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Exclusive Interview: The Motley Fool Sits Down With Nano-X Imaging

By Brian Feroldi – Sep 22, 2020 at 3:17PM

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In this wide-ranging exclusive interview, Nano-X's CEO Ran Poliakine answers pressing questions about the company's technology, market opportunity, business model, and more.

Diseases are most treatable when they are diagnosed early. Medical imaging has become an invaluable tool for speeding up the diagnostics process, but most people around the world still do not have access to this technology.

Why? The answer is simple: cost.

Nano-X Imaging (NNOX 3.83%) -- a newly public company -- is on a mission to change that. Nano-X is in the process of deploying a new type of medical imaging technology that promises to bring down the costs of medical imaging by an order of magnitude.

Surgeon looking at medical images while wearing scrubs

Image source: Getty Images.

Nano-X holds tremendous promise, but it has also attracted its fair share of skeptics. Two famous short-sellers have issued reports that call into question the company's technology.

In this Motley Fool exclusive, healthcare contributor Brian Feroldi was afforded the opportunity to talk with Nano-X's CEO Ran Poliakine to discuss the company's technology, opportunity, management team, and more.

Below is a transcript of their conversation (which has been lightly edited for clarity):

Ran Poliakine: I'm very happy to be here with you. Thank you for inviting me.

Brian Feroldi: Thank you very much for being here. Your company has generated a tremendous amount of interest from our investor base. If you could just start by giving us a little overview of what the company does, what you're trying to do, and why investors should care.

Poliakine: There is a huge shortage of medical imaging devices in the world today despite the fact that X-ray technology was invented over 100 years ago by William Rankin. The reason is simply: it's very, very expensive. The X-ray that William Rankin invented is based on the thermionic effect, which is basically a filament that you heat up to 2,000 degrees Celcius. You need to cool it down and you need technicians, and, overall, it's not really scalable today. You mentioned that two-thirds of the world population does not have any access to medical imaging today. Nano-X is simply a potential answer to that. We have nanotechnology on a semiconductor that is potentially replacing the William Rankin thermionic X-ray source which allows us to reduce and eliminate a lot of the costs [called Nanox]. We can actually build a full-body scanner for as little as $10,000 in mass production, and our vision is very simple. Let's place it everywhere -- not only in rich countries but also in poor countries. In the 21st century, there is this little technology called the Internet. We allow the cloud to work and have a meeting between patient diagnostic regardless of the territory or geography. That's our vision. Post COVID-19, people realized that what happened in one country can impact another country. We've decided not only to become a technology company, but also a great partner with Fuji and Foxconn and SK Telecom (SKM -0.52%), we've decided to embark on something that is truly changing life -- to put 15,000 of those in the first wave and to start operating it as soon as practical. Yes, we need FDA clearances. We need to make sure we have regulatory clearances in all the countries that we want to operate in. We need to make sure that our customers are really trained and well equipped to do the job. But overall, holistically, we're trying to change the world with accessibility to medical imaging technology. That's the high level. Now, another one from a technology perspective, I want to refer to the difference between LED light and Edison light. Because I think there are a lot of similarities for your audience to understand what we're talking about. Of you think about Edison light versus LED lights, both of them projecting light. One is done by the mechanism invented by Edison many years ago, and this is basically a filament or coil that you heat up and the inefficiency of electricity provides such high heat that eventually you see light. The other one is based on what we call the cold process. It's much more efficient, both of them delivering light. What we're doing, what Nanox is doing in radiology is exactly that. We want to see ourselves that the LED of X-ray and we believe that after 100 years, there is a potential for this technology to be the digital underlying technology of radiology in the future. Now, the technology originated in Japan. It's called field Emission Technology. Back in the days of Sony (SONY 0.15%), Sony was working on a film dimension technology for many years, invested a tremendous amount of effort over a decade, and then they stopped the project. Eight years ago, we basically acquired the know-how and the people, and we started this project, and for eight years we're focusing on developing it. Finally, we made it. I would like to mention two more things. When you have something that is affordable and accessible, you can move from a CAPEX model into SaaS model. Our concept is very simple. We're going to place those scanners connected via the Internet to the cloud, and we're going to charge per scan. We're not going to sell the machine, but rather we're going to try zero, so we are going to charge for the service. That's a very interesting approach because the entry barrier for customers is very, very low because they don't need to put in a lot of CAPEX, and I think it's giving them a lot of motivation to really successfully deploy many of those. Now, we were very lucky. Today we have about nine MSaaS agreements, medical-screening-as-a-service in 13 countries for over 5,000 units, and this is something very significant. You are talking to me and this point of time that we are focused on execution. We get the technology to be placed by folks into this device, connect it to our customers, run the cloud service, and start. It will take time, it will have some hurdles. But overall, the big vision here is that over four years we will see many of those connected and provide better health. That's a brief introduction to Nano-X.

