NNOX - Rolling The Dice With Nano-X Imaging

2023-05-02 00:37:39 ET

Summary

• A company press release on May 1 sparked a buying spree. Over 26M shares traded in about half a day compared to the average daily volume of 512.70K.
• The initial +75% jump in price on news of a long-awaited word from the USFDA about its imaging device did not hold, and the shares fell lower than in February.
• We remain bearish with no reason to believe that revenue and earnings are going to be positively affected in the near term with a host of challenges facing the company.

High-Stakes Gamble

Long-term potential prospects for Nano-X Imaging Ltd. (NNOX) remain bearish. In our opinion, there is no value potential for retail investors. In our last article for Seeking Alpha, we characterized the stock as a casino play. Today’s initial +75% jump in price to $11.68 on news of a long-awaited word from the USFDA proves our point. The share price stumbled and was $9.74 within the first hour-and-one-half of trading. At one time, the shares sold for +$85 each.

The sharp one-day upturn comes after 4 months of the share price meandering from ~ $6.50 to ~$7.50 each. At the end of April ’23, the share price topped $8.50 before any information was made public.

Titillating Announcement

A company press release on May 1 sparked a buying spree. Over 26M shares traded in one day compared to the average volume of 512.70K. The company’s “high-powered digital X-ray tubes for 3D tomosynthesis imaging,” Nanox.ARC and its CLOUD software, received a favorable clearance nod from the USFDA.

SA posted the company press release that explains that…

It has received a 510(k) clearance from the U.S. Food and Drug Administration (FDA) to market the multi-source Nanox.ARC, including the Nanox.CLOUD, its accompanying cloud-based infrastructure. Nanox.ARC is a stationary X-ray system intended to produce tomographic images of the human musculoskeletal system adjunctive to conventional radiography on adult patients… Nanox.ARC is a multi-source digital 3D tomosynthesis system that utilizes novel, cold cathode X-ray tubes, which the Company intends to offer using an innovative pay-per-scan business model. The FDA cleared Nanox.ARC for use in professional healthcare ?facilities or ?radiological ?environments, such as ?hospitals, clinics, imaging ?centers, and ?other medical practices? by trained radiographers, ?radiologists, and physicians, and has the potential to increase availability to medical imaging around the world, once approved by local regulatory authorities and deployed at scale.

Dulling Reality

USFDA clearance of a medical device through the 510(k) process allows a company to market and generate sales. Clearance is not as substantial a rating as FDA-approved and granted but “clearance” is a critical step on the path to market success. Nanox.ARC still faces a rigorous review and perhaps years ahead before achieving FDA approval and granted ratings. Then it has to mass produce the units and deal with advancing technology.

The impact of all this good news will be told when the company reports sales and earnings far down the road. The company’s next earnings announcement will be on May 18, 2023. In the meantime, Nano-X has not responded to queries we made over months, nor do their corporate "partners," the hospitals and doctors they say are testing and using Nanox.ARC and CLOUD. We cannot find any published studies of the efficiencies and effectiveness of Nanox.ARC and CLOUD.

The company sheltered its May 1st announcement with a dulling statement that “access to medical imaging is relatively high in the U.S.” That is, the U.S. market is going to be a tough sell. There is no shortage of similar companies selling into the world's largest market.

Expectations are that Nano-X Imaging is going to focus on second and third-tier countries; they are underserved medical imaging populations. But those countries have limited budgets for advanced healthcare and a dearth of trained staff to operate them. For instance, in July 2021, Nano-X announced signing an “agreement for the deployment of 1,000 Nanox systems in Nigeria.” There have been no follow-up reports, let alone information on revenue and earnings from the company generated from the deployment.

Common Challenges

The imaging market includes products for X-ray imaging, ultrasound, MRI, CT scanning, and SPECT/PET imaging. The entire market is forecast in a research report by Business Wire to increase at less than 6% annually ((CAGR)). Medically advanced countries like Israel, where Nano-X Imaging headquarters, is a case study of the challenges the company faces. We expect them to be more formidable and financially draining targeting less developed nations:

• Israeli lawmakers are conservative about spending on medical imaging devices.
• There is a shortfall of radiologists and techs to operate equipment and read outcomes.
• Israel is home to numerous imaging start-up companies in a field with stiff competition for limited dollars.
• Nano-X must contend with advanced issues in cybersecurity around imaging devices, heretofore barely discussed in public announcements or with shareholders and analysts.
• Health IT Analytics portends the future of imaging devices in its 2022 report weighing the impact of unfolding Artificial Intelligence on medical imaging. Israel has companies with AI operating imaging systems , while this subject is not broached by Nano-X that we can find.

Despite the May 1 ^st surge in the share price, we foresee no near-term change in the financial status of the company. We assess the stock deserving a Sell rating and urge retail value investors to take the turn-up opportunity. SA is more adamant in its assessment moving from a Hold assessment to Strong Sell:

Short interest was a whopping +13.9% on April 30. The Beta rate was 1.74. By 1 pm on May 1 ^st , the share price was up less than 60% from +75%. Debt is covered by earnings, but as we understand, the bulk of revenue (up 558% in 12 months) stems from acquired companies, 2 in the last 5 years. Its operating cash flow as last reported does not satisfactorily cover the debt. The lack of earnings threatens the operating cash flow, and we do not expect a better FY ’23.

Takeaway

The share price rise is dramatic but it was similarly high in February at $9.76 without this drama. Then it fell back and is still -30.27% over the last 6 months. We expect it will take years and lots of marketing dollars to realize revenue and earnings emanating from USFDA clearance of the company’s hallmark device and software. NNOX stock moves topsy turvy as the Beta and Quant Rating indicate. We do not envision much potential opportunity for retail value investors in Nano-X Imaging Ltd.

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