16.7x, but that assumes FDA approval and production begins sometime next year.

large cash burn

Finally, looking at the company’s $15M cash burn versus $139M cash and investments in 1Q22, I estimate Nano-X has enough money to continue operating for two more years. Note, however, that “business as-is” is assumed. To date, the company has never mentioned the cost or capital needed to build the Nanox.ARX machine.

Presumably, if NNOX gets regulatory approval, it will need to acquire tens of millions of materials and inventories to produce the actual machines. It just spent over $10 million to build a “MEMS” chip factory in South Korea, so what about the actual manufacturing facility? Will the existing capital be sufficient to fund the expansion, or will shareholders face additional dilution? If Nano-X does get regulatory clearance, current investors shouldn’t be surprised by the massive stock offering.

in conclusion

Because of the red flags I highlighted above, I don’t recommend buying the stock today, even if the underlying market opportunity looks enticing. There are too many unknowns right now in terms of timing, technology and customers. At the same time, I would not be shorting the stock at current levels as a lot of the bubble has been taken out of the stock, from $95 to $8. I can see that the company’s multi-source Nanox.ARC machines are indeed 510(K) licensed, and the stock has doubled or tripled overnight.

In fact, if the Nanox.ARC machine gets FDA clearance and Nano-X can successfully ramp up production, I’d be very happy to be proven wrong and reconsider the stock at two to three times its current valuation.

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