Feroldi: Thank you. That was great, and I'm a big fan of your vision. For those listening, you guys have a great slide here that I would like to share. It shows the existing technology on the left and Nano-X's technology on the right. I'm a layman here, but if I understanding, what's on the left there is really one of the reasons that X-ray technology is so expensive. Today, it's to deal with the heating of the system to generate the X-rays. From what I understand, your technology is basically taking that and putting it on a chip, and doing so eliminates a lot of the need for cooling systems. Can you talk a little bit about the fundamental technology?

Poliakine: Yeah, absolutely. I think what you see on the right side is under the microscope of our chip. The structure itself allows for many, many nano-guns of electrons. Each one of these little holes in this little cone can emit one electron on a time with very minimal surface energy. What you need for X-ray, you need the flow of many electrons that are being pulled into an anode. Now, on the left side, you see the legacy system. To do that, you need to take this filament of William Rankin to get it up to 2,000 degrees Celsius, and only then electrons can depart from the filament. Again, Edison light and the LED light is the best analogy. So what we do is the same. The idea here is to break the flow of electron. We're using this field dimension technology as the base structure on a chip. We have 100 million little nano-cone on every chip, and the operating power for this chip is volts versus kilovolts. That's basically also where the heat sinks are going their way. I didn't say something that is important in the context of accessibility. If you'll ask any oncologist what is the best way to fight cancer and many other diseases, they would tell you early detection. Everybody is talking about these days. WHO said that if those conditions can be detected by X-ray, synchronous X-ray, yet it's not happening. The reason is no accessibility. What we're trying to do is really with this technology to create accessibility.

Feroldi: The primary way that this technology enables accessibility isn't that you are producing something that's radically different. The output is X-ray or the output is CT. What you guys think is revolutionary here is the step-change in cost. Is that how investors should think about this?

Poliakine: Exactly. I mean, we do have our hardware pieces, the 3D tomosynthesis imaging. It provides the X-ray from multi-sources and multi-energies with 3D X-ray imaging basically that can be used in multiple conditions. It's way cheaper than alternatives, and we connect them into two disruptions. One is cost and the other one is connectivity. Because it's not good enough to have on the premise to even hardware, we also want to have our theologists, and what we do is Nanox.CLOUD. Our prototype is basically that the images that we're uploading from any location can be viewed, stored, matched with radiologists that can provide diagnostic including, by the way, third-party partnerships that we have with at least five AI annotation company, which is a very cool thing. Because now, for the first time, they can actually get from the cloud those images, annotate with their algorithm, and the radiologists will have an easier job in our opinion. That's the thing. Again, it has its cost, but it's also a business model and architecture.

Feroldi: Yes, that's great. I have another visual to show because I think the visuals here are pretty important. Again, the left is the standard system. The system on the right is what you're going for, and I have had some people when I showed the post. But I'd just say, another advantage is if you're claustrophobic, you're system also makes more sense. I did get some questions from radiologists that I hope that you can answer for me. The main questions from them seemed to be about image quality. That's a major thing for them. They say, when will we be able to see that this technology is validated by a third-party to get clinical results? Is the image quality good enough? Is there more radiation exposure? From a radiologist perspective, are there advantages to your system versus what exists today?

Poliakine: I would say that X-ray is an X-ray. We're generating X-rays in a different way. Again, the analogy of LED light and Edison light. The technology of X-ray has essentially not changed for over 100 years. Now, many things have changed in medical imaging, but the source itself did not change. This is actually the big driver. It's an analog source and it's driving a lot of the complexities in cost associated with this device. What we've developed is a novel digital x-ray source that we believe addresses these drawbacks. Basically, the underlying technology is the same. So you should expect the same outcome, so long that the underlying technology is the same, and we've demonstrated that by showing actual images in our registration to the SEC. You can see that there are some comparison images that we actually took in an Israeli hospital here, and also by all the due diligence and many radiologists that came to see the device. That's another point I actually want to emphasize. We do have a prototype working for some time now. Radiologists and customers came to Israel and they've seen that. I can tell you that we have on our team the top radiologists from the world. If you look at the advisory board, the members that we have, you'll see that many of them are radiologists from Duke University and Stanford. All of them know about this technology and have played with it. Overall, to the question of quality of the X-ray's, we've demonstrated that we can be as good if not better. I think that modalities and geometry should be the same. That's what we think and we are going to confirm it. But I think the basic fundamental answer to radiologists, that we are doing the same x-ray, only with different technology. LED versus Edison light. That's really the key point and that's important.

