Israeli-Japanese start-up Nano-X Imaging (NASDAQ:NNOX) offers a new X-ray machine at a fraction of the cost of existing models. Hospitals now pay $1 million or more for MRI machines and CAT scanners, but Nano-X promises to deliver an equivalent device for $10,000 or less.
The Nano-X device has not yet been cleared by the U.S. Food and Drug Administration (FDA), but anticipation is running high. If it works as advertised, the company's technological breakthrough will make the X-ray ubiquitous around the world. Right now, according to the World Health Organization, two-thirds of the earth's population has no access to X-ray images. Nano-X seeks to change that.
How does Nano-X do it? Its product is a cold device that does not require massive heat generation. That's what makes the CAT scan and the MRI so expensive -- the devices must generate heat up to 3,600 degrees Fahrenheit to power the X-ray.
The Nano-X device has an entirely different approach, relying on carbon nanotubes and field-emission technology developed by Sony for flat-panel screens. When Sony abandoned its project, the engineers thought the science might work for powering X-ray devices. And Nano-X was born.
As with any new technology, there are critics who say this scientific breakthrough cannot happen. In the stock market, such doubters often take a short interest against a company in the hopes that the stock price will go down to zero.
After Nano-X had its initial public offering (IPO) in August, the stock zoomed higher as enthusiastic investors bought early. From an opening price of $20.34 on Aug. 21, the stock ran up 25% on the first day. By Sept. 11 the stock had more than tripled, reaching a high of $66 a share. Four days later, the shorts launched an attack.
Citron Research claimed Nano-X is a "complete farce on the market" and compared it to Theranos, the fraudulent biotech company started up by Elizabeth Holmes. It's a serious charge -- the FBI arrested Holmes and charged her with multiple counts of wire fraud. Nano-X stock immediately dropped 28% the day Citron made its charge.
The next week, another short seller, Muddy Waters, made another attack on Nano-X, claiming the stock was a "piece of garbage." Muddy Waters went on to say:
If NNOX's claims are achievable, it seemingly will come as a shock to most of the radiology profession. We interviewed five radiologists who were familiar with NNOX's claims. Not a single one expressed credulity of NNOX. Four of the radiologists -- without any prompting -- compared NNOX to Theranos. The ARC [device] appears to be little more than a futuristic movie prop.
While these accusations left many investors dubious, the charges took their toll. As the number of shorts spiked higher, the stock price fell lower. By the end of September, it had dropped to $22. And then, on Oct. 2, Nano-X made a big announcement: It would demonstrate its X-ray device at the annual meeting of the Radiology Society of North America (RSNA). The stock jumped 37% on the news.
Have the shorts given up?
Now, a week before the RSNA conference is scheduled to begin, Nano-X's short percentage of float has dropped to an insignificant 6%. That means most of the shorts have unwound their positions in the company. Investors are now paying $43 a share, twice the IPO price.
Nano-X is scheduled to demonstrate its device to the RSNA on Dec. 3 at 11 a.m. After the wild ride investors have had so far, the excitement is palpable. If the device actually works, and the FDA approves it, the sky's the limit.
Nano-X has already lined up manufacturing for its X-ray machine, including big names like SK Telecom, Fujifilm, and Foxconn (the maker of the iPhone). All three companies have invested in Nano-X.
Of course, most investors have confidence that the company is not a fraud. Just the fact that Nano-X is doing a live demonstration at the RSNA conference suggests strongly that this company is on the up-and-up. That's why most of the shorts have decided to sit this one out. We're about to have a public demonstration of technology that so far only the venture capitalists and other insiders have seen.
While the stock has certainly been a roller-coaster ride, Nano-X has consistently outperformed the S&P 500. Risk-tolerant healthcare investors should do quite nicely with these shares.