20-F: Nanox Imaging Reports Fiscal Year 2023 Results, Navigates Regulatory Landscape and Strategic Realignment

Nanox Imaging's 2023 annual report reveals a company in strategic transition, balancing regulatory achievements with financial losses and a focus on refining its commercialization strategy.

Summary

• Nano-X Imaging Ltd. reported its financial results for the fiscal year ended December 31, 2023.
• The company is focused on making diagnostic medicine more accessible and affordable through its proprietary medical imaging technology.
• Nanox's vision involves increasing early detection of medical conditions via improved access to imaging, reduced costs, and enhanced efficiency.
• The company's ecosystem includes the Nanox System (Nanox.ARC and Nanox.CLOUD), AI-based algorithms (Nanox AI), a decentralized marketplace (Nanox.MARKETPLACE), and teleradiology services.
• Nanox received FDA 510(k) clearance for its multi-source 3D digital tomosynthesis system, Nanox.ARC, for specific uses.
• The company is in the early stages of commercializing the FDA-cleared Nanox.ARC and Nanox.CLOUD as the Nanox System.
• Nanox is pursuing a multi-step approach to regulatory clearance, having received FDA clearance for the Nanox Cart X-Ray System on April 1, 2021.
• The company is implementing a U.S. go-to-market strategy focused on customer targeting, building a sales team, and using a hybrid business model.
• Nanox is strategically realigning its focus to enhance its presence in the U.S. market, concentrating on select states for initial commercialization and deployment.
• The company intends to leverage the USARAD network to accelerate its initial market penetration.
• Nanox is expanding its U.S.-based sales and service team and engaging independent service providers to improve service coverage and reduce equipment downtime.
• The company plans to use a hybrid business model in the U.S., combining a usage-based MSaaS model with a CapEx model.
• Nanox has designed a training program to promote the Nanox System and will use pilot sites, training, sales, and marketing efforts to meet customer needs.
• The company has initiated discussions with third-party payors regarding coding, coverage, and reimbursement for imaging services using the Nanox System.
• Nanox has entered into MSaaS agreements to deploy 7,125 Nanox Systems in 19 regions outside the U.S., subject to regulatory approvals and compliance with acceptance test protocols.
• The company is collaborating with partners to obtain regulatory authorizations and is extending or amending agreements as needed.
• Nanox AI develops machine learning platforms based on a database of over 500 million imaging scans and has received FDA clearance for six radiology AI solutions.
• The company offers AI imaging population health solutions aimed at identifying underlying findings related to osteoporosis, cardiovascular disease, and fatty liver.
• Nanox is developing AI-based features to enhance images generated by the Nanox System, referred to as Robodiology.
• Following the acquisition of USARAD, Nanox offers teleradiology services to customers in the U.S. and six other countries.
• The company has a network of approximately 60 independent radiologists who are accredited and provide teleradiology services.
• Nanox is subject to extensive government regulation and oversight in the United States and abroad, including by the FDA.
• The company is exposed to potential liability risks inherent in the marketing and sale of products used in patient care.
• Nanox is dependent on key members of its executive management team and faces risks related to the mishandling of sensitive information and data security breaches.
• The company's share price may be volatile, and investors may lose all or part of their investment.
• As a foreign private issuer, Nanox is exempt from certain requirements that apply to domestic issuers.
• The company may be classified as a passive foreign investment company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences to U.S. Holders of its ordinary shares.
• Conditions in Israel, including the ongoing war between Israel and Hamas, may materially and adversely affect the company's business.
• The termination or reduction of tax and other incentives that the Israeli government provides to Israeli companies may increase the company's costs and taxes.
• The company incurred net losses of $60.8 million, $113.2 million and $61.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.
• As of December 31, 2023, 2022 and 2021, the company had an accumulated deficit of approximately $320.2 million, $259.5 million and $146.2 million, respectively, and negative cash flow from operations of $44.8 million, $43.4 million and $38.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While there are positive developments such as regulatory clearances and strategic realignments, the company is still experiencing significant financial losses and faces numerous risks and uncertainties.