Feroldi: Is this picture the actual prototype?

Poliakine: Yeah, this is in Hadassah. Hadassah is one of the largest hospitals in Israel, very well-known in the world. It's also a university hospital and what we did, we have Hadassah actually partners with us years ago, and we're working very closely with the radiology department, and what you see there is our prototype in Hadassah. We place it there and we tested everything with the head of radiology and their team. It's basically a 70 kilos arc. This side, this arc on the right side, this is a phantom, this is a full-body phantom. We call him Dexter, by the way.

Feroldi: Important to name your test subjects.

Poliakine: Yeah. Exactly. But anyway, this arc is 70 kilos. Inside this arc, we have these tiny little cubes that you can show later in the presentation. Each one of those little cubes is controlled digitally separately and can project from different angles on the area you want to project. The total imaging is then reconstructed to something that's radiologists should be able to look at and be happy with. So that's it, 70 kilos, connected to the main. In Africa, we're going to put it in the back of a pickup truck with shielding, and that's really how accessibility is being achieved. I would say that this is not new to healthcare. Think about ECG. When I was a kid, ECG was only in the hospital and you need to go and there is a huge machine. Technology has transformed now, you have it on Apple (AAPL 0.90%) Watch. Think about ultrasound. It used to be a huge machine and now every gynecology office has a small ultrasound that costs nothing. We are transforming, in our opinion, the radiology market by moving from hot cathode to cold cathode, and by that, enabling a small footprint and very accessible product.

Feroldi: Great. I just want to reiterate here, that are two innovations. There is the hardware component and there's also the cloud component. You call those Nano.ARC and Nano.CLOUD, and you are working with a lot of third parties. You're outsourcing the diagnosis to other third parties. I think that you have a great slide here that I do want to show. So you are very willing to work with partners such as Imedis, Brainomics,, Cure Metrix. You are working with these partners and the idea is they're taking their AI diagnostics technology, using it on your images, and then that's going to go to the Cloud to be viewed by radiologists around the world. Is that how should I think about this?

Poliakine: Yeah, absolutely. I think that you really touched the point. Our business approach is a partnership, big umbrella, coalition. There is no way that Nano-X alone can change the world without partners. We have three types of partners. On the right side, you have the deployment partners. We want to go global. To go global quickly, you need to partner with the right people that globally adopted locally can actually run the service. What does it mean? It means that they have the financial capability and the network in order to put those scanners, get the training, put people on the ground, and start to provide these scans for the patient. Now, it may be an urgent care unit, it may be community-centered. It may be countries that have nothing. So on the right side, you see those that already have partnered with us in order to deploy in the US, but all the way to South Africa, and we do have a very, very healthy pipeline, I would say. Then on the left side, these are the heavy guns. I just came back from Korea. For your listeners, SK Group, the second-largest company in Korea, responsible for more than 10 percent of the GDP, I believe. They are all in. They're also the owners of Hynix. They did the due diligence and they said, guys, let's change the world. So you need these type of guys to defend some of the cynical, I would say, an aspect that you may meet along the way. So we have SK telecom and we have Fujifilm. Fujifilm is one of the largest players in healthcare by the way. They invested in the company, they partnered, and they are one of our first OEM partners. Then, of course, Foxconn, that most of us know them because of the iPhone, but in fact, Foxconn also has a very healthy business for healthcare. So they took on to actually make those devices. In the data center, this is actually what I like the most, these are the software company that exists all over the world. But already developed algorithms that are medically proved to look at the radiology image and flag some red flags. So we partner with them and it's a win-win-win because everybody enjoyed that. It's very efficient and we think that this is the future. So that's already what we've done. As we move forward, we believe that you'll see more and more of those partnerships coming together because it makes sense actually.

Feroldi: For our listeners that aren't familiar, as you said, SK Telecom, huge company. Would it be fair to call them the Verizon Wireless (VZ 1.27%) of South Korea?

Poliakine: I'm not familiar with them.

Feroldi: Verizon is the biggest telecom company in the United States.

Poliakine: Yeah. They are, but they also are the second-largest manufacturer of semiconductors in the world, Hynix, which is huge. They are also in other businesses including healthcare. So they are the second largest. They have hotels and restaurants. Samsung and then SK basically.

Feroldi: That's great to know. SK Telecom and Fuji, as well as some others, are actually investors in the company as well, correct?

Poliakine: Yeah. Of course. They invested early on in the company and they partnered with us, and SK came out with a collaboration agreement that basically is talking about three aspects. One is, because of the demand, to support us in setting up the manufacturing facility of Nano-X in South Korea. The other one is to prepare South Korea and Vietnam with 2,500 units of these full-body scanners. The third one is actually to support us throughout APAC, because they have reach that is very, very dramatic. Not only that but also their CEO for SK Telecom, who is also the chairman of Hynix. Mr. Park joined Nano-X board. So overall, it's a lot of tailwinds, a lot of mitigating of risk, and in my opinion, a very big step.

Feroldi: Can we switch gears now to regulatory approval? You are in the process of going through the FDA approval process. As you explained in your F1, you did have some deficiencies noted. Can you talk a little bit about the FDA approval process in 2020? What your timing is? What are the biggest hurdles you have to come? Do you need FDA approval to sell this device in jurisdictions?

Poliakine: Yeah, so let's start from the second one. So every country we want to do business with and also all our agreement, the MSaaS Agreement, there are two conditions that we need to meet. One is an acceptance test, which is basically the folks can actually make, what they committed to and the other one is local clearance from the local regulatory approval body. So FDA is only for America, but we have 13 countries that we're already committed or with obligated partners too. Each one of these countries will need to give us clearances. Now in some countries its much difficult, in some countries it's easier. What we did in the US anyway, just prior to COVID-19, we went in with one source device with the sources, an outsource. We submitted it, we got some deficiency letters, it took very long, simply because we couldn't go to the laboratory. Everything was shut down. On September 10th we also issued this in our 6K. We actually submitted the official response for the facts and application. I'm happy to say that this includes all the additional data and other information to complete the application, so we feel good about it, it's still in review. We didn't get an answer, and we will need to do that also with the multi-source system that is being built with production-grade imager right now. Overall, it will be a process. We believe that this is a risk, that we are all facing. FDA and other regulatory bodies see and others. However, we believe that we can overcome this during the first half of next year. So that second half of next year will be, this is our belief, cleared in multiple countries so we can ship and as you saw from the F1, we're hoping to ship about 1,000 units already in the second half of 2021, which you understand, this is huge.

Feroldi: Yes. I mean, It's almost unbelievable. It's so huge to go from 0 to 1,000 units shipped and installed, that would be a monumental jump. Can you talk a little bit about the timing that you've put out there because this is probably the biggest question that I get. So you're reviewing with the FDA and you anticipate having approval sometime in the first six months of 2021? And is that also true for Europe and a lot of other jurisdictions?

Poliakine: I just want to correct you. It's FDA clearance.

Feroldi: Yes.

Poliakine: The same in CE and other I would say that the US were absolutely, I believe that this would be the case in the first half because we're waiting for their process. I think that in other countries in Europe I think they changed some of their regulatory bodies. So it makes a little bit of, maybe to the third part of that. For other countries like Singapore, Taiwan, Australia, New Zealand, Korea, and others that we believe that we can get, Mexico, Brazil, create clearances at the end. Overall, I would say FDA plus few countries will be our goal and our belief for the first half of next year. Now everything is risky and you cannot control the small thing like COVID-19, that stops everything. But I do believe that this is very achievable.

Feroldi: Great. Now when you're talking about going from 0 to 1,000, to me, that's a manufacturing challenge, that's an installation challenge. That's an enormous goal. What gives you confidence that you can essentially go from the thing that doesn't exist to having 1,000 of them up and running within a year?

Poliakine: First of all this is our plan and I would answer it very shortly. We have customers, SK and Foxconn. That's it. The prototype is working. Functional. Done. We're tweaking things toward mass production. But we do have Foxconn that did extensive due diligence, committed, took on the job, and I think their credibility speaks for itself. We have a very detailed manufacturing plan with them, that calls for actually much more units and basically they need, they said six weeks longly done item in order to put it in place. So the confidence is namely customers, SK Telecom for their support in the chip, and then Foxconn to actually execute on the construction plans that we agreed with them.

Feroldi: That'll be very exciting to watch and my hat will be off to you if you can do it. Can you talk a little bit about the commercialization plan? I know that you have agreements in place with several partners to deploy these systems. Are you going to be investing in your own commercial team or is your plan to kind of outsource that to develop and partners worldwide?