Positives

• Nanox received FDA 510(k) clearance to market the Nanox.ARC (including the Nanox.CLOUD) for tomographic images of the musculoskeletal system.
• The company is implementing a U.S. go-to-market strategy focused on customer targeting, building a sales team, and using a hybrid business model.
• Nanox is strategically realigning its focus to enhance its presence in the U.S. market, concentrating on select states for initial commercialization and deployment.
• Nanox AI has FDA clearance for six radiology AI solutions and CE mark in Europe for five radiology AI solutions.
• The company offers AI imaging population health solutions aimed at identifying underlying findings related to osteoporosis, cardiovascular disease, and fatty liver.
• Following the acquisition of USARAD, Nanox offers teleradiology services to customers in the U.S. and six other countries.
• The company has a network of approximately 60 independent radiologists who are accredited and provide teleradiology services.
• The company's management conducted an evaluation of the effectiveness of its internal control over financial reporting and concluded that its internal control over financial reporting was effective as of December 31, 2023.

Negatives

• The company incurred net losses of $60.8 million, $113.2 million and $61.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.
• As of December 31, 2023, 2022 and 2021, the company had an accumulated deficit of approximately $320.2 million, $259.5 million and $146.2 million, respectively, and negative cash flow from operations of $44.8 million, $43.4 million and $38.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.
• The company may be classified as a passive foreign investment company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences to U.S. Holders of its ordinary shares.
• Conditions in Israel, including the ongoing war between Israel and Hamas, may materially and adversely affect the company's business.

Risks

• The company is an initial launch-stage company with a limited operating history and expects to incur significant additional losses in the future.
• The company's efforts may never demonstrate the feasibility of its digital X-ray source technology for commercial applications.
• The company is highly dependent on the successful development, marketing, and sale of its X-ray source technology and related products and services.
• Products utilizing the company's technology may need to be approved or cleared by regulatory agencies worldwide, and the company may not receive or may be delayed in receiving the necessary approval or clearance.
• The company may need to obtain additional financing to fund its future operations, and if it is unable to obtain such financing, it may be unable to complete the development and commercialization of its technology and products.
• The success of the company's primary business model, the Subscription Model, is subject to numerous risks and uncertainties.
• The company may not be successful in tailoring its X-ray source to the specific systems of other medical imaging companies under its Licensing Model.
• The company's industry is highly competitive and is subject to technological change, which may result in new products or solutions that are superior to its technology.
• The company expects to depend on third parties to manufacture the Nanox.ARC and to supply certain component parts, which involves risks that may result in increased costs, quality or compliance issues, or failure to timely manufacture the Nanox.ARC.
• The company may experience development or manufacturing problems and higher costs, or delays that could limit its revenue or increase its losses.
• The company may not be able to successfully execute its business models.
• The company has a limited operating history, and if the Nanox System does not achieve widespread market acceptance, the company will not be able to generate the revenue necessary to support its business.
• The company plans to do business globally, including in certain countries where it might have limited resources and would be subject to additional regulatory burdens and other risks and uncertainties.
• Although the company received clearance from the FDA to market the Nanox.ARC (including the Nanox.CLOUD), the device is not yet approved for third-party payor coverage or reimbursement.
• Recent changes in the United States related to payment policies for imaging procedures could have a negative impact on the utilization of the company's imaging services.
• Billing complexities associated with obtaining payment or reimbursement may negatively affect the company's revenue, cash flow, and profitability.
• Any collaborative and MSaaS arrangements that the company has established or may establish in the future may not be successful, or the company may otherwise not realize the anticipated benefits from these collaborations.
• The company could become subject to product liability claims, product recalls, warranty claims, and professional malpractice liability claims that could be expensive, divert management's attention, and harm its business reputation and financial results.
• The company is highly dependent on key members of its executive management team, and its inability to retain these individuals could impede its business plan and growth strategies.
• The mishandling or the perceived mishandling of sensitive information, or the occurrence of data security breaches, could harm the company's business.
• The company's business and operations would suffer in the event of computer system failures, cyber-attacks, or deficiencies in its cyber-security.
• If the company loses a significant number of its radiologists, its revenue from its teleradiology services and financial results could be adversely affected.
• Exchange rate fluctuations between the U.S. dollar, the New Israeli Shekel, and the KRW and inflation may negatively affect the company's results of operations, and the company may not be able to hedge its currency exchange risks successfully.
• The company may be subject to claims, litigation, and investigations in the future, all of which will require significant management attention, could result in significant legal expenses, and may result in unfavorable outcomes.
• If significant tariffs or other restrictions related to trade wars are placed on Chinese imports or any related counter-measures are taken by China, the company's revenue and results of operations may be materially harmed.
• The company's business may be impacted by changes in general economic conditions.
• The company's business, financial condition, and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
• The company does not expect to carry any business interruption insurance or any other insurance (except for director and officer, property, product liability, malpractice, and clinical trials insurance).
• Certain of the company's directors and/or officers may have interests that compete with ours.
• The company's management team has limited experience managing a public company.
• It is difficult and costly to protect the company's intellectual property and its proprietary technologies, and the company may not be able to ensure their protection.
• Patent terms may be inadequate to protect the company's competitive position on its future products for an adequate amount of time.
• Claims that the company's technology or its future products or the sale or use of its future products infringe the patents or other intellectual property rights of third parties could result in costly litigation or could require substantial time and money to resolve, even if litigation is avoided.
• The company's product candidates and operations are subject to extensive government regulation and oversight both in the United States and abroad, and its failure to comply with applicable requirements could harm its business.
• The company may not receive, or may be delayed in receiving, the necessary clearances or approvals for its future products, and failure to timely obtain necessary clearances or approvals for its future products would adversely affect its ability to grow its business.
• Failure to comply with post-marketing regulatory requirements could subject the company to enforcement actions, including substantial penalties, and might require it to recall or withdraw a product from the market.
• The company's products must be manufactured in accordance with federal, state, and foreign regulations, and the company could be forced to recall its devices or terminate production if it fails to comply with these regulations.
• The misuse or off-label use of the company's products may harm its reputation in the marketplace, result in injuries that lead to product liability suits, or result in costly investigations, fines, or sanctions by regulatory bodies.
• The company's products may cause or contribute to adverse medical events or be subject to failures or malfunctions that the company is required to report to the FDA, and if it fails to do so, it would be subject to sanctions that could harm its reputation, business, financial condition, and results of operations.
• The company's relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse, and other healthcare laws and regulations, which could expose it to criminal sanctions, civil penalties, contractual damages, reputational harm, and diminished profits and future earnings.
• Changes in laws or regulations relating to data protection, or any actual or perceived failure by the company to comply with such laws and regulations or its privacy policies, could materially and adversely affect its business or could lead to government enforcement actions and significant penalties against it.
• If the company does not obtain and maintain international regulatory registrations, clearances, or approvals for its products, it will be unable to market and sell its products outside of the United States.
• Legislative or regulatory reforms in the United States or the EU may make it more difficult and costly for the company to obtain regulatory clearances or approvals for its products or to manufacture, market, or distribute its products after clearance or approval is obtained.
• Healthcare reform laws could adversely affect the company's products and financial condition.
• Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain, or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, cleared, or approved or commercialized in a timely manner or at all.
• Under applicable employment laws, the company may not be able to enforce covenants not to compete and therefore may be unable to prevent its competitors from benefiting from the expertise of some of its former employees.
• The company may not be able to attract and retain the highly skilled employees it needs to support its planned growth.
• The company's share price may be volatile, and investors may lose all or part of their investment.
• As a foreign private issuer, the company is exempt from certain requirements that apply to domestic issuers and it is permitted to follow certain home country corporate governance practices instead of applicable SEC and Nasdaq requirements.
• The company may lose its foreign private issuer status which would then require it to comply with the Exchange Act's domestic reporting regime and cause it to incur significant legal, accounting, and other expenses.
• The purchase price of the ordinary shares may not reflect the company's actual value.
• If the company fails to maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial results or prevent fraud.
• It is likely that the company will be classified as a passive foreign investment company (PFIC) for U.S. federal income tax purposes for its taxable year ended December 31, 2023, and possibly for the current taxable year and future taxable years.
• Conditions in Israel could materially and adversely affect the company's business.
• The termination or reduction of tax and other incentives that the Israeli government provides to Israeli companies may increase the company's costs and taxes.
• It may be difficult to enforce a U.S. judgment against the company, its officers, and directors named in this annual report on Form 20-F in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on its officers and directors.
• Your rights and responsibilities as the company's shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.
• Provisions of the company's amended and restated articles of association and Israeli law and tax considerations may delay, prevent, or make difficult an acquisition of the company.