Poliakine: Let me just talk about our strategy again. It's a strategy of collaboration. This technology will be the underlying technology of the future. So we do believe that after 100 years we came with something that is still big technology and is so valuable. On one end with the OEMs, companies like FUJI and others were working on what we call open source. Basically our approach to them is, this is technology, tested, play with it and if you use it we'll expect the licensing back to us, just like the industry knows how to play. That's one approach to make sure that the world actually enjoys this innovation. On the other end, it's really placing those networks of systems and run the service papers scan MSaaS. Our goal is very simple. First wave of deployment of 15,000 units. Today we're sitting on about 5,000 units, obligated contraction by customers in different countries. Those agreements are obligated and binding subject to local regulatory approval and acceptance test. Plus we have two collaboration agreements. One with SK again, it's a huge company and they took on, it's not binding and it's not that they didn't commit to how much money they're going to pay us per scan. But they committed to the concept and to deploy 2,500 units. Then we do have another very important partnership with a company called USARAD which is I think about the second-largest radiologist network in the US, backed by SIEMENS and they are the distributor, that together the collaboration agreement we agreed took place 3,000 units in the US. Overall we're sitting on about 10,000 units, half of it fully committed. So everything subject to, of course, FDA and I think we have a very healthy pipeline. So our commercialization plan is very simple. Work with our small team to find the right partners, teach them how to use the system, allow them to place many of those scanners and run the operation locally while we are running the Cloud. 

Feroldi: That makes sense. I know that you call out in your F-1, that you have three business models. You're going to go with a subscription model, MSaaS, as you call it, Medical Screening as a Service. The second model is a licensing model where you could license this technology out to the GE, Siemens other knowledge to the world. In some jurisdictions you are prevented from doing an MSaaS model, so you might actually be selling the device directly. However, it seems like the MSaaS is going to be the primary resource that you want, and the model there is giving away the system or give it for some very low costs and then charge per scan. If I'm reading correctly, it seems like the average of those contracts that you signed so far is basically that you'll get $14 per scan. Is that correct?

Poliakine: Yeah, basically when we are identifying the partner, we want to make sure the following: Number 1, that they are capable financially and otherwise to place those scanners in their territory. Number 2, that they are willing to commit to a minimum number of scans per day and the minimum marked price per scan, which is mainly $14 net. Number 3, that they're willing to give us a letter of credit that will support this minimum scans if something goes wrong. These are the three principles that guide us when we are actually negotiating with partners. Again, I would reemphasize that all of those contracts are subject to change but these two conditions, except if there's a local regulatory problem. But let's assume that we're passing that, we have a customer that is committing, obligated actually to run the business for us with these principles.

Feroldi: Got you. I did see that you have seven scans per day, minimum. If you're getting $14, that's basically $100 per day per system. You multiply that out, that's $25,000 if that's 250 operating days per year. So $25,000 in revenue. Is that roughly correct per system?

Poliakine: Roughly correct.

Feroldi: These things are going to cost you $10,000. So you're talking about a payback period to the company of about 3-4 months roughly if the minimums are met.

Poliakine: Yeah, I think I think we're calculating that while the system costs roughly $10,000 we'll adapt to it about $2,000 to $5,000 for installation, training, all the logistics. Yeah, we're talking about much less than a year payback time for the minimum, and of course, we believe that this minimum should be only minimum, but in reality, would be much more because they are all diverges much, much higher.

Feroldi: When you're saying you have in here, the $40 total cost per scan, is that what the users of this technology will be able to charge? Insurers or their patients? Is that the goal? Because I believe your F1 reading before that, the current average is somewhere around $300. Do I have that correct?

Poliakine: Yeah. You are correct. So the total cost of a scan for the system, for the patients, for me, depending on the country, could get as low as $40, which is dramatically less than the world average knowing different cultures, different cases. For instance, in the US, Medicare already has a system of payers and CPT codes and all of that. The efficiency we're bringing is simply accessibility and the good business to let's say the urgent care units, or the community imaging centers or outpatient medical centers because they do not have a sufficient amount of equipment today. They do not have the infrastructure, nor do they have on-premise radiologists. What we offer them is really a win-win-win, cause we place the device as a Xerox machine and we tell them, "Guys, you use it, you pay us. This is the minimum and just use our radiologist if you want, and if not, you can have your own radiologist. Overall, you can charge many CPT codes that this device can actually be sufficient for."

Feroldi: As you said, it's going to depend on the jurisdiction, but the company goal or the company potential is essentially $40 per scan as a global average, and that's also assuming that would you say $16 in the actual diagnostics. I'm assuming that's working with the AI software that you had in addition to radiology. So that where those two things work in tandem together, or is the ultimate goal for the AI to replace a radiologist?

Poliakine: I think holistically we want to be $40 per scan with a combination of A.I. and radiologist. What I can say is binding from our point of view, because this is our money is $14 that we are committing to because that really provides us a very nice payout. As for the $16 of radiology, this is based on conversations. We do believe after talking to many radiologists in many countries that this is very, very feasible but we do not commit to that. Our vision because this is another mixture of vision and reality here. Our vision is absolutely to go global, to provide every person on the planet access to medical imaging with excellent diagnostic, whether it's from Western world, or plus AI, or otherwise, that's our vision here.

Feroldi: One thing I like about your strategy here is that it's Blue Ocean, where you're going after a whole new market that isn't addressed right now. So you're not necessarily competing against the other X-ray technology out there. What you're saying is, we want to go after the people that you can't access primarily because of cost. That's a strategy that I find fascinating. Obviously, if you're successful there, the addressable market opportunity is absolutely enormous. Can you talk a little bit about, you call this out in your F1 that you see this, the potential of this technology to go multi-spectral. If I'm saying that correctly so that you think that it's not going to be X-rays just looking at, say, bones, but you think that this technology could also be used on the circulatory system, organ system. How feasible is that? What has to happen for that to become reality?

Poliakine: I want to just say that, again, not to down the excitement, the idea of X-ray is really that different kVp recoiling. Different penetration power can actually look at the different density of the tissue. When you do breast mammography, it's soft tissues, so you need a certain amount of kVp. When you look at the bone, you need much more penetration power in terms of kVp. In a normal X-ray, you will find one modality for mammography and another modality for orthopedic. What we can do, in each one of our tubes, we can scale. The reason we can scale is, again, because our source is not thermionic and that's a key. We have no dependency between mA and kV that's really the term. We potentially can actually switch between different energies so that when we're looking at your head, we're looking at the right energy to look into your brain and when you look at your lungs, we're looking at the different energy that we can actually detect if, God forbid, you have COVID-19 or whatever. That's really the trick, and this is a part of our features. Multispectral speaks for the ability with one cube to actually look in different energies, which is very unique when you're looking about a full-body scanner.

Feroldi: You also called out that there's potential for this to be essentially real-time video imaging. You could see lungs moving, that kind of thing. Would that be a step-change in what it from over what exists today?

Poliakine: Yeah, we have it already. Out technology can provide it. Again, I want to bring you back to LED. LED light can actually blink very, very quickly because you don't need the time to bring it up to speed and down to speed. We already demonstrated our ability to do actually video and to flicker if you want very, quickly with the source. Because it's digital, we can then synchronize it with the camera. With that, you can do many, many more things that I don't even want to confuse you with. But basically, if you think about again Edison light versus LED, LED is now on television, you can see the video. Think about the source that can actually move very quickly and then full synchronization with the sensor or the camera, and then you can come to the conclusion that you can see moving parks easily.

Feroldi: Could there potentially be other uses for this technology in, say, airport security or military? Or how about metallurgic analysis? Are there other use cases for this technology beyond healthcare?

Poliakine: Yeah, so that's actually a good point. Actually, it's X-ray again. We have the technology which we believed to be the next generation of X-ray. If you look today on industries that are using X-ray, you'll talk about security, of course, but not only security and airport. Let's talk about security on ports, seaports. If our advantage is footprint and cost, you can think about expanding the usage of X-ray to other places.

The second one is of course what we call NDT, non-destructive testing. That's for the aviation industry, that's for the automotive industry. If you have the rotor of a helicopter, there is no way today to look at X-ray under load, to our knowledge. What we can do, we can do something called a stroboscope. Actually, we have a beautiful demo of that in Israel when we flicker and synchronize at the same frequency as the rotation of the motor. Because of that, the relative speed is idle, and you can see in real-time under load X-ray of this excess of the rotor. That's very, very innovative. The last one is actually semiconductors. A lot of processes in the clear rooms and semiconductor businesses are using X-rays, and we believe we can play a role in that. Now I want to emphasize our vision and mission is healthcare. However, like I said before, it's open-source. We invite everyone to come play with the technology. If it makes sense for them to use it, simply pay us back the royalties because that's a licensing business model.

Feroldi: Some of the most successful investments at the Motley Fool has ever made has been in companies such as Amazon (AMZN 2.57%), which started out as a bookstore and then gradually through what we call optionality expanded elsewhere. We always like to see that at least even if that's something that worked on 10 years from now, we still like it when management teams are at least thinking of other opportunities down the road, so that's great to hear. One quick financial question for you. If you get that $14 reimbursement rate, I believe that I read either in your F-1 or somewhere else that essentially the cost to you to do a scan would be a dollar, is that correct? Will that potentially give you a gross margin in the '90s?