Future Outlook

The company expects to continue to incur significant expenses for at least the next several years as it advances the Nanox System through further development, regulatory approval and commercial deployment.

Management Comments

• The company is focused on applying its proprietary medical imaging technology and solutions to make diagnostic medicine more accessible and affordable across the globe.
• Nanox's vision is to increase early detection of medical conditions via improved access to imaging, reduced costs, and enhanced efficiency, which Nanox believes is key to helping people achieve better health outcomes, and, ultimately, to save lives.

Industry Context

The medical imaging market is dominated by large companies such as GE Healthcare, Siemens, Philips, Hologic, Varian, Fuji, Toshiba and Hitachi. The company aims to form alliances with several of these leading market participants, including through licensing.

Comparison to Industry Standards

• The company competes with established medical imaging technology companies, such as GE Healthcare, Siemens, Philips, Hologic, Varian, Fuji, Toshiba and Hitachi, which may have greater corporate, financial, operational, sales and marketing resources than the company.
• The company also faces competition from companies offering AI radiology solutions, such as Aidoc, and legacy healthcare technology companies, such as Siemens Healthineers, which are developing AI imaging solutions.
• In the teleradiology market, the company competes with both large and small-scale service providers, such as StatRad, ONRAD and Radiology Partners.

Legal Proceedings

• The Company and Ran Poliakine, former Chairman of the Board of Directors of the Company, have reached final agreements with the SEC staff to settle this matter, which agreements were approved by the United States District Court for the Southern District of New York in October 2023.
• A claim was filed in Israel against the Company, the Gibraltar Entity, and the late Mr. Ran Poliakine, based on allegations previously dismissed by a U.S. court, in the State of California.

Related Party Transactions

• Since December 1, 2019, Illumigyn has sub-leased approximately 165 square meters of private office space, including access to shared public spaces, from us in Neve Ilan, Israel.
• Since February 2020, Wellsense Technologies, Ltd. has sub-leased approximately 165 square meters of private office space, including access to shared public spaces, from us in Neve Ilan, Israel.

Stakeholder Impact

• The company's vision is to increase early detection of medical conditions that are discoverable by X-ray by improving access to imaging, reducing imaging costs and enhancing imaging efficiency, which it believes is key to increasing early prevention and treatment, improving health outcomes and, ultimately, saving lives.

Next Steps

• The company plans to continue the development and improvement of the Nanox System.
• The company plans to seek additional regulatory clearances or approvals for additional uses of the currently cleared Nanox System, or for future versions of the Nanox System.
• The company plans to continue to build clinical evidence particularly within the U.S. market, to support the adoption of its system, as well as reimbursement mechanisms, specifically with commercial payers.
• The company is in the process of expanding a U.S.-based sales and service team that will seek to generate leads, close sales, manage relationships, and provide services for the Nanox System installed base.
• The company is also in the process of engaging with independent service providers to provide service in remote areas and to decrease equipment downtime.
• The company aims to integrate the Nanox.ARC and the Nanox.CLOUD with the Nanox.MARKETPLACE, creating a 3D imaging system that enables remote readings of scans with AI-powered imaging analysis and a global teleradiology solution.

Key Dates

Keywords

Nanox, medical imaging, X-ray, AI, teleradiology, regulatory, financial results, MSaaS, Nanox.ARC, Nanox.CLOUD