Poliakine: No. Let me walk through the $14. I appreciate that I'm not the CFO, but from memory, $14 is divided into basically four components, $10 out of it is what we call right to use. That's basically the licensing. Then one-and-a-half dollar is what we intend to pay the A.I. company, so we package this thing. We send them payment, they send it back, one dollar and a half. One dollar is what we need for the cloud storage. By the way, a very interesting point is that if you believe our story and if in 3-4 years, we'll have 15,000 units working only seven seconds per day. We will need the petabytes of data storage, more than Netflix (NFLX 0.21%). That's very interesting point. We'll talk about the SK and 5G later if you want. But that's part of the SK strategy, 5G. The last one is actually local company that will service and maintain our equipment in good health. That's another one dollar and a half, so total 14. Ten dollars for us is the right to use, one-and-a-half for the AI annotation companies, one dollar for the cloud storage, and the one-and-a-half dollar for a local contractor that will keep the maintenance or well-being of those systems, that's the $14.

Feroldi: So of the $14, essentially 10 goes to you, four goes to your partners?

Poliakine: Exactly. You could actually call it true licensing of $10. But we in the F-1, we called it $14, out of which $10 exactly with the licensing.

Feroldi: If you have margins in the '60s, you can still have a fabulous business if that works out. Let me talk quickly about the competition. This technology sounds groundbreaking. Why would Sony be willing to part with it? Why haven't Siemens or GE, which have unlimited resources by comparison, why haven't they developed this?

Poliakine: I think again, we don't want to take too much pride for ourselves. Let me tell you one thing. The idea of a cold cathode for X-ray source has been around for maybe 30 years. Big companies spend a lot of money in order to develop the same exact device. They used a technology called carbon nanotube, which some of them actually succeeded. Somewhat. Carbon nanotube was the go-to technology of these big guys to go after replacing Wilhelm Roentgen 's thermionic source. Everybody understood the value of it. Regardless of the business model, getting hot to cold is something that everybody wanted to do. So this is not new. What Sony's guys did, they developed this technology to a totally different market, to the display market. That's why it's called field-emission technology. That was like little electrons exerting phosphor. Only after they actually got to stop this project, about eight years ago or nine years ago, the management team from Sony saw that, actually, in both X-ray and TV set, you need electron gun. So why not trying to utilize this technology, rather than CNT, carbon nanotube into the X-ray source. That's what we did, and I think this gave us a huge advantage. These guys spent a decade and huge amount of money to develop this technology to perfection of television. Which means two of the big drawbacks, I would say, of the nanotechnology X-ray source, one is life and the other one is power. When they did it for the television, you can understand that television set works for 10,000 hours. This one was off the table. Of course, we had to spend so much time and let me tell you, this was not an easy ride. It was not like roses. In the beginning, it was hard because nobody knew that this can actually work sufficiently inside the tube, and moving it from a television set of glass into silicon. But we did spend eight years and a lot of money to get to the fact that this chip can actually provide a true alternative to Wilhelm Rontgen X-ray source, also in terms of good life and very good power. This is a true story, and I like it because it's very interesting to see today, how technology can jump from one domain to another. While the world was focusing in carbon nanotube as a solution of cost cathode to X-ray source, we had the chance by chance, actually got the good people of Nano-X Japan to think about this application, and it's proven to be very effective.

Feroldi: I can tell you that previous to coming to The Fool, I also worked at a company that went from start-up with a crazy idea to something that was actually on the public markets. The company that I worked for had vastly fewer resources than our competitors, and we could have been crushed. We got that question a lot, "Well, if this is so great, why aren't your competitors doing it?" It's not necessarily just a matter of money; it's a matter of technology and believing in it. So that makes sense.

Poliakine: I just want to mention that what I like about what we do is that we're coming to the world very open. We're saying this is an open-source. Don't spend years and time just trying to do the same. We're going to give you the technology for free; you just need to pay a surety and arrears if you decide to use it. Again, I believe this is a very strong statement because we are sharing our technology with the world rather than protecting it close to the chest. That, I believe, a very strong message that we want to send the world. We are here to really do something better, that after 100 years of thermionic X-ray source, if we have something that can work for everybody, please go ahead and use it.

Feroldi: You guys are now a public company for about a month. As you are aware, you've already been hit with your first short report. I know that you said that you are going to be responding to it, so I don't want to get too much into that. But I do want to ask, you've gone public pre-revenue, pre-FDA approval, what was the impetus to enter the public markets before those achievements were made?

Poliakine: It's a very good question. I want everybody you're listening to know, I'm locked up. All our investors locked up. That was a decision that was heavily taken by your board. We could have waited, but we've decided to go forward. The idea was very, very simple. The idea of early detection, the idea of healthcare, especially post COVID-19, touches everybody. We saw that this is a public story because everybody understands the fear of cancer. Everybody understands early detection. Everybody understands that poor countries can impact rich countries very quickly with the pandemic and everything. So we've decided, for that reason, to go public, number 1. Number 2, we think that this company, like much other great company, I mean, this is a long-term play, and we want to share. We want to have our stakeholders and shareholders enjoying the value of creation over time. That's the second. The third is, being a global company that dealing with NGOs and government and medical institutions, it's better to be a publicly traded company from transparency and from accountability rather than an Israeli private company. Overall, we felt that we're ready for the next challenge, which actually we have the technology, we have a prototype, we have customers, let's go. That was a decision, and it comes with some pain. But we believe that overall, this is going to be a very amazing journey. We hope that many other companies will join us because we can do something good here.

Feroldi: Well, I just want to throw out one quote there because I know it must not be fun to be on the receiving end of a short report. But one of my favorite quotes ever is by PT Barnum. He says, "I don't care what the newspapers say about me as long as they spell my name right." Because of that report, thousands of people that had not heard of you have now heard of you. You could almost view it as a badge of honor in some way. We only have a few minutes left here. I do want to ask you a little bit about the management team here. There's you, can you talk to me about the co-founders of the business, who the major investors are, who's on your board, and anything that you think investors need to know about the management team?

Poliakine: Yeah. Just before that, again, I don't want to go to the report other than the statements that were made. On Monday, there were three detailed reports came out from Cantor Fitzgerald, from Berenbrg, from Oppenheimer. In my opinion, they're eye-opening. If someone wants to get informed, these were reports that are based on a lot of due diligence. I really enjoyed reading it because it was like, really, they got it. They got the risk; they got the opportunity, and they really got the studies. So I think if anyone wants reliable information on our company, this is another source that I would personally think that you can invite your listeners to look at because it's quite interesting. Now, I want to talk about management. I think you know that one of our biggest risks now, other than FDA clearance, etc., is execution. Because you said yourself, 1,000 units overnight over one year, it's not that easy. I think this company was founded by our Japanese core team. These are the guys that used to work for Sony on the field-emission technology. They are all very active in our R&D center in Japan. Again, this is to say these are guys that worked on this nanotechnology for decades. It's not something that we invented yesterday. Then together with me, of course, we started to roll. Recently, we upgraded a lot of our teams. We have the Japanese team with a very, very strong supply chain, SK people in Korea. SK actually allowed for people from SK to live and come to work for us. We're establishing a subsidiary now. Then, of course, our CFO, Itzhak Maayan has 25 years of experience in a public company as a CFO. The last role, I believe, was CFO of the International Business of Perrigo (PRGO 0.11%). It's a West Michigan-based company. So extremely experienced in the index, pension, and growth of a company like ours. We have people from Intel (INTC 1.11%) on the semiconductors. One of our top people on the product as part of the teams that sold Mazor robotics to Medtronic (MDT 1.34%).

Feroldi: I was an investor in Mazor.

Poliakine: I see. So Anat Kaphan, our VP Product Marketing. She was at the core team that actually managed to sell it, and she's doing an amazing job for us, and so on and so forth. So we believe we have the right team. We're focusing on delivery now. My job as a CEO, despite the public market, is actually to focus on the delivery. We are on the delivery mode. That's what we do. I'm very, very confident that we have a good brand, good people. I'm energetic. I'm really energetic because I believe that 50 years from today, we will be talking and I will tell you, "Remember that call?" Now we have 10,000, 15,000 of those scanners connected. So many people are getting their scanned and diagnosed because of that. I think we feel some satisfaction at that point of time.

Feroldi: The best way to respond to allegations is to execute. Boy, do you guys have an exciting 2021 coming up. We are out of time. I want to thank you so much for joining me today. This is a company that I am personally tremendously excited in. I'm very glad you chose to come public when you did. It's just generated a tremendous amount of excitement from our members, and for good reasons. I, for one, really look forward to following this company's progress closely for many years to come. Thank you for your time.

Poliakine: Thank you very much. Thank you for today.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Feroldi owns shares of Amazon, Nano-X Imaging Ltd., and Netflix. The Motley Fool owns shares of and recommends Amazon, Apple, and Netflix. The Motley Fool recommends Intel and Verizon Communications and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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